ALC 20-F Report ended Dec. 31, 2019

---

---

---

▪	the commercial success of its products and its ability to maintain and strengthen its position in its markets;

▪	the success of its research and development efforts, including its ability to innovate to compete effectively;

▪	its success in completing and integrating strategic acquisitions;

▪	pricing pressure from changes in third party payor coverage and reimbursement methodologies;

▪	global economic, financial, legal, tax, political, and social change;

▪	ongoing industry consolidation;

▪	its ability to properly educate and train healthcare providers on its products;

▪	changes in inventory levels or buying patterns of its customers;

▪	disruption in its global supply chain or important facilities;

▪	ability to service its debt obligations;

▪	the uncertainty as to what interest rate benchmark will replace LIBOR;

▪	the need for additional financing through the issuance of debt or equity;

▪	its reliance on outsourcing key business functions;

▪	its ability to protect its intellectual property;

▪	the impact on unauthorized importation of its products from countries with lower prices to countries with higher prices;

▪	the effects of litigation, including product liability lawsuits, and governmental investigations;

▪	its ability to comply with all laws to which it may be subject;

▪	effect of product recalls or voluntary market withdrawals;

▪	data breaches or other disruptions of its information technology systems;

▪	the implementation of its enterprise resource planning system;

▪	its ability to attract and retain qualified personnel;

▪	the accuracy of its accounting estimates and assumptions, including pension plan obligations, the carrying value of intangible assets, and our separation and transformation programs cost;

▪	the ability to obtain regulatory clearance and approval of its products as well as compliance with any post-approval obligations, including quality control of its manufacturing;

▪	legislative and regulatory reform;

▪	the ability of Alcon Pharmaceuticals Ltd. to comply with its investment tax incentive agreement with the Swiss State Secretariat for Economic Affairs in Switzerland and the Canton of Fribourg, Switzerland;

▪	the impact of environmental, social, and governance matters;

▪	its ability to operate as a stand-alone company;

▪	whether the transitional services Novartis has agreed to provide Alcon are sufficient;

▪	the impact of being listed on two stock exchanges;

▪	the ability to declare and pay dividends;

▪	the different rights afforded to its shareholders as a Swiss corporation compared to a US corporation; and

▪	the effect of maintaining or losing its foreign private issuer status under US securities laws.

---

ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

1.A.	DIRECTORS AND SENIOR MANAGEMENT

1.B.	ADVISERS

1.C.	AUDITORS

---

ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE

---

ITEM 3.	KEY INFORMATION

3.A.	SELECTED FINANCIAL DATA

(1)	F or periods prior to the Spin-off, the denominator for basic and diluted earnings per share was calculated using the 488.2 million shares of common stock distributed in the Spin-off.

---

(1)	F or periods prior to the Spin-off, the shares outstanding represent the 488.2 million shares of common stock distributed in the Spin-off.

---

3.B.	CAPITALIZATION AND INDEBTEDNESS

3.C.	REASONS FOR THE OFFER AND USE OF PROCEEDS

---

3.D.	RISK FACTORS

▪	disruptive product technology;

▪	alternative treatment modalities;

▪	breadth of product lines and product services;

---

▪	ability to identify new market trends;

▪	acceptance of equipment and other products by ophthalmic surgeons;

▪	customer and clinical support;

▪	regulatory status and speed to market;

▪	price;

▪	product quality, reliability and performance;

▪	capacity to recruit engineers, scientists and other qualified associates;

▪	digital initiatives that change business models;

▪	reimbursement approval from governmental payors and private healthcare insurance providers; and

▪	reputation for technical leadership.

---

---

---

---

---

---

▪	make it difficult for us to satisfy our obligations, including making interest payments on our debt obligations;

▪	require us to dedicate a portion of our cash flows to payments on our debt, reducing our ability to use our cash flows to fund capital expenditures, BD&L or other strategic transactions, working capital and other general operational requirements, or to pay dividends to our shareholders;

▪	limit our flexibility to plan for and react to changes in our business;

▪	negatively impact our credit rating and increase the cost of servicing our debt;

▪	place us at a competitive disadvantage relative to some of our competitors that have less debt than us;

▪	increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy; and

▪	make it difficult to refinance our existing debt or incur new debt on terms that we would consider to be commercially reasonable, if at all.

---

▪	finance unanticipated working capital requirements or refinance our existing indebtedness;

▪	develop or enhance our infrastructure and our existing products and services;

▪	engage in mergers and acquisitions or strategic BD&L transactions;

▪	fund strategic relationships; and

▪	respond to competitive pressures.

---

---

---

---

---

---

▪	warning letters or untitled letters issued by the FDA;

▪	fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution;

▪	detention of imported products;

▪	delays in approving, or refusal to approve, our products;

▪	withdrawal or suspension of approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies;

▪	product recall or seizure;

▪	operating restrictions or interruption of production; and

▪	inability to export to certain countries.

---

---

---

---

---

---

▪	the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;

▪	the judgment of such non-Swiss court has become final and non-appealable;

▪	the judgment does not contravene Swiss public policy;

▪	the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and

▪	no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or was earlier adjudicated in a third state and this decision is recognizable in Switzerland.

---

ITEM 4.	INFORMATION ON THE COMPANY

4.A.	HISTORY AND DEVELOPMENT OF THE COMPANY

---

▪	Series 2026 Notes - $0.5 billion due in 2026 issued at 99.5%, 2.750% interest is payable twice per year in March and September, beginning in March 2020 (“2026 Notes”).

▪	Series 2029 Notes - $1.0 billion due in 2029 issued at 99.6%, 3.000% interest is payable twice per year in March and September, beginning March 2020 (“2029 Notes”).

▪	Series 2049 Notes - $0.5 billion due in 2049 issued at 99.8%, 3.800% interest is payable twice per year in March and September, beginning March 2020 (“2049 Notes”).

---

4.B.	BUSINESS OVERVIEW

---

•	Aging population with growing eye care needs :  A growing aging population continues to drive the increased prevalence of eye care conditions worldwide, as the number of persons aged 60 years or over is expected to more than double by 2050, rising from 962 million globally in 2017 to 2.1 billion in 2050.

•

Innovation improving the quality of eye care :  Technology innovation in eye care is driving an increased variety of products that more effectively treat eye conditions. Given the importance of vision correction and preservation, which can provide a high return on healthcare spend, the resulting better patient outcomes are leading to increased coverage and reimbursement opportunities from governmental and private third-party payers, expanding patient access to such eye care products.

•

Increasing wealth and growth from emerging economies :  It is estimated that between 2015 and 2030, the middle class population in emerging markets will grow by approximately 1.5 billion people, from 2.0 billion to 3.5 billion; this major demographic shift is generating a large, new customer base with increased access to eye care products and services along with the resources to pay for them. The expansion of training opportunities for eye care professionals in emerging markets is also leading to increased patient awareness and access to premium eye care products and surgical procedures, facilitating their growth.

•

Increasing prevalence of myopia, progressive myopia and digital eye strain :  It is estimated that by 2050, half of the world's population (nearly five billion people) will be myopic. Further, the modern work environment, along with leisure preferences, have increased the number of hours people spend in front of a screen, adversely impacting vision and increasing the risk of progressive myopia and digital eye strain.

---

•	Global growth of cataract and vitreoretinal procedures, driven by an aging population;

•	Increased access to care, for example, in emerging markets and other markets outside the US where the cataract surgery rate is 3.2 procedures per 1,000 people as compared to 12.7 in the US;

•	Higher uptake of premium patient-pay technologies, for example AT-IOL penetration is only 7% outside the US versus 14% in the US;

•	Increased adoption of advanced technologies, for example, improved diagnostic instruments, surgical options for glaucoma management, and the growing use of phacoemulsification during cataract removal, which is utilized in less than 50% of cases in emerging markets versus over 95% in the US; and

•	Eye disease as a comorbidity linked to the global prevalence of diabetes, which has nearly doubled from 4.7% in 1980 to 8.5% in 2014, combined with improving diagnostics capabilities and new product innovations, driving uptake of premium procedures.

---

•	Continued modality shift to daily disposable lenses from reusable lenses and the resulting sales premium (an increase of 2 - 3x sales per patient, after customary rebates and discounts) associated with daily disposable wearers as compared to users of reusable lenses;

•	Advancements in specialty lenses combined with increasing demand for toric, multifocal and cosmetic lenses, which command an approximately 15 - 30% pricing premium over spherical lenses, allowing patients to continue wearing contact lenses as they become older and helping to expand the market;

•	A significant population of approximately 194 million undiagnosed dry eye patients, with an additional 42 million self-diagnosed dry eye patients using unsuitable products for treatment, and advances in diagnostics and ocular health treatments, facilitating the increase in patient awareness of dry eye and treatment;

•	Growing access and consumption of vision care products in emerging markets such as Asia, which had an estimated single-digit contact lens penetration as compared to double digits in the developed world; and

•	Increasing consumer access through the expansion of distribution models, including internet sales and other direct-to-consumer channels.

---

---

---

•

Global leader in highly attractive markets with the most complete brand portfolio. With $7.4 billion in net sales in the year ended December 31, 2019, we are the leader in an attractive eye care market, which is supported by favorable population megatrends and is expected to grow at approximately 4% to 5% per year from 2019 to 2024. Our Surgical business is the market leader in sales of ophthalmic equipment used in the operating room and is supported by the largest installed base of equipment worldwide, which we use to cross-promote our surgical consumables and IOLs. In our Vision Care business, our extensive portfolio of contact lens and ocular health products includes well-recognized brands such as Dailies , Systane and Opti-Free . We believe our global leadership position and extensive brand portfolio allow us to benefit and build on the robust fundamentals driving growth in our markets.

•

Innovation-focused with market leading development capabilities and investment. We have made one of the largest commitments to research and development in the eye care market, with proven R&D capabilities in the areas of optical design, material and surface chemistry, automation and equipment platforms. Currently, we employ over 1,200 individuals dedicated to our research and development efforts, including physicians, doctors of optometry and PhDs. In addition, we actively seek opportunities to collaborate with third parties on advanced technologies to support our eye care business.

---

•

Global scale and reach supported by high-quality manufacturing network. We have an extensive global commercial footprint that provides us with the scale and reach to support future growth, maximize the potential of new launches, enter new geographies efficiently and to take advantage of the large, dynamic and growing surgical and vision care markets. Our commercial footprint, which includes operations in over 74 countries, reaches consumers and patients in over 140 countries and is supported by over 3,000 sales force associates, 18 state-of-the-art manufacturing facilities employing our proprietary technologies and know-how, and our extensive global regulatory capability. Our extensive sales and distribution network, supported by our market leadership position and focus on innovation and customer experience, enhances our ability to expand our geographic reach and extend our product offerings through the launch of new and innovative products worldwide.

•

Outstanding customer relationships and a trusted reputation for customer service, training and education. We believe that maintaining the highest levels of service excellence in our customer experience is a critical success factor in our industry. In our Vision Care business, we regularly meet with eye care practitioners to gain feedback and insights on our products and consumers' needs. We also provide training support at our approximately 30 state-of-the-art interactive training centers around the world, as well as through numerous digital and event-based training programs that we provide for practitioners, clinical support staff, students, residents, patients and consumers. In each of our businesses, we have built and maintained our relationships with key stakeholders to establish our trusted reputation in the industry.

•

World leading expertise in eye care led by a first-class management team. Our expertise in eye care is driven by our more than 70-year history in the industry and is supported by a high-quality workforce of more than 20,000 associates. We believe our institutional knowledge provides a competitive advantage because our associates' industry expertise, relationships with our customers and understanding of the development, manufacture and sale of our products helps us to better identify new customer needs, assess markets for entry and identify promising technologies. In addition, we believe the diverse experience of our management team in running complex businesses allows them to add significant value to our company. In particular, we benefit from having a management team with an extensive background in the medical device industry. Led by David J. Endicott, our Chief Executive Officer, our management team's deep knowledge of eye care has allowed us to build a more nimble medical device culture within Alcon and created excitement among our workforce for our mission.

•

Maximize the potential of our near-term portfolio by growing key products. In Surgical, we plan to build on our leading position in the IOL market through the launch of new AT-IOLs, where premium pricing drives market value. In addition, we expect improved diagnostics and new optical designs will address historical barriers to AT-IOL adoption to further grow this patient-pay market. We will also continue to invest behind our presbyopia-correcting products (e.g. Panoptix ), and will continue to invest in our vitreoretinal equipment and consumables, where we also see meaningful opportunities for near-term growth. In Vision Care, we intend to maintain and grow our leading position in most of our product categories through increased eye care professional and consumer education, supported by continuous production innovation. We intend to expand our position in the daily disposable category behind our DAILIES TOTAL1 and PRECISION1 family of products. We also aim to expand the dry eye product market by leveraging our well-recognized Systane family of eye drops and increasing investment in dry eye education and awareness, where we see a significant unmet need and an opportunity for robust market growth.

•

Accelerate innovation and deliver the next wave of technologies. We are committed to accelerating innovation by continuing to be one of the market leaders in investment in ophthalmic research and development. The R&D activities of our Surgical business are focused on expanding our AT-IOL portfolio to further improve surgical and refractive outcomes, including through the use of advanced optics, light adjustable materials, accommodating lenses and modular platforms. We are also developing next-generation lasers, robotics and other equipment for cataract, vitreoretinal and laser-refractive surgery, as well as improved visualization equipment. In our Vision Care business, our focus is on developing and launching new contact lens materials, coatings and designs to extend our product lines and improve patient comfort, as well as on new products to expand our portfolio of dry eye diagnostic and treatment, presbyopia and ocular health products. Finally, we expect to continue to supplement our internal innovation investments by identifying and executing on attractive acquisition, licensing and collaboration opportunities with leading academic institutions and early-stage companies.

•	Capture opportunities to expand markets and pursue adjacencies. We believe there is a significant opportunity for growth in markets around the world due to under-penetration of both premium surgical devices, such as AT-IOLs, and of our Vision Care portfolio. We intend to facilitate this growth by continued investment in promotion and

---

•

Support new business models to expand customer experience. In Surgical, we intend to continue to identify new business models that benefit healthcare providers and improve access to leading Alcon products and technologies. For example, we are pursuing value-based business models that reward improved patient outcomes, as well as models that contract the entire procedure versus individual products. In Vision Care, where e-commerce entries have created some disruption of traditional sales channels, we believe that digital technology can address pain points experienced in existing paths to purchase. We intend to continue investing and innovating in digital capabilities to develop new business models in response to channel shifts and the increase in direct-to-consumer influence.

•

Leverage infrastructure to improve operating efficiencies and margin profile over time. With the significant organizational and infrastructure investments we have made over the last several years, we believe we have established a stable foundation that will allow us to continue to enhance the productivity of our commercial resources and meaningfully improve our core operating income margins over time. Further, we intend to improve the mix of our products, implement further supply chain efficiency initiatives and support new lower-cost manufacturing platforms to drive future operating profit and cash flows.

---

---

---

---

---

---

---

---

---

---

---

---

•	disruptive product technology;

•	alternative treatment modalities;

•	breadth of product lines and product services;

•	ability to identify new market trends;

•	acceptance by ophthalmic surgeons;

•	customer and clinical support;

•	regulatory status and speed to market;

•	price;

•	product quality, reliability and performance;

•	capacity to recruit engineers, scientists and other qualified associates;

•	digital initiatives that change business models;

•	reimbursement approval from governmental payers and private healthcare insurance providers; and

•	reputation for technical leadership.

---

---

---

---

4.C.	ORGANIZATIONAL STRUCTURE

4.D.	PROPERTY, PLANTS AND EQUIPMENT

---

ITEM 4A.	UNRESOLVED STAFF COMMENTS

---

5.A.	OPERATING RESULTS

---

•

For certain of the periods covered by our Consolidated Financial Statements, our business was operated within legal entities which hosted portions of other Novartis businesses. In addition, in all the periods presented, our Consolidated Financial Statements include the ophthalmic over-the-counter products and a small portfolio of surgical diagnostics medications, the management and reporting of which was transferred to Alcon from the Innovative Medicines Division of Novartis effective as of January 1, 2018.

•

For periods prior to the Spin-off, income taxes attributable to the Alcon Division were determined using the separate return approach, under which current and deferred income taxes were calculated as if a separate tax return had been prepared in each tax jurisdiction. In various tax jurisdictions, Alcon and Novartis businesses operated within the same legal entity and certain Alcon subsidiaries were part of a Novartis tax group. This required an assumption that the subsidiaries and operations of Alcon in those tax jurisdictions operated on a standalone basis and constitute separate taxable entities. Actual outcomes and results could differ from these separate tax return estimates, including those estimates and assumptions related to realization of tax benefits within these Novartis tax groups.

•

For periods prior to the Spin-off, our Consolidated Financial Statements also include an allocation and charges of expenses related to certain Novartis functions. However, the allocations and charges may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company during those periods. For example, historically, our business has been charged with a significant portion of appropriate administrative costs, such as those related to services Alcon has received from Novartis across the following service domains: human resources operations, real estate and facility services, including site security and executive protection, procurement, information technology, commercial and medical support services and financial reporting and accounting operations, and these have been reflected in our Consolidated Financial Statements based on historical allocations and charges. Accordingly, these overhead costs were affected by the historical arrangements that existed between the historical reporting units of the Alcon Division and Novartis and typically did not include a profit margin.

•

For periods prior to the Spin-off, our Consolidated Financial Statements also include an allocation from Novartis of certain corporate related general and administrative expenses that we would have incurred as a publicly traded company. These include costs associated with corporate governance, including board of directors, corporate responsibility and other corporate functions, such as tax, corporate governance and listed company compliance, investor relations, internal audit, treasury and communications functions. The allocation of these additional expenses may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for those periods.

---

•

On August 28, 2018, we announced our immediate, voluntary market withdrawal of our CyPass micro-stent surgical glaucoma product from the global market. Our Consolidated Financial Statements include the sales of CyPass micro-stent products from and after the launch of the product in 2016 until our withdrawal of the product from the market in August 2018. As a result, in the year ended December 31, 2018, we recognized a one-time pre-tax charge of $282 million (after tax $206 million). This consisted of $11 million for the costs associated with the market withdrawal and $337 million for the impairment of the CyPass intangible assets. These charges were partially offset by the $66 million gain for the reduction in the related contingent consideration liability.

---

•

Fix the foundation (2016–2017) : The initial phase of our growth plan in 2016 and 2017 focused on fixing the foundation of Alcon by investing in promotion, capital and systems, reinvigorating the innovation pipeline, and strengthening our customer relationships. Improving the culture at Alcon has also been a top priority, and the organization has responded with significant morale improvement. Strong results have followed, including sales returning to growth.

•

Execute the growth plan (2018–2020) : We began the second phase of our growth plan in 2018, with a focus on superior execution, further investing in high-potential products and market segments and accelerating our product development cycle. We have begun to transform our company by cultivating a more nimble and agile culture. In our surgical business, we intend to continue to expand and grow the premium IOL market with our AT-IOL offerings and our PanOptix brand of presbyopia correcting IOLs ("PC-IOLs"). We also plan to expand our vitreoretinal business, in part through enhancing technology penetration in key markets and by accelerating conversion from optical to digital surgery. In our vision care business, we intend to grow our DAILIES TOTAL1 family of products and expand the presbyopia category through increased consumer awareness, lens comfort and quality. We also plan to continue the global roll-out of our Systane COMPLETE product and grow consumer demand with investments in direct-to-consumer marketing.

•	Deliver leading-edge solutions (2021 and beyond) : Following the completion of the second phase of our growth plan, the third phase will focus on accelerating innovation, capturing opportunities to expand markets and pursue adjacencies and developing new business models to improve access to our leading product portfolio.

---

---

•	the amount and timing of projected cash flows;

•	the timing and probability of regulatory and commercial success;

•	the royalty rate for the Alcon brand name;

•	the terminal growth rate; and

•	the discount rate.

•	the amount and timing of projected cash flows;

•	long-term sales forecasts;

•	the timing and probability of regulatory and commercial success; and

•	the appropriate discount rate.

---

---

(1)	Core results and constant currencies (cc) as presented in this table are non-IFRS measures. Alcon uses certain non-IFRS metrics when measuring performance, including when measuring current period results against prior periods. Refer to "Item 5.A. Operating Results — Non-IFRS measures as defined by the Company " section for additional information and reconciliation tables.

(2)	Calculated using 488.2 million shares for both current and prior year periods.

(3)	Calculated using 490.1 million weighted average diluted shares for the year ended December 31, 2019, and 488.2 million shares for the prior year periods.

---

(1)	Constant currencies is a non-IFRS measure. Refer to "Item 5.A. Operating Results — Non-IFRS measures as defined by the Company " section for additional information.

---

(1)	Core results and constant currencies are non-IFRS measures. Refer to "Item 5.A. Operating Results — Non-IFRS measures as defined by the Company " section for additional information and reconciliation tables.

---

(1)	For additional information regarding segment contribution please refer to Note 5 to the Consolidated Financial Statements.

(2)	Core results and constant currencies are non-IFRS measures. Refer to "Item 5.A. Operating Results — Non-IFRS measures as defined by the Company " section for additional information and reconciliation tables.

---

---

(1)	Core results and constant currencies are non-IFRS measures. Refer to "Item 5.A. Operating Results — Non-IFRS measures as defined by the Company " section for additional information and reconciliation tables.

---

---

---

---

(1)	Core results and constant currencies (cc) as presented in this table are non-IFRS measures. Alcon uses certain non-IFRS metrics when measuring performance, including when measuring current period results against prior periods. Refer to "Item 5.A. Operating Results — Non-IFRS measures as defined by the Company " section for additional information.

---

•	the impact of translating the income statements of consolidated entities from their non-US dollar functional currencies to the US dollar; and

•	the impact of exchange rate movements on the major transactions of consolidated entities performed in currencies other than their functional currency.

---

---

(1)	Includes recurring amortization for all intangible assets other than software.

(2)	Separation costs are expected to be incurred over the two to three-year period following the completion of the Spin-off from Novartis and primarily include costs related to IT and third party consulting fees.

(3)	Transformation costs, primarily related to restructuring and third party consulting fees, for the multi-year transformation program.

(4)	Includes legal settlement costs and certain external legal fees.

(5)

Surgical segment contribution includes $85 million for the amortization of option rights, manufacturing sites consolidation activities, post marketing study following a product's voluntary market withdrawal expenses, integration of recent acquisitions, and spin readiness costs and other items, partially offset by $58 million in fair value adjustments to contingent consideration liabilities. Vision Care segment contribution includes $18 million in spin readiness costs and the integration of recent acquisitions, partially offset by $17 million in fair value adjustments to contingent consideration liabilities. Not allocated to segments primarily includes spin readiness costs and fair value adjustments of a financial asset.

(1)	Includes recurring amortization for all intangible assets other than software.

(2)	Includes impairment charges related to intangible assets.

(3)	Includes restructuring income and charges and related items. Certain amounts previously reported under "restructuring items" in the 2018 Form 20-F have been reclassified to "other items" to conform with presentation in the current year.

(4)	Includes legal costs related to an investigation.

(5)

Surgical segment contribution includes $99 million for the amortization of option rights and charges and reversal of charges related to a product's voluntary market withdrawal, spin readiness costs, and other items, partially offset by a $66 million fair value adjustment to a contingent consideration liability due to a product's voluntary market withdrawal. Vision Care segment contribution includes spin readiness costs and other items. Not allocated to segments includes $21 million in fair value adjustments of a financial asset and other items, partially offset by $20 million spin readiness costs. Certain amounts previously reported under "restructuring items" in the 2018 Form 20-F have been reclassified to "other items" to conform with presentation in the current year.

---

(1)	Includes recurring amortization for all intangible assets other than software.

(2)	Includes impairment charges related to intangible and financial assets.

(3)	Includes restructuring income and charges and related items.

(4)	Includes an increase to a legal settlement provision and legal costs related to an investigation.

(5)	Includes fair value adjustments to contingent consideration liabilities, a gain from a Swiss pension plan amendment and the partial reversal of a prior period charge.

---

(1)	Includes recurring amortization for all intangible assets other than software.

(2)	Separation costs are expected to be incurred over the two to three-year period following the completion of the Spin-off from Novartis and primarily include costs related to IT and third party consulting fees.

(3)	Transformation costs, primarily related to restructuring and third party consulting fees, for the multi-year transformation program.

(4)	Includes legal settlement costs and certain external legal fees.

(5)

Gross Profit includes $37 million in fair value adjustments of contingent consideration liabilities, partially offset by $21 million in spin readiness costs, manufacturing sites consolidation activities, and integration of recent acquisitions. Selling, general & administration primarily includes spin readiness costs and the integration of recent acquisitions. Research & development includes $73 million for the amortization of option rights, post-marketing study following a product's voluntary market withdrawal, and the integration of recent acquisitions, partially offset by $38 million in fair value adjustments for contingent consideration liabilities. Other income primarily includes a realized gain on a financial asset. Other expense primarily includes spin readiness costs, fair value adjustments of a financial asset and other items.

(6)	Total tax adjustments of $129 million include tax associated with operating income core adjustments and discrete tax items. Tax associated with operating income core adjustments of $1.5 billion totaled $215 million with an average tax rate of 14.8% .

(7)	Core basic earnings per share is calculated using the weighted-average shares of common stock outstanding during the period. Core diluted earnings per share also contemplate dilutive shares associated with unvested equity-based awards as described in Note 8 to the Consolidated Financial Statements.

---

(1)	Includes recurring amortization for all intangible assets other than software.

(2)	Includes impairment charges related to intangible assets.

(3)	Includes restructuring income and charges and related items. Certain amounts previously reported under "restructuring items" in the 2018 Form 20-F have been reclassified to "other items" to conform with presentation in the current year.

(4)	Includes legal costs related to an investigation.

