Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Medtronic plc

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Medtronic plc and its subsidiaries (the “Company”) as of April 24, 2020 and April 26, 2019, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended April 24, 2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended April 24, 2020 appearing under Item 15(a)(1) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of April 24, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 24, 2020 and April 26, 2019, and the results of its operations and its cash flows for each of the three years in the period ended April 24, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 24, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal year 2020.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Litigation Contingencies

As described in Notes 1 and 19 to the consolidated financial statements, the Company’s consolidated accrued litigation was approximately $0.5 billion as of April 24, 2020. The Company is involved in a number of legal actions involving product liability, intellectual property and commercial disputes, and shareholder related matters, which represents a significant portion of the total consolidated accrued litigation reserve. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies, that could require significant expenditures, result in lost revenues, or limit the Company’s ability to conduct business in the applicable jurisdictions. Management records liabilities for loss contingencies related to legal actions when a loss is known or considered probable and the amount may be reasonably estimated. Determining the estimated loss or range of loss requires management to use significant judgment.

The principal considerations for our determination that performing procedures relating to litigation contingencies is a critical audit matter are there was significant judgment by management when assessing whether a loss is probable of being incurred and when determining whether a reasonable estimate of the loss or range of loss for each claim can be made. This, in turn, led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s judgments, estimated loss or range of loss, and disclosures related to the litigation contingencies.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s evaluation of litigation claims, including controls over determining whether a loss is probable of being incurred and whether the amount of loss can be reasonably estimated, as well as financial statement disclosures. These procedures also included, among others, (i) evaluating the reasonableness of management’s assessment regarding whether an unfavorable outcome is reasonably possible or probable and reasonably estimable, (ii) testing management’s process to determine the estimate of the loss or range of loss, (iii) obtaining and evaluating letters of audit inquiry with internal and external legal counsel, and (iv) evaluating the sufficiency of the Company’s litigation contingency disclosures.

Income Tax Reserves for Uncertain Tax Positions Related to Puerto Rico Manufacturing

As described in Notes 14 and 19 to the consolidated financial statements, management records reserves for uncertain tax positions related to unresolved matters with the Internal Revenue Service (IRS) and other taxing authorities. A significant remaining unresolved issue with the IRS, for which management has recorded a reserve, relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of the Company's key manufacturing sites. These reserves are subject to a high degree of

estimation and management judgment. Total reserves relating to uncertain tax positions as of April 24, 2020 were $1.862 billion, of which the Puerto Rico manufacturing reserves make up a significant portion.

The principal considerations for our determination that performing procedures relating to income tax reserves for uncertain tax positions related to Puerto Rico manufacturing is a critical audit matter are there was significant judgment by management when determining the reserves, including a high degree of estimation uncertainty relative to the unresolved matters involving one of the Company’s key manufacturing sites. This in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures to evaluate the timely identification and accurate measurement of the reserves.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification and recognition of the reserves for uncertain tax positions, and controls addressing completeness of the uncertain tax positions, as well as controls over measurement of the reserve. These procedures also included, among others, evaluating management’s process to determine the estimate, evaluating the reasonableness of the underlying assumptions in management’s calculations to support the reserves recorded, including evaluating whether the methodology and assumptions used by the Company are consistent with the tax court’s ruling and examined relevant documents related to the tax court case. Professionals with specialized skill and knowledge were used to assist in these procedures.

/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 19, 2020

We have served as the Company’s auditor since 1963.

Medtronic plc

Consolidated Statements of Income

			Fiscal Year
(in millions, except per share data)			2020						2019						2018
Net sales			$	28,913					$	30,557					$	29,953
Costs and expenses:
Cost of products sold			9,424						9,155						9,067
Research and development expense			2,331						2,330						2,256
Selling, general, and administrative expense			10,109						10,418						10,238
Amortization of intangible assets			1,756						1,764						1,823
Restructuring charges, net			118						198						30
Certain litigation charges			313						166						61
Gain on sale of businesses			—						—						(697)
Other operating expense, net			71						258						535
Operating profit			4,791						6,268						6,640
Other non-operating income, net			(356)						(373)						(181)
Interest expense			1,092						1,444						1,146
Income before income taxes			4,055						5,197						5,675
Income tax (benefit) provision			(751)						547						2,580
Net income			4,806						4,650						3,095
Net (income) loss attributable to noncontrolling interests			(17)						(19)						9
Net income attributable to Medtronic			$	4,789					$	4,631					$	3,104
Basic earnings per share			$	3.57					$	3.44					$	2.29
Diluted earnings per share			$	3.54					$	3.41					$	2.27
Basic weighted average shares outstanding			1,340.7						1,346.4						1,356.7
Diluted weighted average shares outstanding			1,351.1						1,357.5						1,368.2

The accompanying notes are an integral part of these consolidated financial statements.

Medtronic plc

Consolidated Statements of Comprehensive Income

			Fiscal Year
(in millions)			2020						2019						2018
Net income			$	4,806					$	4,650					$	3,095
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investment securities			45						102						(103)
Translation adjustment			(829)						(1,375)						1,184
Net investment hedge			405						88						—
Net change in retirement obligations			(544)						(191)						167
Unrealized (loss) gain on cash flow hedges			72						401						(218)
Other comprehensive (loss) income			(851)						(975)						1,030
Comprehensive income including noncontrolling interests			3,955						3,675						4,125
Comprehensive (income) loss attributable to noncontrolling interests			(15)						(16)						9
Comprehensive income attributable to Medtronic			$	3,940					$	3,659					$	4,134

The accompanying notes are an integral part of these consolidated financial statements.

Medtronic plc

Consolidated Balance Sheets

(in millions)						April 24, 2020						April 26, 2019
ASSETS
Current assets:
Cash and cash equivalents						$	4,140					$	4,393
Investments						6,808						5,455
Accounts receivable, less allowances of $208 and $190, respectively						4,645						6,222
Inventories, net						4,229						3,753
Other current assets						2,209						2,144
Total current assets						22,031						21,967
Property, plant, and equipment, net						4,828						4,675
Goodwill						39,841						39,959
Other intangible assets, net						19,063						20,560
Tax assets						2,832						1,519
Other assets						2,094						1,014
Total assets						$	90,689					$	89,694
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations						$	2,776					$	838
Accounts payable						1,996						1,953
Accrued compensation						2,099						2,189
Accrued income taxes						502						567
Other accrued expenses						2,993						2,925
Total current liabilities						10,366						8,472
Long-term debt						22,021						24,486
Accrued compensation and retirement benefits						1,910						1,651
Accrued income taxes						2,682						2,838
Deferred tax liabilities						1,174						1,278
Other liabilities						1,664						757
Total liabilities						39,817						39,482
Commitments and contingencies (Notes 3, 17, and 19)
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,341,074,724 and 1,340,697,595 shares issued and outstanding, respectively						—						—
Additional paid-in capital						26,165						26,532
Retained earnings						28,132						26,270
Accumulated other comprehensive loss						(3,560)						(2,711)
Total shareholders’ equity						50,737						50,091
Noncontrolling interests						135						121
Total equity						50,872						50,212
Total liabilities and equity						$	90,689					$	89,694

The accompanying notes are an integral part of these consolidated financial statements.

Medtronic plc

Consolidated Statements of Equity

						Ordinary Shares																		Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Shareholders’ Equity						Noncontrolling Interests						Total Equity
(in millions)						Number						Par Value
April 28, 2017						1,369						$	—					$	29,551					$	23,270					$	(2,613)					$	50,208					$	122					$	50,330
Net income (loss)						—						—						—						3,104						—						3,104						(9)						3,095
Other comprehensive income						—						—						—						—						1,030						1,030						—						1,030
Dividends to shareholders ($1.84 per ordinary share)						—						—						—						(2,494)						—						(2,494)						—						(2,494)
Issuance of shares under stock purchase and award plans						10						—						329						—						—						329						—						329
Repurchase of ordinary shares						(25)						—						(2,097)						—						—						(2,097)						—						(2,097)
Stock-based compensation						—						—						344						—						—						344						—						344
Changes to noncontrolling ownership interests						—						—						—						—						—						—						(11)						(11)
Cumulative effect of change in accounting principle(1)						—						—												499						(203)						296						—						296
April 27, 2018						1,354						$	—					$	28,127					$	24,379					$	(1,786)					$	50,720					$	102					$	50,822
Net income						—						—						—						4,631						—						4,631						19						4,650
Other comprehensive loss						—						—						—						—						(972)						(972)						(3)						(975)
Dividends to shareholders ($2.00 per ordinary share)						—						—						—						(2,693)						—						(2,693)						—						(2,693)
Issuance of shares under stock purchase and award plans						18						—						923						—						—						923						—						923
Repurchase of ordinary shares						(31)						—						(2,808)						—						—						(2,808)						—						(2,808)
Stock-based compensation						—						—						290						—						—						290						—						290
Changes to noncontrolling ownership interests						—						—						—						—						—						—						3						3
Cumulative effect of change in accounting principle(2)						—						—						—						(47)						47						—						—						—
April 26, 2019						1,341						$	—					$	26,532					$	26,270					$	(2,711)					$	50,091					$	121					$	50,212
Net income						—						—						—						4,789						—						4,789						17						4,806
Other comprehensive loss						—						—						—						—						(849)						(849)						(2)						(851)
Dividends to shareholders ($2.16 per ordinary share)						—						—						—						(2,894)						—						(2,894)						—						(2,894)
Issuance of shares under stock purchase and award plans						12						—						564						—						—						564						—						564
Repurchase of ordinary shares						(12)						—						(1,228)						—						—						(1,228)						—						(1,228)
Stock-based compensation						—						—						297						—						—						297						—						297
Changes to noncontrolling ownership interests						—						—						—						—						—						—						(1)						(1)
Cumulative effect of change in accounting principle(3)						—						—						—						(33)						—						(33)						—						(33)
April 24, 2020						1,341						$	—					$	26,165					$	28,132					$	(3,560)					$	50,737					$	135					$	50,872

(1) The cumulative effect of change in accounting principle in fiscal year 2018 resulted from the adoption of accounting guidance that requires the tax effect of intra-entity transactions, other than sales of inventory, to be recognized when the transaction occurs, and accounting guidance which permitted reclassification of stranded tax effects resulting from the enactment of comprehensive U.S. tax legislation from accumulated other comprehensive loss to retained earnings.

