ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of Boston Scientific Corporation and its subsidiaries for the years ended December 31, 2020 and 2019. For a full understanding of our financial condition and results of operations, this discussion should be read in conjunction with our consolidated financial statements and accompanying notes included in Item 8. Financial Statements and Supplementary Data of this Annual Report.

For additional information on our financial condition and results of operations for the year ended December 31, 2018, refer to our previously filed Annual Report on Form 10-K.

COVID-19 Pandemic

In December 2019, the novel strain of coronavirus (SARS-Cov-2), and its disease commonly known as COVID-19 (COVID-19), was reported in China and has since widely impacted the global public health and economic environment. In March 2020, the World Health Organization (WHO) declared COVID-19, including all additional variations and strains thereof, a global pandemic (COVID-19 pandemic). While the majority of procedures using our products are deferrable, most of the conditions that we treat are generally fairly acute and cannot be deferred for extended periods. As the pandemic spread worldwide and with COVID-19 cases confirmed in all major geographies, many elective and semi-emergent procedures were postponed, enabling hospital staff to focus critical resources on caring for COVID-19 patients. Some jurisdictions mandated elective procedure bans that included financial penalties for non-compliance, certain of which continued to be in effect throughout the year, or evolved to reduce capacity available for elective procedures, including in some cases restricting elective procedures to those that are outpatient procedures only. In other jurisdictions, the timing of the pandemic and public health measures resulted in lower levels of COVID-19 cases, while hospitals developed protocols such that elective procedures could be conducted safely.

The ongoing pandemic and accompanying restrictions negatively impacted our net sales and our results of operations in 2020. We experienced some improvement in our global sales trends in the second half of 2020 as previously deferred procedures resumed and referral rates improved. However, as COVID-19 cases re-surged in many locations around the world and new, more contagious variant strains of COVID-19 emerged in late 2020, renewed restrictions were implemented in areas that had previously reopened, including in parts of Europe and the U.S. In the fourth quarter of 2020, the U.S. Food and Drug Administration (FDA) issued emergency use authorizations for two COVID-19 vaccines and regulatory bodies in other geographies around the world have also authorized COVID-19 vaccines for use. The timing and success of efforts to distribute and administer these vaccines to broad portions of the population, enabling widespread immunity to COVID-19, will impact the duration and extent of the pandemic and its effect on demand for our products.

In response to the COVID-19 pandemic, we implemented cost reduction initiatives, including decreases in travel, meetings and customer events, hiring, clinical programs and certain research and development projects. 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 executive officers and the cash retainer paid to our Board of Directors. In addition, we temporarily closed and/or reduced production levels at certain of our manufacturing sites in an effort to align our build plans to the current and expected demand environment. As COVID-19 cases began to decrease in certain geographies mid-year, we implemented a careful and tiered approach for employees to return to our sites following state and local ordinances, and continue to adjust for the recent resurgence in COVID-19 cases, including outbreaks of new variants of the disease. Employees with the 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. 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 the end of the aforementioned reductions in executive officer pay and 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 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 by the COVID-19 pandemic, due primarily to manufacturing costs associated with abnormally low production levels in our plants. All of our plants have now resumed manufacturing and have returned to more normalized production levels exiting 2020.

Because the severity, magnitude, and duration of the COVID-19 pandemic and its economic consequences are uncertain and 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 and the emergence of new, more contagious variant strains of COVID-19 may continue to negatively impact demand for our products, net sales, gross profit margin and operating expenses as a percentage of net sales in 2021.

We have evaluated the recoverability of the assets in our consolidated balance sheet 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 Annual Report filed on Form 10-K, and reflected accordingly in the accompanying consolidated financial statements.

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 2021 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.

Executive Summary

Financial Highlights and Trends

In 2020, we generated net sales of $9.913 billion, as compared to $10.735 billion in 2019. This decrease of $823 million, or 7.7 percent, included operational declines of 7.8 percent and the positive impact of 10 basis points from foreign currency fluctuations.1 Operational net sales included $413 million in 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 period prior to mid-August 2020, for both of which there were no prior period net sales. Operational net sales also included $41 million in 2019 associated with our global embolic microspheres portfolio, for which there were no comparable period sales in 2020 following our divestiture in the third quarter of 2019, and our intra-uterine health business, for which there were no comparable period sales in 2020 following our divestiture in the second quarter of 2020. Refer to the Business and Market Overview section for further discussion of our net sales by global business.

Our reported net loss available to common stockholders in 2020 was $115 million, or $0.08 per diluted share. Our reported results for 2020 included certain charges and/or credits totaling $1.492 billion (after-tax), or $1.04 per diluted share. Excluding these items, adjusted net income available to common stockholders for 2020 was $1.378 billion, or $0.96 per diluted share. 1,2

Our reported net income in 2019 was $4.700 billion, or $3.33 per diluted share. Our reported results for 2019 included certain charges and/or credits totaling $2.466 billion (after-tax), or $1.75 per diluted share. Excluding these items, adjusted net income for 2019 was $2.234 billion, or $1.58 per diluted share.1

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

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

The following is a reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management. Refer to Results of Operations for a discussion of each reconciling item:

(in millions, except per share data) Earnings Impact per Share(3)

Reported Net income (loss) $ (82)

Reported Preferred stock dividends (33)

Reported Net income (loss) available to common stockholders $ (115) $ (0.08)

Non-GAAP adjustments:

Goodwill and other intangible asset impairment charges 465 0.32

Acquisition/divestiture-related net charges (credits) 115 0.08

Restructuring and restructuring-related net charges (credits) 146 0.10

Litigation-related net charges (credits) 261 0.18

Investment portfolio net losses (gains) (331) (0.23)

EU MDR implementation costs 25 0.02

Deferred tax expenses (benefits) 41 0.03

Discrete tax items 69 0.05

Adjusted net income (loss) available to common stockholders $ 1,378 $ 0.96

(3) For 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 consolidated statements of operations, for purposes of calculating GAAP Net loss available to common stockholders. We have assumed dilution of 13.8 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.

(in millions, except per share data) Earnings Impact per Share

Reported Net income (loss) $ 4,700 $ 3.33

Non-GAAP adjustments:

Intangible asset impairment charges 102 0.07

Acquisition/divestiture-related net charges (credits) 672 0.48

Restructuring and restructuring-related net charges (credits) 68 0.05

Litigation-related net charges (credits) 72 0.05

Investment portfolio net losses (gains) 3 0.00

EU MDR implementation costs 5 0.00

Debt extinguishment net charges (credits) 67 0.05

Deferred tax expenses (benefits) (4,102) (2.91)

Discrete tax items 18 0.01

Adjusted net income (loss) $ 2,234 1.58

Cash provided by operating activities was $1.508 billion in 2020. As of December 31, 2020, we had total debt of $9.143 billion, Cash and cash equivalents of $1.734 billion and working capital of $3.013 billion. Refer to Liquidity and Capital Resources for further information.

Business and Market Overview

The following section describes our results of operations by reportable segment and business unit. For additional information on our businesses and their product offerings, see Item 1. Business of this Annual Report.

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 of $1.780 billion represented 18 percent of our consolidated net sales in 2020. Our Endoscopy net sales decreased $114 million, or 6.0 percent, in 2020, as compared to 2019. This decrease included operational net sales declines of 6.3 percent and the positive impact of 30 basis points from foreign currency fluctuations, as compared to 2019. These year-over-year 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 in our infection prevention franchise.

Urology and Pelvic Health

Our Urology and Pelvic Health business develops and manufactures devices to treat various urological and pelvic conditions for both male and female anatomies. Our net sales of Urology and Pelvic Health products of $1.286 billion represented 13 percent of our consolidated net sales in 2020. Urology and Pelvic Health net sales decreased $127 million, or 9.0 percent on an as reported and operational basis in 2020, as compared to 2019. These year-over-year changes were due primarily to a reduction in sales of our prosthetic urology and pelvic floor franchises which were negatively impacted by the COVID -19 pandemic given their elective or semi-emergent nature and the divestiture of our Intrauterine Health business in the second quarter of 2020. These decreases were partially offset by growth in our prostate health franchise.

Rhythm and Neuro

Cardiac Rhythm Management

Our Cardiac Rhythm Management (CRM) business develops and manufactures a variety of implantable devices that monitor the heart and deliver electricity to treat cardiac abnormalities. Our net sales of CRM products of $1.704 billion represented 17 percent of our consolidated net sales in 2020. Our net sales of CRM products decreased $235 million, or 12.1 percent, in 2020, as compared to 2019. This decrease included operational net sales declines of 12.4 percent and the positive impact of 20 basis points from foreign currency fluctuations, as compared to 2019. These year-over-year changes were driven by a decline in both defibrillator and pacemaker procedures due to the deferral of semi-emergent and emergent procedures in the COVID-19 pandemic environment.

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 of $287 million represented three percent of our consolidated net sales in 2020. Our Electrophysiology net sales decreased $42 million, or 12.8 percent, in 2020, as compared to 2019. This decrease included operational net sales declines of 13.5 percent and the positive impact of 80 basis points from foreign currency fluctuations, as compared to 2019. Sales of our mapping and navigation products and our core diagnostic and therapeutic devices declined year over year due to the impact of COVID-19 and deferral of elective Electrophysiology procedures.