(5)

Gross profit, selling, general & administration and research & development include charges and reversal of charges related to a product’s voluntary market withdrawal. Research & development also includes amortization of option rights and a fair value adjustment of a contingent consideration liability. Other income includes fair value adjustments on a financial asset. Other expense includes spin-readiness costs and other items. Certain amounts previously reported under "restructuring items" in the 2018 Form 20-F have been reclassified to "other items" to conform with presentation in the current year.

(6)

Total tax adjustments of $259 million included tax associated with operating income adjustments and discrete tax items. Tax associated with operating income adjustments of $1.5 billion totaled $237 million with average tax rate of 16.2%. Core tax adjustments for discrete items totaled $22 million, including a net out of period income tax benefit of $55 million partially offset by net changes in uncertain tax positions of $33 million.

(7)	For periods prior to the Spin-off, the denominator for both core basic and diluted earnings per share was calculated using the shares of common stock distributed in the Spin-off.

---

(1)	Includes recurring amortization for all intangible assets other than software.

(2)	Includes impairment charges related to intangible and financial assets.

(3)	Includes restructuring income and charges and related items.

(4)	Includes an increase to a legal settlement provision and legal costs related to an investigation.

(5)	Research & development includes fair value adjustments to contingent consideration liabilities; other income includes a gain from a Swiss pension plan amendment and the partial reversal of a prior period charge.

(6)

The required revaluation of the deferred tax assets and liabilities and a portion of current tax payables to the newly enacted tax rate at the date of enactment of the US enacted tax reform legislation (Tax Cuts and Jobs Act), resulted in a net tax income of $413 million that has been adjusted out of core taxes. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments of $1.2 billion to arrive at the core results before tax amounts to $98 million, excluding the tax income from US tax reform. The average tax rate on these adjustments is 8.4%.

(7)	For periods prior to the Spin-off, the denominator for both core basic and diluted earnings per share was calculated using the shares of common stock distributed in the Spin-off.

---

5.B.	LIQ UI DITY AND CAPITAL RESOURCES

(1)	The balances previously reported in "Financial debts" for a finance lease obligation have been reclassified from "Financial debts" to "Non-current lease liabilities". This reclassification resulted in an increase in Net liquidity as of January 1, 2019 and January 1, 2018 of $89 million and $84 million , respectively.

---

---

---

(1)	The balance previously reported in "Financial debts" for a finance lease obligation has been reclassified from "Financial debts" to "Non-current lease liabilities". This reclassification resulted in an increase in Net (debt)/liquidity of $89 million as of December 31, 2018.

---

(1)	Liquidity includes cash and cash equivalents and time deposits.

(2)	Financial debt includes non-current and current financial debts. The balances previously reported in "Financial debts" for a finance lease obligation have been reclassified from "Financial debts" to "Non-current lease liabilities". This reclassification has also been reflected in the computation of financial debts by currency.

5.C.	RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

5.D.	TREND INFORMATION

5.E.	OFF-BALANCE SHEET ARRANGEMENTS

---

5.F.	AGGREGATE CONTRACTUAL OBLIGATIONS

ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A.	DIRECTORS AND SENIOR MANAGEMENT

---

6.B.	COMPENSATION

•	Attracting exceptional executive talent to lead the Company, and retaining and motivating them over the long term through a mix of fixed and variable compensation elements;

•	Designing and structuring programs that appropriately incentivize executives to achieve short and long-term strategic business objectives established by our Board of Directors ("Board"); and

•	Aligning the interests of Alcon executives with those of shareholders.

---

---

---

1	Restricted Stock Units

2	Performance Stock Units

3	Includes the CEO and six other ECA members post Spin-off date, and the CEO and five other ECA members pre Spin-off date.

4	The amounts were converted at the rate of 1.0 CHF : 1.0061 USD.

---

1	The Board fees are paid in Swiss Francs, converted at the rate of 1.0 CHF : 1.0061 USD.

1	Represents compensation for nine out of ten members of the Board as David J. Endicott does not receive additional compensation for his service as a member of the Board.

2	The payments in cash were made in Swiss Francs (CHF) for consistency they are reported in USD as all compensation in this report. The amounts were converted at the rate of 1.0 CHF : 1.0061 USD. All amounts are before deduction of the social security contributions and income tax due by the Board member.

---

•	Substantially the same overall structure of ECA compensation as compared to 2019 (base pay, STI, LTI and benefits);

•	STI to be delivered in cash;

•	An additional profitability funding mechanism added to the 2019 STI metrics;

•	LTI metrics unchanged compared to 2019;

•	An increase to the CEO’s LTI award at target to align total compensation closer to the median of the blended peer group;

•	Broadly no significant change to the other ECA member’s compensation except slight adjustments;

•	Continuation of robust share ownership requirements; and

•	No material changes to benefits provisions.

•	Board Chair fee unchanged compared to 2019;

•	Same mix of fees payable in cash and shares as in 2019, including the option for a higher percentage of shares; and

•	Establishing fees for the new Governance and Nomination Committee’s Chair and members.

---

---

•	Paying for performance and the execution of the Alcon strategy;

•	Pursuing value for shareholders over the long-term;

•	Creating alignment in the interests of executives and shareholders; and

•	Motivating and retaining executives for the long-term.

---

1	binding vote

2	advisory vote

•	fixed and variable compensation elements;

•	short-term and long-term incentive compensation; and

•	Company and individual performance.

---

---

---

1	Financial achievements are measured in constant currencies to reflect operational performance.

1	The maximum number of units that may be awarded is limited to 200% of the target number of units granted.

---

1	CAGR means Compound Annual Growth Rate

2	Financial achievements are measured in constant currencies to reflect operational performance.

3	Metric “Share of peers” measures Alcon’s market share of key products in the Surgical and Vision Care segments against a peer group of competitors.

4

The innovation scorecard for 2019-2021 includes 10 milestones: one sales-related; one related to the cost of a development program; and eight related to the timeline of achievements. Each milestone is tied to a key internal development project. The LTI payout for the innovation metric will depend upon the number of milestones achieved within the relevant performance period. The milestones established are approved by the Board’s Innovation Committee.

---

---

1	The Annual Base Salaries of the six designated ECA members pre Spin-off date (including the CEO) and the seven active ECA members post Spin-off date (including the CEO) are based on their individual compensation arrangements pre and post Spin-off.

2

The retirement pension and insurance benefits are the actual contributions paid to benefit plans for the period from January 1 to December 31, 2019. It also includes the amount of USD 71,994 for mandatory contributions paid by Alcon to governmental social security systems for all ECA members, which provide the ECA members with the right to the maximum future insured government pension benefit. The aforementioned amount is a portion of a total amount of contributions of USD 622,142 paid by Alcon to the social security systems.

3

The STI award disclosed is the amount earned for the performance year 2019. It will be paid in March 2020. Fifty percent of the value of the STI award of the CEO will be paid in cash, and fifty percent in RSUs. For other ECA members, seventy percent of the value of the STI award will be paid in cash, and thirty percent in RSUs. RSUs are subject to a vesting period of 3 years. The deferred portions are shown at the value that will be delivered in RSUs based on the underlying Alcon share at the closing price on the future grant date in March 2020.

4	The aggregate Short-Term Incentive awards in cash disclosed for this period includes the STI award at target value of Alcon's former CFO who stepped down from the function when Alcon was still a division of Novartis on April 8, 2019. This individual did not join Alcon as an independent company and remained with the Novartis organization.

5

The amounts of the 2019-2021 LTI awards represent the total value of the target number of PSUs granted to the then designated members of the future ECA on January 22, 2019. The value of the PSUs is based on the closing price of the underlying Novartis share on the date of grant of USD 88.32 or CHF 88.14 respectively. The amount of the LTI awards disclosed includes also the award made to Alcon's former CFO who stepped down from the function when Alcon was still a division of Novartis on April 8, 2019, prorated for the period from the onset of the performance period 2019 through to April 8, 2019.

6	The amount includes the value of the target number of PSUs of the 2019-2021 LTI award granted to the seventh ECA member on January 22, 2019, pro-rated for the period from April 9, 2019 to the end of the performance period in 2021. The value of the PSUs is based on the underlying Novartis share price as described above.

7	The amount includes the value of the target number of PSUs of the 2019-2021 LTI award granted to the new incumbent of the CFO role on April 10, 2019, prorated to his period of service as acting member of the ECA within the performance period 2019-2021. The value of the PSUs is based on the closing price of the underlying Alcon share on the date of grant of CHF 58.05.

8

The amount includes the total value of the target PSUs of additional 2019-2021 LTI awards granted to the members of the ECA (excluding the CFO) on April 10, 2019 for increasing their pre Spin-off LTI awards to the new target LTI award levels effective from Spin-off date. The value of the PSUs is based on the closing price of the underlying Alcon share on the date of grant of USD 58.04 and CHF 58.05 respectively.

9	The amount includes further the value of the target number of PSUs of the special LTI award granted to the new incumbent of the CFO role on April 10, 2019, subject to the same performance conditions as the 2019-2021 LTI awards. The value of the PSUs is based on the closing price of the underlying Alcon share on the date of grant of CHF 58.05.

10

The amounts of other benefits include the Company-paid benefits, values of benefits in kind, payments made, and payments or values promised to ECA members for the relevant period in 2019. They include mostly benefits for relocation to the new Alcon headquarters in Switzerland (e.g. relocation support, housing, schooling, tax and social security equalization, benefit equalization, other international relocation benefits). The amounts of other benefits also includes cost to the Company for transferring the relevant ECA members to Switzerland such as immigration cost, search of housing, pre-visit to the location and other costs related to relocation.

11	The vesting and forfeiture of Novartis shares and their replacement by Alcon shares under the equity restoration plan did not provide additional values earned, paid or granted and therefore no value is included in the total compensation. The restoration of equity awards is outlined below in section "Alcon Equity Restoration Plan."

---

12	The total compensation of the CEO from January 1, 2019 to December 31, 2019 includes his compensation as designated CEO from January 1, 2019 to April 8, 2019 under the Novartis compensation structure and terms.

13	The compensation of the six other members of the ECA from January 1, 2019 to December 31, 2019 includes (i) the compensation of five designated members of the ECA from January 1, 2019 to April 8, 2019 under the Novartis compensation structure and terms, and (ii) the compensation of six active ECA members from April 9, 2019 to December 31, 2019 under Alcon's compensation terms.

14	Payments to ECA members were made in CHF and/or USD. The amounts were converted at the rate of 1.0 CHF : 1.0061 USD.

---

---

1	Includes the number of PSUs granted to the Alcon's former CFO who stepped down from the function when Alcon was still a division of Novartis, prorated from January 1 to April 8, 2019, and the number of PSUs granted to the seventh ECA member, prorated from April 9, 2019 to the end of the performance period in 2021.

---

1	Number of RSUs that will be granted in 2020 based on a percentage of the 2019 STI delivered in Alcon equity is not available at the time of editing this 2019 Compensation Report (na) as the number of shares is dependent on the stock price when the STI award is paid in March 2020. The value that will be granted is set out in exhibit 16.

2	Number of PSUs granted to the new CFO of a prorated LTI award for the performance period 2019-2021, and of a special LTI award subject to the same the performance period and conditions.

3	Number of PSU granted to the ECA members (excluding the CFO) for increasing their pre Spin-off target LTI award to the new target award level effective from Spin-off.

1	Number of Alcon shares granted to replace the forfeited value of Novartis share-based instruments.

2	Number of Alcon shares granted to compensate for the dividend in kind based on Novartis unvested PSUs and RSUs.

---

---

---

1	Converted into USD at a rate of CHF 1.0 = USD 1.0061

2	Fee for services to prepare the Spin-off (on-boarding fee)

•	Fifty percent of the total fees is paid in shares on a mandatory basis in two installments: September 2019 and March 2020

•	Fifty percent of the total fees is paid in cash in four installments: June, September, and December 2019 and March 2020

•	Each board member may elect to receive up to one hundred percent of their fees in shares

•	The fees are paid in Swiss Francs

•	The shares delivered are unrestricted (free shares) listed at the SIX Swiss Exchange

---

•	The members of the Board are subject to share ownership requirements (see below)

•	Board members bear the full cost of their own social security contributions

•	Board members do not receive variable compensation, in line with their focus on corporate strategy, supervision and governance. Their payment in shares is in unrestricted shares. They do not receive share options or other share-based instruments.

1	binding vote

2	advisory vote

---

---

1	The amounts include the USD 10,061 (CHF 10,000) on-boarding fee paid in March 2019.

2	The amounts represent the fees paid in cash or the value of tax and, if applicable, social security withheld upon the allocation of shares to be paid in cash to the applicable authorities.

3	The amounts in USD represent the converted value in CHF based on the Alcon shares granted on September 11, 2019 at the closing price of CHF 59.36 per share on the date of grant. The shares granted are listed at the SIX Swiss Exchange.

4	The number of shares reported were delivered to each Board member in the first installment of shares in September 2019. The second and final installment in shares for the services from the Spin-off date April 9, 2019 to the 2020 AGM will be delivered in March 2020.

5

Includes (i) an amount of USD 17,596 for mandatory employer contributions for all Board members paid by Alcon to governmental social security systems, which provides a right to the maximum future insured government pension benefit for the relevant Board members (this amount is a part out of total employer contributions of USD 47,826 to the governmental social security systems) and (ii) USD 84,844 paid to Dr. Cummings (or his related entities) for consulting services, including assistance with clinical trials that Dr. Cummings, as an ophthalmologist, provided to Alcon (these services were unrelated to Dr. Cummings' board service).

6	Fees payable in March 2020, the final installment of the total fees payable for service from the Spin-off to the 2020 AGM, which includes both shares and cash portions.

7	Total fees that will be paid for the Board members' term of office from the Spin-off to the 2020 AGM.

8	The payments in cash were made in Swiss Francs (CHF). For consistency they are reported in USD as all compensation in this 2019 Compensation Report. The amounts in CHF were converted to USD at the exchange rate of 1.0 CHF : 1.0061 USD. All amounts are before deductions of social security contributions and income tax paid by the Board members.

9	Board Committees: “ARC” Audit and Risk Committee; “CGNC” Compensation, Governance and Nomination Committee; “IC” Innovation Committee.

---

---

•	Ensures a broadly competitive level of remuneration appropriate to each executives’ scale of responsibility and individual performance

•	Attracts, retains and motivates a world-class executive team to drive performance

•	Supports long-term value creation for shareholders

•	Considers the geographic and industry-specific nature of our talent pool and the medical device industry

•	Aligns the compensation program for the senior executives with the broader management and employee population

•	Fully embraces Swiss governance expectations and follows principles of simplicity and transparency

---

•	The overall structure of ECA compensation including annual base salary, variable compensation elements STI and LTI, and benefits will remain unchanged in 2020;

•	Slight adjustments will be made to some ECA member’s total target compensation but overall it will broadly remain unchanged;

•	The 2020 STI payouts will be delivered in cash to align it with peer group compensation practices;

•	The LTI award target percent of the CEO will be increased, to align his total compensation with the median of the peer group;

•	An additional profitability funding mechanism will be added to the current STI metrics to align the measurements better with company performance;

•	The performance metrics of the 2019-2021 LTI cycle will also be used for the performance measurement of the 2020-2022 LTI cycle (group net sales CAGR; Core EPS CAGR; Share of Peers; and Innovation);

•	The robust share ownership requirements will continue to apply; and

•	There will be no material change to benefit provisions.

---

•	The overall framework of Board compensation from Spin-off date in 2019 to the 2020 AGM will be carried forward to the term from the 2020 AGM to 2021 AGM;

•	The Board Chair fee will remain unchanged;

•	The payment of fifty percent in shares (mandatory) and a voluntary election of a higher percentage in shares will continue; and

•	As a result of the split of the CGNC into two separate committees, fees for an additional Board committee Chair and members will be added to the Board compensation framework.

•	The aggregate amount of compensation payable to non-executive members of the Board for their term of office from the 2020 AGM to the 2021 AGM;

•	The aggregate amount of compensation payable to ECA members in the financial year 2021.

---

---

---

6.C.	BOARD PRACTICE

---

1

Percentages indicated in this column have been established based on the share capital of the Company registered with the commercial register of the Canton of Fribourg on the date on which the respective disclosure obligation pursuant to the FMIA was triggered. Furthermore, according to the FMIA, these shareholders are required to notify Alcon and the SIX Swiss Exchange only at the time they reach, exceed or fall below any of the thresholds set forth in the FMIA; therefore, their shareholding as of December 31, 2019 may differ from the figures indicated as per the contents of the relevant SIX Threshold Notifications.

2	In general, under SEC rules, "beneficial ownership", for the purposes of this column, refers to shares that an entity had the power to vote or the power to dispose of, and shares that such entity or individual had the right to acquire within 60 days after December 31, 2019.

3	Percentage ownership is calculated by dividing the number of shares reported as beneficially owned by such entity by the 488,349,066 shares of our common stock outstanding as of January 31, 2020.

4	Based solely on a SIX Threshold Notification dated May 1, 2019.

5	Based solely on a Statement on Schedule 13G filed on January 10, 2020. Such filing indicates that T. Rowe Price Associates, Inc. has sole voting power with respect to 17,419,268 shares and sole dispositive power with respect to 49,485,111 shares.

6	Based solely on a SIX Threshold Notification dated October 25, 2019.

7	Based solely on a Statement on Schedule 13G filed on February 14, 2020. Such filing indicates that The Capital Group Companies, Inc. has sole voting power with respect to 31,808,983 shares and sole dispositive power with respect to 31,824,542 shares.

8	Based solely on a SIX Threshold Notification dated November 9, 2019. This figure does not include its derivative position.

---

---

---

---

---

---

---

---

---

•	Supervising external auditors, and selecting and nominating external auditors for election at the Annual General Meeting of shareholders

•	Overseeing internal auditors

•	Overseeing accounting policies, financial controls, and compliance with accounting and internal control standards

•	Approving quarterly financial statements and financial results releases

•	Overseeing internal control and compliance processes and procedures

•	Overseeing compliance with laws, and external and internal regulations

•	Ensuring that Alcon has implemented an appropriate and effective risk management system and process

•	Ensuring that all necessary steps are taken to foster a culture of risk-adjusted decision-making without constraining reasonable risk-taking and innovation

•	Approving guidelines and reviewing policies and processes

•	Reviewing with management, internal auditors and external auditors the identification, prioritization and management of risks; the accountabilities and roles of the functions involved in risk management; the risk portfolio; and the related actions implemented by management.

•	Designing, reviewing and recommending corporate governance principles to the Alcon Board

•	Identifying candidates for election as Directors

•	Assessing existing Directors and recommending to the Alcon Board whether they should stand for re-election

•	Preparing and reviewing the succession plan for the Chief Executive Officer of Alcon

•	Developing and reviewing an onboarding program for new Directors, and an ongoing education plan for existing Directors

•	Reviewing on a regular basis the Articles of Incorporation with a view to reinforcing shareholder rights

•	Reviewing on a regular basis the composition and size of the Alcon Board and its committees

•	Reviewing annually the independence status of each Director

•	Reviewing directorships and agreements of Directors for conflicts of interest, and dealing with conflicts of interest

•	Overseeing Alcon strategy and governance on corporate responsibility

•	Designing, reviewing and recommending to the Alcon Board compensation policies and programs

•	Advising the Alcon Board on the compensation of Directors and the Chief Executive Officer of Alcon

•	Determining the compensation of ECA members

•	Preparing the annual compensation report and submitting it to the Alcon Board for approval.

•	Providing counsel and know-how to the Alcon Board and management in the area of technology, application of technology and new business models

•	Assisting the Alcon Board with oversight and evaluation of management’s development and implementation of Alcon technology and innovation strategies and its alignment with Alcon overall strategy and objectives

•	Informing the Alcon Board on a periodic basis about emerging scientific trends, research and development programs and opportunities and activities critical to the success of the Alcon product development pipeline

•	Advising the Alcon Board on scientific, technological and research development matters

---

•	Reviewing and discussing significant emerging science and technology issues and trends

•	Reviewing such other matters in relation to Alcon research and development, technology and innovation programs as the committee may, in its own discretion, deem desirable in connection with its responsibilities

1	The number of meetings includes physical meetings as well as meetings held through videoconference or conference call, but excludes any meetings prior to April 9, 2019, the effective date of the current Board of Directors' appointment.

2	The approximate average duration does not include dinners, lunches and breaks. Meetings held through videoconference or conference calls had in principle a shorter duration than physically held meetings.

---

•	The Enterprise Risk Management program and risk assessment reports

•	The Compliance Program

•	The Internal Audit function

•	Manufacturing and Technical Operations

•	Research & Development and product pipeline

•	Commercial strategies and product launches

---

---

---

---

---

---

---

---

---

---

6.D.	EMPLOYEES

(1)	Alcon historically received certain services from NBS, the shared service organization of Novartis. The corresponding full time equivalents providing such services were part of NBS and have therefore not been included in the table above for 2018 and 2017.

6.E.	SHARE OWNERSHIP

ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A.	MAJOR SHAREHOLDERS

7.B.	RELATED PARTY TRANSACTIONS

7.C.	INTERESTS OF EXPERTS AND COUNSEL

---

ITEM 8.	FINANCIAL INFORMATION

8.A.	CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

---

8.B.	SIGNIFICANT CHANGES

ITEM 9.	THE OFFER AND LISTING

9.A.	OFFER AND LISTING DETAILS

9.B.	PLAN OF DISTRIBUTION

9.C.	MARKETS

9.D.	SELLING SHAREHOLDERS

9.E.	DILUTION

9.F.	EXPENSES OF THE ISSUE

---

ITEM 10.	ADDITIONAL INFORMATION

10.A.	SHARE CAPITAL

10.B.	MEMORANDUM AND ARTICLES OF ASSOCIATION

10.C.	MATERIAL CONTRACTS

▪	tax matters agreement;

▪	employee matters agreement;

▪	manufacturing and supply agreements;

▪	transitional services agreement; and

▪	certain IP arrangements.

---

---

▪	Holders of unvested awards in the form of restricted Novartis shares received the dividend in‑kind resulting from the Spin‑off.

▪	Holders of unvested RSUs and PSUs did not receive the dividend in‑kind resulting from the Spin‑off, and such awards were treated as described in the section entitled “Item 6. Directors, Senior Management and Employees—6.B. Compensation—Section 3—ECA Compensation 2019—Section 3.6—Alcon Equity Restoration Plan”.

▪	Subject to certain exceptions, Novartis agreed that each member of the Novartis Group will not, for a period of two years following the Spin‑off, directly or indirectly: (i) solicit or induce certain senior Alcon employees to become employed or engaged by any member of the Novartis Group; or (ii) knowingly induce or encourage such employees to no longer be employed or engaged by Alcon.

▪	Subject to certain exceptions, Novartis agreed that it would not, and would undertake to procure that each member of the Novartis Group would not, for a period of two years following the Spin‑off, employ or engage certain senior Alcon employees.

---

•	Novartis transferred to us: (i) all intellectual property rights owned by the Novartis Group and used exclusively within the Alcon Division; and (ii) certain intellectual property rights owned by the Novartis Group used within both the Alcon Division and the other businesses of Novartis including, but not limited to, the Alcon brand; and

•	We transferred to Novartis: (i) all intellectual property rights owned by Alcon and used exclusively within the Novartis businesses; and (ii) certain intellectual property rights owned by the Alcon group used within both the Alcon Division and the other businesses of Novartis.

---

---

10.D.	EXCHANGE CONTROLS

10.E.	TAXATION

---

---

---

---

10.F.	DIVIDENDS AND PAYING AGENTS

10.G.	STATEMENTS BY EXPERTS

10.H.	DOCUMENTS ON DISPLAY

10.I.	SUBSIDIARY INFORMATION

ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

---

ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12.A.	DEBT SECURITIES

12.B.	WARRANTS AND RIGHTS

12.C.	OTHER SECURITIES

12.D.	AMERICAN DEPOSITARY SHARES

---

ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

---

ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

---

ITEM 15.	CONTROLS AND PROCEDURES

---

ITEM 16A.	AUDIT COMMITTEE AND FINANCIAL EXPERT

ITEM 16B.	CODE OF ETHICS

ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

---

ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

---

ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

---

ITEM 16F.	CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

---

ITEM 16G.	CORPORATE GOVERNANCE

ITEM 16H.	MINE SAFETY DISCLOSURE

---

ITEM 17.	FINANCIAL STATEMENTS

ITEM 18.	FINANCIAL STATEMENTS

---

ITEM 19.	EXHIBITS

---

---

---

---

(1)	For periods prior to the Spin-off, the denominator for basic and diluted earnings per share was calculated using 488.2 million shares of common stock distributed in the Spin-off.

---

(1)	No taxes were recorded in 2019, 2018 and 2017.

(2)	Amounts are net of tax benefit of $ 11 million in 2019 and net of tax expenses of $ 2 million and $ 26 million in 2018 and 2017, respectively.

(3)	Amount is net of tax benefit of $ 5 million in 2019. No taxes were recorded in 2018 and 2017.

---

(1)	Alcon adopted IFRS 16, Leases as of January 1, 2019 using the modified retrospective approach as described in Notes 3 and 16 to these Consolidated Financial Statements. Under the modified retrospective approach, comparative information was not restated.

(2)	The December 31, 2018 balances previously reported for a finance lease liability and corresponding asset of $ 89 million and $ 79 million , respectively, have been reclassified from "Non-current financial debts" and "Property, Plant, & Equipment" to "Non-current lease liabilities" and "Right-of-use assets", respectively .

---

(1)	"Former parent net investment" and "Equity" were previously presented as "Retained earnings" and "Invested capital", respectively, and were renamed upon the execution of the Spin-off.

(2)	"Total value adjustments" recorded through Comprehensive Income are presented net of the corresponding tax effects.

(3)	The impact of change in accounting policies includes $ 25 million relating to IFRS 9 implementation and nil relating to IFRS 15 implementation .

(4)	Activity relates to hyperinflationary accounting (see Note 3 to the Consolidated Financial Statements).