(2) The cumulative effect of change in accounting principle in fiscal year 2019 resulted from the adoption of accounting guidance that requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. As a result of the adoption, the Company reclassified $47 million from accumulated other comprehensive loss to the opening balance of retained earnings as of April 28, 2018.

(3) See Note 1 to the consolidated financial statements for discussion regarding the adoption of accounting standards during fiscal year 2020.

The accompanying notes are an integral part of these consolidated financial statements.

Medtronic plc

Consolidated Statements of Cash Flows

			Fiscal Year
(in millions)			2020						2019						2018
Operating Activities:
Net income			$	4,806					$	4,650					$	3,095
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,663						2,659						2,644
Provision for doubtful accounts			99						78						52
Deferred income taxes			(1,315)						(304)						(919)
Stock-based compensation			297						290						344
Loss on debt extinguishment			406						457						38
Gain on sale of businesses			—						—						(697)
Investment loss			—						—						227
Other, net			217						257						73
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net			1,291						(581)						(275)
Inventories, net			(577)						(274)						(192)
Accounts payable and accrued liabilities			(44)						399						65
Other operating assets and liabilities			(609)						(624)						229
Net cash provided by operating activities			7,234						7,007						4,684
Investing Activities:
Acquisitions, net of cash acquired			(488)						(1,827)						(137)
Proceeds from sale of businesses			—						—						6,058
Additions to property, plant, and equipment			(1,213)						(1,134)						(1,068)
Purchases of investments			(11,039)						(2,532)						(3,200)
Sales and maturities of investments			9,574						4,683						4,227
Other investing activities, net			(37)						36						(22)
Net cash (used in) provided by investing activities			(3,203)						(774)						5,858
Financing Activities:
Change in current debt obligations, net			(17)						(713)						(249)
Issuance of long-term debt			5,568						7,794						21
Payments on long-term debt			(6,110)						(7,948)						(7,370)
Dividends to shareholders			(2,894)						(2,693)						(2,494)
Issuance of ordinary shares			662						992						403
Repurchase of ordinary shares			(1,326)						(2,877)						(2,171)
Other financing activities			(81)						14						(94)
Net cash used in financing activities			(4,198)						(5,431)						(11,954)
Effect of exchange rate changes on cash and cash equivalents			(86)						(78)						114
Net change in cash and cash equivalents			(253)						724						(1,298)
Cash and cash equivalents at beginning of period			4,393						3,669						4,967
Cash and cash equivalents at end of period			$	4,140					$	4,393					$	3,669
Supplemental Cash Flow Information
Cash paid for:
Income taxes			$	878					$	1,558					$	2,542
Interest			643						973						1,147

The accompanying notes are an integral part of these consolidated financial statements.

Medtronic plc

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Nature of Operations Medtronic plc (Medtronic or the Company) is among the world's largest medical technology, services, and solutions companies – alleviating pain, restoring health, and extending life for millions of people around the world. The Company provides innovative products and therapies to serve hospitals, physicians, clinicians, and patients. Medtronic was founded in 1949 and is headquartered in Dublin, Ireland.

Principles of Consolidation The consolidated financial statements include the accounts of Medtronic plc, its wholly-owned subsidiaries, entities for which the Company has a controlling financial interest, and variable interest entities for which the Company is the primary beneficiary. Intercompany transactions and balances have been fully eliminated in consolidation. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.

Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S.) (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are used when accounting for items such as income taxes, contingencies, intangible asset, and liability valuations. Actual results may or may not differ from those estimates.

COVID-19 is having, and will likely continue to have, an adverse effect on our business, results of operations, financial condition, and cash flows, and its future impacts remain highly uncertain and unpredictable. The Company has considered the disruptions caused by COVID-19, including lower than forecasted sales and customer demand and macroeconomic factors, that may impact its estimates. The Company has assessed the potential impact of the pandemic on certain accounting matters including, but not limited to, the allowance for doubtful accounts, inventory reserves, return reserves, the valuation of goodwill, intangible assets, other long-lived assets, investments and contingent consideration, as of April 24, 2020 and through the date of this report. While there was not a material impact to the Company’s consolidated financial statements as of and for the fiscal year ended April 24, 2020, changes in the Company’s assessment about the length and severity of the pandemic, as well as other factors, could result in actual results differing from estimates.

Fiscal Year-End The Company utilizes a 52/53-week fiscal year, ending the last Friday in April, for the presentation of its consolidated financial statements and related notes thereto at April 24, 2020 and April 26, 2019 and for each of the three fiscal years ended April 24, 2020 (fiscal year 2020), April 26, 2019 (fiscal year 2019), and April 27, 2018 (fiscal year 2018). Fiscal years 2020, 2019, 2018 were 52-week years. The Company's fiscal year 2021 is a 53-week year, with the extra week occurring during the first quarter, and will end on April 30, 2021.

Cash Equivalents The Company considers highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.

Investments The Company invests in marketable debt and equity securities, investments that do not have readily determinable fair values, and investments accounted for under the equity method.

Marketable debt securities are classified and accounted for as available-for-sale. These investments are recorded at fair value in the consolidated balance sheets. The change in fair value for available-for-sale securities is recorded, net of taxes, as a component of accumulated other comprehensive loss on the consolidated balance sheets. The Company determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. The classification of marketable debt securities as current or long-term is based on the nature of the securities and the availability for use in current operations consistent with the Company's management of its capital structure and liquidity.

Certain of the Company’s investments in marketable equity securities and other securities are long-term, strategic investments in companies that are in various stages of development and are included in other assets on the consolidated balance sheets. Marketable equity securities are recorded at fair value in the consolidated balance sheets. The change in fair value of marketable equity securities is recognized within other non-operating income, net in the consolidated statements of income. Investments without readily determinable fair values that do not qualify for the practical expedient to estimate fair value using the net asset value per share or its equivalent are accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the issuer. This election is made for each investment separately and is reassessed at each reporting period as to whether the investment continues to qualify for this election. At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. Equity securities accounted for under the equity method are initially recorded at the amount of the Company’s investment and are adjusted each period for the Company’s share of the

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

investee’s income or loss and dividends paid. Securities accounted for under the equity method are reviewed quarterly for changes in circumstance or the occurrence of events that suggest other than temporary impairment has occurred.

Accounts Receivable and Allowance for Doubtful Accounts The Company grants credit to customers in the normal course of business and maintains an allowance for doubtful accounts for potential credit losses. When evaluating allowances for doubtful accounts, the Company considers various factors, including historical experience and customer-specific information. Uncollectible accounts are written-off against the allowance when it is deemed that a customer account is uncollectible.

Inventories Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company reduces the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments, or other economic factors.

Property, Plant, and Equipment Property, plant, and equipment is stated at cost and depreciated over the useful lives of the assets using the straight-line method. Additions and improvements that extend the lives of the assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. The Company assesses property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of property, plant, and equipment asset groupings may not be recoverable. The cost of interest that is incurred in connection with ongoing construction projects is capitalized using a weighted average interest rate. These costs are included in property, plant, and equipment and amortized over the useful life of the related asset. Upon retirement or disposal of property, plant, and equipment, the costs and related amounts of accumulated depreciation or amortization are eliminated from the asset and accumulated depreciation accounts. The difference, if any, between the net asset value and the proceeds, is recognized in earnings.

Goodwill and Intangible Assets Goodwill is the excess of the purchase price over the estimated fair value of net assets of acquired businesses. In accordance with U.S. GAAP, goodwill is not amortized. The Company assesses goodwill for impairment annually in the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at a reporting unit level. The test for impairment of goodwill requires the Company to make several estimates about fair value, most of which are based on projected future cash flows. The Company calculates the excess of each reporting unit's fair value over its carrying amount, including goodwill, utilizing a discounted cash flow analysis. An impairment loss is recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit.

Intangible assets include patents, trademarks, tradenames, customer relationships, purchased technology, and in-process research and development (IPR&D). Intangible assets with a definite life are amortized on a straight-line basis with estimated useful lives typically ranging from three to 20 years. Amortization is recognized within amortization of intangible assets in the consolidated statements of income. Intangible assets with a definite life are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset (asset group) may not be recoverable. When events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable, the Company calculates the excess of an intangible asset's carrying value over its undiscounted future cash flows. If the carrying value is not recoverable, an impairment loss is recognized based on the amount by which the carrying value exceeds the fair value. The inputs used in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value.

Acquired IPR&D represents the fair value assigned to those research and development projects that were acquired in a business combination for which the related products have not received regulatory approval and have no alternative future use. IPR&D is capitalized at its fair value as an indefinite-lived intangible asset, and any development costs incurred after the acquisition are expensed as incurred. The fair value of IPR&D is determined by estimating the future cash flows of each project and discounting the net cash flows back to their present values. Upon achieving regulatory approval or commercial viability for the related product, the indefinite-lived intangible asset is accounted for as a definite-lived asset and is amortized on a straight-line basis over the estimated useful life. If the project is not completed or is terminated or abandoned, the Company may have an impairment related to the IPR&D which is charged to expense. Indefinite-lived intangible assets are tested for impairment annually in the third quarter of the fiscal year and whenever events or changes in circumstances indicate that the carrying amount may be impaired. Impairment is calculated as the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted future cash flow analysis. IPR&D acquired outside of a business combination is expensed immediately.