Neuromodulation

Our Neuromodulation business develops and manufactures devices to treat various neurological movement disorders and manage chronic pain. Our net sales of Neuromodulation products of $761 million represented 8 percent of our consolidated net sales in 2020. Neuromodulation net sales decreased $112 million, or 12.8 percent, in 2020, as compared to 2019. This decrease included operational net sales declines of 13.0 percent and the positive impact of 10 basis points from foreign currency fluctuations, as compared to 2019. These year-over-year changes were primarily due to sales declines in our spinal cord stimulation (SCS) systems due to deferral of elective procedures in the COVID-19 pandemic environment. The unfavorable

impact was partially offset by higher SuperionTM Indirect Decompression System sales, which was purchased as part of our Vertiflex acquisition in the second quarter of 2019, and deep brain stimulation (DBS) system sales.

Cardiovascular

Interventional Cardiology

Our Interventional Cardiology business develops and manufactures technologies for diagnosing and treating coronary artery disease and structural heart conditions. Our net sales of Interventional Cardiology products of $2.299 billion represented 23 percent of our consolidated net sales in 2020. Our Interventional Cardiology net sales decreased $517 million, or 18.4 percent, in 2020, as compared to 2019. This decrease included operational net sales declines of 18.2 percent and the negative impact of 10 basis points from foreign currency fluctuations, as compared to 2019. These year-over-year changes were primarily driven by 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 business, sales of our WATCHMANTM Left Atrial Appendage Closure (LAAC) Device were also negatively impacted by the COVID-19 pandemic, particularly during the first half of 2020. They were further negatively impacted by $179 million in revenue reserves primarily related to our conversion to a consignment inventory model for our LAAC franchise with the launch of our next-generation WATCHMAN FLXTM Device in the U.S. This program to shift to a consignment model, whereby revenue will be recognized in the future as units are consumed by the customer, has now concluded. In the fourth quarter of 2020, we announced a voluntary recall of our LOTUS EdgeTM Aortic Value System and the discontinuation of our LOTUS program due to complexities associated with the product delivery system and given the additional time and investment required to develop and reintroduce an enhanced delivery system. We will instead focus our resources and efforts on the remainder of the portfolio and are encouraged by the successful launch of our ACURATE neo2 Aortic Valve System in Europe, initiated in the third quarter of 2020.

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 plc (BTG). We integrated BTG's Interventional Medicine (IM) portfolio into our Peripheral Interventions division, adding complementary technologies in the areas of venous disease and interventional oncology. Our net sales of Peripheral Interventions products of $1.577 billion represented 16 percent of our consolidated net sales in 2020. Our Peripheral Interventions net sales increased $185 million, or 13.3 percent, in 2020, as compared to 2019. This increase included operational net sales growth of 13.1 percent and the positive impact of 20 basis points from foreign currency fluctuations, as compared to 2019. These year-over-year changes were primarily driven by the Interventional Oncology franchise, including our TheraSphereTM Y-90 radioactive glass microspheres acquired with BTG, as well as growth in our drug-eluting portfolio, including the EluviaTM Drug-Eluting Stent and RangerTM 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 decreased $35 million, or 2.5 percent, in 2020, compared to 2019, primarily due to the deferral of semi-emergent and elective procedures in the COVID-19 pandemic environment, notably impacting core peripheral technologies and stents.

Specialty Pharmaceuticals

Following the closing of our BTG acquisition, we have presented the 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 teams and through commercial partners elsewhere, where approved or permitted. Our net sales of Specialty Pharmaceuticals products of $219 million represented 2 percent of our consolidated net sales in 2020. On December 1, 2020, we announced the execution of a definitive agreement pursuant to which we agreed to sell our Specialty Pharmaceuticals business for a purchase price of $800 million, subject to certain adjustments, including cash on hand at the closing date of the transaction. The transaction is expected to close during the first half of 2021, subject to customary closing conditions.

Emerging Markets

As part of our strategic imperatives to drive global expansion, described in Item 1. Business of this Annual Report, 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. We have increased our investment in infrastructure in these countries in order to maximize opportunities. 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. Our Emerging Markets net sales represented 11 percent of our consolidated net sales in 2020 and 12 percent in 2019. In 2020, our Emerging Markets net sales declined 12.7 percent on a reported basis including operational net sales declines of 9.2 percent and the negative impact of 350 basis points from foreign currency fluctuations, as compared to 2019. The decline in 2020 was largely driven by the impact of the COVID-19 pandemic on our sales in Brazil, India and China. In addition, during 2020, our net sales in China were negatively impacted by recent national tenders driving down prices for drug-eluting stent products, including the impact of customer price concessions and inventory repurchases associated with business model changes. Our future net sales in Emerging Markets may continue to be negatively impacted by the COVID-19 pandemic, as well as geopolitical and economic instability and a number of other factors.

Results of Operations

Net Sales

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

Specialty Pharmaceuticals 219 81 n/a n/a n/a

Refer to Executive Summary for further discussion of our net sales and a comparison of our 2020 and 2019 net sales.

In 2019, we generated net sales of $10.735 billion, as compared to $9.823 billion in 2018. This increase of $912 million, or 9.3 percent, included operational growth of 11.1 percent and the negative impact of 180 basis points from foreign currency fluctuations. Operational net sales included approximately $378 million in 2019 associated with the acquisitions of NxThera, Inc. (NxThera) in the second quarter of 2018, Claret Medical, Inc. (Claret) in the third quarter of 2018, Augmenix, Inc. (Augmenix) in the fourth quarter of 2018, Vertiflex in the second quarter of 2019, and BTG in the third quarter of 2019, each with less than a full year of prior period related net sales.

Gross Profit

Our gross profit was $6.448 billion in 2020 and $7.620 billion in 2019. As a percentage of net sales, our gross profit decreased to 65.0 percent in 2020, as compared to 71.0 percent in 2019. The following is a rollforward of our gross profit margins and a description of the drivers of the change from period to period:

Gross Profit Margin

Manufacturing cost reductions 0.8%

Sales pricing and mix (0.6)%

Inventory step-up amortization (0.4)%

Net impact of foreign currency fluctuations 0.7%

All other, including other period expense (0.8)%

Manufacturing cost reductions 0.6%

Sales pricing and mix (1.4)%

Abnormal production variances (1.5)%

WATCHMAN FLXTM transition (0.5)%

LOTUS EdgeTM discontinuation (1.2)%

Inventory step-up amortization (0.6)%

Net impact of foreign currency fluctuations 0.2%

All other, including other period expense (1.6)%

A significant factor contributing to the decrease in our gross profit margin for 2020 as compared to 2019 was manufacturing costs of $149 million associated with abnormally low production levels resulting from plant shutdowns and reduced operations. In addition, we recorded $119 million of inventory charges associated with the global, voluntary recall of all unused inventory of our LOTUS EdgeTM Aortic Valve System and discontinuation of the LOTUS platform. Our gross margin was further negatively impacted in 2020 due to our conversion to a consignment inventory model for our LAAC franchise with the launch of our next-generation WATCHMAN FLXTM Device. In addition, the 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 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 contributed to a decrease in gross margin. These decreases were partially offset by manufacturing cost reductions driven by our process improvement programs in each period as well as favorable foreign currency fluctuations.

The primary factors contributing to the decrease in our gross profit margin for 2019 as compared to 2018 were the negative impacts of pricing declines related primarily to sales of our coronary drug-eluting stent products, as well as increased levels of scrap associated with recently launched products and excess and obsolete inventory. In addition, in connection with our recent acquisitions, we adjusted acquired inventory from manufacturing cost to fair value. The step-up in value is amortized through gross profit over an average estimated inventory turnover period. In 2019, we recorded increased cost of $46 million associated with these step-ups. This was partially offset by manufacturing cost reductions driven by our process improvement programs as well as favorable foreign currency fluctuations.

EU MDR Implementation Costs

The European Union Medical Device Regulation (EU MDR) is a replacement of the existing European Medical Devices Directive (MDD) regulatory framework, and manufacturers of medical devices are required to comply with EU MDR beginning in May 2021 (previously May 2020) for new product registrations and by May 2024 for medical devices which have a valid CE Certificate to the current Directives (issued before May 2021).

We consider the adoption of EU MDR to be a significant change to a regulatory framework, and therefore, certain incremental costs specific to complying with EU MDR for previously registered products are not considered to be ordinary course expenditures in connection with regulatory matters. As such, certain of these costs 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. We began our implementation efforts in late-2019 and incurred associated expenses of $51 million in 2020. We expect to incur total expenses of approximately $150 million to $200 million over the four year implementation period, which will be recorded primarily within Cost of products sold.

Operating Expenses

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

Year Ended December 31,

(in millions) $ % of Net Sales $ % of Net Sales $ % of Net Sales

Selling, General and Administrative (SG&A) Expenses

In 2020, our SG&A expenses decreased $154 million, or 4 percent, as compared to 2019 and were 150 basis points higher as a percentage of net sales. The decrease in SG&A expenses was due primarily to our efforts to reduce expenditures to minimize the impact of the COVID-19 pandemic on our results of operations. We implemented several cost reduction initiatives, including decreases in travel, meetings and customer events, hiring and other variable spending. 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 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 the end of the aforementioned reductions in executive officer pay and 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.

In 2019, our SG&A expenses increased $371 million, or 10 percent, as compared to 2018 and were 40 basis points higher as a percentage of net sales. This increase in SG&A expenses as a percentage of net sales was primarily due to acquisition-related charges primarily associated with our acquisition and integration of BTG, partially offset by savings from ongoing cost optimization initiatives. These increased SG&A expenses were also partially offset by a $25 million net gain recorded in the first quarter primarily associated with a portion of a litigation settlement with Edwards Lifesciences Corporation (Edwards). For further details regarding the presentation of the Edwards litigation settlement see Litigation-related net charges (credits) below.