---

---

Alcon Inc. (the "Company") and the subsidiaries it controls (collectively "Alcon") is a leading eye care company globally. Alcon is a multinational company specializing in the research, development, manufacturing and marketing of a broad range of eye care products within two businesses: Surgical and Vision Care. Alcon is a stock corporation organized under the laws of Switzerland, domiciled in Fribourg, Switzerland, with global headquarters located in Geneva, Switzerland.

On February 28, 2019, Novartis AG (“Novartis” or “Former Parent”) shareholders at their Annual General Meeting approved the proposed 100% spin-off of Alcon through the distribution of a dividend-in-kind of new Alcon shares to Novartis shareholders and Novartis American Depositary Receipt (“ADR”) holders (the “Spin-off”), subject to completion of certain conditions precedent to the distribution. Amendment No. 6 to the Company's Registration Statement on Form 20-F filed with the Securities and Exchange Commission ("SEC") on March 22, 2019, ("2018 Form 20-F"), was declared effective by the SEC on that same day.  On April 9, 2019 (the “Distribution Date”), the Company became an independent, publicly-traded company as a result of the Spin-off and the shares of the Company are listed on the SIX Swiss Stock Exchange ("SIX") and on the New York Stock Exchange ("NYSE") under the symbol “ALC”. Each Novartis shareholder of record as of April 8, 2019 and each holder of Novartis’ ADR of record as of April 1, 2019 received one share of Alcon common stock for every five shares of Novartis common stock or Novartis ADR held.

The Consolidated Financial Statements of Alcon are comprised of Consolidated Balance Sheets as of December 31, 2019 and 2018 and the Consolidated Income Statements, Consolidated Statements of Comprehensive (Loss)/Income, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows for the three years ended December 31, 2019 , 2018 and 2017 .

The accompanying Consolidated Financial Statements present our historical financial position, results of operations, comprehensive income/(loss), and cash flows in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), including the basis of preparation as described in this Note and with the accounting policies as described in Note 3 to these Consolidated Financial Statements.

The preparation of Consolidated Financial Statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the year that affect the reported amounts of assets and liabilities as well as revenues and expenses. Actual outcomes and results could differ from those estimates and assumptions.

Relationship with Former Parent and affiliates prior to Spin-off

The financial statements for periods prior to the Spin-off were prepared on a combined basis because the business of Alcon did not form a separate legal group until the Spin-off occurred. The information in the financial statements for periods prior to the Spin-off was derived from Novartis’ Consolidated Financial Statements and accounting records, which were prepared in accordance with IFRS. Through the date of the Spin-off, all revenues and expenses as well as assets and liabilities directly associated with Alcon have been included in the financial statements. For periods prior to the Spin-off, the financial statements also include allocations of certain expenses for services provided by Novartis to Alcon and allocations of related assets, liabilities, and the Former Parent’s invested capital, as applicable. The allocations were determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had Alcon been an entity that operated independently of Novartis during the applicable periods.

IFRS does not provide principles for the preparation of combined financial statements for carve-out financial statements, and accordingly in preparing the financial statements for periods prior to the Spin-off certain accounting and allocation conventions commonly used in practice for the preparation of carve-out financial statements were applied. The assets and liabilities included in the balance sheets prior to Spin-off were measured at the carrying amounts recorded in Novartis Group Consolidated Financial Statements.

---

The financial statements for periods prior to the Spin-off include all Alcon subsidiaries and all Alcon business operated within Novartis Group subsidiaries over which Alcon has control, by applying the principles of IFRS 10, Consolidated Financial Statements . Alcon controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The financial statements for the periods prior to the Spin-off include the assets and liabilities within Novartis subsidiaries that were attributable to the Alcon business and excluded the assets and liabilities within Alcon subsidiaries not attributable to the Alcon business.

In addition, the financial statements include, for the periods prior to the Spin-off, the assets, liabilities and results of operations of the ophthalmic over-the-counter products and a small portfolio of surgical diagnostics products that in connection with a Novartis Group business reorganization, effective as of January 1, 2018, were transferred to Alcon from the Innovative Medicines Division of Novartis.

Certain Novartis manufacturing sites performed production services for both the Alcon and Innovative Medicines Divisions of Novartis Group ("multi-divisional manufacturing sites"). The financial statements, for periods prior to the Spin-off include the carrying value of the manufacturing sites where the majority of the production is attributable to Alcon and where such sites were transferred to Alcon in connection with the Spin-off. The inventory, sales and production costs of these multi-divisional manufacturing sites that were attributable to the products of the Alcon and Innovative Medicines Divisions of Novartis Group were accounted for and reported separately by the Alcon and Innovative Medicines Divisions of Novartis Group within Novartis Group accounting systems. The supply chains of the Alcon and Innovative Medicines Divisions of Novartis Group each managed separately the distribution of their respective products produced in these multi-divisional manufacturing sites. As a result, there was no requirement for inter-divisional trading arrangements between the Alcon and Innovative Medicines Divisions of Novartis Group for the products produced in these multi-divisional manufacturing sites. Manufacturing costs attributable to the Alcon business' products produced in these multi-divisional manufacturing sites were recognized in the financial statements for periods prior to the Spin-off at cost of production.

For periods prior to the Spin-off, the financial statements include the attribution of certain assets and liabilities that were historically held at the Novartis corporate level that were specifically identifiable or attributable to Alcon on a standalone basis and were recognized on the pre-Spin-off balance sheets through retained earnings in invested capital. The most significant of which were defined benefit plans, current and deferred income taxes, financial debts, financial investments and the Alcon brand name. The Alcon brand name was used to market the products of Alcon and the products within Novartis Innovative Medicines Divisions' ophthalmology pharmaceutical business. The Novartis Group transferred the full rights to the Alcon brand name to Alcon in connection with the Spin-off. As a result, the carrying value of the Alcon brand name was fully attributed to Alcon in the financial statements.

The income and expenses related to the hedging transactions prior to the Spin-off were allocated to Alcon based on the estimated currency exposure of Alcon and are recorded to Other financial income & expense in the income statements and recognized directly through retained earnings in Invested capital.

The majority of Alcon's subsidiaries were party to Novartis cash pooling arrangements with several financial institutions to maximize the availability of cash for general operating and investing purposes. Under these cash pooling arrangements, cash balances were swept by Novartis regularly from Alcon's bank accounts. The net position with the Novartis cash pooling accounts at the end of each reporting period prior to the Spin-off are reflected in the balance sheet in Other financial receivables from former parent or Other financial liabilities to former parent.

Financing transactions between Novartis and Alcon, except for receivables and payables against the Novartis cash pool described above, were excluded from the financial statements in the periods prior to the Spin-off, as none of the financing transactions were specifically related to the operation of Alcon's business. The exclusion of these financing transactions was recognized through retained earnings in Invested capital.

Dividend and other equity transactions between Alcon and Novartis were recognized directly to retained earnings in Invested capital.

Novartis third-party debt and the related interest expense were not allocated to Alcon when Alcon's subsidiaries were not the legal obligor of the debt and when Novartis borrowings were not directly attributable to Alcon's

---

business. The financial statements for periods prior to the Spin-off include third-party debt and the related interest expense when Alcon's subsidiaries were the legal obligor of the debt and when the borrowings were directly attributable to Alcon's business. Refer to Note 17 to these Consolidated Financial Statements.

Both before and after the Spin-off, Alcon's associates participate in defined benefit pension and other postretirement plans sponsored by Novartis; in some countries these are single employer plans dedicated to the Alcon business associates and in other countries these are plans where associates of Alcon and associates of the Novartis Group are participants. The net defined benefit and other postretirement plan liabilities and pension costs attributable to Alcon are included in the Consolidated Financial Statements for periods prior to and after the Spin-off, to the extent that the corresponding pension obligations and plan assets under those plans transferred to Alcon at the time of Spin-off or will subsequently transfer pursuant to the Employee Matters Agreement entered into with Novartis. Refer to Note 23 to these Consolidated Financial Statements for additional disclosure on post-employment benefits for associates.

Income taxes attributable to the Alcon business in the financial statements were determined using the separate return approach, under which current and deferred income taxes are calculated as if a separate tax return had been prepared in each tax jurisdiction. In various tax jurisdictions, Alcon and Novartis businesses operated within the same legal entity and certain Alcon subsidiaries were part of a Novartis tax group. This required an assumption that the subsidiaries and operations of Alcon in those tax jurisdictions operated on a standalone basis and constitute separate taxable entities. Actual outcomes and results could differ from these separate tax return estimates, including those estimates and assumptions related to realization of tax benefits within these Novartis tax groups. Refer to Note 7 and Note 11 to these Consolidated Financial Statements for additional disclosures on income taxes.

Alcon's Invested capital in the financial statements for the periods prior to Spin-off represents the excess of total assets over total liabilities and, in addition to the items described above, was impacted by the following:

•	Currency translation adjustments of the Novartis Group multi-divisional subsidiaries were allocated between Alcon and the Novartis retained businesses by applying allocation keys based on net assets of each respective business.

•	Other transactions with Novartis Group as shown on the Consolidated Statements of Changes in Equity represents the movements in Invested capital resulting from the preparation of the financial statements in accordance with the basis of preparation described in this Note.

•	Movements of financing provided to Novartis Group as shown on the Consolidated Statements of Changes in Equity and on the Consolidated Statements of Cash Flows primarily represent the net contributions from Alcon to Novartis Group.

For the periods prior to the Spin-off, the financial statements include charges and allocation of expenses related to certain Novartis business support functions and Novartis corporate general and administration functions. Alcon considers the charges and allocation methodology and results to be reasonable. However, the charges and allocations may not be indicative of the actual expense that would have been incurred had Alcon operated as an independent, publicly traded company for the periods prior to the Spin-off. The following is a brief description of the nature of these charges and allocations:

•

Alcon received services from Novartis Business Services (“NBS”), the shared service organization of Novartis Group, across the following service domains: human resources operations, real estate and facility services, including site security and executive protection, procurement, information technology, commercial and medical support services and financial reporting and accounting operations. The financial statements include the appropriate costs related to the services rendered, without profit margin, in accordance with the historical arrangements that existed between Novartis and the Alcon business prior to the Spin-off. Refer to Note 25 to these Consolidated Financial Statements for additional disclosures.

•

Certain Novartis corporate general and administrative functions costs, in the areas of corporate governance, including board of directors, corporate responsibility and other corporate functions, such as tax, corporate governance and listed company compliance, investor relations, internal audit, treasury, communications functions and the net interest on the net defined benefit liability were not charged or allocated to the Alcon business in the past. The financial statements include a reasonable allocation of these Novartis corporate general and administrative functions costs and net interest on the net defined

---

benefit liability, based on reasonable assumptions and estimates. The corporate general and administrative function costs allocations were based on the direct and indirect costs incurred to provide the respective services. When specific identification was not practicable, a proportional cost allocation method was used, primarily based on sales, or headcount. Management believes that the allocations reasonably approximate the corporate general and administrative functions costs Alcon may have incurred had it operated as a standalone company. However, the allocations may not be indicative of the actual expense that would have been incurred had Alcon operated on a standalone basis prior to the Spin-off. Refer to Note 25 to these Consolidated Financial Statements for additional disclosures.

Management believes that all allocations were performed on a reasonable basis and reflect the services received by Alcon, the costs incurred on behalf of Alcon and the assets and liabilities of Alcon. Although the financial statements for the periods prior to the Spin-off reflect management's best estimate of all historical costs related to Alcon, this may not necessarily reflect what the results of operations, financial position, or cash flows would have been had Alcon been a separate entity prior to the Spin-off.

Agreements entered into between Alcon and Novartis in connection with the Spin-off govern the relationship between the parties following the Spin-off and provide for the allocation of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to be provided on a temporary basis between the parties.

Following the Spin-off, the Consolidated Financial Statements include the accounts of Alcon and no longer include any allocations from Novartis.

Principles of consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. In the event that the Company has an interest in another entity that is not wholly owned, the assets, liabilities, results of operations and cash flows of such entity are included in the Company's Consolidated Financial Statements, if the Company is exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Consolidated Financial Statements of the Company are prepared in accordance with IFRS as issued by the IASB. They are prepared in accordance with the historical cost convention except for items that are required to be accounted for at fair value. All intercompany transactions and accounts within Alcon were eliminated.

The Company's financial year-end is December 31 , which is also the annual closing date of the individual entities' financial statements incorporated into the Consolidated Financial Statements.

Foreign currencies

The Consolidated Financial Statements are presented in US dollars ("USD"). The functional currency of individual entities incorporated into the Consolidated Financial Statements are generally the local currency of the respective entity. The functional currency used for the reporting of certain Swiss entities is USD instead of their respective local currencies. This reflects the fact that the cash flows and transactions of these entities are primarily denominated in these currencies.

For entities not operating in hyperinflationary economies, the entities results, financial position and cash flows that do not have USD as their functional currency are translated into USD using the following exchange rates:

•	Income, expense and cash flows using for each month the average exchange rate with the USD  values for each month being aggregated during the year.

•	Balance sheets using year-end exchange rates.

•	Resulting exchange rate differences are recognized in other comprehensive income.

The hyperinflationary economies in which Alcon operates are Argentina and Venezuela. Venezuela was hyperinflationary for all years presented, and Argentina became hyperinflationary effective July 1, 2018, requiring retroactive implementation of hyperinflation accounting as of January 1, 2018.

---

The impact of the restatement of the non-monetary assets and liabilities with the general price index at the beginning of the period is recorded in "Other Reserves" in equity. The subsequent gains or losses resulting from the restatement of non-monetary assets are recorded in "Other financial income & expense" in the consolidated income statements.

Acquisition of assets

Acquired assets are initially recognized on the balance sheet at cost if they meet the criteria for capitalization. The capitalized cost of the asset includes the purchase price and any directly attributable costs for bringing the asset into the condition to operate as intended. Expected costs for obligations to dismantle and remove property, plant and equipment when it is no longer used are included in their cost.

Property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Freehold land is not depreciated. The related depreciation expense is included in the costs of the functions using the asset or "Cost of net sales" in the consolidated income statements.

Property, plant and equipment are assessed for impairment whenever there is an indication that the balance sheet carrying amount may not be recoverable using cash flow projections for the useful life.

The following table shows the respective useful lives for property, plant and equipment:

	Useful life
Buildings	20 to 40 years
Machinery and other equipment
Machinery and equipment	7 to 20 years
Furniture and vehicles	5 to 10 years
Computer hardware	3 to 7 years

Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary may include:

•	fair values of the assets transferred;

•	liabilities incurred to the former owners of the acquired business;

•	equity interests issued by the Company;

•	fair value of an asset or liability resulting from a contingent consideration arrangement; and

•	fair value of any pre-existing equity interest in the subsidiary.

Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the net identifiable assets acquired is recorded as goodwill, or directly in the income statement if it is a bargain purchase. Alcon primarily uses net present value techniques, utilizing post-tax cash flows and discount rates in calculating the fair value of net identifiable assets acquired when allocating the purchase consideration paid for the acquisition. The estimates in calculating fair values are highly sensitive and depend on assumptions, which includes the amount and timing of projected cash flows, long-term sales forecasts, the timing and probability of regulatory and commercial success, and the appropriate discount rate.

Acquisition related costs are expensed as incurred.

Goodwill and intangible assets

The annual impairment testing date is Alcon's financial year-end, December 31.

---

Goodwill

Goodwill arises in a business combination and is the excess of the consideration transferred to acquire a business over the underlying fair value of the net identified assets acquired. It is allocated to groups of cash generating units ("CGUs") which are usually represented by the reported segments. Goodwill is tested for impairment annually at the level of these groups of CGUs, and any impairment charges are recorded under "Other expense" in the consolidated income statements.

Intangible assets available for use

Alcon has the following classes of available-for-use intangible assets: Currently marketed products, Marketing know-how, Technologies, Other intangible assets (including computer software) and the Alcon brand name.

Currently marketed products represent the composite value of acquired intellectual property, patents, and distribution rights and product trade names.

Marketing know-how represents the value attributable to the expertise acquired for marketing and distributing Alcon surgical products.

Technologies represent identified and separable acquired know-how used in the research, development and production processes.

Significant investments in internally developed and acquired software are capitalized and included in the "Other" category and amortized once available for use.

The Alcon brand name is shown separately as it is the only Alcon intangible asset that is available for use with an indefinite useful life. Alcon considers it appropriate that the brand name has an indefinite life since the branded products have a history of strong revenue and cash flow performance, and Alcon has the intent and ability to support the brand with spending to maintain its value for the foreseeable future.

Except for the Alcon brand name, intangible assets available for use are amortized over their estimated useful lives on a straight-line basis and evaluated for potential impairment whenever facts and circumstances indicate that their carrying value may not be recoverable. The Alcon brand name is not amortized, but evaluated for potential impairment annually.

The following table shows the respective useful lives for available-for-use intangible assets and the location in the consolidated income statements in which the respective amortization and any potential impairment charge is recognized:

	Useful life	Income statement location for amortization and impairment charges
Currently marketed products	5 to 20 years	"Cost of net sales"
Marketing know-how	25 years	"Cost of net sales"
Technologies	10 to 20 years	"Cost of net sales" or "Research and Development"
Other (including software)	3 to 10 years	In the respective functional expense
Alcon brand name	Not amortized, indefinite useful life	"Other expense"

From July 1, 2019, the useful life of Alcon's new SAP ERP software was extended from 7 years to 10 years on a prospective basis based on Alcon's multi-year transformation program which centers on one ERP platform across the organization. This change in estimate resulted in a $ 5 million reduction in amortization expense during the six months ended December 31, 2019 and will reduce amortization expense up to $ 10 million per year during the remaining useful life of the SAP ERP software assets placed in service at the time of the change.

The corresponding "Intangible assets available for use" portion of the accounting policy was updated to reflect that the useful life for Other intangible assets (including software) was extended from 3 to 7 years to 3 to 10 years .

---

Acquired In-Process Research & Development ("IPR&D")

Acquired research and development intangible assets, which are still under development and have accordingly not yet obtained marketing approval, are recognized as IPR&D.

IPR&D is not amortized, but evaluated for potential impairment on an annual basis or when facts and circumstances warrant. IPR&D is considered impaired when its balance sheet carrying amount exceeds its estimated recoverable amount, which is defined as the higher of its fair value less costs of disposal ("FVLCOD") and its value in use ("VIU"). Usually, Alcon applies the FVLCOD method for its impairment assessments. Under this approach when evaluating IPR&D for potential impairment, FVLCOD is estimated using net present value techniques utilizing post-tax cash flows and discount rates as there are no direct or indirect observable prices in active markets for identical or similar assets. The estimates used in calculating the net present values are highly sensitive and depend on assumptions, including amount and timing of projected future cash flows, long-term sales forecasts, discount rate, and the timing and probability of regulatory and commercial success. In the limited cases where the VIU method would be applied, net present value techniques would be applied using pre-tax cash flows and discount rates.

Any impairment charge is recorded in the consolidated income statements under "Research & development".

Once a project included in IPR&D has been successfully developed it is transferred to the "Currently marketed products" category.

Impairment of goodwill, Alcon brand name and definite lived intangible assets

An asset is considered impaired when its balance sheet carrying amount exceeds its estimated recoverable amount, which is defined as the higher of its FVLCOD and its VIU. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. Usually, Alcon applies the FVLCOD method for its impairment assessment. In most cases no direct or indirect observable market prices for identical or similar assets are available to measure the fair value less costs of disposal. Therefore, an estimate of FVLCOD is based on net present value techniques utilizing post-tax cash flows and discount rates. In the limited cases where the VIU method would be applied, net present value techniques would be applied using pre-tax cash flows and discount rates.

FVLCOD reflects estimates of assumptions that market participants would be expected to use when pricing the asset or CGUs, and for this purpose management considers the range of economic conditions that are expected to exist over the remaining useful life of the asset.

The estimates used in calculating the net present values are highly sensitive and depend on assumptions, which includes the following:

•	Amount and timing of projected future cash flows;

•	Long-term sales forecasts for periods of up to 25 years including sales growth rates;

•	Royalty rate for the Alcon brand name;

•	Terminal growth rate; and

•	Discount rate.

Other assumptions used in the net present values calculation include:

•	Future tax rate;

•	Actions of competitors (launch of competing products, marketing initiatives, etc.); and

•	Outcome of R&D activities and forecast of related costs (future product developments).

Generally, for intangible assets with a definite useful life Alcon uses cash flow projections for the whole useful life of these assets. For goodwill and the Alcon brand name, Alcon generally utilizes cash flow projections for a five -year period based on management forecasts, with a terminal value based on cash flow projections considering the long-term expected inflation rates and impact of demographic trends of the population to which Alcon products are prescribed, for later periods. Probability-weighted scenarios are typically used.

---

Discount rates used consider Alcon estimated weighted average cost of capital adjusted for specific country and currency risks associated with cash flow projections to approximate the weighted average cost of capital of a comparable market participant. Actual cash flows and values could vary significantly from forecasted future cash flows and related values derived using discounting techniques.

Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, and other short-term and highly liquid investments with original or weighted-average maturities of three months or less which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are usually presented within current financial debts on the consolidated balance sheets except in cases where a right of offset has been agreed with a bank which then allows for presentation on a net basis.

Financial assets

Non-current financial assets such as loans and long-term receivables from customers, primarily related to surgical equipment sales arrangements, advances and other deposits, are carried at amortized cost, which reflects the time value of money, less any allowances for uncollectable amounts.

Alcon assesses on a forward-looking basis the expected credit losses associated with its non-current financial assets valued at amortized cost.

For loans, advances and other deposits valued at amortized costs, impairments, which are based on their expected credit losses, and exchange rate losses are included in "Other expense" in the consolidated income statements and exchange rate gains and interest income, using the effective interest rate method, are included in "Other income" in the consolidated income statements.

For long-term receivables from customers, provisions for uncollectable amounts, which are based on their expected credit losses, are recorded as marketing and selling costs recognized in the consolidated income statements within "Selling, general & administration" expenses.

Fund investments are valued at fair value through profit and loss ("FVPL"). Unrealized gains and losses, including exchange gains and losses, are recognized in the consolidated income statements in "Other income" for gains and "Other expense" for losses.

Equity securities and convertible notes receivable held as strategic investments are generally designated at the date of acquisition as financial assets valued at fair value through other comprehensive income with no subsequent recycling through profit and loss. Unrealized gains and losses, including exchange gains and losses, are recorded as a fair value adjustment in the consolidated statements of comprehensive income. They are reclassified to "Other Reserves" when the equity security is sold. If these equity securities and convertible notes receivable are not designated at the date of acquisition as financial assets valued at fair value through other comprehensive income, they are valued at FVPL, as described above for fund investments. Changes in fair value of options to acquire development stage companies are charged to research and development expense.

Derivative financial instruments are initially recognized in the consolidated balance sheets at fair value and are remeasured to their current fair value at the end of each subsequent reporting period. The valuation of forward exchange rate contracts and foreign exchange swaps are based on the discounted cash flow model, using interest curves and spot rates at the reporting date as observable inputs. Unsettled forward contracts and swaps are measured at fair value at quarter-end with changes in fair value recorded to the consolidated income statements as unrealized gains or losses in "Other financial income & expense". Settled forward contracts and swaps are measured at maturity date at fair value with corresponding realized gains or losses recognized in the consolidated income statements in "Other financial income & expense". No hedge accounting is applied for these arrangements.

Inventories

Inventory is valued at acquisition or production cost determined on a first-in, first-out basis. This value is used for the "Cost of net sales" and "Cost of other revenues" in the consolidated income statements. Unsalable inventory is fully written off in the consolidated income statements under "Cost of net sales" and "Cost of other revenues."

---

Trade receivables

Trade receivables are initially recognized at their invoiced amounts, including any related sales taxes less adjustments for estimated revenue deductions such as chargebacks and cash discounts.

Provisions for expected credit losses are established using an expected credit loss model ("ECL"). The provisions are based on a forward-looking ECL, which includes possible default events on the trade receivables over the entire holding period of the trade receivable. These provisions represent the difference between the trade receivable's carrying amount in the consolidated balance sheets and the estimated net collectible amount. Charges for doubtful trade receivables are recorded as marketing and selling costs recognized in the consolidated income statements within "Selling, general & administration" expenses.

Leases

From January 1, 2019, with the implementation of the new standard IFRS 16, Leases , Alcon's accounting policy for leases is as follows:

As lessee, Alcon assesses whether a contract contains a lease at inception of a contract based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Alcon recognizes a right-of-use asset and a corresponding lease liability for all arrangements in which it is a lessee, except for leases with a term of twelve months or less (short-term leases) and low value leases for which Alcon has elected the recognition exemptions allowed under IFRS 16.

Right-of-use assets

Right-of-use assets are initially recognized at cost, which is comprised of the amount of the initial measurement of the corresponding lease liabilities, adjusted for any lease payments made at or prior to the commencement date of the lease, lease incentives received and initial direct costs incurred, as well as any expected costs for obligations to dismantle and remove right-of-use assets when they are no longer used.

Right-of-use assets are depreciated on a straight-line basis over the shorter of the useful life of the right-of-use asset or the end of the lease term.

Right-of-use assets are assessed for impairment whenever there is an indication that the balance sheet carrying amount may not be recoverable using cash flow projections for the useful life.

Lease liabilities

Lease liabilities are accounted for at amortized cost and are initially measured at the present value of future lease payments and are classified as current or non-current based on the due dates of the underlying principal payments. In determining the lease term, Alcon evaluates the renewal options and termination options reasonably certain to be exercised. Lease payments are discounted using the interest rate implicit in the lease or, if not readily determinable, the incremental borrowing rate Alcon would be expected to pay within the respective markets, on a borrowing with a similar term and security. Interest in the period is recorded within "Interest expense" in Alcon's consolidated income statements.