Contingent Consideration Certain of the Company’s business combinations involve potential payment of future consideration that is contingent upon the achievement of certain product development milestones and/or contingent on the acquired business reaching certain performance milestones. The Company records contingent consideration at fair value at the

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

date of acquisition based on the consideration expected to be transferred, estimated as the probability-weighted future cash flows, discounted back to present value. The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based considerations). Projected revenues are based on the Company’s most recent internal operational budgets and long-range strategic plans. The discount rate used is determined at the time of measurement in accordance with accepted valuation methodologies. Changes in projected revenues, probabilities of payment, discount rates, and projected payment dates may result in adjustments to the fair value measurements. Contingent consideration is remeasured each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized as income or expense within other operating expense, net in the consolidated statements of income. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows.

Self-Insurance The Company self-insures the majority of its insurable risks, including medical and dental costs, disability coverage, physical loss to property, business interruptions, workers’ compensation, comprehensive general, and product liability. Insurance coverage is obtained for risks required to be insured by law or contract. The Company uses claims data and historical experience, as applicable, to estimate liabilities associated with the exposures that the Company has self-insured.

Retirement Benefit Plan Assumptions The Company sponsors various retirement benefit plans, including defined benefit pension plans, post-retirement medical plans, defined contribution savings plans, and termination indemnity plans, covering substantially all U.S. employees and many employees outside the U.S. See Note 16 for assumptions used in determining pension and post-retirement benefit costs and liabilities.

Derivatives The Company recognizes all derivative financial instruments in its consolidated financial statements at fair value in accordance with authoritative guidance on derivatives and hedging, and presents assets and liabilities associated with derivative financial instruments on a gross basis in the consolidated financial statements. For derivative instruments that are designated and qualify as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged, as a fair value hedge or a cash flow hedge. See Note 8 for more information on the Company's derivative instruments and hedging programs.

Fair Value Measurements The Company follows the authoritative guidance on fair value measurements and disclosures with respect to assets and liabilities that are measured at fair value on both a recurring and nonrecurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels defined as follows:

• Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.

• Level 3 - Inputs are unobservable for the asset or liability.

Financial assets that are classified as Level 1 securities include highly liquid government bonds within U.S. government and agency securities and marketable equity securities for which quoted market prices are available. In addition, the Company classifies currency forward contracts as Level 1 since they are valued using quoted market prices in active markets which have identical assets or liabilities.

The valuation for most fixed maturity securities are classified as Level 2. Financial assets that are classified as Level 2 include corporate debt securities, government and agency securities, other asset-backed securities, debt funds, and mortgage-backed securities whose value is determined using inputs that are observable in the market or may be derived principally from, or corroborated by, observable market data such as pricing for similar securities, recently executed transactions, cash flow models

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

with yield curves, and benchmark securities. In addition, interest rate swaps and total return swaps are included in Level 2 as the Company uses inputs other than quoted prices that are observable for the asset. The Level 2 derivative instruments are primarily valued using standard calculations and models that use readily observable market data as their basis.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. Financial assets that are classified as Level 3 include certain investment securities for which there is limited market activity such that the determination of fair value requires significant judgment or estimation, certain corporate debt securities and auction rate securities. With the exception of auction rate securities, these securities are valued using third-party pricing sources that incorporate transaction details such as contractual terms, maturity, timing, and amount of expected future cash flows, as well as assumptions about liquidity and credit valuation adjustments by market participants. The fair value of auction rate securities is estimated by the Company using a discounted cash flow model, which incorporates significant unobservable inputs. The significant unobservable inputs used in the fair value measurement of the Company’s auction rate securities are years to principal recovery and the illiquidity premium that is incorporated into the discount rate.

Certain investments for which the fair value is measured using the net asset value per share (or its equivalent) practical expedient are excluded from the fair value hierarchy. Financial assets for which the fair value is measured using the net asset value per share practical expedient include certain debt funds, equity and fixed income commingled trusts, and registered investment companies.

Revenue Recognition The Company sells its products through direct sales representatives and independent distributors. Additionally, a portion of the Company's revenue is generated from consignment inventory maintained at hospitals. The Company recognizes revenue when control is transferred to the customer. For products sold through direct sales representatives and independent distributors, control is transferred upon shipment or upon delivery, based on the contract terms and legal requirements. For consignment inventory, control is transferred when the product is used or implanted. Payment terms vary depending on the country of sale, type of customer, and type of product.

If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on relative standalone selling price. Shipping and handling is treated as a fulfillment activity rather than a promised service, and therefore, is not considered a performance obligation. Taxes assessed by a governmental authority that are both imposed on, and concurrent with, a specific revenue producing transaction and collected by the Company from customers (for example, sales, use, value added, and some excise taxes) are not included in revenue. For contracts that have an original duration of one year or less, the Company uses the practical expedient applicable to such contracts and does not adjust the transaction price for the time value of money.

The amount of revenue recognized reflects sales rebates and returns, which are estimated based on sales terms, historical experience, and trend analysis. In estimating rebates, the Company considers the lag time between the point of sale and the payment of the rebate claim, the stated rebate rates, and other relevant information. The Company records adjustments to rebates and returns reserves as increases or decreases of revenue.

The Company records a deferred revenue liability if a customer pays consideration before the Company transfers a good or service to the customer. Deferred revenue primarily represents remote monitoring services and equipment maintenance, for which consideration is received at the same time as consideration for the device or equipment. Revenue related to remote monitoring services and equipment maintenance is recognized over the service period as time elapses.

Remaining performance obligations include deferred revenue and amounts the Company expects to receive for goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments, primarily related to consumables for previously sold equipment as well as remote monitoring services and equipment maintenance. For contracts that have an original duration of one year or less, the Company has elected the practical expedient applicable to such contracts and does not disclose the transaction price for remaining performance obligations at the end of each reporting period and when the Company expects to recognize this revenue.

Shipping and Handling Shipping and handling costs incurred to physically move product from the Company's premises to the customer's premises are recognized in selling, general, and administrative expense in the consolidated statements of income and were $347 million, $350 million, and $363 million in fiscal years 2020, 2019, and 2018, respectively. Other shipping and handling costs incurred to store, move, and prepare products for shipment are recognized in cost of products sold in the consolidated statements of income.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Research and Development Research and development costs are expensed when incurred. Research and development costs include costs of research, engineering, and technical activities to develop a new product or service or make significant improvement to an existing product or manufacturing process. Research and development costs also include pre-approval regulatory and clinical trial expenses.

Contingencies The Company records a liability in the consolidated financial statements for loss contingencies when a loss is known or considered probable and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed.

Income Taxes The Company has deferred taxes that arise as a result of the different treatment of transactions for U.S. GAAP and income tax accounting, known as temporary differences. The Company records the tax effect of these temporary differences as deferred tax assets and deferred tax liabilities. Deferred tax assets generally represent items that may be used as a tax deduction or credit in a tax return in future years for which the Company has already recognized the tax benefit in the consolidated statements of income. The Company establishes valuation allowances for deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. Deferred tax liabilities generally represent tax expense for which payment has been deferred or expense has already been taken as a deduction on the Company’s tax return but has not yet been recognized as an expense in the consolidated statements of income.

Other Operating Expense, Net Other operating expense, net primarily includes royalty income and expense, Transition Service Agreement income, currency remeasurement and derivative gains and losses, contributions to the Medtronic Foundation, Puerto Rico excise taxes, changes in the fair value of contingent consideration, charges associated with business exits, and IPR&D charges.

Other Non-Operating Income, Net Other non-operating income, net includes the non-service component of net periodic pension and post-retirement benefit cost, investment gains and losses, and interest income.

Currency Translation Assets and liabilities of non-U.S. dollar functional currency entities are translated to U.S. dollars at period-end exchange rates, and the currency impacts arising from the translation of the assets and liabilities are recorded as a cumulative translation adjustment, a component of accumulated other comprehensive loss, on the consolidated balance sheets. Elements of the consolidated statements of income are translated at the average monthly currency exchange rates in effect during the period. Currency transaction gains and losses are included in other operating expense, net in the consolidated statements of income.

Stock-Based Compensation The Company measures stock-based compensation expense at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is generally the vesting period. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are expected to vest. The Company estimates pre-vesting forfeitures at the time of grant and revises the estimates in subsequent periods.

New Accounting Standards

Recently adopted

Leases

In February 2016, the FASB issued guidance which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet. This guidance also requires additional qualitative and quantitative lease related disclosures in the notes to the consolidated financial statements. The Company adopted this guidance using the modified retrospective method in the first quarter of fiscal year 2020.

During the implementation of this recently adopted accounting standard, the Company elected the package of practical expedients available under the transition guidance that allowed an entity not to reassess whether any expired or existing contracts are or contain leases, the classification for any expired or existing leases or any initial direct costs for existing leases. Further, the Company made accounting policy elections to not apply the recognition requirements to short-term leases and to account for lease and nonlease components as a single lease component.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The adoption of this guidance resulted in the recognition of right-of-use assets and lease liabilities in an amount of approximately $1.0 billion, an immaterial cumulative-effect adjustment to retained earnings as of April 27, 2019, and expansion of lease related disclosures*.* The adoption of this guidance did not have a material impact on the Company's consolidated statements of income or consolidated statements of cash flows.