Research and Development (R&D) Expenses

We remain committed to advancing medical technologies and investing in meaningful research and development projects across our businesses. In 2020, our R&D expenses decreased $31 million, or 3 percent, as compared to 2019, and were 60 basis points higher as a percentage of net sales. 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.

In 2019, our R&D expenses increased $61 million, or 6 percent, as compared to 2018, and were 40 basis points lower as a percentage of sales as a result of investments across our businesses.

Royalty Expense

In 2020, our Royalty expense decreased $20 million, or 31 percent, as compared to 2019 and was 10 basis points lower as a percentage of net sales and relates primarily to the expiration of certain royalty agreements.

In 2019, our Royalty expense decreased $5 million, or 7 percent, as compared to 2018 and was 10 basis points lower as a percentage of net sales. The decrease in Royalty expense in 2019, as compared to 2018, relates primarily to contractual reductions in royalty rates associated with certain products.

Other Operating Expenses

The following table provides a summary of certain of our other operating expenses, which are excluded by management for purposes of evaluating operating performance, refer to Additional Information for a further description of certain operating expenses:

Year Ended December 31,

Goodwill impairment charges 73 — —

Intangible asset impairment charges 460 105 35

Contingent consideration net expense (benefit) (100) (35) (21)

Restructuring net charges (credits) 52 38 36

Litigation-related net charges (credits) 278 115 103

Amortization Expense

In 2020, our Amortization expense increased $90 million, or 13 percent, as compared to 2019. In 2019, our Amortization expense increased $101 million, or 17 percent, as compared to 2018. The increases in each period were driven by an increase in the balance of amortizable intangible assets due to recent acquisitions, including BTG.

Goodwill Impairment Charges

In 2020, we recorded Goodwill impairment charges of $73 million related to the execution of a definitive agreement to sell our Specialty Pharmaceuticals business. We did not record any Goodwill impairment charges in 2019 or 2018. Refer to Note A – Significant Accounting Policies to our consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional information and Critical Accounting Estimates for a discussion of key assumptions used in our goodwill impairment testing and future events that could have a negative impact on the recoverability of our goodwill.

Intangible Asset Impairment Charges

In 2020, our Intangible asset impairment charges were $460 million, primarily associated with our acquisitions of Apama Medical Inc. and nVision Medical Corporation (nVision) following management’s decision to cancel the programs due to cost to complete, time to market, overall economic viability or, specific to nVision, our understanding of the clinical evidence necessary to commercialize the technology. Intangible asset impairment charges in 2020 also included charges related to our acquisition of Sadra Medical, Inc. (Sadra Medical) as a result of lower sales forecasts, as well as the cost of quality remediation efforts following the voluntary recall of our LOTUS EdgeTM Aortic Valve System and subsequent discontinuation of the LOTUS platform.

Refer to Critical Accounting Estimates for a discussion of key assumptions used in our intangible asset impairment testing and future events that could have a negative impact on the recoverability of our intangible assets.

Contingent Consideration Net Expense (Benefit)

The $100 million benefit recorded in 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 discontinuation of the R&D program. In 2019 and 2018, we recorded net benefits related to the change in fair value of our contingent consideration liability. Refer to Note B – Acquisitions and Strategic Investments to our consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional details related to our contingent consideration arrangements.

Restructuring Net 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, for which our Board of Directors approved an expansion in February 2021, is expected to result in total pre-tax charges of approximately $375 million to $475 million and approximately $340 million to $440 million of these charges are expected to result in cash outlays. A substantial portion of the savings are being reinvested in strategic growth initiatives.

Total restructuring and restructuring-related net charges pursuant to these programs were $116 million in 2020, $82 million in 2019 and $96 million in 2018. In addition, on November 17, 2020, we announced a global, voluntary recall of all unused inventory of our LOTUS EdgeTM Aortic Valve System, and our decision to retire the entire LOTUS platform. We estimate the decision will result in total pre-tax restructuring and restructuring-related net charges of approximately $80 million to $90 million, which includes $30 million to $40 million of estimated charges expected to result in future cash outlays. We recorded $55 million of restructuring and restructuring-related net charges associated with the product discontinuation in 2020, and expect the remaining activity to be substantially complete during early 2021. See Note H – Restructuring-related Activities to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional details on our restructuring plans.

Litigation-related Net Charges (Credits)

We recorded litigation-related net charges of $278 million in 2020, primarily related to transvaginal mesh products, inclusive of a reserve related to claims made by a coalition of state attorneys general.

We recorded litigation-related net charges of $115 million in 2019, which included a net charge of $223 million in the fourth quarter of 2019, primarily related to litigation with Channel Medsystems, Inc. (Channel), net charges of $25 million in the third quarter of 2019 and $15 million in the second quarter of 2019, primarily related to transvaginal surgical mesh product liability litigation, and 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 (Edwards) 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 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 the Edwards settlement was recorded in SG&A expenses in our consolidated statements of operations.

We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation, and therefore, additional losses may be accrued and paid in the future, which could materially adversely impact our operating results, cash flows and/or our ability to comply with the financial covenant required by our credit agreements. Refer to Note K – Commitments and Contingencies to our consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional discussion of our material legal proceedings.

Interest Expense

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

(in millions) Year Ended December 31,

Weighted average borrowing rate 3.6 % 4.8 % 3.6 %

Interest expense and our average borrowing rate decreased in 2020, as compared to 2019, primarily due to our euro-denominated senior notes offering in November 2019, which carry lower interest rates than the senior notes we partially repaid with proceeds from the offering. In 2019, we incurred debt extinguishment charges of $86 million presented in Interest expense in our consolidated statements of operations associated with repayments of debt using proceeds from our November 2019 offering.

Refer to Liquidity and Capital Resources in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsand Note E – Hedging Activities and Fair Value Measurements and Note F – Contractual Obligations and Commitments to our consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data of this Annual Report for information regarding our debt obligations.

Other, net

The following are the components of Other, net:

Year Ended December 31,

Interest income $ 3 $ 30 $ 3

Net foreign currency gain (loss) (32) (358) 11

Net gains (losses) on investments 383 (30) 155

Other income (expense), net 7 (1) (14)

In 2020, we recorded a $363 million gain on our investment in Pulmonx Corporation presented in Other, net to remeasure to fair value based on observable market prices. Certain gains and losses associated with our investment portfolio are included in Investment portfolio net losses (gains) presented in the reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management. Refer to Financial Summary for the reconciliation and Additional Information for a discussion of management's use of non-GAAP financial measures.

In 2019, we settled all outstanding non-designated forward currency contracts 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 BTG. We recognized a $323 million loss 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.

Tax Rate

The following table provides a summary of our reported tax rate:

Year Ended December 31,

Impact of certain receipts/charges(1) 8.3 % 594.2 % 30.7 %

(1) These receipts/charges are taxed at different rates than our effective tax rate.

The change in our reported tax rate for 2020, as compared to 2019, relates primarily to the deferred tax benefit of intra-entity transfers of intellectual property rights realized in 2019, as well as a shift in geographical mix of earnings to higher-tax jurisdictions. This is 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 goodwill and intangible asset impairment charges, acquisition/divestiture-related net charges, restructuring and restructuring-related net charges, litigation-related net charges, as well as certain discrete tax items primarily related to the resolution of an Internal Revenue Service (IRS) audit, as explained below, tax windfall benefits associated with share-based payments, and impacts of the Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted on March 27, 2020.

The change in our reported tax rate for 2019, as compared to 2018, relates primarily to the deferred tax benefit of intra-entity transfers of intellectual property rights partially offset by increased current tax expense related to the U.S. taxation of current foreign earnings.

In the second quarter of 2018, a decision was entered by the U.S. Tax Court resolving all disputes for Guidant Corporation for its 2001 through 2006 tax years and our 2006 and 2007 tax years as well as the tax issues related to our 2006 transaction with Abbott Laboratories. Additionally, we resolved all issues with the IRS Office of Appeals for our 2008 through 2010 tax years. The final settlement calculation resulted in a final net tax payment of $303 million plus $307 million of estimated interest,

which was remitted in the second quarter of 2018. Due to the final settlement of these disputes, we recorded a net tax benefit of $250 million in 2018 to remove a reserve related to these years.

In the fourth quarter of 2018, we received a Revenue Agent Report (RAR) from the IRS for our 2011 through 2013 tax years. We remitted $93 million to the IRS in the fourth quarter of 2018 reflecting the net balance of tax and interest due for these years after consideration of amounts owed to us by the IRS. Due to the resolution of these tax years, we recorded a net tax benefit of $90 million to remove a reserve related to these years.

In the third quarter of 2020, we received notification from the IRS regarding the examination of our 2014 through 2016 tax years stating that 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 received 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.

Economic stimulus legislation has been enacted in many countries in response to the COVID-19 pandemic. 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 allowed us to preserve cash generated from operations to service our debt obligations and other near-term commitments.

See Note J – Income Taxes to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional details on our tax rate.

Liquidity and Capital Resources

Based on our current business plan, we believe our existing balance of Cash and cash equivalents, future cash generated from operations, access to capital markets and existing credit facilities will be sufficient to fund our operations, invest in our infrastructure, pay our legal-related liabilities, pay taxes due and service and repay our existing debt for at least the next 12 months. Please refer to Contractual Obligations and Commitments below for additional details on our future payment obligations and commitments.

Due to the uncertainty of the impact of the COVID-19 pandemic on our business, we took proactive steps to reduce costs and ensure we are in a strong position to support customers and patients as healthcare systems recover and elective and semi-emergent procedures resume. These actions included taking steps to manage outstanding borrowings and increase available liquidity, 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 also created a cross-functional strategic cash management team to take appropriate actions to ensure we continue to optimize funds to execute our core mission.