Lease liabilities are remeasured for changes in estimated lease term, future lease payments arising from a change in an index or rate, amounts expected to be payable under a residual value guarantee, or in assessment of whether Alcon will exercise a purchase, extension or termination option. Changes to initial lease contract terms are assessed to determine their impact on the scope of lease, and any modifications increasing the scope of the lease are treated as new contracts under the initial measurement principles, while modifications that do not increase or that decrease the scope of the lease result in an adjustment to the right-of-use asset which is remeasured as of the date of the modification.

Principal payments made on lease liabilities and any initial direct costs paid are classified as financing cash outflows, while interest payments are classified as operating cash outflows.

Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in the consolidated income statements and are classified as cash flows from operating activities. Short-term leases are leases with a lease term of twelve months in duration or less.

---

Prior to the adoption of IFRS 16 on January 1, 2019, Alcon's accounting policy for leases was as follows:

As lessee, Alcon classified leases of property, plant & equipment where Alcon had substantially all the risks and rewards of ownership as finance leases. Finance leases were capitalized at the lease's inception at the fair value of the leased asset or, if lower, the present value of the minimum lease payments. The corresponding lease liabilities, net of finance charges, were classified as current and non-current based on the due dates of the underlying principal payments. Each lease payment was allocated between the liability and interest expense. The interest expense was charged to Alcon's consolidated income statements over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The asset acquired under the finance lease was depreciated over the shorter of the asset’s useful life and the lease term.

Alcon classified leases in which a significant portion of the risks and rewards of ownership were not transferred to Alcon as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were recognized in the consolidated income statements on a straight-line basis over the period of the lease.

Refer to the "Impact of adopting significant new IFRS standards in 2019" section in this Note and Note 16 for additional details on the impact of adoption.

Legal liabilities

Alcon and its subsidiaries are subject to contingencies arising in the ordinary course of business such as patent litigation and other product-related litigation, commercial litigation, and governmental investigations and proceedings. Provisions are recorded where a reliable estimate can be made of the probable outcome of legal or other disputes against the subsidiary.

Contingent consideration

In a business combination, it is necessary to recognize contingent future payments to previous owners representing contractually defined potential amounts as a liability. Usually for Alcon, these are linked to milestone or royalty payments related to certain assets and are recognized as a financial liability at their fair value, which is then re-measured at each subsequent reporting date.

For the determination of the fair value of a contingent consideration various unobservable inputs are used. A change in these inputs might result in a significantly higher or lower fair value measurement. The inputs used are, among others, the timing and probability of regulatory and commercial success, sales forecast and assumptions regarding the discount rate, timing and different scenarios of triggering events. The significance and usage of these inputs to each contingent consideration may vary due to differences in the timing and triggering events for payments or in the nature of the asset related to the contingent consideration. These estimations typically depend on factors such as technical milestones or market performance and are adjusted for the probability of their likelihood of payment, and if material, appropriately discounted to reflect the impact of time.

Changes in the fair value of contingent consideration liabilities in subsequent periods are recognized in the consolidated income statements in "Cost of net sales" for currently marketed products and in "Research & development" for IPR&D.

The effect of unwinding the discount over time is recognized in "Interest expense" in the consolidated income statements.

Defined benefit pension plans and other post-employment benefits

The liability or asset recognized in the balance sheet in respect of defined benefit pension plans and other post-employment benefits is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating to the terms of the related obligation. In countries where there is no sufficient market for such bonds, the market rates on government bonds are used.

---

The current service cost for such post-employment benefit plans is included in the personnel expenses of the various functions where the associates are employed. The net interest on the net defined benefit liability is recognized as "Other expense" or "Other income". The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets.

Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in the period in which they occur, directly in other comprehensive income/(loss).

Defined contribution plans

For defined contribution plans, Alcon contributes to publicly or privately administered plans. Alcon has no further payment obligations once the contributions have been paid. The contributions are included in the personnel expenses of the various functions where the associates are employed.

Financial debts

Financial debts are initially recognized at fair value, net of transaction costs incurred. Financial debts are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs and discounts) and the redemption amount is recognized in the consolidated income statements over the period of the financial debts using the effective interest method. Fees paid on the establishment of credit facilities are recognized as transaction costs of the financial debt to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates, and is recognized in "Other financial income & expense" in the consolidated income statements.

Financial debts are derecognized from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial debt that has been extinguished and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in "Other financial income & expense" in the consolidated income statements.

Interest paid on financial debts is classified as operating activities in the consolidated statements of cash flows. Financial debts are classified as current liabilities unless Alcon has an unconditional right and intent to defer the settlement of the liability for at least twelve months after the reporting period.

Revenue

Net sales to third parties

Revenue on the sale of Alcon products and services, which is recorded as "Net sales to third parties" in the consolidated income statements, is recognized when a contractual promise to a customer (performance obligation) has been fulfilled by transferring control over the promised goods and services to the customer, substantially all of which is at the point in time of shipment to or receipt of the products by the customer or when the services are performed. If contracts contain customer acceptance provisions, revenue would be recognized upon the satisfaction of acceptance criteria. The amount of revenue to be recognized is based on the consideration Alcon expects to receive in exchange for its goods and services. If a contract contains more than one performance obligation, the consideration is allocated based on the relative standalone selling price of each performance obligation.

Surgical equipment may be sold together with other products and services under a single contract and may be structured as an outright cash sale, an installment sale, or lease. Surgical equipment installment sales and leases have a fixed payment amount which the customer may pay either in fixed intervals or as the customer purchases consumables and/or implantables. Revenues are recognized upon satisfaction of each of the performance obligations in the contract and the consideration is allocated based on the relative standalone selling price of each performance obligation.

•

Surgical equipment revenue from outright cash sales and installment sales arrangements is recognized at the point in time when control is transferred to the customer. Current portion of long-term receivables from customers and long-term receivables from customers for installment sales arrangements are recorded in "Other current assets" (see "Current portion of long-term receivables from customers" in Note 15 of these Consolidated Financial Statements) and "Financial assets" (see "Long-term receivables

---

from customers" in Note 12 of these Consolidated Financial Statements), respectively. Financing income for installment sales arrangements longer than twelve months is recognized over the term of the arrangement in "Other Income". Alcon applies the practical expedient under IFRS 15 to installment sales arrangements that are twelve months or less in duration.

•

In addition to cash and installment sales, revenue is recognized under finance and operating lease arrangements. Leases in which Alcon transfers substantially all the risks and rewards incidental to ownership to the customer are treated as finance lease arrangements. Revenue from finance lease arrangements is recognized at amounts equal to the fair value of the equipment, which approximates the present value of the minimum lease payments under the arrangements. As interest rates embedded in lease arrangements are approximately market rates, revenue under finance lease arrangements is comparable to revenue for outright sales. Finance income for arrangements longer than twelve months is deferred and subsequently recognized based on a pattern that approximates the use of the effective interest method and recorded in "Other income". Operating lease revenue for equipment rentals is recognized on a straight-line basis over the lease term in "Net sales to third parties".

The consideration Alcon receives in exchange for its goods or services may be fixed or variable. Variable consideration is only recognized when it is highly probable that a significant reversal of cumulative sales will not occur. The most common elements of variable consideration are listed below:

•	Rebates and discounts granted to government agencies, wholesalers, retail pharmacies and other customers are provisioned and recorded as a deduction from revenue at the time the related revenues are recorded or when the incentives are offered. They are calculated on the basis of historical experience and the specific terms in the individual agreements.

•	Cash discounts are offered to customers to encourage prompt payment and are provisioned and recorded as revenue deductions at the time the related sales are recorded.

•

Sales returns provisions are recognized and recorded as revenue deductions when there is historical experience of Alcon agreeing to customer returns and Alcon can reasonably estimate expected future returns. In doing so, the estimated rate of return is applied, determined based on historical experience of customer returns and considering any other relevant factors. This is applied to the amounts invoiced, also considering the amount of returned products to be destroyed versus products that can be placed back in inventory for resale. Where shipments are made on a re-sale or return basis, without sufficient historical experience for estimating sales returns, revenue is only recorded when there is evidence of consumption or when the right of return has expired.

Provisions for revenue deductions are adjusted to actual amounts as rebates, discounts and returns are processed. The provision represents estimates of the related obligations, requiring the use of judgment when estimating the effect of these sales deductions.

Prior to Alcon's adoption of IFRS 15 on January 1, 2018, Alcon's accounting policy for revenue recognition was substantially consistent with the revenue recognition principles under IFRS 15.

Other revenues

"Other revenues" include revenue from contract manufacturing services provided to the Former Parent which are recognized over time as the service obligations are completed and third party royalty income. Associated costs for contract manufacturing services are recognized in "Cost of other revenues".

Research & development

Internal research & development ("R&D") costs are fully charged to "Research & development" in the consolidated income statements in the period in which they are incurred. Alcon considers that regulatory and other uncertainties inherent in the development of new products preclude the capitalization of internal development expenses as an intangible asset until marketing approval from a regulatory authority is obtained in a major market such as the United States, the European Union, Switzerland or Japan.

Payments made to third parties to in-license or acquire intellectual property rights and products, including initial upfront and subsequent milestone payments, are capitalized as intangible assets. If additional payments are made to the originator company to continue to perform R&D activities, an evaluation is made as to the nature

---

of the payments. Such additional payments will be expensed if they are deemed to be compensation for subcontracted R&D services not resulting in an additional transfer of intellectual property rights to Alcon. Such additional payments will be capitalized if they are deemed to be compensation for the transfer to Alcon of additional intellectual property developed at the risk of the originator company. Subsequent internal R&D costs in relation to IPR&D and other assets are expensed until such time that technical feasibility can be proven, as demonstrated by the receipt of marketing approval for the related product from a regulatory authority in a major market.

Equity-based compensation

Each of the periods presented include expense related to incentive compensation provided to eligible Alcon associates in the form of equity-settled or equity-based awards including restricted stock units ("RSUs") and performance stock units ("PSUs").

Alcon expenses the fair values of RSUs and PSUs granted to associates as compensation over the related vesting periods within the various functions where the associates are employed. The fair values of the awards are determined on their grant dates and are adjusted to account for the specific provisions of each of the corresponding grant agreements.

Alcon RSUs do not entitle the recipients to dividends. As such, the fair value upon grant is therefore based on the Alcon share price at the grant date adjusted for potential future dividends to be paid within the holding period. The fair value of these grants, after making adjustments for assumptions related to their forfeiture during the vesting period, is expensed on a straight-line basis over the respective vesting period.

PSUs are subject to certain performance criteria being achieved during the vesting period and require plan participants to provide services during the vesting period. PSUs granted under Alcon's plans are subject to performance criteria based on internal performance metrics. The expense is determined taking into account assumptions concerning performance during the period relative to targets and expected forfeitures due to plan participants not meeting their service conditions. These assumptions are periodically adjusted. Any change in estimates for past services is recorded immediately as an expense or income in the consolidated income statements and amounts for future periods are expensed over the remaining vesting period. As a result, at the end of the vesting period, the total charge during the whole vesting period represents the amount that will finally vest. The number of equity instruments that finally vest is determined at the vesting date.

If a plan participant leaves Alcon for reasons other than retirement, disability or death, then unvested restricted shares, RSUs and PSUs are forfeited, unless determined otherwise by the provision of the plan rules or by the Compensation, Governance and Nomination Committee of the Alcon Board of Directors, for example, in connection with a reorganization.

Restructuring charges

Restructuring provisions are recognized for the direct expenditures arising from the restructuring, where the plans are sufficiently detailed and where appropriate communication to those affected has been made.

Charges to increase restructuring provisions are included in "Other expense" in the consolidated income statements. Corresponding releases are recorded in "Other income" in the consolidated income statements.

Taxes

Taxes on income are expensed in the same periods as the revenues and expenses to which they relate and include any interest and penalties incurred during the period. Deferred taxes are determined using the comprehensive liability method and are calculated on the temporary differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet prepared for purposes of these Consolidated Financial Statements, except for those temporary differences related to investments in subsidiaries where the timing of their reversal can be controlled and it is probable that the difference will not reverse in the foreseeable future. Since the retained earnings are reinvested, withholding or other taxes on eventual distribution of a subsidiary's retained earnings are only taken into account when a dividend has been planned.

The estimated amounts for current and deferred tax assets or liabilities, including any amounts related to any uncertain tax positions, are based on currently known facts and circumstances. Tax returns are based on an interpretation of tax laws and regulations and reflect estimates based on these judgments and interpretations.

---

The tax returns are subject to examination by the competent taxing authorities which may result in an assessment being made requiring payments of additional tax, interest or penalties. Inherent uncertainties exist in the estimates of the tax positions.

Earnings (loss) per share

Basic earnings (loss) per share is based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding.

Impact of adopting significant new IFRS standards in 2019

Effective January 1, 2019, Alcon implemented IFRS 16, Leases , which provides a new model for lessee accounting in which substantially all leases are now recognized on the balance sheet as Right-of-use assets with corresponding Lease liabilities. The standard replaces IAS 17, Leases .

Upon adoption of IFRS 16, right-of-use assets are recognized based on the amount of the lease liability adjusted for payments made before the lease commencement date, lease incentives and other items related to the lease agreements. Lease liabilities are recognized based on the net present value of remaining lease payments and are classified as current or non-current based on the due dates of the underling principal payments. Upon adoption of the new standard, a portion of the annual operating lease costs previously fully recognized as a functional expense is recorded as interest expense. In addition, the portion of the lease payments representing a reduction of the lease liability is recognized in the cash flow statement as an outflow from financing activities, which was previously fully recognized as an outflow from operating activities for operating leases.

IFRS 16 substantially carries forward the lessor accounting requirements under IAS 17 such that adoption of the standard did not have a significant impact upon Alcon's accounting for surgical equipment leases where Alcon is the lessor and for which Alcon's accounting policy is included in the Revenue accounting policy in this Note to the Consolidated Financial Statements.

Alcon applied the modified retrospective method, with right-of-use assets measured at an amount equal to the lease liability, adjusted by the amount of the prepaid or accrued lease payments relating to those leases recognized in the balance sheet immediately before the date of initial application. In applying IFRS 16 for the first time, Alcon has used the practical expedients discussed in Note 16 of these Consolidated Financial Statements. The adoption of the standard did not have an impact on "Other Reserves" in the period of adoption and prior years were not restated.

Refer to Note 16 to these Consolidated Financial Statements for further information on the impact of adoption of IFRS 16, Leases.

New standards and interpretations not yet adopted

Amendments to IFRS 3, Business Combinations , are effective for transactions occurring after January 1, 2020. The amendments change the definition of a business in evaluating business combinations and asset acquisitions, and also provide Alcon an option to apply a concentration test to determine if the fair value of gross assets acquired is concentrated in a single asset or a group of similar assets. Under the concentration test, where substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The changes to the definition of a business will likely result in Alcon accounting for more acquisitions as asset acquisitions.

There are no other IFRS standards or interpretations not yet effective that would be expected to have a material impact on Alcon.

---

Significant transactions in 2019

Refinancing of Bridge Facility and Facility A financial debts

On September 23, 2019, Alcon through its wholly-owned subsidiary, Alcon Finance Corporation ("AFC"), refinanced $ 2 billion of the bridge and term loans, which had been issued in April 2019, with $ 500 million of 2.750 % senior notes due 2026, $ 1 billion of 3.000 % senior notes due 2029, and $ 500 million of 3.800 % senior notes due 2049. The bridge and term loans, notes, and refinancing are described in Note 17 of these Consolidated Financial Statements.

Completion of Spin-off from Novartis through a dividend in kind distribution to Novartis shareholders

The Spin-off was executed on April 9, 2019 as described in Note 1 . The below transactions occurred in April 2019, immediately preceding the Spin-off.

On April 2, 2019, Alcon borrowed $ 3.2 billion against the bridge and other term loans which were executed on March 6, 2019 and are described in Note 17 of these Consolidated Financial Statements. These borrowings increased the Company's third party financial debts to $ 3.5 billion at the date of Spin-off. Through a series of intercompany transactions, Alcon then paid approximately $ 3.1 billion in cash to Novartis and its affiliates prior to the Spin-off, decreasing Alcon's net assets to approximately $ 20.0 billion at the date of Spin-off.

Surgical-Acquisition of PowerVision, Inc.

On March 13, 2019, Alcon acquired 100 % of the outstanding shares and equity of PowerVision, Inc. ("PowerVision"), a privately-held, US-based company focused on developing accommodative, implantable intraocular lenses. This technology allows the intraocular lens to respond to natural muscular movements in the eye to alter shape and focus. The PowerVision acquisition was executed as part of Alcon's commitment to innovation in advanced technology intraocular lenses ("AT-IOLs").

The fair value of the total purchase consideration was $ 424 million . This amount consisted of an initial cash payment of $ 289 million and the fair value of the probability weighted contingent consideration of $ 135 million due to PowerVision shareholders, which they are eligible to receive upon the achievement of specified regulatory and commercialization milestones. The purchase price allocation resulted in net identifiable assets of $ 418 million , which consisted of in-process research & development intangible assets of $ 505 million , a net deferred tax liability of $ 93 million , and other net assets of $ 6 million . Goodwill of $ 6 million was also recognized which is attributable to the assembled workforce. Cash paid for the acquisition, net of cash acquired, was $ 283 million . The 2019 results of operations since the date of acquisition and transaction costs for the acquisition were not material.

Significant transactions in 2018

Surgical-Acquisition of TrueVision Systems, Inc.

On December 19, 2018, Alcon acquired 100 % of the outstanding shares and equity of TrueVision Systems, Inc. ("TrueVision"), a privately held US-based company. TrueVision developed the 3D scope technology currently used in the commercially marketed Alcon product NGENUITY . This technology allows retina surgery specialists to have a 3D visualization of the back of the eye with greater depth and detail than traditional microscopes.

The fair value of the total purchase consideration was $ 146 million . This amount consists of an initial cash payment of $ 110 million and the fair value of the probability weighted contingent consideration of $ 36 million due to TrueVision shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of $ 144 million , which consisted of intangible assets of $ 172 million , net deferred tax liability of $ 29 million and other net assets of $ 1 million . Goodwill of $ 2 million was also recognized which is attributable to the assembled workforce. The 2018 results of operations following the date of acquisition were not material.

---

Vision Care-Acquisition of Tear Film Innovations, Inc.

On December 17, 2018, Alcon acquired 100 % of the outstanding shares and equity of Tear Film Innovations, Inc. ("Tear Film"), a privately held US-based company. Tear Film is the manufacturer of the iLux device, an innovative therapeutic device used to treat Meibomian Gland Dysfunction, a leading cause of dry eye.

The fair value of the total purchase consideration was $ 145 million . This amount consists of an initial cash payment of $ 79 million and the fair value of the probability weighted contingent consideration of $ 66 million due to Tear Film previous owners, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of $ 143 million , which consisted of intangible assets of $ 174 million , net deferred tax liability of $ 37 million , cash of $ 5 million and other net assets of $ 1 million . Goodwill of $ 2 million was also recognized which is attributable to the assembled workforce. The 2018 results of operations following the date of acquisition were not material.

Significant transactions in 2017

Surgical-Acquisition of ClarVista Medical, Inc.

On September 20, 2017, Alcon acquired 100 % of the outstanding shares and equity of ClarVista Medical, Inc., a privately held California, US-based company focused on developing the HARMONI Modular IOL System, a novel intraocular lens ("IOL") used to restore vision after cataract surgery.

The fair value of the total purchase consideration was $ 125 million . This amount consists of an initial cash payment of $ 71 million and the net present value of the contingent consideration of $ 54 million due to ClarVista shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of $ 123 million , which consisted of intangible assets of $ 178 million , deferred tax assets of $ 8 million , cash and cash equivalents of $ 1 million and deferred tax liabilities of $ 64 million . Goodwill of $ 2 million was also recognized which is attributable to the assembled workforce. The 2017 results of operations since the date of acquisition were not material.

---

The segment information disclosed in these Consolidated Financial Statements reflects historical results consistent with the identifiable reporting segments of Alcon and financial information that the Chief Operating Decision Maker ("CODM") reviews to evaluate segmental performance and allocate resources among the segments. The CODM is the Executive Committee of Alcon.

The businesses of Alcon are divided operationally on a worldwide basis into two identified reporting segments, Surgical and Vision Care. As indicated below, certain income and expenses are not allocated to segments.

Reporting segments are presented in a manner consistent with the internal reporting to the CODM. The reporting segments are managed separately due to their distinct needs and activities for research, development, manufacturing, distribution, and commercial execution.

The Executive Committee of Alcon is responsible for allocating resources and assessing the performance of the reporting segments.

In Surgical, Alcon researches, develops, manufactures, distributes and sells ophthalmic products for cataract surgery, vitreoretinal surgery, refractive laser surgery and glaucoma surgery. The surgical portfolio also includes implantables, consumables and surgical equipment required for these procedures and supports the end-to-end procedure needs of the ophthalmic surgeon.

In Vision Care, Alcon researches, develops, manufactures, distributes and sells daily disposable, reusable, and color-enhancing contact lenses and a comprehensive portfolio of ocular health products, including products for dry eye, contact lens care and ocular allergies, as well as ocular vitamins and redness relievers.

Alcon also provides services, training, education and technical support for both the Surgical and Vision Care businesses.

The basis of preparation described in Note 2 , and the selected accounting policies mentioned in Note 3 are used in the reporting of segment results.

The Executive Committee of Alcon evaluates segmental performance and allocates resources among the segments primarily based on net sales and segment contribution.

Net identifiable assets are not assigned to the segments in the internal reporting to the CODM, and are not considered in evaluating the performance of the business segments by the Executive Committee of Alcon.

Segment contribution excludes amortization and impairment costs for acquired product rights or other intangibles, general and administrative expenses for corporate activities, and certain other income and expense items.

General & administration (corporate) includes the costs of the Alcon corporate headquarters, including all related corporate function costs. For the historical comparative period only, the related corporate function costs were allocated to Alcon from its Former Parent.

Other expense, net of other income, includes other items of income and expense such as spin readiness and separation costs, transformation program costs, restructuring costs and legal settlements that are not attributable to a specific segment.

---

Segmentation - Consolidated income statements

	Surgical						Vision Care						Company
($ millions)	2019			2018			2019			2018			2019			2018
Net sales to third parties	4,174			3,999			3,188			3,150			7,362			7,149
Sales to former parent	—			2			—			2			—			4
Other revenues	—			—			146			—			146			—
Net sales and other revenues	4,174			4,001			3,334			3,152			7,508			7,153
Segment contribution (1)	923			813			563			594			1,486			1,407
Amortization of intangible assets													( 1,084	)		( 1,019	)
Impairment charges on intangible assets													—			( 378	)
General & administration (corporate)													( 243	)		( 206	)
Other (expense)/income, net													( 346	)		( 52	)
Operating (loss)													( 187	)		( 248	)
Interest expense													( 113	)		( 24	)
Other financial income & expense													( 32	)		( 28	)
(Loss) before taxes													( 332	)		( 300	)

Included in segment contribution are :

	Surgical						Vision Care						Not allocated						Total
($ millions)	2019			2018			2019			2018			2019			2018			2019			2018
Depreciation of property, plant & equipment	( 112	)		( 114	)		( 155	)		( 125	)		—			—			( 267	)		( 239	)
Depreciation of right-of-use assets	( 42	)		—			( 24	)		—			—			—			( 66	)		—
Impairment charges on property, plant & equipment, net	( 3	)		( 1	)		( 5	)		( 1	)		—			—			( 8	)		( 2	)
Equity-based compensation (2)	( 55	)		( 45	)		( 44	)		( 36	)		( 15	)		( 12	)		( 114	)		( 93	)

(1)	The segment contribution corresponds to Net sales and Other revenues less Cost of net sales, Cost of other revenues, Selling, general & administration and Research & development attributable to segments, excluding amortization and impairments on intangible assets.

(2)	Equity-based compensation not allocated to segments in 2018 reflects an estimate of the allocation for corporate functions in the historical period based on 2019 actual percentages.

---

	Surgical						Vision Care						Company
($ millions)	2018			2017			2018			2017			2018			2017
Net sales to third parties	3,999			3,733			3,150			3,052			7,149			6,785
Sales to former parent	2			3			2			1			4			4
Other revenues	—			—			—			3			—			3
Net sales and other revenues	4,001			3,736			3,152			3,056			7,153			6,792
Segment contribution (1)	813			691			594			625			1,407			1,316
Amortization of intangible assets													( 1,019	)		( 1,033	)
Impairment charges on intangible assets													( 378	)		( 57	)
General & administration (corporate)													( 206	)		( 202	)
Other (expense)/income, net													( 52	)		( 101	)
Operating (loss)													( 248	)		( 77	)
Interest expense													( 24	)		( 27	)
Other financial income and expense													( 28	)		( 23	)
(Loss) before taxes													( 300	)		( 127	)

Included in segment contribution are:

	Surgical						Vision Care						Not allocated						Company
($ millions)	2018			2017			2018			2017			2018			2017			2018			2017
Depreciation of property, plant & equipment	( 114	)		( 106	)		( 125	)		( 109	)		—			—			( 239	)		( 215	)
Impairment charges on property, plant & equipment, net	( 1	)		—			( 1	)		—			—			—			( 2	)		—
Equity-based compensation (2)	( 45	)		( 34	)		( 36	)		( 27	)		( 12	)		( 10	)		( 93	)		( 71	)

(1)	The segment contribution corresponds to Net sales and Other revenues less Cost of net sales, Cost of other revenues, Selling, general & administration and Research & development attributable to segments, excluding amortization and impairments on intangible assets.

(2)	Equity-based compensation not allocated to segments in 2018 and 2017 reflects an estimate of the allocation for corporate functions in the historical periods based on 2019 actual percentages.

Segmentation - Additional balance sheet disclosure

	Surgical						Vision Care						Not allocated (1)						Total
($ millions)	2019			2018			2019			2018			2019			2018			2019			2018
Goodwill	4,544			4,538			4,361			4,361			—			—			8,905			8,899
Intangible assets other than goodwill	5,770			6,053			1,481			1,646			2,980			2,980			10,231			10,679

(1) Alcon brand name.