Others

In August 2017, the FASB issued guidance to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The Company adopted this guidance in the first quarter of fiscal year 2020. The adoption of this guidance resulted in expanded disclosures and did not have an impact on the Company's consolidated financial statements.

Not Yet Adopted

In June 2016, the FASB issued guidance which changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including trade receivables. The new methodology requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset. The new standard will be effective for the Company in the first quarter of fiscal year 2021. The Company does not expect the adoption of the guidance to have a material impact on the Company’s consolidated financial statements.

2. Revenue

The Company's revenues are principally derived from device-based medical therapies and services related to cardiac rhythm disorders, cardiovascular disease, renal disease, neurological disorders and diseases, spinal conditions and musculoskeletal trauma, chronic pain, urological and digestive disorders, ear, nose, and throat conditions, and diabetes conditions as well as advanced and general surgical care products, respiratory and monitoring solutions, and neurological surgery technologies. The Company's primary customers include hospitals, clinics, third-party healthcare providers, distributors, and other institutions, including governmental healthcare programs and group purchasing organizations.

The table below illustrates net sales by segment and division for fiscal years 2020, 2019, and 2018:

			Net Sales by Fiscal Year(1)
(in millions)			2020						2019						2018
Cardiac Rhythm & Heart Failure			$	5,141					$	5,849					$	5,947
Coronary & Structural Heart			3,541						3,730						3,562
Aortic, Peripheral & Venous			1,786						1,926						1,845
Cardiac and Vascular Group			10,468						11,505						11,354
Surgical Innovations			5,513						5,753						5,537
Respiratory, Gastrointestinal, & Renal			2,839						2,725						3,179
Minimally Invasive Therapies Group			8,352						8,478						8,716
Brain Therapies			2,922						2,938						2,354
Spine			2,503						2,654						2,668
Specialty Therapies			1,193						1,307						1,556
Pain Therapies			1,107						1,284						1,165
Restorative Therapies Group			7,725						8,183						7,743
Diabetes Group			2,368						2,391						2,140
Total			$	28,913					$	30,557					$	29,953

(1)The data in this schedule has been intentionally rounded to the nearest million and, therefore, may not sum.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The table below includes net sales by market geography and segment for fiscal years 2020, 2019, and 2018:

			Net Sales by Fiscal Year(4)
(in millions)			2020						2019						2018
U.S.(1)			$	5,062					$	5,750					$	5,681
Non-U.S. Developed Markets(2)			3,519						3,767						3,790
Emerging Markets(3)			1,887						1,988						1,883
Cardiac and Vascular Group			10,468						11,505						11,354
U.S.(1)			3,532						3,630						3,804
Non-U.S. Developed Markets(2)			3,169						3,250						3,378
Emerging Markets(3)			1,651						1,598						1,534
Minimally Invasive Therapies Group			8,352						8,478						8,716
U.S.(1)			5,122						5,478						5,164
Non-U.S. Developed Markets(2)			1,659						1,759						1,720
Emerging Markets(3)			945						946						859
Restorative Therapies Group			7,725						8,183						7,743
U.S.(1)			1,204						1,336						1,226
Non-U.S. Developed Markets(2)			940						855						739
Emerging Markets(3)			224						200						175
Diabetes Group			2,368						2,391						2,140
U.S.(1)			14,919						16,194						15,875
Non-U.S. Developed Markets(2)			9,287						9,631						9,627
Emerging Markets(3)			4,707						4,732						4,451
Total			$	28,913					$	30,557					$	29,953

(1)U.S. includes the United States and U.S. territories.

(2)Non-U.S. developed markets include Japan, Australia, New Zealand, Korea, Canada, and the countries within Western Europe.

(3)Emerging markets include the countries of the Middle East, Africa, Latin America, Eastern Europe, and the countries of Asia that are not included in the non-U.S. developed markets, as defined above.

(4)The data in this schedule has been intentionally rounded to the nearest million and, therefore, may not sum.

At April 24, 2020, $706 million of rebates were classified as other accrued expenses and $321 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. At April 26, 2019, $764 million of rebates were classified as other accrued expenses and $432 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheets. During fiscal year 2020, adjustments to rebate and return reserves recognized in revenue that were included in the rebate and return reserves at the beginning of the period were not material.

Deferred Revenue and Remaining Performance Obligations

Deferred revenue at April 24, 2020 and April 26, 2019 was $303 million and $315 million, respectively. At April 24, 2020 and April 26, 2019, $213 million and $211 million was included in other accrued expenses, respectively, and $90 million and $104 million was included in other liabilities, respectively. During the fiscal year ended April 24, 2020, the Company recognized $220 million of revenue that was included in deferred revenue as of April 26, 2019.

At April 24, 2020, the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed contracts with an original duration of one year or more was approximately $1.1 billion. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next four years.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

3. Acquisitions

The Company had acquisitions during fiscal years 2020 and 2019 that were accounted for as business combinations. The assets and liabilities of businesses acquired were recorded and consolidated on the acquisition date at their respective fair values. Goodwill resulting from business combinations is largely attributable to future yet to be defined technologies, new customer relationships, existing workforce of the acquired businesses, and synergies expected to arise after the Company's acquisition of these businesses. The pro forma impact of acquisitions during fiscal years 2020 and 2019 was not significant, either individually or in the aggregate, to the consolidated results of the Company. The results of operations of acquired businesses have been included in the Company’s consolidated statements of income since the date each business was acquired.

Fiscal Year 2020

The acquisition date fair value of net assets acquired during fiscal year 2020 was $612 million, consisting of $679 million of assets acquired and $67 million of liabilities assumed. Based upon preliminary valuations, assets acquired were primarily comprised of $236 million of technology-based intangible assets and $26 million of customer-related intangible assets with estimated useful lives ranging from 8 to 16 years, $333 million of goodwill, and $40 million of inventory. The goodwill is not deductible for tax purposes. The Company recognized $80 million of contingent consideration liabilities in connection with business combinations during fiscal year 2020, which are comprised of revenue and regulatory milestone-based payments. Purchase price allocation adjustments for fiscal year 2020 business combinations were not significant.

Fiscal Year 2019

Mazor Robotics

On December 18, 2018, the Company's Restorative Therapies Group acquired Mazor Robotics (Mazor), a pioneer in the field of robotic guidance systems. The acquisition of Mazor strengthened the Company's position as a global leader in enabling technologies for spine surgery. The Company offers a fully-integrated procedural solution for surgical planning, execution, and confirmation by combining the Company's spine implants, navigation, and intra-operative imaging technology with Mazor's robotic-assisted surgery systems. Total consideration for the transaction, net of cash acquired, was $1.6 billion, consisting of $1.3 billion of cash and $246 million of a previously-held equity investment in Mazor. Net assets acquired includes $383 million of technology-based intangible assets and $16 million of tradenames with estimated useful lives of 10 years. Goodwill was primarily attributable to pull-through revenue, future yet to be defined technologies, and an assembled workforce and was not deductible for tax purposes.

During fiscal year 2019, the Company recognized $51 million of costs incurred in connection with the acquisition of Mazor, including payouts for unvested stock options and investment banker and other transaction fees, which were recognized in selling, general, and administrative expense in the consolidated statements of income.

The Company made certain adjustments to the allocation of purchase price for the Mazor acquisition during the measurement period which closed in the third quarter of fiscal year 2020, primarily related to estimates for certain contingent liabilities and deferred taxes, which resulted in a net increase to goodwill of $105 million.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The fair values of the assets acquired and liabilities assumed were as follows:

(in millions)			Mazor Robotics
Cash and cash equivalents			$	109
Investments			52
Accounts receivable			9
Inventory			5
Other current assets			1
Property, plant, and equipment			3
Goodwill			1,318
Other intangible assets			399
Tax assets			9
Total assets acquired			1,905
Current liabilities			210
Deferred tax liabilities			21
Total liabilities assumed			231
Net assets acquired			$	1,674

Other Fiscal Year 2019 Acquisitions

The remaining acquisition date fair value of net assets acquired during fiscal year 2019 was $698 million, consisting of $763 million of assets acquired and $65 million of liabilities assumed. Assets acquired were primarily comprised of $313 million of goodwill, $171 million of in-process research and development, $161 million of technology-based intangible assets with estimated useful lives ranging from 4 to 15 years, and $40 million of customer-related intangible assets with estimated useful lives ranging from 10 to 13 years. The Company recognized $151 million of contingent consideration liabilities in connection with business combinations during fiscal year 2019. For fiscal year 2019, purchase price allocation adjustments were not significant.

Acquired In-Process Research & Development

IPR&D acquired outside of a business combination is expensed immediately. The Company did not acquire any IPR&D in connection with asset acquisitions during fiscal years 2020 and 2018. During fiscal year 2019, the Company acquired $38 million of IPR&D in connection with asset acquisitions, which was recognized in other operating expense, net in the consolidated statements of income.

Contingent Consideration

The fair value of contingent consideration at April 24, 2020 and April 26, 2019 was $280 million and $222 million, respectively. At April 24, 2020, $112 million was recorded in other accrued expenses and $168 million was recorded in other liabilities on the consolidated balance sheets. At April 26, 2019, $73 million was reflected in other accrued expenses and $149 million was reflected in other liabilities on the consolidated balance sheets.