In May 2020, we completed an offering 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 our 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.

In the fourth quarter of 2020, we redeemed $250 million of our $500 million 3.375% senior notes due 2022 (May 2022 Notes) at a redemption price calculated in accordance with the terms of the May 2022 Notes and its indenture, plus accrued and unpaid interest through, but excluding, the date of redemption. Also in the fourth quarter of 2020, we repurchased approximately 15.7 million shares of our common stock pursuant to the 2013 share repurchase program for a total of approximately $535 million in cash, which represented the full amount remaining under that authorization. Refer to Equity for additional information below.

As of December 31, 2020, we had $1.734 billion of unrestricted Cash and cash equivalents on hand, comprised of $1.584 billion invested in money market funds and time deposits and $150 million in interest bearing and non-interest-bearing bank accounts. We invest excess cash on hand in short-term financial instruments that earn at market interest rates while mitigating principal risk through instrument and counterparty diversification, as well as what we believe to be prudent instrument selection. We limit our direct exposure to securities in any one industry or issuer. As of December 31, 2020, we had no commercial paper debt outstanding, resulting in an additional $2.750 billion of available liquidity.

For additional details related to our debt obligations, including our financial covenant requirement, refer to Note F – Contractual Obligations and Commitments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K, which is incorporated herein by reference.

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

Year Ended December 31,

Cash provided by (used for) operating activities $ 1,508 $ 1,836 $ 310

Cash provided by (used for) investing activities (411) (5,041) (1,921)

Cash provided by (used for) financing activities 293 2,973 1,432

Operating Activities

In 2020, cash provided by operating activities decreased $328 million, as compared to 2019. This decrease was primarily due to revenue declines resulting from the COVID-19 pandemic, partially offset by implementation of spend controls. In addition, included in 2020 was a settlement payment related to litigation with Channel, whereas 2019 included a litigation-related receipt of $180 million from Edwards.

Investing Activities

In 2020, cash used for investing activities primarily included Purchases of property, plant and equipment of $376 million, Payments for investments and acquisitions of certain technologies of $146 million, partially offset by Proceeds from royalty rights of $87 million.

In 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, Purchases of property, plant and equipment of $461 million, Payments for investments and acquisitions of certain technologies of $149 million, partially offset by 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 our acquisition of BTG. Cash used for investing activities also included Payments for settlements of hedge contracts of $199 million, of which $95 million relates to the termination and settlement of our outstanding forward currency contracts designated as net investment hedges in our Euro-denominated entities and $294 million relates to the settlement of our non-designated forward currency contracts entered into for the purpose of managing our exposure to currency exchange rate risk related to the British-pound sterling (GBP) denominated purchase price of BTG. Refer to Note E – Hedging Activities and Fair Value Measurements consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Reportfor further information.

Financing Activities

Our cash flows provided by financing activities reflect issuances and repayments of debt, including our senior notes, term loans, commercial paper program and Revolving Credit Facility as well as net proceeds from issuances of our common stock and preferred stock in connection with public offerings, Payments for repurchase of common stock and Proceeds from issuances of shares of common stock pursuant to employee stock compensation and purchase plans as discussed in Note L – Stockholders' Equity to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report.

In addition, our financing activities included Payment of contingent consideration previously established in purchase accounting of $49 million in 2020, $66 million in 2019 and $19 million in 2018 and Payments for royalty rights of $97 million in 2020 and $69 million in 2019. In 2019, we also sold our rights to future royalties associated with the ZytigaTM Drug for $256 million in cash presented within Proceeds from royalty rights transfer.

Our liquidity plans are subject to a number of risks and uncertainties, including those described in Item 1A. Risk Factors of this Annual Report, some of which are outside our control. Macroeconomic conditions, adverse tax and litigation matter outcomes and other risks and uncertainties could limit our ability to successfully execute our business plans and adversely affect our liquidity plans.

Debt

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

As of

Current debt obligations $ 13 $ 1,416

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

Fixed-rate debt instruments $ 9,123 $ 7,587

Variable rate debt instruments 20 2,421

As of and through December 31, 2020, we were in compliance with the financial covenant required by our credit facilities described above. For additional details related to our debt obligations, including our financial covenant requirements, refer to Note F – Contractual Obligations and Commitments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report.

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 our 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.

In addition, during 2020 we received $111 million in proceeds from stock issuances related to our stock option and employee stock purchase plans, as compared to $123 million in 2019. 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 employees. Stock-based compensation expense related to our stock ownership plans was $170 million in 2020 and $157 million in 2019. Stock-based compensation expense varies from period to period based upon, among other factors, the timing, number and fair value of awards granted during the period, forfeiture levels related to unvested awards and employee contributions to our employee stock purchase plan, as well as the retirement eligibility of stock award recipients.

On January 25, 2013, our Board of Directors approved and on January 29, 2013, we announced a program authorizing the repurchase of up to $1.000 billion of our common stock (2013 share repurchase program). In the fourth quarter of 2020, we repurchased approximately 15.7 million shares of our common stock pursuant to the 2013 share repurchase program for a total of approximately $535 million in cash, which represented the full amount remaining under that authorization.

On December 14, 2020, our Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $1.000 billion of our common stock (2020 share repurchase program). As of December 31, 2020, we had the full amount remaining available under the 2020 share repurchase program.

We did not repurchase any shares of our common stock during 2019. There were approximately 263 million shares in treasury as of December 31, 2020 and 248 million shares in treasury as of December 31, 2019.

Contractual Obligations and Commitments

The following table provides a summary of certain information concerning our obligations and commitments to make future payments and is based on conditions in existence as of December 31, 2020:

License and software commitments(2) 2 2 2 2 2 — 11

Legal reserves 505 — — — — — 505

(1) Debt obligations are comprised of our senior notes outstanding as of December 31, 2020. This does not include unamortized debt issuance discounts, deferred financing costs and gain on fair value hedges or capital lease obligations. Refer to Note F – Contractual Obligations and Commitments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional information.

(2) In accordance with U.S. GAAP, these obligations relate to expenses associated with future periods and are not reflected in our consolidated balance sheets. Interest payments included above are calculated based on rates and required fees applicable to our outstanding debt obligations as of December 31, 2020 described in Note F – Contractual Obligations and Commitments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report. Interest payments above do not include interest on variable rate debt instruments.

The amounts in the table above with respect to purchase obligations relate primarily to non-cancellable inventory commitments and capital expenditures entered in the normal course of business. Royalty obligations reported above represent minimum contractual obligations under our current royalty agreements.

The table above does not include:

•Our long-term liability for legal matters that are probable and estimable of $64 million due to the timing of payment being uncertain. Refer to Note K – Commitments and Contingencies to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for more information,

•Any future obligations to make payments of contingent consideration pursuant to certain of our acquisition agreements, due to the exact amount and timing of payments being uncertain. Refer to Note B – Acquisitions and Strategic Investments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for more information,

•Adjustments to increase our estimated one-time transition tax totaling $97 million, which are pending review by the U.S. Internal Revenue Service (IRS), and unrecognized tax benefits, accrued interest and penalties and other related items totaling $159 million because the timing of their future cash settlement is uncertain. Refer to Note J – Income Taxes to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for more information,

•With certain of our acquisitions, we acquired IPR&D projects that require future funding to complete. We estimate that the total remaining cost to complete acquired IPR&D projects is between $130 million and $140 million. Net cash inflows from the projects currently in development are expected to continue through 2038, following the respective launches of these technologies in the U.S., Europe and Japan. Certain of our acquisitions also involve the potential payment of contingent consideration, but the timing and amounts are uncertain. See Note B – Acquisitions and Strategic Investments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for more information,

•Holders of our MCPS will be entitled to receive, when, as and if declared by our Board of Directors, or an authorized committee thereof, out of funds legally available for payment, cumulative dividends at the annual rate of 5.50% of the liquidation preference of $100 per share, payable in cash or, subject to certain limitations, by delivery of shares of

common stock or any combination of cash and shares of common stock, at our election; provided, however, that any unpaid dividends on the MCPS will continue to accumulate as described in the Certificate of Designations, and

•On January 21, 2021, we announced our entrance into a definitive agreement to acquire Preventice Solutions, Inc. (Preventice). We have been an investor in Preventice since 2015 and currently hold an equity stake of approximately 22 percent. The transaction price to acquire the remaining stake is expected to result in a net cash payment of approximately $720 million upon closing and up to an additional $230 million payment upon achievement of a commercial milestone. The acquisition is expected to close during the first half of 2021, subject to customary closing conditions.

Legal Matters

For a discussion of our material legal proceedings see Note K – Commitments and Contingencies to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report.

Critical Accounting Policies and Estimates

Our financial results are affected by the selection and application of accounting policies and methods. We have adopted accounting policies to prepare our consolidated financial statements in conformity with U.S. GAAP.

To prepare our consolidated financial statements in accordance with U.S. GAAP, management makes estimates and assumptions that may affect the reported amounts of our assets and liabilities, including our contingent liabilities, as of the date of our financial statements and the reported amounts of our revenues and expenses during the reporting periods. Our actual results may differ from these estimates. We consider estimates to be critical (i) if we are required to make assumptions about material matters that are uncertain at the time of estimation or (ii) if materially different estimates could have been made or it is reasonably likely that the accounting estimate will change from period to period. The following are areas considered to be critical and require management’s judgment: Revenue Recognition, Bad Debt Reserves, Inventory Provisions, Valuation of Intangible Assets and Contingent Consideration Liability, Goodwill Valuation, Legal and Product Liability Accruals and Income Taxes.