---

Net sales by segment

($ millions)	2019			2018			2017
Surgical
Implantables	1,210			1,136			1,045
Consumables	2,304			2,227			2,104
Equipment/other	660			636			584
Total Surgical	4,174			3,999			3,733
Vision Care
Contact lenses	1,969			1,928			1,836
Ocular health	1,219			1,222			1,216
Total Vision Care	3,188			3,150			3,052
Net sales to third parties	7,362			7,149			6,785

Geographical information

The following table shows the United States, International and countries that accounted for more than 5% of at least one of the respective Alcon totals, for net sales for the years ended December 31, 2019 , 2018 and 2017 , and for selected non-current assets at December 31, 2019 , and 2018 :

	Net sales (1)																		Total of selected non-current assets (2)
($ millions unless indicated otherwise)	2019						2018						2017						2019						2018
Country
United States	3,055			41	%		2,942			41	%		2,800			41	%		10,559			47	%		10,056			45	%
International	4,307			59	%		4,207			59	%		3,985			59	%		12,014			53	%		12,401			55	%
thereof:
Switzerland (country of domicile)	56			1	%		57			1	%		57			1	%		10,486			46	%		11,166			50	%
Japan	656			9	%		593			8	%		561			8	%		66			—	%		12			—	%
China	377			5	%		341			5	%		279			4	%		18			—	%		2			—	%
Other	3,218			44	%		3,216			45	%		3,088			46	%		1,444			6	%		1,221			5	%
Company total	7,362			100	%		7,149			100	%		6,785			100	%		22,573			100	%		22,457			100	%

(1)	Net sales from operations by location of third-party customer.

(2)	Includes property, plant & equipment, right-of-use assets, goodwill and other intangible assets.

No customer accounted for 10% or more of Alcon's net sales.

---

For the years ended December 31, 2019 , 2018 and 2017 , "Interest expense" and "Other financial income & expense" are:

Interest expense

($ millions)	2019			2018			2017
Interest expense on financial debts	( 81	)		( 10	)		( 12	)
Interest expense from discounting long-term liabilities	( 21	)		( 9	)		( 10	)
Interest expense on lease liabilities (1)	( 11	)		( 5	)		( 5	)
Total interest expense	( 113	)		( 24	)		( 27	)

(1)	For the years ended December 31, 2018 and 2017 , interest expense on finance leases was included in "Interest expense on lease liabilities".

Other financial income & expense

---

(Loss) before taxes

($ millions)	2019			2018			2017
Switzerland	( 274	)		( 227	)		( 104	)
Foreign	( 58	)		( 73	)		( 23	)
Total (loss) before taxes	( 332	)		( 300	)		( 127	)

Current and deferred income tax (expense)/income

($ millions)	2019			2018			2017
Switzerland	( 34	)		( 77	)		( 8	)
Foreign	( 168	)		( 157	)		( 95	)
Current income tax expense	( 202	)		( 234	)		( 103	)
Switzerland	( 246	)		78			7
Foreign	124			229			479
Deferred tax (expense)/income	( 122	)		307			486
Total income tax (expense)/income	( 324	)		73			383

---

Analysis of tax rate

Alcon's overall applicable tax rate can change each year since it is calculated as the weighted average tax rate based on pre-tax (loss)/income of each subsidiary. The main elements contributing to the difference between Alcon's overall applicable tax rate and the effective tax rate are summarized in the below table.

	2019						2018						2017
	$ m			%			$ m			%			$ m			%
Applicable tax rate	39			11.7	%		82			27.3	%		37			29.1	%
Effect of disallowed expenditures	( 23	)		( 6.9	)%		( 26	)		( 8.7	)%		( 12	)		( 9.4	)%
Effect of share based compensation	( 1	)		( 0.3	)%		( 2	)		( 0.7	)%		( 4	)		( 3.1	)%
Effect of income taxed at reduced rates	2			0.6	%		2			0.7	%		—			—
Effect of tax credits and allowances	7			2.1	%		13			4.3	%		5			3.9	%
Effect of adjustments to contingent consideration liabilities	11			3.3	%		11			3.7	%		( 8	)		( 6.3	)%
Effect of option payments	( 12	)		( 3.6	)%		( 17	)		( 5.7	)%		( 12	)		( 9.4	)%
Effect of liquidation of a subsidiary	—			—			—			—			( 10	)		( 7.9	)%
Effect of tax benefits expiring in 2017 (1)	—			—			—			—			( 12	)		( 9.4	)%
Effect of tax rate changes (2)	( 342	)		( 103.0	)%		( 14	)		( 4.7	)%		—			—
Effect of changes in uncertain tax positions	10			3.0	%		( 33	)		( 11.0	)%		( 10	)		( 7.9	)%
Effect of other items	( 2	)		( 0.6	)%		( 4	)		( 1.2	)%		( 4	)		( 3.2	)%
Effect of prior year items (3)	( 13	)		( 3.9	)%		61			20.3	%		—			—	%
Effect of tax rate change on current and deferred tax assets and liabilities from US tax reform (4)	—			—	%		—			—	%		413			325.2	%
Effective tax rate	( 324	)		( 97.6	)%		73			24.3	%		383			301.6	%

(1)	Effect of tax benefits expiring in 2017 relates to a Swiss subsidiary that was not subject to income tax through the end of calendar year 2017.

(2)

Effect of tax rate changes in 2019 relates primarily to (i) the adoption of the Swiss Tax Reform which has resulted in a non-cash tax increase in the tax expense of $ 304 million relating to the re-measurement of the Swiss deferred tax balances and (ii) a $ 31 million re-measurement of US deferred tax balances as a result of rate changes in the US following legal entity reorganizations executed related to the Spin-off.

(3)	In 2019, the prior year items relate to changes in certain estimates which resulted in a $ 13 million tax expense. In 2018, the prior year items relate to out of period income tax benefit of $ 61 million , which Alcon concluded was not material to the current period or the prior periods to which they relate.

(4)	Effect of tax rate change on US current and deferred tax assets and liabilities in 2017 relate to the enactment of the Tax Cuts and Jobs Act by the US, which reduced the corporate tax rate from 35% to 21% effective January 1, 2018. This required a re-measurement of the deferred tax balances and a portion of the current tax payables.

Alcon has a substantial business presence in many countries and is therefore subject to different income and expense items that are non-taxable (permanent differences) or are taxed at different rates in those tax jurisdictions. This results in a difference between Alcon's applicable tax rate and effective tax rate as shown in the table above.

The applicable tax rate in 2019 , 2018 and 2017 was impacted by pre-tax losses in certain tax jurisdictions. The fluctuation in the taxes and the effective tax rates, excluding Swiss and US tax reform, is primarily due to the geographical pre-tax income and loss mix across certain tax jurisdictions relative to Alcon's consolidated (loss)/income before taxes, changes in uncertain tax positions and certain non-recurring items.

8.1    Share capital

The share capital of the Company as of December 31, 2019 is CHF 20 million , which is comprised of 491.7 million common shares, nominal value of CHF 0.04 per share.

On April 9, 2019, the date of the Spin-off, 488.2 million shares of the Company's common stock were distributed to Novartis shareholders and Novartis ADR holders. The shares were distributed from the Company's existing

---

share capital of 488.7 million shares. On November 19, 2019, the Board of Directors approved an increase of CHF 120,000 out of the Company’s authorized share capital through the issuance of 3.0 million additional shares, nominal value CHF 0.04 per share, to fulfill the future vesting of existing and future equity-based awards. These additional shares were issued as Treasury shares in December 2019 as part of the Company’s authorized share capital according to the authority granted by the shareholders at the Company’s last Annual General Meeting held on January 29, 2019 and reflected in the Company’s Articles of Incorporation. While the transaction increases the number of shares available for delivery under the Company’s equity-based compensation plans, there is no immediate impact on the number of shares outstanding or earnings per share calculations until shares are delivered to plan participants under the plans.

During the period, 0.1 million shares were delivered for awards vesting under the Company's equity incentive programs. At December 31, 2019 , the Company had 488.3 million outstanding common shares and 3.4 million shares held in the Company's treasury share accounts. Of the Company's 3.4 million shares held in treasury, 3.0 million may only be used to fulfill the future vesting of existing and future equity-based awards.

No dividends were declared or paid from April 9, 2019 through December 31, 2019 .

8.2    Earnings/(loss) per share

Basic earnings/(loss) per share is computed by dividing net (loss)/income for the period by the weighted average number of common shares outstanding during the period. For the year ended December 31, 2019 , the weighted average number of shares outstanding was 488.2 million shares. For periods prior to the Spin-off, the denominator for basic earnings/(loss) per share uses the number of shares distributed on the date of the Spin-off.

The only potentially dilutive securities are the outstanding unvested equity-based awards under the Company's equity-based incentive plans, as described in Note 24 to these Consolidated Financial Statements. Except when the effect would be anti-dilutive, the calculation of diluted earnings/(loss) per common share includes the weighted average net impact of unvested equity-based awards. For the year ended December 31, 2019 , 1.9 million shares related to unvested equity-based awards have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive. For periods prior to the Spin-off, the denominator for diluted earnings per share uses the number of shares distributed on the date of the Spin-off.

---

The following table summarizes the movements of property, plant & equipment during 2019 :

($ millions)	Land			Buildings			Construction in progress			Machinery & other equipment			Total
Cost
January 1, 2019	60			1,527			657			2,646			4,890
Additions (1)				11			514			82			607
Impact of business combinations										1			1
Disposals and derecognitions (2)				( 17	)		( 1	)		( 161	)		( 179	)
Transfers with former parent				4			2			29			35
Reclassifications for assets placed in service				104			( 417	)		313			—
Other reclassifications	( 27	)											( 27	)
Currency translation effects				( 1	)					( 4	)		( 5	)
December 31, 2019	33			1,628			755			2,906			5,322
Accumulated depreciation
January 1, 2019	( 7	)		( 558	)		( 7	)		( 1,518	)		( 2,090	)
Depreciation charge				( 73	)					( 194	)		( 267	)
Impairment charge							( 1	)		( 7	)		( 8	)
Disposals and derecognitions (2)				14						151			165
Transfers with former parent				( 2	)					( 15	)		( 17	)
Other reclassifications	7												7
Currency translation effects				1									1
December 31, 2019	—			( 618	)		( 8	)		( 1,583	)		( 2,209	)
Net book value at December 31, 2019	33			1,010			747			1,323			3,113

(1)	Includes $ 56 million in non-cash additions.

(2)	Derecognition of assets that are no longer used and are not considered to have a significant disposal value or other alternative use.

As of December 31, 2019, commitments for purchases of property, plant & equipment were $ 212 million . There were no capitalized borrowing costs.

---

The following table summarizes the movements of property, plant and equipment during 2018 :

($ millions)	Land			Buildings			Construction in progress			Machinery & other equipment			Total
Cost
January 1, 2018	53			1,386			503			2,506			4,448
Additions				4			468			52			524
Impact of business combinations										1			1
Disposals and derecognitions (1)				( 16	)					( 71	)		( 87	)
Reclassifications and transfers with former parent	10			252			( 302	)		203			163
Reclassification to right-of-use assets (2)				( 86	)								( 86	)
Currency translation effects	( 3	)		( 13	)		( 12	)		( 45	)		( 73	)
December 31, 2018	60			1,527			657			2,646			4,890
Accumulated depreciation
January 1, 2018	( 3	)		( 447	)					( 1,438	)		( 1,888	)
Depreciation charge				( 70	)					( 169	)		( 239	)
Impairment charge							( 1	)		( 1	)		( 2	)
Disposals and derecognitions (1)				15						72			87
Transfers with former parent	( 4	)		( 69	)		( 6	)		( 12	)		( 91	)
Reclassification to right-of-use assets (2)				7									7
Currency translation effects				6						30			36
December 31, 2018	( 7	)		( 558	)		( 7	)		( 1,518	)		( 2,090	)
Net book value at December 31, 2018	53			969			650			1,128			2,800

(1)	Derecognition of assets that are no longer used and are not considered to have a significant disposal value or other alternative use.

(2)	The December 31, 2018 balance previously reported for a finance lease asset of $ 79 million has been reclassified from "Property, Plant, & Equipment" to "Right-of-use assets" .

As of December 31, 2018, commitments for purchases of property, plant & equipment were $ 93 million and capitalized borrowing costs were $ 1 million .

---

The following table summarizes the movements of goodwill and other intangible assets in 2019 :

				Intangible assets other than goodwill
($ millions)	Goodwill			Alcon brand name			Acquired research & development			Technologies			Currently marketed products			Marketing know-how			Other intangible assets (including software)			Total
Cost
January 1, 2019	8,899			2,980			249			5,369			4,440			5,960			494			19,492
Impact of business combinations	6						505															505
Additions							7												125			132
Reclassifications	—			—			( 33	)		—			—			—			33			—
Disposals and derecognitions (1)																			( 41	)		( 41	)
December 31, 2019	8,905			2,980			728			5,369			4,440			5,960			611			20,088
Accumulated amortization
January 1, 2019							( 3	)		( 4,184	)		( 2,592	)		( 1,906	)		( 128	)		( 8,813	)
Amortization charge										( 508	)		( 250	)		( 240	)		( 86	)		( 1,084	)
Accumulated amortization on disposals and derecognitions (1)																			40			40
December 31, 2019							( 3	)		( 4,692	)		( 2,842	)		( 2,146	)		( 174	)		( 9,857	)
Net book value at December 31, 2019	8,905			2,980			725			677			1,598			3,814			437			10,231

(1)	Derecognitions of assets that are no longer used or being developed and are not considered to have a significant disposal value or other alternative use.

The following table summarizes the allocation of the net book values of goodwill and other intangible assets by reporting segment at December 31, 2019 :

				Intangible assets other than goodwill
($ millions)	Goodwill			Alcon brand name			Acquired research & development			Technologies			Currently marketed products			Marketing know-how			Other intangible assets (including software)			Total
Surgical	4,544						721			677			374			3,814			184			5,770
Vision Care	4,361						4						1,224						253			1,481
Not allocated to segment (1)				2,980																		2,980
Net book value at December 31, 2019	8,905			2,980			725			677			1,598			3,814			437			10,231

(1) Alcon brand name

The Surgical and Vision Care segments' cash generating units, to which goodwill is allocated are comprised of a group of smaller cash generating units. The valuation method of the recoverable amount of the cash generating units, to which goodwill is allocated, is based on the fair value less costs of disposal.

The Alcon brand name is an intangible asset with an indefinite life. The intangible asset is not allocated to the segments as it is used to market the Alcon-branded products of both the Surgical and Vision Care businesses. Net sales of these products together are the grouping of cash generating units, which is used to determine the recoverable amount. The valuation method is based on the fair value less costs of disposal.

---

The following assumptions are used in the calculations for the recoverable amounts of goodwill and the Alcon brand name:

(As a percentage)	Surgical		Vision Care
Terminal growth rate	3.0		3.0
Discount rate (post-tax)	7.5		7.0

The Surgical and Vision Care segments' terminal growth rate assumption of 3 % takes into consideration how the industry is expected to grow, analysis of industry expert reports, and expected relevant changes in demographics for various markets. The discount rates for both Surgical and Vision Care segments consider Alcon's weighted average cost of capital, adjusted to approximate the weighted average cost of capital of comparable market participants. Both the terminal growth rate and the discount rate are consistent with external sources of information.

The fair value less costs of disposal, for all groupings of cash generating units containing goodwill or indefinite life intangible assets, is reviewed for the impact of reasonably possible changes in key assumptions. In particular Alcon considered an increase in the discount rate, a decrease in the terminal growth rate and certain negative impacts on the forecasted cash flows. These reasonably possible changes in key assumptions did not indicate an impairment.

Refer to "Impairment of goodwill, Alcon brand name and definite lived intangible assets" in Note 3 in these Consolidated Financial Statements for additional disclosures on how Alcon performs goodwill and intangible asset impairment testing.

The following table summarizes the movements of goodwill and other intangible assets in 2018 :

				Intangible assets other than goodwill
($ millions)	Goodwill			Alcon brand name			Acquired research & development			Technologies			Currently marketed products			Marketing know-how			Other intangible assets (including software)			Total
Cost
January 1, 2018	8,895			2,980			242			5,368			4,094			5,960			370			19,014
Impact of business combinations	4												346									346
Additions							71			1									125			197
Disposals and derecognitions (1)							( 64	)											( 1	)		( 65	)
December 31, 2018	8,899			2,980			249			5,369			4,440			5,960			494			19,492
Accumulated amortization
January 1, 2018							( 58	)		( 3,635	)		( 2,008	)		( 1,668	)		( 104	)		( 7,473	)
Amortization charge										( 510	)		( 247	)		( 238	)		( 24	)		( 1,019	)
Accumulated amortization on disposals and derecognitions (1)							57															57
Impairment charge							( 2	)		( 39	)		( 337	)								( 378	)
December 31, 2018							( 3	)		( 4,184	)		( 2,592	)		( 1,906	)		( 128	)		( 8,813	)
Net book value at December 31, 2018	8,899			2,980			246			1,185			1,848			4,054			366			10,679

(1)	Derecognitions of assets that are no longer used or being developed and are not considered to have a significant disposal value or other alternative use.

The following table summarizes the allocation of the net book values of goodwill and other intangible assets by reporting segment at December 31, 2018 :

---

				Intangible assets other than goodwill
($ millions)	Goodwill			Alcon brand name			Acquired research & development			Technologies			Currently marketed products			Marketing know-how			Other intangible assets (including software)			Total
Surgical	4,538						216			1,185			438			4,054			160			6,053
Vision Care	4,361						30						1,410						206			1,646
Not allocated to segment				2,980																		2,980
December 31, 2018	8,899			2,980			246			1,185			1,848			4,054			366			10,679

Intangible asset impairment charges

The following table shows the intangible asset impairment charges for 2019 and 2018 :

($ millions)	2019			2018
Surgical	—			( 378	)
Vision Care	—			—
Total	—			( 378	)

---

($ millions)	Property, plant & equipment			Intangible assets			Pensions and other benefit obligations of associates			Inventories			Tax loss carry- forwards			Other assets, provision and accruals			Total
Gross deferred tax assets at December 31, 2018	12						125			262			39			235			673
Gross deferred tax liabilities at December  31, 2018	( 94	)		( 1,403	)		( 2	)		( 14	)					( 18	)		( 1,531	)
Net deferred tax balance at December  31, 2018	( 82	)		( 1,403	)		123			248			39			217			( 858	)
At December 31, 2018	( 82	)		( 1,403	)		123			248			39			217			( 858	)
(Charged)/credited to income	( 71	)		( 194	)		18			111			50			( 36	)		( 122	)
Credited to equity																25			25
Credited to other comprehensive income							11									5			16
Impact of business combinations				( 121	)								28						( 93	)
Other movements	( 6	)		11			( 11	)		( 11	)		( 7	)		24			—
Net deferred tax balance at December 31, 2019	( 159	)		( 1,707	)		141			348			110			235			( 1,032	)
Gross deferred tax assets at December 31, 2019	13			6			151			371			110			281			932
Gross deferred tax liabilities at December 31, 2019	( 172	)		( 1,713	)		( 10	)		( 23	)		—			( 46	)		( 1,964	)
Net deferred tax balance at December 31, 2019	( 159	)		( 1,707	)		141			348			110			235			( 1,032	)

The below table presents the Net deferred tax balance as of December 31, 2019 after offsetting $ 578 million of deferred tax assets and liabilities within the same tax jurisdiction.

($ millions)	At December 31, 2019
Deferred tax assets	354
Deferred tax liabilities	( 1,386	)
Net deferred tax balance	( 1,032	)

---

($ millions)	Property, plant & equipment			Intangible assets			Pensions and other benefit obligations of associates			Inventories			Tax loss carry- forwards			Other assets, provisions and accruals			Total
Gross deferred tax assets at January 1, 2018	10						121			169			18			232			550
Gross deferred tax liabilities at January 1, 2018	( 69	)		( 1,531	)		( 7	)		( 32	)					( 25	)		( 1,664	)
Net deferred tax balance at January 1, 2018	( 59	)		( 1,531	)		114			137			18			207			( 1,114	)
At January 1, 2018	( 59	)		( 1,531	)		114			137			18			207			( 1,114	)
Credited/(charged) to income	( 23	)		212			13			82			9			14			307
Charged to equity																( 2	)		( 2	)
Charged to other comprehensive income							( 2	)											( 2	)
Impact of business combinations				( 78	)								12						( 66	)
Other movements				( 6	)		( 2	)		29						( 2	)		19
Net deferred tax balance at December 31, 2018	( 82	)		( 1,403	)		123			248			39			217			( 858	)
Gross deferred tax assets at December 31, 2018	12						125			262			39			235			673
Gross deferred tax liabilities at December 31, 2018	( 94	)		( 1,403	)		( 2	)		( 14	)					( 18	)		( 1,531	)
Net deferred tax balance at December 31, 2018	( 82	)		( 1,403	)		123			248			39			217			( 858	)

The below table presents the Net deferred tax balance as of December 31, 2018 after offsetting $ 3 million of deferred tax assets and liabilities within the same tax jurisdiction.

($ millions)	At December 31, 2018
Deferred tax assets	670
Deferred tax liabilities	( 1,528	)
Net deferred tax balance	( 858	)

The below table presents deferred tax assets and deferred tax liabilities expected to have an impact on current taxes payable after more than twelve months.

($ billions)	At December 31, 2019			At December 31, 2018
Deferred tax assets	0.6			0.3
Deferred tax liabilities	1.8			1.5

For foreign unremitted earnings retained by consolidated entities for reinvestment, which amounted to $ 7 billion as of December 31, 2019, no provision is made for income taxes that would be payable upon the distribution of these earnings. If these earnings were remitted, an income tax charge could result based on the tax statutes currently in effect.

Temporary differences on which no deferred tax has been provided as they are permanent in nature relate to goodwill from acquisitions and amounted to $ 9 billion as of December 31, 2019 and 2018.

The gross value of tax loss carry forwards capitalized as deferred tax assets amount to $ 521 million (2018: $ 146 million ), of which $ 33 million expire in five years and $ 488 million expire in more than five years . All tax loss carry forwards have been capitalized as deferred tax assets in 2019 as it is probable that sufficient taxable income will be available for the foreseeable future.

---

No tax losses carried forward have expired in 2019, 2018 or 2017 .

Swiss tax reform

On June 30, 2019, Swiss voters approved the Swiss Tax Reform and Old Age Insurance financing bill ("Swiss tax reform"). As a result, the corporate income tax rate applicable to Alcon’s Swiss profits as of January 1, 2020 will increase from approximately 9.4% in 2019 to approximately 14.2% beginning in 2020. This change resulted in a non-cash increase in tax expense of $ 304 million related to the re-measurement of Swiss deferred tax assets and liabilities in 2019.

US tax reform

On December 22, 2017, the US enacted tax reform legislation (Tax Cuts and Jobs Act), which among other provisions, reduced the US corporate tax rate from 35% to 21%, effective January 1, 2018. This required a revaluation of the deferred tax assets and liabilities and a portion of current tax payables to the newly enacted tax rates at the date of enactment. This resulted in the recognition of a $ 413 million credit to income and an $ 18 million charge to equity in 2017.

The below tables provide details related to Financial assets and Other non-current assets as of December 31, 2019 and 2018.

Financial assets

($ millions)	2019			2018
Long-term financial investments measured at FVOCI	31			19
Long-term financial investments measured at FVPL	28			67
Long-term receivables from customers	136			164
Minimum lease payments from finance lease agreements	78			91
Long-term loans, advances, and security deposits	34			47
Total financial assets	307			388

Minimum lease payments from finance lease agreements

The following table shows the receivables of the gross investments in finance leases and the net present value of the minimum lease payments, as well as unearned finance income, related to surgical equipment lease arrangements. The finance income is recorded in "Other income".

	2019															2018
($ millions)	Total future payments			Unearned interest income			Present value			Provision			Net book value			Total future payments			Unearned interest income			Present value			Provision			Net book value
Not later than one year (1)	51			( 4	)		47			( 1	)		46			64			( 5	)		59			( 2	)		57
Between one and five years	94			( 5	)		89			( 23	)		66			117			( 9	)		108			( 28	)		80
Later than five years	46			( 1	)		45			( 33	)		12			48			( 2	)		46			( 35	)		11
Total	191			( 10	)		181			( 57	)		124			229			( 16	)		213			( 65	)		148

(1) The current portion of the minimum lease payments is recorded in trade receivables or other current assets (to the extent not yet invoiced).

---

Other non-current assets

($ millions)	2019			2018
Deferred compensation plans	122			95
Prepaid post-employment benefit plans	13			12
Other non-current assets	50			41
Total other non-current assets	185			148

The amount of inventory recognized as an expense in "Cost of net sales" in the consolidated income statements during 2019 amounted to $ 2.2 billion ( 2018 : $ 2.2 billion , 2017 : $ 2.1 billion ). The amount of inventory recognized as an expense in "Cost of other revenues" in the consolidated income statements during 2019 amounted to $ 127 million ( 2018 : $ 0 million , 2017 : $ 0 million ).

($ millions)		2019			2018
Raw material, consumables		286			334
Work in progress		101			127
Finished products		1,118			979
Total inventories		1,505			1,440

Alcon recognized inventory provisions amounting to $ 140 million in 2019 ( 2018 : $ 148 million , 2017 : $ 73 million ) and reversed inventory provisions amounting to $ 65 million ( 2018 : $ 56 million , 2017 : $ 15 million ). Inventory provisions mainly relate to the adjustment of inventory balances to their net realizable value based on the forecasted sales. Reversals are made when the products become saleable.