The following table provides a reconciliation of the beginning and ending balances of contingent consideration:

			Fiscal Year
(in millions)			2020						2019
Beginning Balance			$	222					$	173
Purchase price contingent consideration			125						151
Contingent consideration payments			(34)						(36)
Change in fair value of contingent consideration			(33)						(66)
Ending Balance			$	280					$	222

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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

(in millions)			Fair Value at April 24, 2020						Valuation Technique						Unobservable Input						Range
															Discount rate						11.5% - 32.4%
Revenue-based payments			$	101					Discounted cash flow						Probability of payment						40% - 100%
															Projected fiscal year of payment						2021 - 2027
															Discount rate						5.5%
Product development-based payments			$	179					Discounted cash flow						Probability of payment						50% - 100%
															Projected fiscal year of payment						2021 - 2027

4. Divestiture

On July 29, 2017, the Company completed the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group to Cardinal Health, Inc. (Cardinal). As a result of the transaction, the Company received proceeds of $6.1 billion, which was recorded in proceeds from sale of businesses in the consolidated statements of cash flows, and recognized a before-tax gain of $697 million, which was recognized within gain on sale of businesses in the consolidated statements of income. Among the product lines included in the divestiture were dental and animal health, chart paper, wound care, incontinence, electrodes, SharpSafety, thermometry, perinatal protection, blood collection, compression, and enteral feeding offerings. The divestiture also included 17 dedicated manufacturing sites.

In fiscal year 2018, the Company recognized expenses incurred in connection with the divestiture of $115 million, primarily comprised of professional services, including banker, legal, tax, and advisory fees, as well as $16 million of accelerated stock compensation expense related to the acceleration of the vesting period for employees that transferred with the divestiture. Expenses incurred in connection with the divestiture were recognized in selling, general, and administrative expense in the consolidated statements of income.

The divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses did not meet the criteria to be classified as discontinued operations, as such, the results of operations of these businesses are included within net income through the date of the divestiture.

There were no material divestitures or divestiture-related expenses during fiscal years 2020 or 2019.

5. Restructuring Charges

Enterprise Excellence

In the third quarter of fiscal year 2018, the Company announced its Enterprise Excellence restructuring program, which is expected to leverage the Company's global size and scale, as well as enhance the customer and employee experience, with a focus on three objectives: global operations, functional optimization, and commercial optimization. Primary activities of the restructuring program include integrating and enhancing global manufacturing and supply processes, systems and site presence, enhancing and leveraging global operating models across several enabling functions, and optimizing certain commercial processes, systems, and models.

The Company estimates that, in connection with its Enterprise Excellence restructuring program, it will recognize pre-tax exit and disposal costs and other costs across all segments of approximately $1.6 billion to $1.8 billion, the majority of which are expected to be incurred by the end of fiscal year 2022. Approximately half of the estimated charges are related to employee termination benefits. The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program and consulting expenses. These charges are recognized within restructuring charges, net, cost of products sold, and selling, general, and administrative expense in the consolidated statements of income.

For fiscal years 2020, 2019 and 2018, the Company recognized charges of $462 million, $424 million, and $96 million, respectively. During fiscal year 2020, charges were partially offset by accrual adjustments of $21 million related to certain employees identified for termination finding other positions within Medtronic. For fiscal years 2020, 2019 and 2018, charges included $155 million, $91 million, and $28 million, respectively, recognized within cost of products sold and $168 million,

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

$118 million, and $33 million, respectively, recognized within selling, general, and administrative expense in the consolidated statements of income.

The following table summarizes the activity related to the Enterprise Excellence restructuring program for fiscal years 2020, 2019, and 2018:

(in millions)			Employee Termination Benefits						Associated Costs(1)						Asset Write-downs(2)						Other Costs						Total
April 28, 2017			$	—					$	—					$	—					$	—					$	—
Charges			35						61						—						—						96
Cash payments			(8)						(59)						—						—						(67)
April 27, 2018			27						2						—						—						29
Charges			192						193						17						22						424
Cash payments			(118)						(186)						—						(10)						(314)
Settled non-cash			—						—						(17)						—						(17)
April 26, 2019			101						9						—						12						122
Charges			129						300						24						9						462
Cash payments			(128)						(290)						—						(9)						(427)
Settled non-cash			—						—						(24)						—						(24)
Accrual adjustments			(13)						—						—						(8)						(21)
April 24, 2020			$	89					$	19					$	—					$	4					$	112

(1)Associated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses.

(2)Recognized within cost of products sold and selling, general, and administrative expense in the consolidated statements of income.

Cost Synergies

The Cost Synergies program was related to administrative office optimization, manufacturing and supply chain infrastructure, and certain general and administrative savings achieved as part of the Covidien plc integration and was completed in the third quarter of fiscal year 2018. For fiscal year 2018, the Company recognized $107 million in charges, including $11 million in restructuring charges, net of $34 million of accrual adjustments, related to the Cost Synergies restructuring program. Accrual adjustments relate to certain employees identified for termination finding other positions within the Company, cancellations of employee terminations, and employee termination benefits being less than initially estimated. Cash outlays for the Cost Synergies program were substantially complete at the end of fiscal year 2019.

6. Financial Instruments

Debt Securities

The Company holds investments in marketable debt securities that are classified and accounted for as available-for-sale and are remeasured on a recurring basis.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following tables summarize the Company's investments in available-for-sale debt securities by significant investment category and the related consolidated balance sheet classification at April 24, 2020 and April 26, 2019:

			April 24, 2020
			Valuation																																										Balance Sheet Classification
(in millions)			Cost						Unrealized Gains						Unrealized Losses						Fair Value						Investments						Other Assets
Level 1:
U.S. government and agency securities			$	542					$	47					$	—					$	589					$	589					$	—
Level 2:
Corporate debt securities			4,285						66						(90)						4,261						4,261						—
U.S. government and agency securities			746						1						—						747						747						—
Mortgage-backed securities			705						20						(28)						697						697						—
Non-U.S. government and agency securities			34						—						—						34						34						—
Other asset-backed securities			499						1						(20)						480						480						—
Total Level 2			6,269						88						(138)						6,219						6,219						—
Level 3:
Auction rate securities			36						—						(3)						33						—						33
Total available-for-sale debt securities			$	6,847					$	135					$	(141)					$	6,841					$	6,808					$	33

			April 26, 2019
			Valuation																																										Balance Sheet Classification
(in millions)			Cost						Unrealized Gains						Unrealized Losses						Fair Value						Investments						Other Assets
Level 1:
U.S. government and agency securities			$	529					$	1					$	(7)					$	523					$	523					$	—
Level 2:
Corporate debt securities			3,500						14						(21)						3,493						3,493						—
U.S. government and agency securities			387						1						(7)						381						381						—
Mortgage-backed securities			537						3						(20)						520						520						—
Non-U.S. government and agency securities			11						—						—						11						11						—
Other asset-backed securities			529						1						(3)						527						527						—
Total Level 2			4,964						19						(51)						4,932						4,932						—
Level 3:
Auction rate securities			47						—						(3)						44						—						44
Total available-for-sale debt securities			$	5,540					$	20					$	(61)					$	5,499					$	5,455					$	44

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following tables present the gross unrealized losses and fair values of the Company’s available-for-sale debt securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category, at April 24, 2020 and April 26, 2019:

			April 24, 2020
			Less than 12 months																		More than 12 months
(in millions)			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
Corporate debt securities			$	1,368					$	(2)					$	2,893					$	(88)
Mortgage-backed securities			35						(1)						663						(27)
Other asset-backed securities			17						—						463						(20)
Auction rate securities			33						(3)						—						—
Total			$	1,453					$	(6)					$	4,019					$	(135)

			April 26, 2019
			Less than 12 months																		More than 12 months
(in millions)			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
U.S. government and agency securities			$	130					$	(1)					$	649					$	(13)
Corporate debt securities			582						(5)						1,153						(16)
Mortgage-backed securities			73						(1)						250						(19)
Other asset-backed securities			290						(2)						85						(1)
Auction rate securities			—						—						44						(3)
Total			$	1,075					$	(9)					$	2,181					$	(52)

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during fiscal years 2020 or 2019. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

Activity related to the Company’s debt securities portfolio is as follows:

(in millions)			April 24, 2020						April 26, 2019						April 27, 2018
Proceeds from sales			$	9,559					$	3,718					$	3,309
Gross realized gains			25						18						27
Gross realized losses			(22)						(62)						(21)

Credit losses represent the difference between the present value of cash flows expected to be collected on certain mortgage-backed securities and auction rate securities and the amortized cost of these securities. Based on the Company’s assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which the Company is invested, the Company believes it has recognized all necessary other-than-temporary impairments, as the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, before recovery of the amortized cost.

At April 24, 2020 and April 26, 2019, the credit loss portion of other-than temporary impairments on debt securities was not significant. No available-for-sale securities were sold for significantly less than carrying value during the fiscal years 2020 or 2019.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The April 24, 2020 balance of available-for-sale debt securities by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

(in millions)			April 24, 2020
Due in one year or less			$	2,190
Due after one year through five years			2,854
Due after five years through ten years			1,733
Due after ten years			64
Total debt securities			$	6,841

Equity Securities, Equity Method Investments, and Other Investments

The Company commonly holds investments in equity securities with readily determinable fair values, equity investments without readily determinable fair values, investments accounted for under the equity method, and other investments. Equity securities with readily determinable fair values are included within Level 1 of the fair value hierarchy, as they are measured using quoted market prices. Equity method investments and investments without readily determinable fair values are included within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. To determine the fair value of these investments, the Company uses all pertinent financial information available related to the investees, including financial statements, market participant valuations from recent and proposed equity offerings, and other third-party data.