See Note A – Significant Accounting Policies to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional information related to our accounting policies and our consideration of these critical accounting areas. In addition, see Note B – Acquisitions and Strategic Investments and Note D – Goodwill and Other Intangible Assets for further discussion of the valuation of goodwill and intangible assets and contingent consideration, Note J – Income Taxes for further discussion of income tax related matters, Note K – Commitments and Contingencies for further discussion of legal and product liability matters and Note P – Revenue for further discussion of revenue recognition.

Revenue Recognition

Deferred Revenue

We record a contract liability, or deferred revenue, when we have an obligation to provide a product or service to the customer and payment is received or due in advance of our performance. When we sell a device with a future service obligation, we defer revenue on the unfulfilled performance obligation and recognize this revenue over the related service period. Generally, we do not have observable evidence of the standalone selling price related to our future service obligations; therefore, we estimate the selling price using an expected cost plus a margin approach. We allocate the transaction price using the relative standalone selling price method. The use of alternative estimates could result in a different amount of revenue deferral.

Our contractual liabilities are primarily composed of deferred revenue related to the LATITUDETM Patient Management System, within our Cardiac Rhythm Management (CRM) business. Revenue is recognized over the average service period which is based on device and patient longevity. Our contractual liabilities also include deferred revenue related to the LUX-DxTM Insertable Cardiac Monitor (ICM) system, also within our CRM business, for which revenue is recognized over the average service period based on device longevity and usage. The use of alternative assumptions could impact the period over which revenue is recognized.

Variable Consideration

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

We also offer sales rebates and discounts to certain customers and record these as a reduction of revenue and classify the corresponding liability as current. We estimate rebates for products where there is sufficient historical information available to predict the volume of expected future rebates. If we are unable to reasonably estimate the expected rebates, we record a liability for the maximum rebate percentage offered.

Post-Implant Services

We provide non-contractual services to customers to ensure the safe and effective use of certain implanted devices. We forward accrue the costs to provide these services at the time the devices are sold by estimating the amount of time spent by our representatives performing these services and their compensation throughout the device life to determine the service cost. Changes to our business practice or the use of alternative estimates could result in a different amount of accrued cost.

Refer to Note A – Significant Accounting Policies and Note P – Revenue to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for further information on our revenue recognition accounting policies.

Inventory Provisions

We base our provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales. A significant change in the timing or level of demand for our products as compared to forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future. Further, the industry in which we participate is characterized by rapid product development and frequent new product introductions. Uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to excess, expired and obsolete inventory.

Valuation of Intangible Assets and Contingent Consideration Liability

We base the fair value of identifiable intangible assets acquired in a business combination, including IPR&D, on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. Further, for those arrangements that involve potential future contingent consideration, we record on the date of acquisition a liability equal to the fair value of the estimated additional consideration we may be obligated to pay in the future. We re-measure this liability each reporting period and record changes in the fair value through a separate line item within our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount rates, periods, timing and amount of projected revenue or timing or likelihood of achieving regulatory, revenue or commercialization-based milestones. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows, discount rates, useful life or probability of achieving clinical, regulatory or revenue-based milestones could result in different purchase price allocations and recognized amortization expense and contingent consideration expense or benefit in current and future periods.

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 adjustment to 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 is determined not recoverable, we will write the carrying value down to fair value in the period identified. We calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset using a risk-adjusted discount rate. The use of alternative assumptions, including estimated cash flows, discount rates and alternative estimated remaining useful lives could result in different calculations of impairment.

In addition, we test our indefinite-lived intangible assets at least annually for impairment and reassess their classification as indefinite-lived assets, or more frequently if 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, Intangibles - Goodwill and Other (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 fair value. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows and discount rates could result in different fair value estimates.

Goodwill Valuation

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.

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.

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, when performing our annual goodwill impairment test, we determined that it was more likely than not that the fair value of each of our reporting units had sufficient excess over its carrying value, and concluded that goodwill was not impaired or at risk of impairment.

On December 1, 2020, we announced the execution of a definitive agreement pursuant to which we agreed to sell our Specialty Pharmaceuticals business (disposal group) for a purchase price of $800 million, subject to certain adjustments including cash on hand as of the closing date of the transaction. The sale is expected to close in the first half of 2021, subject to customary closing conditions. We acquired our Specialty Pharmaceuticals business in conjunction with the BTG acquisition on August 19, 2019. In connection with the execution of a definitive agreement to sell the disposal group for a specified amount, we performed an impairment assessment of our goodwill and intangible assets, which resulted in a goodwill impairment of $73 million. As of December 31, 2020, we classified the remaining assets and liabilities of the disposal group as held for sale within our consolidated balance sheets at their respective carrying values, which approximates fair value, less cost to sell.

Refer to Note A – Significant Accounting Policies to our consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional details related to our annual goodwill impairment assessments performed in 2020.

Although it was not applicable to our annual impairment test performed in 2020, if it is determined that impairment is more likely than not, then we perform the quantitative impairment test. When allocating goodwill from business combinations to our reporting units, we assign goodwill to the reporting units that we expect to benefit from the respective business combination at the time of acquisition. In addition, for purposes of performing our goodwill impairment tests, assets and liabilities, including corporate assets, which relate to a reporting unit’s operations, and would be considered in determining its fair value, are allocated to the individual reporting units. We allocate assets and liabilities not directly related to a specific reporting unit, but from which the reporting unit benefits, based primarily on the respective revenue contribution of each reporting unit.

In performing annual impairment assessments, for those reporting units for which a quantitative test is performed, we typically use only the income approach, specifically the Discounted Cash Flow method, to derive the fair value of each of our reporting units in preparing our goodwill impairment assessments. We historically selected this method as being the most meaningful in preparing our goodwill assessments because we believe the income approach most appropriately measures our income producing assets. We have considered using the market approach and cost approach but concluded they are not appropriate in valuing our reporting units given the lack of relevant market comparisons available for application of the market approach and the inability to replicate the value of the specific technology-based assets within our reporting units for application of the cost approach. Therefore, we believe that the income approach represents the most appropriate valuation technique for which sufficient data are available to determine the fair value of our reporting units.

In applying the income approach to our accounting for goodwill, we make assumptions about the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. The amount and timing of future cash flows within our Discounted Cash Flow analysis is based on our most recent operational budgets, long range strategic plans and other estimates. The terminal value growth rate reflects our best estimates for stable, perpetual growth of our reporting units. We use estimates of market-participant risk-adjusted weighted average cost of capital as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows.

Although we use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in our impairment tests, these estimates are uncertain by nature and can vary from actual results. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows and discount rates could result in different fair value estimates.

Future events that could have a negative impact on the levels of excess fair value over carrying value of our reporting units include, but are not limited to, the following:

•decreases in estimated market sizes or market growth rates due to greater-than-expected declines in procedural volumes inclusive of those resulting from the ongoing COVID-19 pandemic, pricing pressures, reductions in reimbursement levels, product actions and/or competitive technology developments,

•declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new and next-generation products and technology features in line with our commercialization strategies and market and/or regulatory conditions that may cause significant launch delays or product recalls,

•decreases in our forecasted profitability due to an inability to implement successfully and achieve timely and sustainable cost improvement measures consistent with our expectations,

•negative developments in intellectual property litigation that may impact our ability to market certain products or increase our costs to sell certain products,

•the level of success of ongoing and future research and development efforts, including those related to recent acquisitions and increases in the research and development costs necessary to obtain regulatory approvals and launch new products,

•the level of success in managing the growth of acquired companies, achieving sustained profitability consistent with our expectations, establishing government and third-party payer reimbursement, supplying the market and increases in the costs and time necessary to integrate acquired businesses into our operations successfully,

•changes in our reporting units or in the structure of our business as a result of future reorganizations, acquisitions or divestitures of assets or businesses and

•increases in our market-participant risk-adjusted weighted average cost of capital (WACC) and increases in our market-participant tax rate and/or changes in tax laws or macroeconomic conditions.

Negative changes in one or more of these factors, among others, could result in future impairment charges.

Refer to Note D – Goodwill and Other Intangible Assets to our consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional details related to our annual goodwill balances.

Legal and Product Liability Accruals

In the normal course of business, we are involved in various legal and regulatory proceedings, including intellectual property, breach of contract, securities litigation and product liability suits. In some cases, the claimants seek damages, as well as other relief, which, if granted, could require significant expenditures or impact our ability to sell our products. 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. Litigation and product liability matters are inherently uncertain, and the outcomes of individual matters are difficult to predict and quantify. As such, significant judgment is required in determining our legal and product liability accruals. Our

estimates related to our legal and product liability accruals may change as additional information becomes available to us, including information related to the nature or existence of claims against us, trial court or appellate proceedings, and mediation, arbitration or settlement proceedings.

Income Taxes

We establish reserves when we believe that certain positions are likely to be challenged despite our belief that our tax return positions are fully supportable. The calculation of our tax liabilities involves significant judgment based on individual facts, circumstances and information available in addition to applying complex tax regulations in various jurisdictions across our global operations. Under U.S. GAAP, in order to recognize an uncertain tax benefit, the taxpayer must determine it is more likely than not the position will be sustained, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. Although we believe that we have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our effective tax rate, results of operations, financial position and/or cash flows.

As part of the Tax Cut and Jobs Act (TCJA), we are subject to a territorial tax system in which we are required to establish an accounting policy in providing for tax on Global Intangible Low Taxed Income (GILTI) earned by certain foreign subsidiaries. We have elected to treat the impact of GILTI as a period cost and report it as a part of continuing operations.