---

The following table provides details related to Trade receivables as of December 31, 2019 and 2018:

($ millions)	2019			2018
Total gross trade receivables	1,438			1,307
Provisions for doubtful trade receivables	( 48	)		( 54	)
Total trade receivables, net	1,390			1,253

The following table summarizes the movement in the provision for doubtful trade receivables:

($ millions)	2019			2018			2017
January 1	( 54	)		( 77	)		( 55	)
Transfers with former parent	—			4			—
Provisions for doubtful trade receivables charged to the consolidated income statement	( 17	)		( 17	)		( 28	)
Utilization of provisions for doubtful trade receivables	7			16			2
Reversal of provisions for doubtful trade receivables	15			16			6
Currency translation effects	1			4			( 2	)
December 31	( 48	)		( 54	)		( 77	)

The following sets forth the trade receivables that are not overdue as specified in the payment terms and conditions established with Alcon's customers, as well as an analysis of overdue amounts and related provisions for doubtful trade receivables:

($ millions)	2019			2018
Not overdue	1,135			1,018
Past due for not more than one month	118			118
Past due for more than one month but less than three months	81			70
Past due for more than three months but less than six months	47			34
Past due for more than six months but less than one year	21			20
Past due for more than one year	36			47
Provisions for doubtful trade receivables	( 48	)		( 54	)
Total trade receivables, net	1,390			1,253

Trade receivable balances include sales to wholesalers, retailers, doctor groups, private health systems, government agencies, pharmacy benefit managers and government-supported healthcare systems.

We consider our doubtful debt provisions to be adequate. The majority of the outstanding trade receivables from Greece, Italy, Portugal, Spain, Brazil, Russia, Turkey, Saudi Arabia, and Argentina (the closely monitored countries) are due directly from local governments or from government-funded entities except for Russia, Brazil, and Turkey. We evaluate trade receivables in these countries for potential collection risk. Should there be a substantial deterioration in our economic exposure with respect to those countries, we may increase our level of provisions by updating our expected loss provision or may change the terms of trade on which we operate.

The following table shows the gross trade receivables balance from these closely monitored countries as of December 31, 2019 and 2018 , the amounts that are past due for more than one year and the related amount of the provisions for doubtful trade receivables that have been recorded:

---

($ millions)	2019			2018
Total balance of gross trade receivables from closely monitored countries	209			216
Past due for more than one year	10			14
Provisions for doubtful trade receivables	( 13	)		( 16	)

Trade receivables include amounts denominated in the following major currencies:

($ millions)	2019			2018
US dollar (USD)	463			449
Euro (EUR)	243			215
Japanese yen (JPY)	168			152
Chinese yuan (CNY)	102			74
Indian rupee (INR)	33			34
Canadian dollar (CAD)	30			30
Australian dollar (AUD)	29			27
British pound (GBP)	24			25
Russian ruble (RUB)	34			24
South Korean won (KRW)	29			23
Other currencies	235			200
Total trade receivables, net	1,390			1,253

The following table provides details related to Other current assets as of December 31, 2019 and 2018:

($ millions)	2019			2018
Current portion of long-term financial investments measured at FVPL	33			31
Current portion of long-term receivables from customers	122			133
Current portion of minimum lease payments from finance lease agreements	46			57
Prepaid expenses	89			46
Other receivables, security deposits and current assets	147			52
Derivative financial instruments	1			—
VAT receivable	64			68
Total other current assets	502			387

Alcon adopted IFRS 16, Leases effective January 1, 2019, as described in Note 3 to these Consolidated Financial Statements.

Alcon has applied the modified retrospective method, with right-of-use assets measured at an amount equal to the lease liability, adjusted by the amount of the prepaid or accrued lease payments relating to those leases recognized in the balance sheet immediately before the date of initial application.

In applying IFRS 16 for the first time, Alcon has used the following practical expedients on a lease by lease basis as permitted by the standard:

•	contracts previously identified as leases by applying IAS 17, Leases and IFRIC 4, Determining whether an Arrangement contains a Lease , have not been re-assessed under IFRS 16,

•	leases with a remaining lease term less than twelve months from the date of adoption and leases of low-value assets have not been recognized as right-of-use assets and lease liabilities,

---

•	measurement of right-of-use assets at the date of adoption excluded the initial direct costs, and

•	use of hindsight in determining the lease term for contracts containing options to extend or terminate the lease.

Right-of-use assets

Right-of-use assets as of December 31, 2019 and January 1, 2019 were comprised of the following:

($ millions)	December 31, 2019			January 1, 2019
Land	20			20
Buildings	277			226
Machinery & equipment and other assets	27			33
Total right-of-use assets (1)	324			279

(1)

Right-of-use assets, related to operating leases at the date of implementation of IFRS 16, were higher than the lease liabilities at the date of implementation of IFRS 16 by $ 3 million , due to the net impact of prepayments and accrued lease payments recognized at December 31, 2018 . This impact was offset by the lease liability related to the finance lease exceeding the corresponding capital asset by $ 10 million .

Depreciation charges of $ 66 million for the year ended December 31, 2019 are shown in the table below by underlying class of asset:

($ millions)	2019
Land	1
Buildings	47
Machinery & equipment and other assets	18
Total	66

Additions to right-of-use assets amounted to $ 116 million for the year ended December 31, 2019 .

Lease liabilities

Lease liabilities of $ 286 million were recorded on January 1, 2019. The reconciliation of lease commitments disclosed as of December 31, 2018 and lease liabilities recorded on January 1, 2019 is as follows:

($ millions)
Operating lease commitments as of December 31, 2018	222
Effect of discounting	( 21	)
Operating leases discounted using the incremental borrowing rate (1)	201
Finance lease liabilities recognized as at December 31, 2018	89
Recognition exemption for short term and low-value leases	( 4	)
Lease liabilities as of January 1, 2019	286

(1)	Weighted average incremental borrowing rate of 2.9 % was applied at January 1, 2019, the date of implementation of IFRS 16, Leases .

---

Lease liabilities totaled $ 341 million as of December 31, 2019 , including $ 61 million in current lease liabilities and $ 280 million in non-current lease liabilities. The contractual maturities of the undiscounted lease liabilities as of December 31, 2019 , are as follows:

($ millions)	Lease liabilities undiscounted
Not later than one year	73
Between one and five years	176
Later than five years	200
Total lease liabilities undiscounted	449

($ millions)	Lease liabilities
Not later than one year	61
Between one and five years	140
Later than five years	140
Total lease liabilities	341

Additional disclosures

The following table provides additional disclosures related to right-of-use assets and lease liabilities:

($ millions)	2019
Interest expense on lease liabilities	11
Expense on short-term and low value leases	3
Total cash outflows for leases	59
Thereof:
Lease liability payments (1)	52
Interest payments (2)	5
Short-term and low value lease payments (2)	2

(1)	Reported as cash outflows from financing activities net of lease incentives received

(2)	Included within total net cash flows from operating activities

---

Prior to the adoption of IFRS 16, Alcon prepared the required disclosures for operating lease commitments and finance lease future minimum lease payments. Operational lease commitments as of December 31, 2018, were as follows:

($ millions)	2018
Not later than one year	50
Between one and five years	135
Later than five years	37
Total operational lease commitments	222

Future minimum lease payments under finance leases, together with the present value of the minimum lease payments as of December 31, 2018, were as follows:

($ millions)	2018
Not later than one year	—
Between one and five years	27
Later than five years	153
Total minimum lease liabilities	180
Less future finance charges	( 91	)
Present value of minimum lease payments	89

---

The below table summarizes current and non-current Financial debts outstanding as of December 31, 2019 and 2018 .

($ millions)	2019		2018
Non-current financial debts
Facility B	793		—
Facility C	391		—
Local facilities (Japan)	55		—
Series 2026 notes	495		—
Series 2029 notes	991		—
Series 2049 notes	493		—
Revolving facility	—		—
Total non-current financial debts	3,218		—
Current financial debts
Local facilities:
Japan	115		—
All others	101		32
Other short-term financial debts	29		15
Derivatives	16		—
Total current financial debts	261		47
Total financial debts	3,479		47

Alcon entered into the below borrowing arrangements in connection with the Spin-off, as described in Note 4 to these Consolidated Financial Statements, and refinanced a portion of those borrowing arrangements, as further described below. Interest expense recognized for Financial debts, excluding lease liabilities, was $ 81 million , $ 10 million and $ 12 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. The weighted average interest rate on Financial debts was 2.9 % in 2019 and 17.4 % in 2018 .

Bridge Loan, Term Loan, and Revolving Credit Facilities

On March 6, 2019, Alcon entered into a $ 1.5 billion unsecured 364-day bridge loan facility with two extension options, each for a period of 180 days (the "Bridge Facility"), a $ 0.5 billion unsecured three-year term loan facility ("Facility A"), a $ 0.8 billion unsecured five-year term loan facility ("Facility B"), a $ 0.4 billion (or the equivalent in EUR) unsecured five-year term loan facility ("Facility C") and a $ 1.0 billion unsecured five-year committed multicurrency revolving credit facility (the "Revolving Facility" and, together with the Bridge Facility, Facility A, Facility B and Facility C, the "Facilities"). On April 2, 2019, Alcon borrowed $ 3.2 billion against the bridge and other term loans. The Revolving Facility was undrawn as of December 31, 2019 .

The Facilities bear interest rates equal to the interest rate benchmark (prevailing Euro Interbank Offered Rate (“EURIBOR”) in the case of loans denominated in EUR, USD prevailing London Interbank Offered Rate (“LIBOR”) in the case of loans denominated in USD and CHF LIBOR in the case of loans denominated in CHF), plus an applicable margin.

Alcon and certain of its subsidiaries are the borrowers under the Facilities and Alcon guarantees the borrowings of such subsidiaries under the Facilities. In addition, the Revolving Facility includes a mechanism through which certain subsidiaries, as approved by the lenders, can accede as a borrower.

Alcon is permitted to voluntarily prepay loans under the Facilities, in whole or in part, without penalty or premium subject to certain minimum prepayment amounts and the payment of accrued interest on the amount prepaid and customary breakage costs. The Bridge Facility had a mandatory prepayment provision, pursuant to which

---

Alcon would have to apply proceeds from relevant debt capital markets transactions in prepayment under the Bridge Facility.

The terms of the Facilities include certain events of default and covenants customary for investment grade credit facilities, including restrictive covenants that will limit, among other things, the grant or incurrence of security interests over any of Alcon's assets, the incurrence of certain indebtedness and entry into certain fundamental change transactions. The Facilities do not contain any financial covenants.

Refinancing of Bridge Facility and Facility A

On September 23, 2019 , AFC issued Senior Notes ("Notes") with maturity dates in 2026 , 2029 , and 2049 , which are guaranteed by the Company. The Notes are unsecured senior obligations of AFC issued in a private placement. The total notional amount of the Notes is $ 2.0 billion . The Notes were issued at a discount totaling $ 7.0 million , which was recorded as a reduction to the carrying value of the Notes and will be amortized to Interest expense over the term of the Notes. AFC incurred $ 15 million of debt issuance costs, which were recorded as a reduction to the carrying value of the Notes and will be amortized to Other financial income & expense over the term of the Notes.

The Notes consist of the following:

•	Series 2026 Notes - $ 0.5 billion due in 2026 issued at 99.5 % , 2.750 % interest is payable twice per year in March and September, beginning in March 2020.

•	Series 2029 Notes - $ 1.0 billion due in 2029 issued at 99.6 % , 3.000 % interest is payable twice per year in March and September, beginning March 2020.

•	Series 2049 Notes - $ 0.5 billion due in 2049 issued at 99.8 % , 3.800 % interest is payable twice per year in March and September, beginning March 2020.

The funds borrowed through the issuance of the Notes were used to repay the $ 1.5 billion Bridge Facility and $ 0.5 billion Facility A. The transaction was accounted for as an extinguishment of a liability. Alcon recognized a loss of $ 4 million associated with the write-off of unamortized deferred financing costs due to extinguishment of the original financing. This loss on extinguishment was recognized in Other financial income & expense.

The following table provides details on the maturity of the contractual undiscounted cash flows for Alcon's borrowings as of December 31, 2019 :

($ millions)	Nominal amount - Current and non-current financial debt			Derivatives			Total
Not later than one year	245			16			261
Between one and five years	1,247			—			1,247
Later than five years	2,000			—			2,000
Total cash flows	3,492			16			3,508
Unamortized debt discount and issuance costs	( 29	)		—			( 29	)
Total carrying value	3,463			16			3,479

The following table provides details on the maturity of the future contractual interest payments commitments:

($ millions)	Interest
Not later than one year	94
Between one and five years	336
Later than five years	653
Total cash flows	1,083

As of December 31, 2018 , the contractual undiscounted cash flows for borrowings was $ 47 million for the current financial debts reflected in Financial debts on the Consolidated Balance Sheets.

---

Local Bilateral Facilities

In February 2019, Alcon entered into a number of local bilateral facilities in different countries, with the largest share of borrowings in Japan. A total of $ 0.3 billion was drawn including $ 0.2 billion in two lines for Japan. All local bilateral lines are classified as current with a maturity date in one year or less, with the exception of one line in Japan with a maturity date in 2021 which is classified as non-current. As of December 31, 2019 , there was $ 35 million undrawn on the facility in Japan.

Derivatives

As of December 31, 2019 , the net value of unsettled positions for derivative forward contracts and swaps was $ 15 million , including $ 1 million of unrealized gains in Other current assets and $ 16 million of unrealized losses in Current financial debts. Master agreements were executed with several banking counterparties for derivatives financial instruments, however, there were no derivative financial instruments meeting the offsetting criteria under IFRS as of December 31, 2019 . Alcon did not hold derivative financial instruments as of December 31, 2018 .

---

The below table provides detail related to financial instruments as of December 31, 2019 and 2018 .

($ millions)	Note		2019			2018
Cash and cash equivalents
Cash in current accounts			392			227
Cash held in time deposits and money market funds			430			—
Total Cash and cash equivalents			822			227
Financial assets - measured at fair value through other comprehensive income ("FVOCI")
Long-term financial investments	12		31			19
Total financial assets - measured at FVOCI			31			19
Financial assets - measured at amortized costs (1)
Trade receivables	14		1,390			1,253
Receivables from former parent	25		—			20
Income tax receivables			17			33
Other financial receivables from former parent	25		—			39
Other current assets (excluding prepaid expenses and other current assets measured at FVPL)	15		379			310
Long-term receivables from customers	12		136			164
Non-current minimum lease payments from finance lease agreements	12		78			91
Long-term loans, advances, and security deposits	12		34			47
Total financial assets - measured at amortized costs			2,034			1,957
Financial assets - measured at fair value through profit and loss ("FVPL")
Current portion of long-term financial investments	15		33			31
Derivative fInancial instruments	15		1			—
Long-term financial investments	12		28			67
Total financial assets - measured at FVPL			62			98
Total financial assets			2,949			2,301
Financial liabilities - measured at amortized cost or cost (1)
Current financial liabilities
Financial debts	17		245			47
Lease liabilities	16		61			—
Trade payables			833			663
Payables to former parent	25		—			85
Other financial liabilities to former parent	25		—			67
Total current financial liabilities - measured at amortized cost or cost			1,139			862
Non-current financial liabilities
Financial debts	17		3,218			—
Lease liabilities	16		280			89
Total non-current financial liabilities - measured at amortized cost or cost			3,498			89
Total financial liabilities - measured at amortized cost or cost			4,637			951
Financial liabilities - measured at FVPL
Contingent consideration liabilities	19/20		243			162
Derivative financial instruments	17		16			—
Total financial liabilities - measured at FVPL			259			162
Total financial liabilities			4,896			1,113
Net financial assets and financial liabilities			( 1,947	)		1,188

(1)	The carrying amount is a reasonable approximation of fair value, with the exception of the Series 2026, 2029 and 2049 notes recorded in Non-current financial debts with a fair value of $ 2,049 million and carrying value of $ 1,979 million as of December 31, 2019 . The notes were valued using a quoted market price for such notes, which have low trading volumes.

---

Fair value by hierarchy

As required by IFRS, financial assets and liabilities recorded at fair value in the Consolidated Financial Statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. There are three hierarchical levels, based on an increasing amount of judgment associated with the inputs to derive fair value for these financial assets and liabilities, which are as follows:

Financial assets and liabilities carried at Level 1 fair value hierarchy are listed in active markets.

Financial assets and liabilities carried at Level 2 fair value hierarchy are valued using corroborated market data.

As of December 31, 2019 , Level 1 financial assets include money market funds . There were no financial liabilities carried at Level 1 fair value, and Level 2 financial assets and liabilities include derivative financial instruments. As of December 31, 2018 , there were no financial assets or liabilities carried at Level 1 fair value or Level 2 fair value.

Investments in money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The investments are classified as Cash & cash equivalents within our Consolidated Balance Sheets.

Level 3 inputs are unobservable for the financial asset or liability. The financial assets and liabilities generally included in Level 3 fair value hierarchy are equity securities and convertible notes receivable measured at FVOCI, and fund investments, options to acquire private companies, and contingent consideration liabilities measured at FVPL.

---

The following tables summarize financial assets and liabilities measured at fair value on a recurring basis or at amortized cost or cost as of December 31, 2019 and 2018.

	December 31, 2019
($ millions)	Level 1			Level 2			Level 3			Valued at amortized cost or cost			Total
Non-current financial assets
Long-term financial investments measured at FVOCI	—			—			31			—			31
Long-term financial investments measured at FVPL	—			—			28			—			28
Long-term receivables from customers	—			—			—			136			136
Non-current minimum lease payments from finance lease agreements	—			—			—			78			78
Long-term loans, advances, and security deposits	—			—			—			34			34
Total non-current financial assets	—			—			59			248			307
Current financial assets
Money market funds	120			—			—			—			120
Current portion of long-term financial investments measured at FVPL (1)	—			—			33			—			33
Current portion of long-term receivables from customers (1)	—			—			—			122			122
Current portion of minimum lease payments from finance lease agreements (1)	—			—			—			46			46
Other receivables, security deposits and current assets (1)	—			—			—			147			147
VAT receivables (1)	—			—			—			64			64
Derivative financial instruments (1)	—			1			—			—			1
Total current financial assets	120			1			33			379			533
Total financial assets at fair value and amortized cost or cost	120			1			92			627			840
Financial liabilities
Contingent consideration liabilities	—			—			( 243	)		—			( 243	)
Non-current financial debt	—			—			—			( 3,218	)		( 3,218	)
Current financial debt	—			—			—			( 245	)		( 245	)
Derivative financial instruments	—			( 16	)		—			—			( 16	)
Total financial liabilities at fair value and amortized cost	—			( 16	)		( 243	)		( 3,463	)		( 3,722	)

(1)	Recorded in Other current assets.

---

	December 31, 2018
($ millions)	Level 1			Level 2			Level 3			Valued at amortized cost or cost			Total
Non-current financial assets
Long-term financial investments measured at FVOCI	—			—			19			—			19
Long-term financial investments measured at FVPL	—			—			67			—			67
Long-term receivables from customers	—			—			—			164			164
Non-current minimum lease payments from finance lease agreements	—			—			—			91			91
Long-term loans, advances, and security deposits	—			—			—			47			47
Total non-current financial assets	—			—			86			302			388
Current financial assets (1)
Current portion of long-term financial investments measured at FVPL	—			—			31			—			31
Current portion of long-term receivables from customers	—			—			—			133			133
Current portion of minimum lease payments from finance lease agreements	—			—			—			57			57
Other receivables, security deposits and current assets	—			—			—			52			52
VAT receivables	—			—			—			68			68
Derivative financial instruments	—			—			—			—			—
Total current financial assets	—			—			31			310			341
Total financial assets at fair value and amortized cost or cost	—			—			117			612			729
Financial liabilities
Contingent consideration liabilities	—			—			( 162	)		—			( 162	)
Non-current financial debt	—			—			—			—			—
Current financial debt	—			—			—			( 47	)		( 47	)
Derivative financial instruments	—			—			—			—			—
Total financial liabilities at fair value and amortized cost	—			—			( 162	)		( 47	)		( 209	)

(1)	Current financial assets referenced in the above table are recorded in Other current assets.

There were no transfers of financial instruments between levels in the fair value hierarchy during the year ended December 31, 2019 and 2018 .

Certain prior period amounts have been reclassified to reflect the inclusion of options to acquire private companies measured at FVPL in Level 3 of the fair value hierarchy to conform with current period presentation.

---

Level 3 financial instruments measured at fair value on a recurring basis

Financial assets

	Long-term financial investments measured at FVOCI						Financial investments measured at FVPL
($ millions)	2019			2018			2019			2018
Balance as of January 1 (1)	19			26			98			78
Additions	17			11			34			92
Cash receipts and payments	—			—			( 7	)		( 5	)
Gains/(losses) recognized in consolidated statements of comprehensive (loss)/income	( 7	)		( 23	)		—			—
Unrealized gains/(losses) in consolidated income statements	—			—			( 3	)		7
Amortization	—			—			( 61	)		( 74	)
Reclassification	2			5			—			—
Balance as of December 31	31			19			61			98

(1)	January 1, 2018 balances reflected in this table are as adjusted for adoption of IFRS 9, Financial Instruments .

If the pricing parameters for the Level 3 input were to change for Long-term financial investments measured at FVOCI and Financial investments measured at FVPL by 10 % positively or negatively, this would change the amount recorded in the 2019 Consolidated Statements of Comprehensive Loss by $ 3 million .

Financial liabilities

	Contingent consideration liabilities
($ millions)	2019			2018
Balance as of January 1	( 162	)		( 113	)
Additions	( 135	)		( 102	)
Accretion for passage of time	( 21	)		( 9	)
Adjustments for changes in assumptions	75			62
Payments	—			—
Balance as of December 31	( 243	)		( 162	)

Contingent consideration additions of $ 135 million relate to the acquisition of PowerVision, Inc. in March 2019 as described in Note 4 of these Consolidated Financial Statements. Adjustments for changes in assumptions of $ 75 million are primarily related to revised expectations for achievement of commercial milestones and changes in assumptions related to the expected timing of settlement for development milestones. As of December 31, 2019 , the maximum remaining potential payments related to contingent consideration from business combinations is $ 510 million plus other amounts calculated as a percentage of commercial sales in cases where there is not a specified maximum contractual payment amount.

Changes in the contingent consideration liability balance for the same period in prior year included additions of $ 102 million related to the acquisitions as described in Note 4 to these Consolidated Financial Statements. Adjustments for changes in assumptions of $ 62 million are primarily related to revised expectations for achievement of milestones due to a product's voluntary market withdrawal.

Contingent consideration liabilities are reported in “Provisions & other non-current liabilities" and "Provisions & other current liabilities” based on the projected timing of settlement which is estimated to range from 2020 through 2029 for contingent consideration obligations as of December 31, 2019 .

For the determination of the fair value of a contingent consideration various unobservable inputs are used. A change in these inputs might result in a significantly higher or lower fair value measurement. The inputs used

---

are, among others, the probability of success, sales forecast and assumptions regarding the discount rate, timing and different scenarios of triggering events. The significance and usage of these inputs to each contingent consideration may vary due to differences in the timing and triggering events for payments or in the nature of the asset related to the contingent consideration.

If the most significant parameters for the Level 3 input were to change by 10 % positively or negatively, or where the probability of success is the most significant input parameter 10 % were added or deducted from the applied probability of success, for contingent consideration payables, this would change the amounts recorded in the 2019 Consolidated Income Statements by $ 34 million and $ 32 million respectively.

Nature and extent of risks arising from financial instruments

Market risk

Alcon is exposed to market risk, primarily related to foreign currency exchange rates, interest rates and the market value of the investments of liquid funds. Alcon actively monitors and seeks to reduce, where it deems it appropriate to do so, fluctuations in these exposures. It is Alcon policy and practice to enter into a variety of derivative financial instruments to manage the volatility of these exposures and to enhance the yield on the investment of liquid funds. Alcon does not enter into any financial transactions containing a risk that cannot be quantified at the time the transaction is concluded. In addition, Alcon does not sell short assets it does not have, or does not know it will have, in the future. Alcon only sells existing assets or enters into transactions and future transactions (in the case of anticipatory hedges) that it confidently expects it will have in the future, based on past experience. In the case of liquid funds, Alcon writes call options on assets it has, or writes put options on positions it wants to acquire and has the liquidity to acquire. Alcon expects that any loss in value for these instruments generally would be offset by increases in the value of the underlying transactions.

Foreign currency exchange rate risk

Alcon uses the US Dollar as its reporting currency and is therefore exposed to foreign currency exchange movements, primarily in Euros, Japanese Yen, Chinese Renminbi, Swiss Francs, and emerging market currencies. Fluctuations in the exchange rate between the US Dollar and other currencies can have a significant effect on both the Alcon’s results of operations, including reported sales and earnings, as well as on the reported value of our assets, liabilities and cash flows. This, in turn, may significantly affect the comparability of period-to-period results of operations.

Alcon manages its global currency exposure by engaging in hedging transactions where management deems appropriate (forward contracts and swaps). Specifically, Alcon enters into various contracts that reflect the changes in the value of foreign currency exchange rates to preserve the value of assets.

Interest rate risk

Alcon's exposure to cash flow interest rate risks arises mainly from non-current financial debts at variable rates. Alcon may enter into interest rate swap agreements, in which it exchanges periodic payments based on a notional amount and agreed-upon fixed and variable rate interests. If the interest rates had been higher / lower by 1 % , the loss before taxes would have been higher / lower by $ 12 million from the impacts of interest expense and interest income based on the change in the interest rate.

Commodity price risk

Alcon has only a very limited exposure to price risk related to anticipated purchases of certain commodities used as raw materials by Alcon's businesses. A change in those prices may alter the gross margin of a specific business, but generally by not more than 10 % of the margin and thus below Alcon's risk management tolerance levels. Accordingly, Alcon does not enter into significant forward and option contracts to manage fluctuations in prices of anticipated purchases.

Credit risk

Credit risks arise from the possibility that customers may not be able to settle their obligations as agreed. To manage this risk, Alcon periodically assesses credit risk, assigns individual credit limits, and takes actions to mitigate credit risk where appropriate. For further information, refer to Note 14 of these Consolidated Financial Statements.