The following table summarizes the Company's equity and other investments at April 24, 2020 and April 26, 2019, which are classified as other assets in the consolidated balance sheets:

(in millions)						April 24, 2020						April 26, 2019
Investments with readily determinable fair values (marketable equity securities)						$	18					$	—
Investments without readily determinable fair values						391						308
Equity method and other investments						71						64
Total equity and other investments						$	480					$	372

The table below includes activity related to the Company’s portfolio of equity and other investments. Gains and losses on equity and other investments are recognized in other non-operating income, net in the consolidated statements of income.

(in millions)						April 24, 2020						April 26, 2019						April 27, 2018
Proceeds from sales						$	15					$	964					$	918
Gross gains						17						134						18
Gross losses						(30)						(30)						(4)
Recognized impairment losses						(4)						(45)						(231)

Net losses recognized during fiscal year 2020 were $13 million, comprised of $15 million unrealized gains and losses on equity securities and other investments still held at April 24, 2020, and $2 million realized gains recognized on equity securities and other investments sold during the fiscal year. Net gains recognized during fiscal year 2019 were $104 million, comprised of $94 million net realized gains on equity and other investments sold during the period and $10 million of unrealized gains on equity and other investments still held at April 26, 2019. Gross gains and losses for fiscal year 2018 represent gains and losses on instruments sold during the period.

Impairment charges incurred on the Company's equity securities, equity method investments, and other investments during fiscal years 2020 and 2019 were not significant. During fiscal year 2018, the Company received bids from potential buyers and investors for some or all of its ownership in a portfolio of selected investments, which indicated that the fair values of certain of the underlying cost and equity method investments in the portfolio may be below the respective carrying values. The Company determined that the decline in the fair values was other-than-temporary given the uncertainty regarding the Company’s intent to hold the investments for a period of time that would be sufficient to recover the carrying values. As a result, the Company recognized impairment charges of $227 million during fiscal year 2018, which were recognized in other non-operating income, net in the consolidated statements of income. The fair values of the investments were determined based on Level 3 inputs. The

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

carrying values of the investments prior to recognizing the impairment charges was $317 million. There were no other significant impairment charges recognized during fiscal year 2018.

7. Financing Arrangements

Current debt obligations consisted of the following:

(in millions)			April 24, 2020						April 26, 2019
Bank borrowings			$	325					$	332
0.000 percent two-year 2019 senior notes			1,631						—
Floating rate two-year 2019 senior notes			815						—
Floating rate five-year 2015 senior notes			—						500
Finance lease obligations			5						6
Current debt obligations			$	2,776					$	838

Bank Borrowings Outstanding bank borrowings at April 24, 2020 were short-term advances primarily to non-U.S. subsidiaries under credit agreements with various banks. Bank borrowings consist primarily of borrowings in Japanese Yen at an interest rate of 0.21%, and these borrowings are a natural hedge of currency and exchange rate risk.

Commercial Paper On January 26, 2015, Medtronic Global Holdings S.C.A. (Medtronic Luxco), an entity organized under the laws of Luxembourg, entered into various agreements pursuant to which Medtronic Luxco may issue United States Dollar-denominated unsecured commercial paper notes (the 2015 CP Program) on a private placement basis, and on January 31, 2020 Medtronic Luxco entered into various agreements pursuant to which Medtronic Luxco may issue Euro-denominated unsecured commercial paper notes (the 2020 CP Program) on a private placement basis. The Maximum aggregate amount outstanding at any time under the 2015 CP Program and the 2020 CP Program together may not exceed the equivalent of $3.5 billion. The Company and Medtronic, Inc. have guaranteed the obligations of Medtronic Luxco under the 2015 CP Program and the 2020 CP Program.

There was no commercial paper outstanding at April 24, 2020 and April 26, 2019. During fiscal years 2020 and 2019, the weighted average original maturity of the commercial paper outstanding was approximately 7 days and 27 days, respectively, and the weighted average interest rate was 2.31 percent and 2.12 percent, respectively. The issuance of commercial paper reduces the amount of credit available under the Company's existing credit facility, defined below.

Line of Credit On December 12, 2019, Medtronic Luxco, as borrower, entered into an amendment to its amended and restated credit agreement (Credit Facility), by and among Medtronic, Medtronic, Inc., Medtronic Luxco, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent and issuing bank, extending the maturity date of the Credit Facility to December 2024.

The Credit Facility provides for a $3.5 billion five-year unsecured revolving credit facility (Credit Facility). At each anniversary date of the Credit Facility, but not more than twice prior to the maturity date, the Company could also request a one-year extension of the maturity date. The Credit Facility provides the Company with the ability to increase its borrowing capacity by an additional $1.0 billion at any time during the term of the agreement. The Company and Medtronic, Inc. have guaranteed the obligations of the borrowers under the Credit Facility, and Medtronic Luxco will also guarantee the obligations of any designated borrower. The Credit Facility includes a multi-currency borrowing feature for certain specified foreign currencies. At April 24, 2020 and April 26, 2019, no amounts were outstanding under the Credit Facility.

Interest rates on advances on the Credit Facility are determined by a pricing matrix based on the Company’s long-term debt ratings, assigned by Standard & Poor’s Ratings Services and Moody’s Investors Service. Facility fees are payable on the Credit Facility and are determined in the same manner as the interest rates. The Credit Facility also contains customary covenants, all of which the Company remained in compliance with at April 24, 2020.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Long-term debt consisted of the following:

									April 24, 2020																		April 26, 2019
(in millions, except interest rates)			Maturity by Fiscal Year						Amount						Effective Interest Rate						Amount						Effective Interest Rate
0.000 percent two-year 2019 senior notes			2021						$	—					—		%				$	1,681					0.22		%
Floating rate two-year 2019 senior notes			2021						—						—						560						0.05
4.125 percent ten-year 2011 senior notes			2021						—						—						500						4.21
3.150 percent seven-year 2015 senior notes			2022						1,534						3.29						2,500						3.29
3.125 percent ten-year 2012 senior notes			2022						—						—						675						3.21
3.200 percent ten-year 2012 CIFSA senior notes			2023						650						2.72						650						2.72
0.375 percent four-year 2019 senior notes			2023						1,631						0.56						1,681						0.56
2.750 percent ten-year 2013 senior notes			2023						530						3.25						530						3.25
0.000 percent four-year 2019 senior notes			2023						815						0.09						—						—
2.950 percent ten-year 2013 CIFSA senior notes			2024						310						2.71						310						2.71
3.625 percent ten-year 2014 senior notes			2024						432						3.61						850						3.61
3.500 percent ten-year 2015 senior notes			2025						2,700						3.74						4,000						3.74
0.250 percent seven-year 2019 senior notes			2026						1,087						0.44						—						—
1.125 percent eight-year 2019 senior notes			2027						1,631						1.25						1,681						1.25
3.350 percent ten-year 2017 senior notes			2027						368						3.53						850						3.53
1.625 percent twelve-year 2019 senior notes			2031						1,087						1.75						1,121						1.75
1.000 percent thirteen-year 2019 senior notes			2032						1,087						1.06						—						—
4.375 percent twenty-year 2015 senior notes			2035						1,932						4.47						2,382						4.47
6.550 percent thirty-year 2007 CIFSA senior notes			2038						253						4.68						284						4.68
2.250 percent twenty-year 2019 senior notes			2039						1,087						2.34						1,121						2.34
6.500 percent thirty-year 2009 senior notes			2039						158						6.56						183						6.56
5.550 percent thirty-year 2010 senior notes			2040						224						5.58						306						5.58
1.500 percent twenty-year 2019 senior notes			2040						1,087						1.58						—						—
4.500 percent thirty-year 2012 senior notes			2042						105						4.54						129						4.54
4.000 percent thirty-year 2013 senior notes			2043						305						4.10						325						4.10
4.625 percent thirty-year 2014 senior notes			2044						127						4.67						177						4.67
4.625 percent thirty-year 2015 senior notes			2045						1,813						4.67						1,963						4.69
1.750 percent thirty-year 2019 senior notes			2050						1,087						1.87						—						—
Bank borrowings			2021 - 2022						55						2.11						83						1.94
Debt (discount) premium, net			2021 - 2050						(15)						—						29						—
Finance lease obligations			2021 - 2035						45						8.93						10						6.39
Interest rate swaps			N/A						—						—						9						—
Deferred financing costs			2021 - 2050						(104)						—						(104)						—
Long-term debt									$	22,021											$	24,486

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Senior Notes The Company has outstanding unsecured senior obligations, described as senior notes in the tables above (collectively, the Senior Notes). The Senior Notes rank equally with all other unsecured and unsubordinated indebtedness of the Company. The indentures under which the Senior Notes were issued contain customary covenants, all of which the Company remained in compliance with at April 24, 2020. The Company used the net proceeds from the sale of the Senior Notes primarily for general corporate purposes, which includes the repayment of other indebtedness of the Company.

In March 2019, Medtronic Luxco issued six tranches of Euro-denominated Senior Notes with an aggregate principal of €7.0 billion, with maturities ranging from fiscal year 2021 to fiscal year 2039, resulting in cash proceeds of approximately $7.8 billion, net of discounts and issuance costs. The issuance included €500 million of floating rate Senior Notes due in fiscal year 2021, €1.5 billion of 0.000 percent Senior Notes due in fiscal year 2021, €1.5 billion of 0.375 percent Senior Notes due in fiscal year 2023, €1.5 billion of 1.125 percent Senior Notes due in fiscal year 2027, €1.0 billion of 1.625 percent Senior Notes due in fiscal year 2031, and €1.0 billion of 2.250 percent Senior Notes due in fiscal year 2039. The Company used a portion of the net proceeds of the offering to fund the cash tender offer and early redemption of $6.4 billion of Medtronic Inc. and CIFSA senior notes for $6.9 billion of total consideration in March 2019. The Company recognized a loss on debt extinguishment of $485 million, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss on debt extinguishment was recognized in interest expense in the consolidated statements of income.