New Accounting Pronouncements

See Note R – New Accounting Pronouncements to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional information on standards implemented since December 31, 2019 and standards to be implemented.

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 members of management responsible for overseeing the effectiveness of disclosure controls are 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.

Use of Non-GAAP Financial Measures

To supplement our consolidated financial statements presented on a GAAP basis, we disclose certain non-GAAP financial measures, including adjusted net income (loss), adjusted net income (loss) available to common stockholders and adjusted net income (loss) per share that exclude certain amounts, and operational net sales, which 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 (loss), adjusted net income (loss) available to common stockholders and adjusted net income (loss) per share we exclude certain charges (credits) from GAAP net income and GAAP net income available to common stockholders as detailed below. 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."

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

To calculate operational net sales growth rates, which exclude the impact of foreign currency fluctuations, we convert actual net sales from local currency to U.S. dollars using constant foreign currency exchange rates in the current and prior periods. The GAAP financial measure most directly comparable to operational net sales and operational net sales growth is net sales and net sales growth 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 Annual Report.

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

We believe that presenting adjusted net income (loss), adjusted net income (loss) available to common stockholders adjusted net income (loss) per share that exclude certain amounts, and operational net sales growth rates 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.

The following is an explanation of each of the adjustments that management excluded as part of these non-GAAP financial measures as well as reasons for excluding each of these individual items. In each case, management has excluded the item for purposes of calculating the relevant non-GAAP financial measure to facilitate an evaluation of our current operating performance and a comparison to our past operating performance:

Adjusted Net Income (loss), Adjusted Net Income (loss) Available to Common Stockholders and Adjusted Net Income (loss) per Share

•Amortization expense - We record intangible assets at historical cost and amortize them over their estimated useful lives. Amortization expense is excluded from management's assessment of operating performance and is also excluded from our operating segments' measures of profit and loss used for making operating decisions and assessing performance.

•Goodwill and other intangible asset impairment charges - These amounts represent write-downs of certain goodwill and/or other intangible asset balances. 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 and test our goodwill and other indefinite-lived intangible assets at least annually for impairment. If we determine the carrying value of the amortizable intangible asset is not recoverable, goodwill of a reporting unit is impaired or it is more likely than not that the indefinite-lived asset is impaired, we will write the carrying value down to fair value in the period identified. Impairment 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.

•Acquisition/divestiture-related net charges (credits) - These adjustments may consist of (a) contingent consideration fair value adjustments; (b) gains on previously held investments; (c) due diligence, deal fees and other fees and costs related to our acquisition and divestiture transactions; (d) inventory step-up amortization and accelerated compensation expense; (e) integration and exit costs; and (f) separation costs and gains primarily associated with the sale of a business or portion of a business. The contingent consideration fair value 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. Gains on previously held investments, due diligence, deal fees and other fees and costs, inventory step-up amortization, accelerated compensation expense, and other expenses and gains associated with prior and potential future acquisitions and divestitures can be highly variable and not representative of ongoing operations. Integration and exit costs, include

contract cancellations, severance and other compensation-related charges and costs, project management fees and costs, and other direct costs associated with the integration of our acquisitions. These integration and exit activities take place over a defined timeframe and have distinct project timelines, are incremental to activities and costs that arise in the ordinary course of our business and are not considered part of our core, ongoing operations. These 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.

•Restructuring and restructuring-related net charges (credits) - These adjustments primarily represent compensation-related charges, fixed asset write-offs, contract cancellations, project management fees and other direct costs associated with our restructuring plans. These restructuring plans each consist of distinct initiatives that are fundamentally different from our ongoing, core cost reduction initiatives in terms of, among other things, the frequency with which each action is performed and the required planning, resourcing, cost and timing. Examples of such initiatives include the movement of business activities, facility consolidations and closures and the transfer of product lines between manufacturing facilities, which, due to the highly regulated nature of our industry, requires a significant investment in time and cost to create duplicate manufacturing lines, run product validations and seek regulatory approvals. Restructuring initiatives take place over a defined timeframe and have a distinct project timeline that begins subsequent to approval by our Board of Directors. In contrast to our ongoing cost reduction initiatives, restructuring initiatives typically result in duplicative cost and exit costs over the defined timeframe and are not considered part of our core, ongoing operations. In addition, during the fourth quarter of 2020, we incurred restructuring and restructuring-related net charges associated with management’s decision to retire the LOTUS platform. These restructuring plans are incremental to the core activities that arise in the ordinary course of our business. Restructuring and restructuring-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.

•Litigation-related net charges (credits) - These adjustments include certain significant product liability and other litigation-related charges and credits. We record these charges and credits, which we consider to be unusual or infrequent and significant, within the litigation-related charges line in our consolidated statements of operations; all other legal and product liability charges, credits and costs are recorded within selling general and administrative expenses. Certain litigation-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.

•EU MDR implementation costs - These adjustments represent certain incremental costs specific to complying with new regulatory requirements in the EU. EU MDR is a replacement of the existing European Medical Devices Directive (MDD) regulatory framework, and manufacturers of medical devices are required to comply with EU MDR beginning in May 2021 (previously May 2020) for new product registrations and by May 2024 for medical devices which have a valid CE Certificate to the current Directives (issued before May 2021). We expect to incur significant expenditures in connection with the adoption of the EU MDR requirements and 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, certain of these costs 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.

•Debt extinguishment net charges (credits) - These amounts relate to the early extinguishment of certain outstanding principal amounts of our senior notes. Certain debt extinguishment 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.

•Investment portfolio net losses (gains) - These amounts represent certain write-downs or fair value remeasurement gains and losses related to our investment portfolio. Each reporting period, we evaluate our investments without a readily determinable fair value to determine if there are any events or circumstances that are likely to have a significant adverse effect on the fair value of the investment. If we identify an impairment indicator, we will estimate the fair value of the investment and compare it to its carrying value and determine if the impairment is other-than-temporary, and recognize an impairment loss. In addition, for those investments accounted for under the measurement alternative method of accounting, we record gains and losses to remeasure the carrying value of the investments to their fair values based on observable market prices or implied market values. Investment impairment

charges and fair value remeasurements can be highly variable dependent on external market factors and conditions relative to the underlying investee, which are generally outside of the control of management, as such certain of these amounts are excluded from management's assessment of performance.

•Deferred tax expenses (benefits) - This adjustment relates to a significant non-cash tax benefit arising from an intra-entity asset transfer of intellectual property completed in the fourth quarter of 2019 which resulted in our recording a $4.102 billion net deferred tax asset. The deferred tax benefit associated with the establishment of the net deferred tax asset as well as any deferred tax expense resulting from the reversal of the deferred tax asset 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.

•Discrete tax items - These items represent adjustments of certain tax positions including those which a) are related to the finalization of the enactment date impact of the TCJA, or b) are related to the tax consequences of a non-GAAP adjustment item booked in a prior period. These discrete tax items 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.

Operational Net Sales Excluding the Impact of Foreign Currency Fluctuations

•The impact of foreign currency fluctuations is highly variable and difficult to predict. Accordingly, management excludes the impact of foreign currency fluctuations for purposes of reviewing net sales and growth rates to facilitate an evaluation of our current operating performance and a comparison to our past operating performance.

Rule 10b5-1 Trading Plans by Executive Officers

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 on the Investor Relations section of our website.

Management’s Annual Report on Internal Control over Financial Reporting

As the management of Boston Scientific Corporation, we are responsible for establishing and maintaining adequate internal control over financial reporting. We designed our internal control process to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control–Integrated Framework (2013 framework). Based on our assessment, we believe that, as of December 31, 2020, our internal control over financial reporting is effective at a reasonable assurance level based on these criteria.

Ernst & Young LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of our internal control over financial reporting. This report, in which they expressed an unqualified opinion, is included below.

/s/ Michael F. Mahoney /s/ Daniel J. Brennan

Michael F. Mahoney Daniel J. Brennan

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Boston Scientific Corporation

Opinion on Internal Control Over Financial Reporting

We have audited Boston Scientific Corporation’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework) (the COSO criteria). In our opinion, Boston Scientific Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated February 23, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Boston, Massachusetts

February 23, 2021

ITEM 7A. 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 manufacturing operations outside the U.S.) and derivative instruments to manage our earnings and cash flow exposure to changes in currency exchange rates. We had currency derivative instruments outstanding in the contract amount of $10.481 billion as of December 31, 2020 and $9.221 billion as of December 31, 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 $333 million as of December 31, 2020 as compared to $337 million as of December 31, 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 $407 million as of December 31, 2020 as compared to $412 million as of December 31, 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 on our 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 December 31, 2020 and December 31, 2019. As of December 31, 2020, $9.205 billion in aggregate principal amount of our outstanding debt obligations were at fixed interest rates, representing approximately 100 percent of our total debt, on an amortized cost basis. As of December 31, 2020, our outstanding debt obligations at fixed interest rates were comprised of senior notes.

See Note E – Hedging Activities and Fair Value Measurements to our consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data of this Annual Report for further information regarding our derivative financial instruments.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

Boston Scientific Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Boston Scientific Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Description of the Matter Contingent Consideration

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1992.

Boston, Massachusetts

February 23, 2021

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,

Operating expenses:

Selling, general and administrative expenses 3,787 3,941 3,569

Goodwill impairment charges 73 — —

Intangible asset impairment charges 460 105 35

Contingent consideration net expense (benefit) (100) (35) (21)

Restructuring net charges (credits) 52 38 36

Litigation-related net charges (credits) 278 115 103

Other income (expense):

Income (loss) before income taxes (79) 687 1,422

Income tax (benefit) expense 2 (4,013) (249)

Preferred stock dividends (33) — —

Net income (loss) available to common stockholders $ (115) $ 4,700 $ 1,671

Net income (loss) per common share — basic $ (0.08) $ 3.38 $ 1.21

Net income (loss) per common share — assuming dilution $ (0.08) $ 3.33 $ 1.19

Weighted-average shares outstanding

See notes to the consolidated financial statements.