---

No customer accounted for 10% or more of Alcon's net sales in 2019 , 2018 , or 2017 .

Liquidity risk

Liquidity risk is defined as the risk that Alcon could not be able to settle or meet its obligations on time or at a reasonable price. Alcon Treasury is responsible for liquidity, funding and settlement management. In addition, liquidity and funding risks, and related processes and policies, are overseen by management. Alcon manages its liquidity risk on a consolidated basis according to business needs, tax, capital or regulatory considerations, if applicable, through numerous sources of financing in order to maintain flexibility. Management monitors Alcon's net debt or liquidity position through rolling forecasts on the basis of expected cash flows. For further information on maturity of the contractual undiscounted cash flows for Alcon's borrowings and interest on borrowing, refer to Note 17 of these Consolidated Financial Statements.

---

The below table provides details related to Provisions and other non-current liabilities as of December 31, 2019 , and 2018 .

($ millions)	2019			2018
Accrued liability for employee benefits:
Defined benefit pension plans (1)	291			254
Other long-term employee benefits and deferred compensation	140			104
Other post-employment benefits (1)	423			345
Provisions for product liabilities, governmental investigations and other legal matters	—			—
Contingent consideration (2)	208			143
Other non-current liabilities	106			67
Total provisions and other non-current liabilities	1,168			913

(1)	Note 23 to these Consolidated Financial Statements provides additional disclosures related to post-employment benefits.

(2)	Note 18 to these Consolidated Financial Statements provides additional disclosures related to contingent consideration.

Alcon believes that its total provisions are adequate based upon currently available information. However, given the inherent difficulties in estimating liabilities in this area, Alcon may incur additional costs beyond the amounts provided. Management believes that such additional amounts, if any, would not be material to Alcon's financial condition but could be material to the results of operations or cash flows in a given period.

Provisions for product liabilities, governmental investigations and other legal matters

Alcon has established provisions for certain product liabilities, governmental investigations and other legal matters, where a potential cash outflow is probable and a reliable estimate can be made of the amount of the outflow. These provisions represent the current best estimate of the total financial effect for the matters described below and for other less significant matters. Potential cash outflows reflected in a provision may be fully or partially off-set by insurance in certain circumstances.

Alcon has not established provisions for potential damage awards for certain additional legal claims if Alcon currently believes that a payment is either not probable or cannot be reliably estimated. A number of other legal matters are in such early stages or the issues presented are such that Alcon has not made any provisions since it cannot currently estimate either a potential outcome or the amount of any potential losses. For these reasons, among others, Alcon generally is unable to make a reliable estimate of possible loss with respect to such cases. It is therefore not practicable to provide information about the potential financial impact of those cases.

There might also be cases for which Alcon was able to make a reliable estimate of the possible loss or the range of possible loss, but Alcon believes that publication of such information on a case-by-case basis would seriously prejudice Alcon's position in ongoing legal proceedings or in any related settlement discussions. Accordingly, in such cases, information has been disclosed with respect to the nature of the contingency, but no disclosure is provided as to an estimate of the possible loss or range of possible loss.

Note 26 contains additional information on contingencies.

Summary of significant legal proceedings

Under the Separation and Distribution Agreement Alcon entered into with Novartis in connection with the separation and the Spin-off, Alcon and Novartis agreed, subject to certain conditions and except to the extent otherwise described below with respect to any matter, to indemnify the other party and its directors, officers, associates and other representatives against any pending or future liabilities or claims that constitute either a Novartis Group liability, in the case of Novartis, or an Alcon liability, in the case of Alcon, under the terms of the Separation and Distribution Agreement, based on whether such claim or liability relates to the Novartis business and products or Alcon's respective business and products.

A number of Alcon companies are, and will likely continue to be, subject to various legal proceedings and investigations that arise from time to time, including proceedings regarding product liability, sales and marketing

---

practices, commercial disputes, employment, and wrongful discharge, antitrust, securities, health and safety, environmental, tax, international trade, privacy, and intellectual property matters. As a result, Alcon may become subject to substantial liabilities that may not be covered by insurance and could affect our business, financial position and reputation. While Alcon does not believe that any of these legal proceedings will have a material adverse effect on its financial position, litigation is inherently unpredictable and large judgments sometimes occur. As a consequence, Alcon may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations or cash flow. The following is a summary as of February 25, 2020 of significant legal proceedings of the Alcon business to which Alcon or its subsidiaries are a party.

Southern District of New York / Western District of New York healthcare fraud investigation

In 2011, Alcon received a subpoena from the United States Department of Health & Human Services relating to an investigation into allegations of healthcare fraud and potential off-label promotion of certain products. The subpoena requests the production of documents relating to marketing practices and the remuneration of healthcare providers in connection with surgical equipment and certain Novartis products (Vigamox®, Nevanac®, Omnipred®, Econopred®). Alcon is cooperating with this investigation.

Asia / Russia investigation

In 2017 and 2018 , Alcon and Novartis, as well as certain present and former executives and associates of Alcon and Novartis, received document requests and subpoenas from the US Department of Justice ("DoJ") and the US SEC requesting information concerning Alcon accounting, internal controls and business practices in Asia and Russia, including revenue recognition for surgical equipment and related products and services and relationships with third party distributors, both before and after Alcon was acquired by Novartis. Alcon is cooperating with this investigation. Under the Separation and Distribution Agreement, Novartis must indemnify Alcon in respect of defined direct monetary liabilities relating to the current scope of the ongoing investigation by the DoJ and the SEC relating to certain business practices in Asia and Russia and related accounting treatment.

Contact lenses class actions

Since the first quarter of 2015, more than 50 class action complaints have been filed in several courts across the US naming as defendants contact lens manufacturers, including Alcon, and alleging violations of federal antitrust law, as well as the antitrust, consumer protection and unfair competition laws of various states, in connection with the implementation of unilateral price policies by the defendants in the sale of contact lenses. The cases have been consolidated in the Middle District of Florida by the Judicial Panel on Multidistrict Litigation and the claims are being vigorously contested.

MIVS platform patent infringement investigation

In June 2015, Johns Hopkins University ("JHU") filed a patent infringement lawsuit against certain Alcon entities alleging that the use of certain Alcon surgical products, principally by third parties, infringes a patent directed to certain methods of ocular surgery. In March 2019, Alcon and JHU entered into a settlement agreement in full settlement of all claims relating to this proceeding.

LenSx laser system and WaveLight FS200 laser patent infringement litigations

Two consolidated cases were filed against Alcon claiming that the LenSx laser system and WaveLight FS200 femtosecond laser infringe two US patents expiring in 2018 and 2030. The district court entered summary judgment for Alcon, and the plaintiff appealed to the US Court of Appeals for the Federal Circuit. The Court of Appeals affirmed the district court’s judgment for Alcon on August 8, 2019.

TCPA matter

In April 2016, a putative class action lawsuit was filed in Illinois federal court alleging that the defendants, Alcon and Novartis Pharmaceuticals Corporation ("NPC"), sent unsolicited facsimiles in violation of the Telephone Consumer Protection Act, and seeking to certify a representative putative nationwide class of affected consumers. The claims are being vigorously contested.

---

Product liability, governmental investigations and other legal matters provision movements

($ millions)	2019			2018			2017
January 1	42			49			9
Additions to provisions	—			1			55
Cash payments	( 40	)		( 1	)		( 6	)
Releases of provisions	( 2	)		( 7	)		( 9	)
December 31	—			42			49
Less current portion	—			( 42	)		( 43	)
Non-current provisions for product liabilities, governmental investigations and other legal matters at December 31	—			—			6

Alcon believes that its total provisions for investigations, product liability, arbitration and other legal matters are adequate based upon currently available information. However, given the inherent difficulties in estimating liabilities, there can be no assurance that additional liabilities and costs will not be incurred beyond the amounts provided.

The following table provides details related to Provisions and other current liabilities as of December 31, 2019 and 2018:

($ millions)	2019		2018
Taxes other than income taxes	81		57
Restructuring provisions	28		8
Accrued expenses for goods and services received but not invoiced	79		71
Accruals for royalties	10		6
Accruals for deductions from revenue	212		194
Accruals for compensation and benefits including social security	382		363
Deferred income	97		94
Provisions for product liabilities, governmental investigations and other legal matters (1)	—		42
Accrued share-based payments	10		6
Accrued interest on financial debts	19		—
Contingent considerations (2)	35		19
Other payables	85		20
Total provisions and other current liabilities	1,038		880

(1)	Note 19 to these Consolidated Financial Statements provides additional disclosures related to legal provisions.

(2)	Note 18 to these Consolidated Financial Statements provides additional disclosures related to contingent consideration.

Provisions and accruals are based upon management's best estimate and adjusted for actual experience. Such adjustments to the historic estimates have not been material.

---

Accruals for deductions from revenue

The following table shows the movement of the accruals for deductions from revenue:

($ millions)	2019		2018			2017
January 1	194		213			182
Additions	662		603			619
Payments/utilizations	( 646	)	( 613	)		( 601	)
Changes in offset against gross trade receivables	1		2			7
Currency translation effects	1		( 11	)		6
December 31	212		194			213

Restructuring provisions

The following table shows the movement of the restructuring provisions:

($ millions)	2019		2018			2017
January 1	8		3			13
Additions	32		13			—
Cash payments	( 10	)	( 7	)		( 6	)
Releases	( 2	)	( 2	)		( 4	)
Currency translation effects	—		1			—
December 31	28		8			3

In 2019, additions to restructuring provisions of $ 32 million were related to the multi-year transformation program announced by Alcon on November 19, 2019. The additions to restructuring provisions in 2019 were related to accrued severance for the associates whose positions will be eliminated.

In 2018 , additions to restructuring provisions of $ 13 million were related to initiatives aimed at improving the efficiency and agility of Alcon's operating model.

In 2017, no additions to restructuring provisions were recorded. Alcon continued initiatives to realign its operations to focus on the surgical and vision care business after the opthamology pharmaceutical business transfer to the Novartis Innovative Medicines Division.

The Consolidated Statements of Cash Flows were prepared in accordance with IAS 7, Statement of Cash Flows. The below tables provide additional detail supporting select line items in the Consolidated Statements of Cash Flows.

21.1 Depreciation, amortization, impairments and fair value adjustments

($ millions)	2019			2018			2017
Property, plant & equipment	275			241			215
Right-of-use assets	66			—			—
Intangible assets	1,084			1,397			1,090
Financial assets	31			( 16	)		29
Total	1,456			1,622			1,334

---

21.2 Change in net current assets and other operating cash flow items

($ millions)	2019			2018			2017
(Increase) in inventories	( 108	)		( 150	)		( 87	)
(Increase)/decrease in trade receivables	( 115	)		53			( 54	)
Increase in trade payables	84			44			48
Net change in other current assets	( 26	)		83			87
Net change in other current liabilities	117			50			42
Total	( 48	)		80			36

21.3 Acquisitions of businesses, net

($ millions)		2019			2018			2017
Net assets recognized as a result of business combinations		( 418	)		( 286	)		( 124	)
Payables contingent consideration		135			102			54
Other payments		—			( 55	)
Cash flows		( 283	)		( 239	)		( 70	)

Notes 4 and 22 to these Consolidated Financial Statements provide further information regarding acquisitions of businesses. All acquisitions were for cash.

21.4 Reconciliation of assets and liabilities arising from financing activities

	Financial Assets			Financial Liabilities
($ millions)	Other financial receivables from former parent			Non-current financial debts			Current financial debts			Other financial liabilities to former parent			Total
January 1, 2019	( 39	)		—			47			67			114
Proceeds from non-current financial debts, net of issuance costs				3,724									3,724
Repayment of non-current financial debts				( 509	)								( 509	)
Proceeds from Bridge Facility, net of issuance costs							1,495						1,495
Repayment of Bridge Facility							( 1,500	)					( 1,500	)
Change in current financial debts							202						202
Non-cash changes in derivatives and other fair value adjustments				2			20						22
Change in other financial receivables from former parent	39
Change in other financial liabilities to former parent										( 67	)		( 67	)
Currency translation effects				1			( 3	)					( 2	)
December 31, 2019	—			3,218			261			—			3,479

---

	Financial Assets			Financial Liabilities
($ millions)	Other financial receivables from former parent			Non-current financial debts			Current financial debts			Other financial liabilities to former parent			Total
January 1, 2018	( 65	)		84			65			46			195
Change in current financial debts							( 6	)					( 6	)
Change in other financial receivables from former parent	26
Change in other financial liabilities to former parent										21			21
Non-cash change in finance lease obligation				5									5
Currency translation effects							( 12	)					( 12	)
Reclassification from non-current financial debts to lease liabilities				( 89	)								( 89	)
December 31, 2018	( 39	)		—			47			67			114

Fair value of assets and liabilities arising from acquisitions

($ millions)	2019			2018			2017
Property, plant & equipment	1			1			—
Currently marketed products	—			346			—
Acquired research & development	505			—			178
Deferred tax assets	28			12			8
Inventories	—			3			—
Trade receivables and other current assets	—			2			—
Cash and cash equivalents	6			5			1
Deferred tax liabilities	( 121	)		( 78	)		( 64	)
Trade payables and other liabilities	( 1	)		( 4	)		—
Net identifiable assets acquired	418			287			123
Acquired liquidity	( 6	)		( 5	)		( 1	)
Goodwill	6			4			2
Net assets recognized as a result of business combinations	418			286			124

Note 4 of these Consolidated Financial Statements details significant acquisitions of businesses, which were PowerVision in 2019 , TrueVision and Tear Film in 2018 and ClarVista in 2017 . No goodwill from 2019 , 2018 or 2017 is tax-deductible.

Defined benefit plans

In addition to the legally required social security schemes, Alcon has sponsored numerous independent pension and other post-employment benefit plans and participates in plans of Novartis. In most cases, these plans are externally funded in entities that are legally separate from Alcon. For certain subsidiaries, however, no independent plan assets exist for the pension and other post-employment benefit obligations of associates. In these cases the related unfunded liability is included in the consolidated balance sheet. The value of the post-employment benefits promised under the pension and other post-employment benefit plans is represented by the defined benefit obligation ("DBO"), which is measured based on the projected unit credit method ("PUC").

---

Independent actuaries reappraise the DBOs of all major pension and other post-employment benefit plans annually. Plan assets are recognized at fair value.

The major plans are based in Switzerland, the United States, Germany, and the United Kingdom. They represent 87 % of Alcon's total DBO. Details of the plans in those significant countries are provided below.

The pension plans in Switzerland represent the most significant portion of Alcon's total DBO and the largest component of Alcon's total plan assets. The principal plans in Switzerland are funded. Following the Spin-off, all Alcon Swiss associates are continuing to participate in the Novartis pension funds in which they were previously participating for a temporary period. It is expected that Alcon's employee benefit obligation will be transferred to an Alcon sponsored pension arrangement in early 2021. For the principal plans, active insured members born on or after January 1, 1956, or having joined the plans after December 31, 2010, their benefits are partially linked to the contributions paid into the plan. Certain features of Swiss pension plans required by law preclude the plans from being categorized as defined contribution plans. These factors include a minimum interest guarantee on retirement savings accounts, a pre-determined factor for converting the accumulated savings account balance into a pension and embedded death and disability benefits.

All benefits granted under Swiss-based principal pension plans are vested, and Swiss legislation prescribes that the employer has to contribute a fixed percentage of an associate's pay to an external pension fund. Additional employer contributions may be required whenever the plan's statutory funding ratio falls below a certain level. The associate also contributes to the plan. The pension plans are run by separate legal entities, each governed by a board of trustees, that, for the principal plans, consists of representatives nominated by Alcon's Former Parent and the active insured associates. The boards of trustees are responsible for the plan design and asset investment strategy.

The United States pension plans represent the second largest component of Alcon's total pension DBO and the third largest component of Alcon's total plan assets. The principal plans (Qualified Plans) are funded, whereas the plan providing additional benefits for executives (Defined Benefit Restoration Plan) is unfunded. Employer contributions are required for Qualified Plans whenever the statutory funding ratio falls below a certain level. Furthermore, associates in the United States are covered under other post-employment benefit plans which represent 99 % of the total DBO for other post-employment benefit plans. These benefits in the US primarily consist of post-employment healthcare which has been closed to new members since 2015. Part of the costs of these plans is reimbursable under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. There is no statutory funding requirement for these plans.

The major pension arrangements in Germany are governed by the Occupational Pensions Act ("BetrAVG") and represent the third largest component of Alcon's total pensions DBO. The plans are partly funded by a Contractual Trust arrangement or direct insurances. The employer is responsible for contributing the premiums to the insurances and paying certain benefits when they fall due. All plans are closed for new entrants and the benefits are fully vested for all participants. For some participants the benefits are based on final salary and length of employment, and for others the benefit is earned each year based on the current salary in the year of service. Associates do not contribute towards the cost of the benefits.

The pension plans in the United Kingdom represent the fourth largest component of Alcon's total DBO and the second largest component of Alcon's total plan assets. The Alcon United Kingdom Pension Scheme is governed and administered by a board of trustees in accordance with its Trust Deed. United Kingdom legislation requires that pension schemes are funded prudently (i.e., to a level in excess of the "best estimate" expected cost of providing benefits). Funding is assessed on a triennial basis using (prudent) assumptions agreed by the board of trustee(s) and Alcon. The board of trustees are responsible for jointly agreeing with Alcon the level of contributions needed to eliminate any shortfall over a reasonable period of time, typically not exceeding 10 years . Under the governing documentation, if a surplus remains once liabilities have been settled it would be refunded to Alcon.

One of Alcon's pension plans has a surplus that is not recognized, on the basis that future economic benefits are not available to the entity in the form of a reduction in future contributions or a cash refund.

---

The following tables summarize the funded and unfunded DBO for pension and other post-employment benefit plans of Alcon associates at December 31, 2019 and 2018 :

	Pension plans						Other post-employment benefit plans
($ millions)	2019			2018			2019			2018
Benefit obligation at January 1	662			671			385			382
Current service cost	22			28			8			11
Interest cost	13			15			15			13
Past service costs and settlements	2			—			—			—
Administrative expenses	1			1			—			—
Remeasurement losses/(gains) arising from changes in financial assumptions	71			( 17	)		52			( 3	)
Remeasurement losses/(gains) arising from changes in demographic assumptions	6			1			( 1	)		6
Experience-related remeasurement (gains)/losses	( 5	)		2			( 20	)		( 11	)
Currency translation effects	1			( 15	)		—			—
Benefit payments	( 15	)		( 29	)		( 16	)		( 13	)
Contributions of associates	5			4			—			—
Effect of acquisitions, divestments or transfers	( 40	)		1			—			—
Benefit obligation at December 31	723			662			423			385
Fair value of plan assets at January 1	424			445			40			65
Interest income	8			9			1			2
Return on plan assets excluding interest income	36			( 13	)		3			( 3	)
Currency translation effects	7			( 9	)		—			—
Employer contributions	21			19			( 28	)		( 11	)
Contributions of associates	5			4			—			—
Settlements	—			( 1	)		—			—
Benefit payments	( 15	)		( 29	)		( 16	)		( 13	)
Effect of acquisitions, divestments or transfers	( 35	)		( 1	)		—			—
Fair value of plan assets at December 31	451			424			—			40
Funded status	( 272	)		( 238	)		( 423	)		( 345	)
Limitation on recognition of fund surplus at January 1	( 4	)		( 6	)
Change in limitation on recognition of fund surplus (including exchange rate differences)	( 2	)		2
Limitation on recognition of fund surplus at December 31	( 6	)		( 4	)
Net liability in the balance sheet at December 31	( 278	)		( 242	)		( 423	)		( 345	)

---

The reconciliation of the net liability from January 1 to December 31 is as follows:

	Pension plans						Other post-employment benefit plans
($ millions)	2019			2018			2019			2018
Net liability at January 1	( 242	)		( 232	)		( 345	)		( 317	)
Current service cost	( 22	)		( 28	)		( 8	)		( 11	)
Net interest expense	( 5	)		( 6	)		( 14	)		( 11	)
Administrative expenses	( 1	)		( 1	)		—			—
Past service costs and settlements	( 2	)		( 1	)		—			—
Remeasurements	( 36	)		1			( 28	)		5
Currency translation effects	6			6			—			—
Employer contributions	21			19			( 28	)		( 11	)
Effect of acquisitions, divestments or transfers	5			( 2	)		—			—
Change in limitation on recognition of fund surplus	( 2	)		2			—			—
Net liability at December 31	( 278	)		( 242	)		( 423	)		( 345	)
Amounts recognized in the balance sheet
Prepaid benefit cost	13			12			—			—
Accrued benefit liability	( 291	)		( 254	)		( 423	)		( 345	)

The following tables show a breakdown of the DBO for pension plans by geography and type of member and the breakdown of plan assets into the geographical locations in which they are held:

	2019
($ millions)	Switzerland			United States			Germany			United Kingdom			Rest of the world			Total
Benefit obligation at December 31	244			127			109			98			145			723
Thereof: unfunded plans	47			29			—			—			23			99
Thereof: unfunded portion of funded plans (1)	65			18			92			—			17			192
By type of member
Active	216			40			61			—			123			440
Deferred pensioners	12			46			27			54			12			151
Pensioners	16			41			21			44			10			132
Fair value of plan assets at December 31	132			80			17			109			113			451
Funded status	( 112	)		( 47	)		( 92	)		11			( 32	)		( 272	)

(1) Excludes $ 8 million of Prepaid benefit costs and the limitation on recognition of fund surplus.

---

	2018
($ millions)	Switzerland			United States			Germany			United Kingdom			Rest of the world			Total
Benefit obligation at December 31	201			111			94			86			170			662
Thereof: unfunded plans	49			21			—			—			18			88
Thereof: unfunded portion of funded plans (1)	46			23			78			—			19			166
By type of member
Active	166			36			56			—			148			406
Deferred pensioners	18			32			22			69			9			150
Pensioners	17			43			16			17			13			106
Fair value of plan assets at December 31	106			67			16			98			137			424
Funded status	( 95	)		( 44	)		( 78	)		12			( 33	)		( 238	)

(1) Excludes $ 4 million of Prepaid benefit cost and the limitation on recognition of fund surplus.

The following table shows the principal weighted average actuarial assumptions used for calculating defined benefit plans and other post-employment benefits of Alcon associates:

	Pension plans						Other post-employment benefit plans
	2019			2018			2019			2018
Discount rate	1.7	%		2.2	%		3.3	%		4.3	%
Expected rate of pension increase	1.2	%		1.1	%
Expected rate of salary increase	3.3	%		2.8	%
Interest on savings account	1.0	%		0.8	%
Current average life expectancy for a 65-year-old male (in years)	21			21			21			21
Current average life expectancy for a 65-year-old female (in years)	24			23			23			23

Changes in the aforementioned actuarial assumptions can result in significant volatility in the accounting for the pension plans in the Consolidated Financial Statements. This can result in substantial changes in Alcon's other comprehensive income, non-current liabilities and prepaid pension assets.

The DBO is significantly impacted by assumptions related to the rate used to discount the actuarially determined post-employment benefit liability. This rate is based on yields of high-quality corporate bonds in the country of the plan. Decreasing corporate bond yields decrease the discount rate, so that the DBO increases and the funded status decreases.

In Switzerland, an increase in the DBO due to lower discount rates is slightly offset by lower future benefits expected to be paid on the associate's savings account where the assumption on interest accrued changes in line with the discount rate.

The impact of decreasing interest rates on a plan's assets is more difficult to predict. A significant part of the plan assets is invested in bonds. Bond values usually rise when interest rates decrease and may therefore partially compensate for the decrease in the funded status. Furthermore, pension assets also include significant holdings of equity instruments. Share prices tend to rise when interest rates decrease and therefore often counteract the negative impact of the rising DBO on the funded status (although the correlation of interest rates with equities is not as strong as with bonds, especially in the short term).

The expected rate for pension increases significantly affects the DBO of most plans in Switzerland, Germany and the United Kingdom. Such pension increases also decrease the funded status, although there is no strong correlation between the value of the plan assets and pension/inflation increases.

---

Assumptions regarding life expectancy significantly impact the DBO. An increase in longevity increases the DBO. There is no offsetting impact from the plan assets, as no longevity bonds or swaps are held by the pension funds. Generational mortality tables are used where this data is available.

The following table shows the sensitivity of the defined benefit pension and other post-employment benefit obligations to the principal actuarial assumptions as of December 31, 2019 :

($ millions)	Change in 2019 year-end
25 basis point increase in discount rate	( 43	)
25 basis point decrease in discount rate	46
1 year increase in life expectancy	32
25 basis point increase in rate of pension increase	15
25 basis point decrease in rate of pension increase	( 27	)
25 basis point increase of interest on savings account	2
25 basis point decrease of interest on savings account	( 2	)
25 basis point increase in rate of salary increase	6
25 basis point decrease in rate of salary increase	( 6	)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes of the assumptions may be correlated. When calculating the sensitivity of the DBO to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the PUC method at the end of the reporting period) has been applied as when calculating the net liability recognized in the Consolidated Balance Sheets.

The healthcare cost trend rate assumptions used for other post-employment benefits are as follows:

	2019			2018			2017
Healthcare cost trend rate assumed for next year	6.5	%		7.0	%		6.5	%
Rate to which the cost trend rate is assumed to decline	4.5	%		4.5	%		4.5	%
Year that the rate reaches the ultimate trend rate	2028			2028			2025

The following table shows the weighted average plan asset allocation of funded defined benefit pension plans at December 31, 2019 , and 2018 :

	Pension plans
(as a percentage)	Long-term target minimum		Long-term target maximum		2019		2018
Equity securities	15		40		32		28
Debt securities	20		60		42		43
Real estate	5		20		7		9
Alternative investments	0		20		15		17
Cash and other investments	0		15		4		3
Total					100		100

Cash and most of the equity and debt securities have a quoted market price in an active market. Real estate and alternative investments, which include hedge fund and private equity investments, usually do not have a quoted market price.