In June 2019, Medtronic Luxco issued six tranches of Euro-denominated Senior Notes with an aggregate principal of €5.0 billion, with maturities ranging from fiscal year 2021 to fiscal year 2050, resulting in cash proceeds of approximately $5.6 billion, net of discounts and issuance costs. The issuance included €250 million of floating rate Senior Notes due in fiscal year 2021, €750 million of 0.000 percent Senior Notes due in fiscal year 2023, €1.0 billion of 0.250 percent Senior Notes due in fiscal year 2026, €1.0 billion of 1.000 percent Senior Notes due in fiscal year 2032, €1.0 billion of 1.500 percent Senior Notes due in fiscal year 2040, and €1.0 billion of 1.750 percent Senior Notes due in fiscal year 2050. The Company used the net proceeds of the offering to fund the cash tender offer and early redemption of $4.6 billion of Medtronic Inc., CIFSA, and Medtronic Luxco Senior Notes for $5.0 billion of total consideration in July 2019. The Company recognized a loss on debt extinguishment of $413 million, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss on debt extinguishment also includes a $16 million charge for the early redemption premium for $533 million of senior notes which were redeemed in August 2019. The loss on debt extinguishment was recognized in interest expense in the consolidated statements of income. Also in March 2020, the Company redeemed its floating rate five-year 2015 senior notes at maturity for $500 million.

At April 26, 2019, the Company had interest rate swap agreements designated as fair value hedges of certain underlying fixed-rate obligations, including the Company’s $500 million 4.125 percent 2011 Senior Notes and $675 million 3.125 percent 2012 Senior Notes. Refer to Note 8 for additional information regarding the interest rate swap agreements. At April 24, 2020 the Company had no interest rate swaps outstanding designated as fair value hedges, as the Company terminated previously held swaps in connection with the tender and early redemption of the underlying senior notes during the first quarter of fiscal year 2020.

Contractual maturities of debt for the next five fiscal years and thereafter, excluding deferred financing costs and debt discount, net, are as follows:

(in millions)
2021			$	2,776
2022			1,594
2023			3,630
2024			746
2025			2,704
Thereafter			13,466
Total debt			24,916
Less: Current debt obligations			2,776
Long-term debt			$	22,140

Subsequent to fiscal year 2020, on May 12, 2020, Medtronic Luxco entered into a Term Loan Agreement by and among Medtronic Luxco, Medtronic plc, Medtronic, Inc., and Mizuho Bank, Ltd. as administrative agent and as lender. The Loan Agreement provides an unsecured term loan in an aggregate principal amount of up to ¥300 billion, or approximately

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

$2.8 billion, with a term of six months, which may be extended for an additional six months at Medtronic Luxco’s option. Borrowings under the Loan Agreement will bear interest at the TIBOR Rate (as defined in the Loan Agreement) plus a margin of 0.50% per annum. Medtronic plc and Medtronic, Inc. have guaranteed the obligations of Medtrconic Luxco under the Loan Agreement. On May 13, 2020, Medtronic Luxco borrowed the entire amount of the term loan under the Loan Agreement.

Financial Instruments Not Measured at Fair Value

At April 24, 2020, the estimated fair value of the Company’s Senior Notes was $27.1 billion compared to a principal value of $24.5 billion. At April 26, 2019 the estimated fair value was $26.2 billion compared to a principal value of $25.0 billion. The fair value was estimated using quoted market prices for the publicly registered Senior Notes, which are classified as Level 2 within the fair value hierarchy. The fair values and principal values consider the terms of the related debt and exclude the impacts of debt discounts and hedging activity.

8. Derivatives and Currency Exchange Risk Management

The Company uses operational and economic hedges, including currency exchange rate derivative contracts and interest rate derivative instruments, to manage the impact of currency exchange and interest rate changes on earnings and cash flows. In addition, the Company uses cross-currency interest rate swaps to manage currency risk related to certain debt. In order to minimize earnings and cash flow volatility resulting from currency exchange rate changes, the Company enters into derivative instruments, principally forward currency exchange rate contracts. These contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets and liabilities. At inception of the contract, the derivative is designated as either a freestanding derivative or a cash flow hedge. Currencies of our derivative instruments include the Euro, Japanese Yen, Chinese Yuan, and others. The Company does not enter into currency exchange rate derivative contracts for speculative purposes. The gross notional amount of all currency exchange rate derivative instruments outstanding was $11.9 billion and $11.1 billion at April 24, 2020 and April 26, 2019, respectively.

The Company also uses derivative and non-derivative instruments to manage the impact of currency exchange rate changes on net investments in foreign currency-denominated operations. The information that follows explains the various types of derivatives and financial instruments used by the Company, reasons the Company uses such instruments, and the impact such instruments have on the Company’s consolidated balance sheets and statements of income.

Freestanding Derivative Contracts

Freestanding derivative contracts are primarily used to offset the Company’s exposure to the change in value of specific foreign-currency-denominated assets and liabilities and to offset variability of cash flows associated with forecasted transactions denominated in foreign currencies. The gross notional amount of the Company's freestanding currency exchange rate contracts outstanding at April 24, 2020 and April 26, 2019 was $4.9 billion and $4.3 billion, respectively. The Company's freestanding currency exchange rate contracts are not designated as hedges, and therefore, changes in the value of these contracts are recognized in earnings, thereby offsetting the current earnings effect of the related change in value of foreign-currency-denominated assets, liabilities, and cash flows.

The Company also uses total return swaps to hedge the liability of a non-qualified, deferred compensation plan. The gross notional amount of the Company's total return swaps outstanding at April 24, 2020 and April 26, 2019 was $181 million and $191 million, respectively. The Company's total return swaps are not designated as hedges, and therefore, changes in the value of these instruments are recognized in earnings. The cash flows related to the Company's freestanding derivative contracts are reported as operating activities in the consolidated statements of cash flows.

The amounts and classification of the (gains) losses in the consolidated statements of income related to derivative instruments, not designated as hedging instruments, for fiscal years 2020, 2019, and 2018 were as follows:

												Fiscal Year
(in millions)						Classification						2020						2019						2018
Currency exchange rate contracts						Other operating expense, net						$	(133)					$	(218)					$	253
Total return swaps						Other operating expense, net						7						(18)						(27)
Total												$	(126)					$	(236)					$	226

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Cash Flow Hedges

Forward contracts designated as cash flow hedges are designed to hedge the variability of cash flows associated with forecasted transactions denominated in a foreign currency that will take place in the future. The gross notional amount of these contracts, designated as cash flow hedges outstanding at April 24, 2020 and April 26, 2019 was $7.0 billion and $6.8 billion, respectively, and will mature within the subsequent three-year period. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss. The gain or loss on the derivative instrument is reclassified into earnings and is included in other operating expense, net in the consolidated statements of income in the same period or periods during which the hedged transaction affects earnings. Amounts excluded from the measurement of hedge effectiveness are recognized in earnings in the current period. The cash flows related to all of the Company's derivative instruments designated as cash flow hedges are reported as operating activities in the consolidated statements of cash flows. No components of the hedge contracts were excluded in the measurement of hedge effectiveness, and no forward contracts designated as cash flow hedges were derecognized or discontinued during fiscal years 2020, 2019, or 2018.

The amount of the (gains) losses recognized in AOCI related to currency exchange rate contract derivative instruments designated as cash flow hedges for fiscal years 2020, 2019, and 2018 were as follows:

			Fiscal Year
(in millions)			2020						2019						2018
Currency exchange rate contracts			$	(397)					$	(615)					$	404

The amount of the (gains) losses recognized in the consolidated statements of income related to derivative instruments designated as cash flow hedges for fiscal years 2020, 2019, and 2018 were as follows:

						Fiscal Year
						2020						2019						2018
(in millions)						Other operating expense, net						Other operating expense, net						Other operating expense, net
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of cash flow hedges are recorded						$	71					$	258					$	535
Currency exchange rate contracts designated as cash flow hedges:
Amount of (gain) loss reclassified from AOCI into income						(335)						(108)						69

Forecasted Debt Issuance Interest Rate Risk

Forward starting interest rate derivative instruments designated as cash flow hedges are designed to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. The gains or losses on forward starting interest rate derivative instruments that are designated and qualify as cash flow hedges are reported as a component of accumulated other comprehensive loss. Beginning in the period in which the planned debt issuance occurs and the related derivative instruments are terminated, the gains or losses are then reclassified into interest expense over the term of the related debt. For fiscal years 2020, 2019, and 2018, the reclassifications of net (gains) losses on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense were not significant.

At April 24, 2020 and April 26, 2019, the Company had $266 million and $194 million, respectively, in after-tax net unrealized gains associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that $225 million of after-tax net unrealized gains at April 24, 2020 will be recognized in the consolidated statements of income over the next 12 months.

Fair Value Hedges

Interest rate derivative instruments designated as fair value hedges are designed to manage the exposure to interest rate movements and to reduce borrowing costs by converting fixed-rate debt into floating-rate debt. Under these agreements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Changes in the fair value of the derivative instrument are recognized in interest expense and are offset by changes in the fair value of the underlying debt instrument. The gains from terminated interest rate swap agreements are recognized in long-term debt, increasing the outstanding balances of the debt, and amortized as a reduction of interest expense over the remaining life of the related debt. The cash flows related to the Company's interest rate derivative instruments designated as fair value hedges are reported as operating activities in the consolidated statements of cash flows.