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Year Ended December 31,

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment 76 195 (21)

Net change in derivative financial instruments (137) 62 110

Net change in defined benefit pensions and other items (1) (20) 2

Total other comprehensive income (loss) (63) 237 91

Total comprehensive income (loss) $ (145) $ 4,937 $ 1,761

See notes to the consolidated financial statements.

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31,

(in millions, except share and per share data) 2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 1,734 $ 217

Trade accounts receivable, net 1,531 1,828

Assets held for sale 1,133 —

Property, plant and equipment, net 2,084 2,079

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current debt obligations $ 13 $ 1,416

Other current liabilities 958 800

Deferred tax liabilities 330 595

Commitments and contingencies

Stockholders’ equity:

Accumulated other comprehensive income (loss), net of tax:

Foreign currency translation adjustment 218 142

Unrealized gain (loss) on derivative financial instruments 36 173

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,777 $ 30,565

See notes to the consolidated financial statements.

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Preferred Stock Common Stock

(in millions, except share data) Shares Issued Par Value Shares Issued Par Value

Net income (loss) 1,671

Cumulative effect adjustments for ASC Update Adoptions(1) (233)

Changes in other comprehensive income (loss), net of tax:

Foreign currency translation adjustment (21)

Derivative financial instruments 110

Defined benefit pensions and other items 2

Impact of stock-based compensation plans, net of tax 11,085,132 — 185

Net income (loss) 4,700

Changes in other comprehensive income (loss), net of tax:

Foreign currency translation adjustment 195

Derivative financial instruments 62

Defined benefit pensions and other items (20)

Impact of stock-based compensation plans, net of tax 10,340,881 215

Net income (loss) (82)

Cumulative effect adjustments for adoption of ASC 2016-13 (10)

Changes in other comprehensive income (loss), net of tax:

Foreign currency translation adjustment 76

Derivative financial instruments (137)

Defined benefit pensions and other items (1)

Preferred stock dividends (33)

Repurchase of common stock (535)

Impact of stock-based compensation plans, net of tax 8,040,507 221

(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 our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information.

See notes to the consolidated financial statements.

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

Gain on sale of businesses — (8) —

Deferred and prepaid income taxes (82) (4,301) (87)

Goodwill and other intangible asset impairment charges 533 105 35

Net loss (gain) on investments and notes receivable (398) 30 (155)

Contingent consideration net expense (benefit) (100) (35) (21)

Inventory step-up amortization 58 46 6

Foreign exchange (gain) loss 32 358 (11)

Accounts payable and accrued expenses 88 105 (640)

Cash provided by (used for) operating activities 1,508 1,836 310

Purchases of property, plant and equipment (376) (461) (316)

Proceeds on disposals of property, plant and equipment 12 7 14

Proceeds from divestiture of certain businesses 15 90 —

Proceeds from royalty rights 87 52 —

Payments for settlements of hedge contracts — (199) —

Cash provided by (used for) investing activities (411) (5,041) (1,921)

Payments for royalty rights (97) (69) —

Proceeds from royalty rights transfer — 256 —

Payments on short-term borrowings (2,950) (1,000) —

Proceeds from short-term borrowings, net of debt issuance costs 2,245 700 999

Net increase (decrease) in commercial paper (714) (575) 21

Payments on borrowings from credit facilities (1,919) — (569)

Proceeds from borrowings on credit facilities 1,916 — 569

Proceeds from long-term borrowings, net of debt issuance costs 1,683 7,229 987

Cash dividends paid on preferred stock (28) — —

Payments for repurchase of common stock (535) — —

Cash used to net share settle employee equity awards (59) (65) (56)

Cash provided by (used for) financing activities 293 2,973 1,432

Effect of foreign exchange rates on cash (2) 10 (8)

See notes to the consolidated financial statements.

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (SUPPLEMENTAL INFORMATION)

Year Ended December 31,

Supplemental Information

Cash (received) paid for income taxes, net $ 207 $ 242 $ 1,037

Fair value of contingent consideration recorded in purchase accounting — 127 248

Non-cash impact of transferred royalty rights (87) — —

As of December 31,

Reconciliation to amounts within the consolidated balance sheets: 2020 2019 2018

Restricted cash equivalents included in Other long-term assets 52 43 27

See notes to the consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Our consolidated financial statements include the accounts of Boston Scientific Corporation and our wholly-owned subsidiaries, after the elimination of intercompany transactions. When used in this report, the terms "we," "us," "our" and "the Company" mean Boston Scientific Corporation and its divisions and subsidiaries. We assess the terms of our investment interests to determine if any of our investees meet the definition of a variable interest entity (VIE). For any VIEs, we perform an analysis to determine whether our variable interests give us a controlling financial interest. The analysis identifies the primary beneficiary of a VIE as the enterprise that has both 1) the power to direct activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity or the right to receive benefits from the entity. Based on our assessments under the applicable guidance, we did not have controlling financial interests in any VIEs and, therefore, did not consolidate any VIEs during 2020, 2019 or 2018.

Basis of Presentation

The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and with the instructions to Form 10-K and Regulation S-X.

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

Subsequent Events

We evaluate events occurring after the date of our accompanying consolidated balance sheets for potential recognition or disclosure in our consolidated financial statements. Those items requiring recognition in the financial statements have been recorded and disclosed accordingly. Those items requiring disclosure (non-recognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note B – Acquisitions and Strategic Investments, Note H – Restructuring-related Activities, Note K – Commitments and Contingencies and Note L – Stockholders' Equity for further details.

Accounting Estimates

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents

Cash and Cash Equivalents

We record Cash and cash equivalents in our consolidated balance sheets at cost, which approximates fair value. Our policy is to invest excess cash in short-term marketable securities earning a market rate of interest without assuming undue risk of loss of principal amounts invested and we limit our direct exposure to securities in any one industry or issuer. We consider to be cash equivalents all short-term marketable securities with remaining days to maturity of 90 days or less from the purchase date that can be readily converted to cash.

Restricted Cash

Amounts included in restricted cash represent cash on hand required to be set aside by a contractual agreement related to receivable factoring arrangements and deferred compensation plans and are included in the Other current assets caption within our consolidated balance sheets. Generally, the restrictions related to the factoring arrangements lapse at the time we remit the

customer payments collected by us for servicing previously sold customer receivables to the purchaser. Restrictions for deferred compensation lapse when amounts are paid to the employee.

Restricted Cash Equivalents

Restricted cash equivalents primarily represent amounts paid into various qualified settlement funds related to our ongoing transvaginal surgical mesh litigation and current amounts related to our non-qualified pension plan and are included in the Other current assets caption within our consolidated balance sheets. The restrictions related to the various qualified settlement funds will lapse as we approve amounts payable to claimants, at which time we no longer have rights to a return of the amounts paid into the various qualified settlement funds. Restricted cash equivalents included in the Other long-term assets caption within our consolidated balance sheets are related to deferred compensation plans.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, derivative financial instruments and accounts and notes receivable. Our investment policy limits exposure to concentrations of credit risk and changes in market conditions. Counterparties to financial instruments expose us to credit-related losses in the event of nonperformance. We transact our financial instruments with a diversified group of major financial institutions with investment grade credit ratings and actively monitor their credit ratings and our outstanding positions to limit our credit exposure. In the normal course, our payment terms with customers, including hospitals, healthcare agencies, clinics, doctors' offices and other private and governmental institutions, are typically 30 days in the U.S. but may be longer in international markets and generally do not require collateral.

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

We write-off amounts determined to be uncollectible against this reserve. Write-offs of uncollectible accounts receivable were immaterial in 2020, 2019 and 2018. We are not dependent on any single institution, and no single customer accounted for more than ten percent of our net sales in 2020, 2019 and 2018; however, large group purchasing organizations, hospital networks, international distributors and dealers and other buying groups have become increasingly important to our business and represent a substantial portion of our net sales.

We closely monitor outstanding receivables for potential collection risks, including those that may arise from economic conditions, in both the U.S. and international economies. Our sales to government-owned or supported customers, particularly in southern Europe, are subject to an increased number of days outstanding prior to payment relative to other countries. More recently, the COVID-19 pandemic has accelerated an ongoing site-of-service trend of shifting procedure volumes toward non-hospital settings, particularly ambulatory surgery centers, driven by considerations surrounding costs, reimbursement policies, advances in minimally invasive treatments and remote patient monitoring. We have seen an increase in the volume of our U.S. business conducted in ambulatory surgery centers. Many of these customers are smaller than those we have historically done business with and may have limited liquidity. While certain ambulatory surgery centers are performing an increasing number of procedures in response to the COVID-19 pandemic, others have been negatively impacted by COVID-19 restrictions and mitigation measures. We have adjusted our estimates of credit loss reserves for these customers, regions and conditions, as appropriate. We believe our Allowance for credit losses is adequate as of December 31, 2020 and 2019; however, if significant changes were to occur in the payment practices of government customers, or if there is an increase in bankruptcies among our ambulatory surgery center customers, we may not be able to collect on receivables due to us from these customers, and our write-offs of uncollectible accounts may increase.