The strategic allocation of assets of the different pension plans is determined with the objective of achieving an investment return that, together with employer contributions and contributions of associates, is sufficient to

---

maintain reasonable control over the various funding risks of the plans. Based upon the market and economic environments, actual asset allocations may temporarily be permitted to deviate from policy targets.

The weighted average duration of the DBO is 15.6 years (2018: 16.9 years ).

Alcon's ordinary contribution to the various pension plans is based on the rules of each plan. Additional contributions are made whenever required by statute or law (i.e., usually when statutory funding levels fall below pre-determined thresholds).

The following table summarizes expected future cash flows for pension and other post-employment benefit plans as of December 31, 2019 :

($ millions)	Pension plans			Other post-employment benefit plans
Employer contributions
2020 (estimated)	14			—
Expected future benefit payments
2020	41			21
2021	26			22
2022	27			24
2023	27			25
2024	32			26
2025-2029	169			133

Defined contribution plans

In many subsidiaries, associates are covered by defined contribution plans. Contributions charged to the 2019 Consolidated Income Statement for the defined contribution plans were $ 128 million ( 2018 : $ 105 million ; 2017 : $ 97 million ).

For the year ended December 31, 2019 , Alcon recorded equity-based compensation expense of $ 114 million ( 2018 : $ 93 million , 2017 : $ 71 million ).

Liabilities from cash-settled equity-based compensation plans were $ 10 million as of December 31, 2019 ( 2018 : $ 6 million ).

On April 9, 2019, Alcon adopted various equity-based incentive plans, under which Alcon may grant awards in the form of restricted stock units ("RSUs"), performance-based restricted stock units ("PSUs"), restricted stock awards ("RSAs"), or any other form of award at the discretion of the Board. Certain associates in select countries may also participate in share ownership savings plans.

Prior to the Spin-off, Alcon associates participated in Novartis equity-based participation plans, which included stock options, RSUs, PSUs, RSAs and certain share savings ownership plans. Such awards were settled in shares or options of the Former Parent. For periods prior to the Spin-off, the Consolidated Income Statements reflect the compensation expense for the Novartis’s equity-based incentive plans in which Alcon associates participated.

Replacement awards

Concurrent with the Spin-off, certain outstanding Novartis awards granted to Alcon associates under Novartis’ equity-based incentive plans vested in Novartis equity on a pro rata basis, in proportion to the amount of the vesting period completed. The remaining unvested Novartis awards were replaced and restored with Alcon awards as governed by the Alcon equity restoration plan with terms and vesting schedules substantially similar to the replaced Novartis awards.

---

The pro rata vesting of Novartis awards and replacement of forfeited unvested Novartis awards with Alcon awards represents a modification under IFRS 2, Share-based Payment . Alcon measured the fair value of the awards immediately prior to and subsequent to the modification and concluded that no incremental fair value was provided to associates. Accordingly, Alcon continues to recognize as an expense the amount of unrecognized compensation cost of the original awards over the remaining vesting periods. Alcon issued 4.2 million unvested equity-based awards in connection with the modification at the time of the the Spin-off.

The replacement awards consist primarily of RSUs and PSUs, and vest over a period consistent with the original vesting schedule of the awards which they replaced. In addition to the replacement awards, Alcon has granted additional equity-based awards under the newly-established Alcon incentive plans which were also granted in the form of RSUs and PSUs that will settle in Alcon Inc. shares upon vesting.

Summary of unvested share movements

Alcon granted 0.7 million unvested equity-based awards subsequent to the Spin-off. There were 4.7 million unvested equity-based Alcon awards outstanding as of December 31, 2019 after giving effect to 0.1 million equity-based awards vested and 0.1 million awards forfeited during the period.

The below table summarizes unvested share movements for all Alcon equity-based incentive plans from the Spin-off through December 31, 2019:

	2019
	Number of shares in thousand			Weighted average fair value at grant date in $			Fair value in $ thousand
Replacement awards issued at Spin-off (1)	4,222			n/a			212,367
Granted
Restricted awards	625			56.1			35,037
Performance awards	117			58.0			6,782
Vested (1)	( 108	)		n/a			( 5,432	)
Forfeited (1)	( 114	)		n/a			( 5,734	)
Unvested shares at December 31	4,742			51.2			243,020

(1)	Based on estimated fair value per share at the time of Spin-off.

The remaining weighted-average vesting period of unvested equity-based awards as of December 31, 2019 was 1.5 years .

Alcon equity-based incentive plans

The table below discloses the number of shares authorized under the plans as of December 31, 2019:

(thousands)	2019
Long-term Incentive Plan	20,000
Deferred Bonus Stock Plan	1,500
Swiss Employee Share Ownership Plan	475
Other share savings plans	275
Authorized as of December 31, 2019	22,250

---

Long-Term Incentive Plan ("LTIP") - Restricted Stock Units and Restricted Stock Awards

Under Alcon's LTIP, certain eligible executives and management personnel may receive grants of RSUs and RSAs (together "Restricted awards"). The awards generally vest on the third anniversary of the award and are generally forfeited if the employment relationship with Alcon terminates prior to vesting. Recipients of RSU awards do not have any shareholder rights, such as voting or dividend rights, until the shares are delivered. Alcon associates receiving grants of RSAs are entitled to the dividend equivalents that may be declared and paid over the vesting period only if the associates vest in such award.

For the periods prior to the Spin-off, Alcon associates participated in the Former Parent's "Select" plan. The Company's LTIP plan is substantially similar to and replaced the Former Parent plan.

LTIP - Performance Stock Units

The Alcon CEO and Alcon Top Leaders ("ATLs") participate in Alcon's long-term performance program. PSUs granted under the LTIP each convert to one unrestricted Alcon Inc. share at vesting, subject to the achievement of performance measures.

PSUs awarded to plan participants are granted at target incentive ranges from 30 % to 280 % of base compensation and vest over a three -year period. The payout between 0 % and 200 % of target is dependent upon four equally weighted performance metrics which are determined at the onset of the performance period by the Alcon Inc. Board of Directors. The metrics include cumulative annual growth rate of Net sales, Core EPS, market share, and innovation. The Alcon Inc. Board of Directors and the Compensation, Governance and Nomination Committee assess the performance against the defined measures and approve the final payout. PSUs granted under the performance plan do not carry voting rights, but do carry dividend equivalents that are paid in Alcon Inc. shares at vesting, provided participants remain associates of Alcon.

For the periods prior to the Spin-off, Alcon associates participated in the Former Parent's Long-Term Performance Plan ("LTPP") and Long-Term Relative Performance Plan ("LTRPP"), which were substantially similar to Alcon's LTIP performance program.

Deferred Bonus Stock Plan ("DBSP")

The Alcon CEO's annual incentive is paid 50 % in cash in the year following the performance period, and 50 % in Alcon Inc. RSUs or RSAs. ATLs receive 70 % of their annual incentive in cash and 30 % in Alcon Inc. RSUs or RSAs. The RSUs and RSAs are granted in first quarter of the year following the performance period, which are deferred and restricted for three years . Each RSU is converted into one Alcon Inc. share at the vesting date. RSUs granted under the DBSP do not carry any dividend, dividend equivalent or voting rights. Executives in certain countries may elect to also receive some or all of their cash incentive in shares or share units that are not subject to vesting conditions.

The Alcon DBSP is substantially similar to and replaces the Annual Incentive plan, which existed in the periods prior to the Spin-off.

Swiss Employee Share Ownership Plan and other share savings plans

Alcon associates in certain countries are encouraged to invest their annual incentive in a share savings plans. Under the share savings plans, participants may elect to receive some or all of their annual incentive in Alcon Inc. shares in lieu of cash. Subject to plan rules and limitations, as a reward for their participation in the share savings plans, at no additional cost to the participant, Alcon may fully or partially match their investments in shares after a holding period of three or five years .

Prior to the Spin-off, Alcon associates participated in the Former Parent's share savings plans, which were substantially similar to and replaced by Alcon's share savings plans.

---

Equity-based incentive plans under Former Parent

The below table summarizes unvested share movements for all plans under the Former Parent for the year ended December 31, 2018 (Novartis AG RSAs, RSUs, and PSUs):

	2018
	Number of shares in thousand			Weighted average fair value at grant date in $			Fair value in $ thousand
Unvested shares at January 1	2,800			74.4			208,300
Granted
Annual incentive	168			83.7			14,062
Share savings plans	109			85.5			9,320
Select North America	689			77.9			53,673
Select outside North America	141			79.8			11,252
Long-Term Performance Plan	316			88.4			27,934
Long-Term Relative Performance Plan	37			51.2			1,894
Other share awards	205			83.1			17,036
Vested	( 814	)		93.0			( 75,702	)
Forfeited	( 208	)		80.4			( 16,723	)
Unvested shares at December 31	3,443			72.9			251,046

Until 2013, participants in the Former Parent's "Select" plan could also elect to receive part or all of their grant in the form of Novartis AG tradable share options. Novartis AG tradable share options expire on their tenth anniversary from the grant date. Each Novartis AG tradable share option entitles the holder to purchase after vesting (and before the tenth anniversary from the grant date) one Novartis AG share at a stated exercise price that equals the closing market price of the underlying Novartis AG share at the grant date.

Options under Novartis equity plan "Select" outside North America

The following table shows the activity associated with the Novartis AG share options during the year ended December 31, 2018. The weighted average prices in the table below are translated from Swiss francs into USD at historical rates.

	2018
	Options (millions)			Weighted average exercise price ($)			Weighted average intrinsic value ($)
Options outstanding at January 1	0.5			61.1			24.7
Sold or exercised	( 0.1	)		59.7			29.1
Outstanding at December 31	0.4			61.4			26.5
Exercisable at December 31	0.4			61.4			26.5

All Novartis AG share options were granted at an exercise price that was equal to the closing market price of the Novartis AG shares at the grant date. The weighted average Novartis AG share price at the dates of sale or exercise was $ 86.2 .

---

The following table summarizes information about Novartis AG share options outstanding at December 31, 2018 :

	Options outstanding
Range of exercise prices($)	Number outstanding (thousand)			Average remaining contractual life (years)		Weighted average exercise price ($)
45 - 55	32			0.7		52.4
56 - 66	394			3.5		62.1
Total	426			3.3		61.4

Options under Novartis equity plan "Select" for North America

The following table shows the activity associated with the Novartis AG American Depositary Receipts ("ADR") options during the period:

	2018
	ADR options (millions)			Weighted average exercise price ($)			Weighted average intrinsic value ($)
Options outstanding at January 1	1.8			62.5			21.4
Sold or exercised	( 0.5	)		62.4			25.8
Outstanding at December 31	1.3			62.6			23.2
Excercisable at December 31	1.3			62.6			23.2

All ADR options were granted at an exercise price that was equal to the closing market price of the ADRs at the grant date. The weighted average ADR price at the dates of sale or exercise was $ 81.4 .

The following table summarizes information about ADR options outstanding at December 31, 2018 :

	ADR options outstanding
Range of exercise prices ($)	Number outstanding (thousand)			Average remaining contractual life (years)		Weighted average exercise price ($)
45 - 55	30			0.6		50.7
56 - 66	1,258			3.6		62.9
Total	1,288			3.5		62.6

Prior to the Spin-off, the Alcon business was a segment of Novartis such that transactions with Novartis were considered related party transactions. In connection with the Spin-off, Alcon entered into a separation and distribution agreement as well as various other agreements governing relationships with Novartis going forward, including manufacturing and supply, transitional services, tax matters, employee matters, and patent and know-how license and brand license agreements. Information included in this Note with respect to Novartis is strictly limited to related party transactions with Novartis prior to the Spin-off on April 9, 2019.

Transactions with Novartis (up to April 9, 2019)

Transactions from trading activities related to products and services invoiced between other Novartis Group companies and Alcon's business, have been retained in the historical Consolidated Financial Statements. The ultimate controlling parent of both, the other Novartis Group companies and Alcon's business, was Novartis AG until the Spin-off.

---

The following table summarizes amounts for the years ended December 31, 2019 , 2018 , and 2017 :

($ millions)	2019 (1)		2018		2017
Sales to former parent	—		4		4
Contract manufacturing revenues from former parent	47		—		—
Purchases from former parent	19		4		3

($ millions)	December 31, 2018 (1)
Trade and other receivables from former parent	20
Trade and other payables to former parent	85
Other financial receivables from former parent	39
Other financial liabilities to former parent	67

(1)	Activity presented strictly relates to the period during which Novartis was a related party (up to April 9, 2019).

Sales to and purchases from former parent

Beginning in 2019, product sales to Novartis are recorded in Other revenues in line with Alcon's contract manufacturing arrangement executed with Novartis. Other revenues in 2019 prior to the Spin-off were $ 47 million . Purchases of products from Novartis under the contract manufacturing arrangement totaled $ 19 million in 2019 prior to the Spin-off.

Other financial receivables and payables related to former parent

Prior to the Spin-off, the majority of Alcon's subsidiaries were party to Novartis cash pooling arrangements with several financial institutions to maximize the availability of cash for general operating and investing purposes. Under these cash pooling arrangements, cash balances were swept by Novartis regularly from Alcon's bank accounts, and the net position with the Novartis cash pooling accounts at the end of each reporting period was reflected in the consolidated balance sheet in Other financial receivables from former parent or Other financial liabilities to former parent. These cash pooling arrangements were eliminated during the three months ended March 31, 2019 in anticipation of the Spin-off and replaced with third party financing arrangements as needed.

Novartis Business Services ("NBS") Charges, Corporate Overhead and Other Allocations from Novartis

Prior to January 1, 2019, Novartis Group provided Alcon certain services from NBS, the shared service organization of Novartis Group, across the following service domains: human resources operations, real estate and facility services, including site security and executive protection, procurement, information technology, commercial and medical support services and financial reporting and accounting operations. The Consolidated Financial Statements include the appropriate costs related to the services rendered, without profit margin, in accordance with the historical arrangements that existed between the Alcon business and NBS.

Further, certain general and administrative costs of Novartis Group were not charged or allocated to the Alcon business in the past. For the purpose of the 2017 and 2018 financial statements, such costs were allocated based on reasonable assumptions and estimates, based on the direct and indirect costs incurred to provide the respective service. When specific identification was not practicable, a proportional cost method was used, primarily based on sales or headcount.

These NBS charges, corporate overhead and other allocations amounted to $ 553 million in 2018 and $ 535 million in 2017.

During 2018, Alcon formed its own business and corporate support functions, including its own service organization, such that certain activities and associates were transferred from Novartis to Alcon, operationally effective January 1, 2019. Services provided by Novartis Group to Alcon in 2019 prior to the Spin-off totaled $ 40 million and primarily related to human resources operations, real estate and facility services, and information technology.

Management believes that the net charges and methods used for allocations to Alcon were performed on a reasonable basis and reflect the services received by Alcon and the cost incurred on behalf of Alcon. Although the Consolidated Financial Statements reflect management's best estimate of all historical costs related to Alcon,

---

this may however not necessarily reflect what the results of operations, financial position, or cash flows would have been had Alcon been a separate entity, nor the future results of Alcon as it exists following completion of the separation on April 9, 2019.

Transactions with members of the Board of Directors

Dr. Arthur Cummings, an Alcon Board of Director, in his capacity as an ophthalmologist, provides certain consulting services, including assistance with various clinical trials to Alcon. In 2019, Alcon paid to Dr. Cummings (or his related entities) approximately $ 84,844 .

Executive officers

The following table summarizes compensation information for key management personnel ( 7 members for all years presented):

($ millions)	2019		2018		2017
Cash and other compensation	12.5		10.3		9.3
Post-employment benefits	0.9		0.8		0.8
Equity-based compensation	10.7		11.3		6.8
Total	24.1		22.4		16.9

Commitments

Research & development

Alcon has entered into long-term research agreements with various institutions which provide for potential milestone payments and other payments by Alcon that may be capitalized. As of December 31, 2019 , the commitments to make payments under those agreements, and their estimated timing, were as follows:

($ millions)	2019
2020	28
2021	41
2022	4
2023	4
2024	33
Thereafter	71
Total	181

Other

Alcon entered into various purchase commitments for services and materials as well as for equipment in the ordinary course of business. These commitments are generally entered into at current market prices and reflect normal business operations. For disclosure of Property, plant and equipment purchase commitments, see Note 9 .

Contingencies

The Alcon companies have to observe the laws, government orders and regulations of the country in which they operate.

A number of Alcon companies are, and will likely continue to be, subject to various legal proceedings and investigations that arise from time to time, including proceedings regarding product liability, sales and marketing practices, commercial disputes, employment, and wrongful discharge, antitrust, securities, health and safety, environmental, tax, international trade, privacy, and intellectual property matters. As a result, Alcon may become subject to substantial liabilities that may not be covered by insurance and could affect our business, financial position and reputation. While Alcon does not believe that any of these legal proceedings will have a material

---

adverse effect on its financial position, litigation is inherently unpredictable and large judgments sometimes occur. As a consequence, Alcon may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations or cash flow.

Governments and regulatory authorities around the world have been stepping up their compliance and law enforcement activities in recent years in key areas, including marketing practices, pricing, corruption, trade restrictions, embargo legislation, insider trading, antitrust, cyber security and data privacy. Further, when one government or regulatory authority undertakes an investigation, it is not uncommon for other governments or regulators to undertake investigations regarding the same or similar matters. Responding to such investigations is costly and requires an increasing amount of management's time and attention. In addition, such investigations may affect Alcon's reputation, create a risk of potential exclusion from government reimbursement programs in the United States and other countries, and may lead to (or arise from) litigation. These factors have contributed to decisions by Alcon and other companies in the medical device and healthcare industry, when deemed in their interest, to enter into settlement agreements with governmental authorities around the world prior to any formal decision by the authorities or a court. Those government settlements have involved and may continue to involve, in current government investigations and proceedings, large cash payments, sometimes in the hundreds of millions of dollars or more, including the potential repayment of amounts allegedly obtained improperly and other penalties, including treble damages. In addition, settlements of government healthcare fraud cases often require companies to enter into corporate integrity agreements, which are intended to regulate company behavior for a period of years. Also, matters underlying governmental investigations and settlements may be the subject of separate private litigation.

While provisions have been made for probable losses, which management deems to be reasonable or appropriate, there are uncertainties connected with these estimates. Note 19 contains additional information on these matters.

Alcon is involved in legal proceedings concerning intellectual property rights. The inherent unpredictability of such proceedings means that there can be no assurances as to their ultimate outcome. A negative result in any such proceeding could potentially adversely affect the ability of certain Alcon companies to sell their products, or require the payment of substantial damages or royalties.

Alcon's potential for environmental remediation liability is assessed based on a risk assessment and investigation of the various sites identified by Alcon as at risk for environmental remediation exposure. Alcon's future remediation expenses are affected by a number of uncertainties. These uncertainties include, but are not limited to, the method and extent of remediation, the percentage of material attributable to Alcon at the remediation sites relative to that attributable to other parties, and the financial capabilities of the other potentially responsible parties.

Alcon has no significant environmental liabilities as at December 31, 2019 and 2018 and has incurred no significant remediation costs for the years ended December 31, 2019 , 2018 and 2017 .

---

Subsequent to December 31, 2019, the Revolving Facility was extended to March 2025. The Revolving Facility remained undrawn as of February 25, 2020.

On February 25, 2020, the Alcon Board of Directors approved the proposal to submit the 2019 financial statements of Alcon Inc. and these Consolidated Financial Statements for approval at the Annual General Meeting on May 6, 2020.  Additionally on February 25, 2020, the Board proposed a dividend of CHF 0.19 per share to be approved at the same Annual General Meeting.  If approved, the total dividend payments would amount to approximately $ 95 million using the CHF/USD exchange rate as of February 21,2020.

The Board of Directors has evaluated subsequent events as they relate to Alcon for potential recognition or disclosures from January 1, 2020 to the date of the approval of these Consolidated Financial Statements and has determined there are no additional subsequent events to be reported in these Consolidated Financial Statements.

---

The following table lists the Alcon legal entities with Total assets or Net sales to third parties in excess of $ 5 million included in the Consolidated Financial Statements at and for the year ended December 31, 2019, respectively. The equity interest percentage shown in the table represents Alcon's share in voting rights in those entities. Unless otherwise stated, each entity has share capital consisting of equity held directly by the Company or another of its consolidated subsidiaries.

Country of organization/Entity name	Place of business	Equity interest
Argentina
Alcon Laboratorios Argentina S.A.	Buenos Aires	100	%
Australia
Alcon Laboratories (Australia) Pty Ltd	Frenchs Forest, NSW	100	%
Austria
Alcon Ophthalmika GmbH	Wein	100	%
Belgium
Alcon Laboratories Belgium BVBA	Puurs	100	%
N.V. Alcon S.A.	Vilvoorde	100	%
Canada
Alcon Canada Inc.	Mississauga, Ontario	100	%
Chile
Alcon Laboratorios Chile Ltd.	Santiago de Chile	100	%
China
Alcon (China) Ophthalmic Product Co., Ltd.	Beijing	100	%
Alcon Hong Kong Limited	Hong Kong	100	%
Colombia
Laboratorios Alcon de Colombia S.A.	Santafé de Bogotá	100	%
Czech Republic
Alcon Pharmaceuticals (Czech Republic) s.r.o.	Prague	100	%
Denmark
Alcon Nordic A/S	Copenhagen	100	%
Dominican Republic
Alcon Dominicana, SRL	Santo Domingo	100	%
Ecuador
AlconLab Ecuador S.A.	Quito	100	%
France
Laboratoires Alcon S.A.S.	Rueil-Malmaison	100	%
Germany
Alcon Pharma GmbH	Freiburg im Breisgau	100	%
CIBA Vision GmbH	Grosswallstadt	100	%
WaveLight GmbH	Erlangen	100	%
Greece
Alcon Laboratories Hellas- Single Member Commercial and Industrial S.A.C.I.	Maroussi, Athens	100	%
Hungary
Alcon Hungary Pharmaceuticals Trading Limited Liability Company	Budapest	100	%
India
Alcon Laboratories (India) Private Limited	Bangalore	100	%
Indonesia
PT. CIBA Vision Batam	Batam	100	%
Ireland
Alcon Laboratories Ireland Limited	Cork City	100	%
Israel
Optonol Ltd.	Neve-Ilan	100	%

---

Country of organization/Entity name	Place of business	Equity interest
Italy
Alcon Italia S.p.A.	Milano	100	%
Japan
Alcon Japan Ltd.	Tokyo	100	%
Malaysia
Alcon Laboratories (Malaysia) Sdn. Bhd.	Petaling Jaya	100	%
CIBA Vision Johor Sdn. Bhd.	Kuala Lumpur	100	%
Mexico
Alcon Laboratorios, S.A. de C.V.	Ciudad de Mexico	100	%
Morocco
Alcon Maroc SARL D´Associé Unique	Casablanca	100	%
Netherlands
Alcon Nederland B.V.	Arnhem	100	%
New Zealand
Alcon Laboratories (New Zealand) Ltd.	Auckland	100	%
Panama
Alcon Centroamerica S.A.	Panama City	100	%
Peru
Alcon Pharmaceutical del Peru S.A.	Lima	100	%
Philippines
Alcon Laboratories (Philippines), Inc.	Manila	100	%
Poland
Alcon Polska Sp. z o.o.	Warszawa	100	%
Portugal
Alcon Portugal-Produtos e Equipamentos Oftalmológicos Lda.	Porto Salvo	100	%
Puerto Rico
Alcon (Puerto Rico), Inc.	Cataño, PR	100	%
Romania
Alcon Romania S.R.L.	Bucharest	100	%
Russian Federation
Alcon Farmacevtika LLC	Moscow	100	%
Singapore
Alcon Pte Ltd	Singapore	100	%
Alcon Singapore Manufacturing Pte Ltd	Singapore	100	%
CIBA Vision Asian Manufacturing and Logistics Pte Ltd.	Singapore	100	%
South Africa
Alcon Laboratories (South Africa) (Pty) Ltd.	Midrand	100	%
South Korea
Alcon Korea Ltd.	Seoul	100	%
Spain
Alcon Healthcare S.A.	Barcelona	100	%
Switzerland
Alcon Inc.	Fribourg	100	%
Alcon Grieshaber AG	Schaffhausen	100	%
Alcon Management SA	Vernier	100	%
Alcon Pharmaceuticals Ltd.	Fribourg	100	%
Alcon Services AG	Fribourg	100	%
Alcon Switzerland SA	Risch	100	%
Thailand
Alcon Laboratories (Thailand) Limited	Bangkok	100	%
Turkey
Alcon Laboratuvarlari Ticaret A.S.	Istanbul	100	%

---

Country of organization/Entity name	Place of business	Equity interest
Ukraine
Alcon Ukraine LLC	Kiev	100	%
United Kingdom
Alcon Eye Care UK Limited	Frimley/Camberley	100	%
United States of America
Alcon Finance Corporation	Wilminton, DE	100	%
Alcon Laboratories, Inc.	Wilminton, DE	100	%
Alcon RefractiveHorizons, LLC	Fort Worth, TX	100	%
Alcon Research, LLC	Fort Worth, TX	100	%
Alcon Vision, LLC	Fort Worth, TX	100	%
CIBA Vision, LLC	Duluth, GA	100	%
WaveLight, Inc.	Sterling, VA	100	%
ClarVista Medical, Inc.	Aliso Viejo, CA	100	%
PowerVision, Inc.	Fort Worth, TX	100	%
Tear Film Innovations, Inc.	Fort Worth, TX	100	%
TrueVision Systems, Inc.	Fort Worth, TX	100	%
Alcon Lensx, Inc.	Fort Worth, TX	100	%

The list below shows the principal Novartis legal entities containing assets, liabilities and results of operations attributable to the Alcon business with Total assets or Net sales to third parties in excess of $ 5 million included in the Consolidated Financial Statements.

Brazil (1)

Novartis Biociências S.A.

Mexico

Novartis Farmacéutica, S.A. de C.V.

---

---