Revenue Recognition

We sell our products primarily through a direct sales force. In certain international markets, we sell our products through independent distributors or dealers. We consider revenue to be earned when all of the following criteria are met in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers:

•We have a contract with a customer that creates enforceable rights and obligations,

•Promised products or services are identified,

•The transaction price, or the amount we expect to receive, is determinable and

•We have transferred control of the promised items to the customer.

Transfer of control is evidenced upon passage of title and risk of loss to the customer unless we are required to provide additional services. We treat shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and record these costs as a selling expense when incurred. We recognize revenue from consignment arrangements based on product usage, or implant, which indicates that the sale is complete. We recognize a receivable at the point in time we have an unconditional right to payment. Payment terms are typically 30 days in the U.S. but may be longer in international markets.

Deferred Revenue

We record a contract liability, or deferred revenue, when we have an obligation to provide a product or service to the customer and payment is received or due in advance of our performance. When we sell a device with a future service obligation, we defer revenue on the unfulfilled performance obligation and recognize this revenue over the related service period. Many of our Cardiac Rhythm Management product offerings combine the sale of a device with our LATITUDETM Patient Management System, within our Cardiac Rhythm Management (CRM) business, which represents a future service obligation. Generally, we do not have observable evidence of the standalone selling price related to our future service obligations; therefore, we estimate the selling price using an expected cost plus a margin approach. We allocate the transaction price using the relative standalone selling price method. The use of alternative estimates could result in a different amount of revenue deferral.

Contract liabilities are classified within Other current liabilities and Other long-term liabilities on our accompanying consolidated balance sheets. 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. Our contractual liabilities also include deferred revenue related to the LUX-DxTM Insertable Cardiac Monitor (ICM) system, also within our CRM business, for which revenue is recognized over the average service period based on device longevity and usage. We 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 also offer sales rebates and discounts to certain customers. We treat sales rebates and discounts as a reduction of revenue and classify the corresponding liability as current. We estimate rebates for products where there is sufficient historical information available to predict the volume of expected future rebates. If we are unable to reasonably estimate the expected rebates, we record a liability for the maximum rebate percentage offered. We have entered certain agreements with group purchasing organizations to sell our products to participating hospitals at negotiated prices. We recognize revenue from these agreements following the same revenue recognition criteria discussed above.

Post-Implant Services

We provide non-contractual services to customers to ensure the safe and effective use of certain implanted devices. Because the revenue related to the immaterial services is recognized before they are delivered, we forward accrue the costs to provide these

services at the time the devices are sold. We record these costs to Selling, general and administrative expenses within our consolidated statements of operations. We estimate the amount of time spent by our representatives performing these services and their compensation throughout the device life to determine the service cost. Changes to our business practice or the use of alternative estimates could result in a different amount of accrued cost.

Warranty Obligations

We offer warranties on certain of our product offerings. The majority of our warranty liability relates to implantable devices offered by our CRM business, which include implantable defibrillator and pacemaker systems. These products come with a standard limited warranty covering the replacement of these devices. We offer a full warranty for a portion of the period post-implant and a partial warranty for a period of time thereafter. We estimate the costs that we may incur under our warranty programs based on the number of units sold, historical and anticipated rates of warranty claims and cost per claim and record a liability equal to these estimated costs as cost of products sold at the time the product sale occurs. We assess the adequacy of our recorded warranty liabilities on a quarterly basis and adjust these amounts as necessary.

Inventories

We state inventories at the lower of first-in, first-out cost or net realizable value. We utilize a standard costing system, capitalizing variances between estimated and actual production costs during periods of normal production, and amortize to Cost of products sold over inventory turns. We expense manufacturing variances during periods of abnormal production, or less than 75 percent of manufacturing capacity. During the year ended December 31, 2020, we recorded $149 million of abnormal manufacturing variances attributable to lower production levels resulting from the COVID-19 pandemic and lower than forecasted demand for our products. We did not record any abnormal production variances during the years ended December 31, 2019 or 2018.

Property, Plant and Equipment

We state property, plant, equipment and leasehold improvements at historical cost. We charge expenditures for maintenance and repairs to expense and capitalize additions and improvements that extend the life of the underlying asset. We provide for depreciation using the straight-line method at rates that approximate the estimated useful lives of the assets. We depreciate buildings over a maximum life of 40 years; building improvements over the remaining useful life of the building structure; equipment, furniture and fixtures over a three to seven year life; and leasehold improvements over the shorter of the useful life of the improvement or the term of the related lease.

Valuation of Business Combinations

We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the date of acquisition, including identifiable intangible assets and in-process research and development (IPR&D), which either arise from a contractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible assets acquired in a business combination, including IPR&D, on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. We allocate to goodwill any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Transaction costs associated with these acquisitions are expensed as incurred through Selling, general and administrative expenses.

In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this liability each reporting period and record changes in the fair value through Contingent consideration net expense (benefit) on our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount rates, periods, timing and amount of projected revenue or timing or likelihood of achieving regulatory, revenue or commercialization-based milestones. Payment of additional consideration is generally contingent on the acquired company reaching certain performance milestones after the acquisition date, including attaining specified revenue

levels, achieving product development targets and/or obtaining regulatory approvals for products in development at the date of the acquisition.

Indefinite-lived Intangibles and IPR&D

Our indefinite-lived intangible assets, which are not subject to amortization, include acquired balloon and other technology, which is foundational to our ongoing operations within our Cardiovascular and MedSurg businesses, and IPR&D intangible assets acquired in a business combination. Our IPR&D represents intangible assets that are used in research and development activities but have not yet reached technological feasibility, regardless of whether they have alternative future use. The primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region. We classify IPR&D as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts. Upon completion of the associated research and development efforts, we will determine the useful life of the technology and begin amortizing the assets to reflect their use over their remaining lives. Upon permanent abandonment, we write-off the remaining carrying amount of the associated IPR&D intangible asset.

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, Intangibles - Goodwill and Other. If the carrying value exceeds the fair value of the indefinite-lived intangible asset, we write the carrying value down to the fair value.

We use the income approach to determine the fair values of our IPR&D. We base our revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected trends in technology and expected levels of market share. In arriving at the value of the in-process projects, we consider, among other factors, the in-process projects’ stage of completion, the complexity of the work completed as of the acquisition date, the costs already incurred, the projected costs to complete, the contribution of other acquired assets, the expected regulatory path and introduction dates by region and the estimated useful life of the technology. See Note D – Goodwill and Other Intangible Assets for more information related to indefinite-lived intangibles, including IPR&D.

For asset purchases outside of business combinations, we expense any purchased research and development assets as of the acquisition date.

Amortization and Impairment of Intangible Assets

We record definite-lived intangible assets at historical cost and amortize them over their estimated useful lives. We use a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows: patents and licenses, two to 20 years; amortizable technology-related and customer relationships, five to 25 years; other intangible assets, various.

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. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by a regulator. 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. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. 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.

We calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset. In determining our estimated future cash flows associated with our intangible assets, we use estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset or asset group. See Note D – Goodwill and Other Intangible Assets for more information related to impairments of intangible assets.

For patents developed internally, we capitalize costs incurred to obtain patents, including attorney fees, registration fees, consulting fees and other expenditures directly related to securing the patent.

Goodwill Valuation

We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination to goodwill. 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.

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. For our 2020 annual impairment assessment, we identified the following reporting units: 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 the second quarter of 2020, we performed our annual goodwill impairment test utilizing 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.

Investments in Publicly Traded and Privately Held Entities

For publicly-held equity securities for which we do not have the ability to exercise significant influence, we measure at fair value with changes in fair value recognized currently in Other, net within our accompanying consolidated statements of operations. For privately-held equity securities for which we do not have the ability to exercise significant influence, we apply the measurement alternative approach and measure these investments 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. We account for investments in entities over which we have the ability to exercise significant influence under the equity method if we hold 50 percent or less of the voting stock and the entity is not a VIE in which we are the primary beneficiary in accordance with FASB ASC Topic 323, Investments - Equity Method and Joint Ventures. We record these investments initially at cost and adjust the carrying amount to reflect our share of the earnings or losses of the investee, including all adjustments similar to those made in preparing consolidated financial statements. Lastly, we have notes receivable from certain companies that we account for in accordance with FASB ASC Topic 320, Investments - Debt and Equity Securities. Refer to Note B – Acquisitions and Strategic Investments for additional details on our investment balances.

Each reporting period, we evaluate our investments to determine if there are any events or circumstances that are likely to have a significant adverse effect on the fair value of the investment. Examples of such impairment indicators include, but are not limited to, a significant deterioration in earnings performance, recent financing rounds at reduced valuations, a significant adverse change in the regulatory, economic or technological environment of an investee or a significant doubt about an investee’s ability to continue as a going concern. If we identify an impairment indicator, we will estimate the fair value of the investment and compare it to its carrying value. Our estimation of fair value considers financial information related to the investee available to us, including valuations based on recent third-party equity investments in the investee. For our investments for which we apply the measurement alternative, if the fair value of the investment is less than its carrying value, the investment

is impaired and we recognize an impairment loss equal to the difference between an investment’s carrying value and its fair value. For our equity method investments, if we determine an impairment is other-than-temporary, we recognize an impairment loss equal to the difference between an investment’s carrying value and its fair value. We deem an impairment to be other-than-temporary unless available evidence indicates that the valuation is more likely than not to recover up to the carrying value of the investment in a reasonable period of time, and we have both the ability and intent to hold the investment for at least the period of time needed to recover the value.

Net gains and losses and impairments associated with our investment portfolio are included in Other, net in our consolidated statements of operations.

Income Taxes

BSX US Equity

BSX · 10-K · period ended 2020-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BSX US Equity☆

BSX · 10-K · period ended 2020-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BSX US Equity