At April 24, 2020, the Company had no interest rate swaps outstanding designated as fair value hedges, as the Company terminated previously held swaps in connection with the tender and early redemption of the underlying senior notes during the first quarter of fiscal year 2020. At April 26, 2019, the Company had interest rate swaps in gross notional amounts of $1.2 billion, designated as fair value hedges of underlying fixed-rate senior note obligations, including the Company's $500 million 4.125 percent 2011 Senior Notes due fiscal year 2021 and the $675 million 3.125 percent 2012 Senior Notes due fiscal year 2022.

The gain recognized upon termination of interest rate swaps was not significant for fiscal year 2020. At April 26, 2019, the market value of outstanding interest rate swap agreements was an unrealized gain of $9 million which was recorded in other assets, with the offset recorded in long-term debt on the consolidated balance sheets. The Company did not recognize any gains or losses during fiscal years 2020, 2019, or 2018 on firm commitments that no longer qualify as fair value hedges.

The following amounts were recorded on the consolidated balance sheet related to the cumulative basis adjustments for fair value hedges:

(in millions)						Carrying Amount of Hedged Assets/(Liabilities)																		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
Location on the Consolidated Balance Sheet						April 24, 2020						April 26, 2019						April 24, 2020						April 26, 2019
Long-term debt						$	—					$	(1,175)					$	—					$	9

Net Investment Hedges

The Company has designated Euro-denominated debt as a net investment hedge of certain of its European operations to manage the exposure to currency and exchange rate movements for foreign currency-denominated net investments in foreign operations. At April 24, 2020, the Company had €12.0 billion, or $13.0 billion, of outstanding Euro-denominated debt designated as a hedge of its net investment in certain of its European operations, which will mature in fiscal years 2021 through fiscal year 2050.

Additionally, during the first quarter of fiscal year 2020, the Company entered into and settled forward currency exchange rate contracts to manage the exposure to exchange rate movements in anticipation of the issuance of Euro-denominated senior notes. Certain of these forward currency exchange rate contracts were designated as a net investment hedge of certain of the Company's European operations. These contracts matured in conjunction with the issuance of the Euro-denominated debt in the first quarter of fiscal year 2020.

For instruments that are designated and qualify as net investment hedges, the gains or losses are reported as a component of accumulated other comprehensive loss. The gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary. Amounts excluded from the assessment of effectiveness are recognized in other operating expense, net. The cash flows related to the Company's derivative instruments designated as net investment hedges are reported as investing activities in the consolidated statements of cash flows.

At April 24, 2020 and April 26, 2019, the Company had $236 million in after-tax unrealized gains, and $169 million in after-tax unrealized losses associated with net investment hedges recorded in accumulated other comprehensive loss. The Company does not expect any of the after-tax unrealized losses at April 24, 2020 to be recognized in the consolidated statements of income over the next 12 months.

The Company did not recognize any gains or losses during fiscal years 2020, 2019, or 2018 on instruments that no longer qualify as net investment hedges.

The amount and classifications of the (gains) losses recognized in the consolidated statements of income for the portion of the net investment hedges excluded from the measurement of hedge effectiveness were as follows:

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

												Fiscal Year
(in millions)						Classification						2020						2019						2018
Net investment hedges						Other operating expense, net						$	(9)					$	(12)					$	—

The amount of the (gains) losses recognized in AOCI related to instruments designated as net investment hedges for fiscal year 2020, 2019, or 2018 were as follows:

			Fiscal Year
(in millions)			2020						2019						2018
Net investment hedges			$	(405)					$	(88)					$	—

Balance Sheet Presentation

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at April 24, 2020 and April 26, 2019. The fair value amounts are presented on a gross basis, and are segregated between derivatives that are designated and qualify as hedging instruments and those that are not designated and do not qualify as hedging instruments, and are further segregated by type of contract within those two categories.

			April 24, 2020
			Derivative Assets																		Derivative Liabilities
(in millions)			Balance Sheet Classification						Fair Value						Balance Sheet Classification						Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts			Other current assets						$	271					Other accrued expenses						$	2
Currency exchange rate contracts			Other assets						103						Other liabilities						2
Total derivatives designated as hedging instruments									374												4
Derivatives not designated as hedging instruments
Currency exchange rate contracts			Other current assets						25						Other accrued expenses						13
Total return swaps			Other current assets						—						Other accrued expenses						25
Cross-currency interest rate contracts			Other current assets						3						Other accrued expenses						—
Total derivatives not designated as hedging instruments									28												38
Total derivatives									$	402											$	42
			April 26, 2019
			Derivative Assets																		Derivative Liabilities
(in millions)			Balance Sheet Classification						Fair Value						Balance Sheet Classification						Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts			Other current assets						$	234					Other accrued expenses						$	1
Interest rate contracts			Other assets						9						Other liabilities						—
Currency exchange rate contracts			Other assets						78						Other liabilities						1
Total derivatives designated as hedging instruments									321												2
Derivatives not designated as hedging instruments
Currency exchange rate contracts			Other current assets						23						Other accrued expenses						17
Total return swaps			Other current assets						15						Other accrued expenses						—
Cross-currency interest rate contracts			Other current assets						6						Other accrued expenses						—
Total derivatives not designated as hedging instruments									44												17
Total derivatives									$	365											$	19

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following table provides information by level for the derivative assets and liabilities that are measured at fair value on a recurring basis:

			April 24, 2020																		April 26, 2019
(in millions)			Level 1						Level 2						Level 1						Level 2
Derivative assets			$	399					$	3					$	335					$	30
Derivative liabilities			17						25						19						—

The Company has elected to present the fair value of derivative assets and liabilities within the consolidated balance sheets on a gross basis, even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. The cash flows related to collateral posted and received are reported gross as investing and financing activities, respectively, in the consolidated statements of cash flows.

The following tables provide information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria as stipulated by the terms of the master netting arrangements with each of the counterparties. Derivatives not subject to master netting arrangements are not eligible for net presentation.

						April 24, 2020
												Gross Amount Not Offset on the Balance Sheet
(in millions)						Gross Amount of Recognized Assets (Liabilities)						Financial Instruments						Cash Collateral (Received) Posted									Net Amount
Derivative assets:
Currency exchange rate contracts						$	399					$	(17)					$	(48)								$	334
Cross-currency interest rate contracts						3						—						—									3
						402						(17)						(48)									337
Derivative liabilities:
Currency exchange rate contracts						(17)						17						—									—
Total return swaps						(25)						—						—									(25)
						(42)						17						—									(25)
Total						$	360					$	—					$	(48)								$	312

						April 26, 2019
												Gross Amount Not Offset on the Balance Sheet
(in millions)						Gross Amount of Recognized Assets (Liabilities)						Financial Instruments						Cash Collateral (Received) Posted									Net Amount
Derivative assets:
Currency exchange rate contracts						$	335					$	(9)					$	(43)								$	283
Interest rate contracts						9						—						(1)									8
Total return swaps						15						—						—									15
Cross-currency interest rate contracts						6						—						—									6
						365						(9)						(44)									312
Derivative liabilities:
Currency exchange rate contracts						(19)						9						—									(10)
						(19)						9						—									(10)
Total						$	346					$	—					$	(44)								$	302

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of interest-bearing investments, forward exchange derivative contracts, and trade accounts receivable. Global concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across many geographic areas. The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business.

The Company maintains cash and cash equivalents, investments, and certain other financial instruments (including currency exchange rate and interest rate derivative contracts) with various major financial institutions. The Company performs periodic evaluations of the relative credit standings of these financial institutions and limits the amount of credit exposure with any one institution. In addition, the Company has collateral credit agreements with its primary derivatives counterparties. Under these agreements, either party is required to post eligible collateral when the market value of transactions covered by the agreement exceeds specific thresholds, thus limiting credit exposure for both parties. At April 24, 2020 and April 26, 2019, the Company received net cash collateral of $48 million and $44 million, respectively, from its counterparties. The cash collateral received was recorded in cash and cash equivalents, with the offset recorded as an increase in other accrued expenses on the consolidated balance sheets.

9. Inventories

Inventory balances, net of reserves, were as follows:

(in millions)			April 24, 2020						April 26, 2019
Finished goods			$	2,874					$	2,476
Work-in-process			608						572
Raw materials			747						705
Total			$	4,229					$	3,753

10. Goodwill and Other Intangible Assets

Goodwill

The following table presents the changes in the carrying amount of goodwill by segment:

(in millions)			Cardiac and Vascular Group						Minimally Invasive Therapies Group						Restorative Therapies Group						Diabetes Group						Total
April 27, 2018			$	6,791					$	21,155					$	9,717					$	1,880					$	39,543
Goodwill as a result of acquisitions			165						83						1,238						24						1,510
Currency translation and other			(102)						(857)						(134)						(1)						(1,094)
April 26, 2019			6,854						20,381						10,821						1,903						39,959
Goodwill as a result of acquisitions			19						227						71						16						333
Purchase accounting adjustments			7						2						120						(5)						124
Currency translation and other			(49)						(434)						(92)						—						(575)
April 24, 2020			$	6,831					$	20,176					$	10,920					$	1,914					$	39,841

The Company did not recognize any goodwill impairments during fiscal years 2020, 2019, or 2018.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Intangible Assets

The following table presents the gross carrying amount and accumulated amortization of intangible assets:

			April 24, 2020																		April 26, 2019
(in millions)			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Definite-lived:
Customer-related			$	16,963					$	(5,065)					$	16,944					$	(4,095)
Purchased technology and patents			10,742						(4,354)						11,405						(4,570)
Trademarks and tradenames			464						(232)						570						(324)
Other			75						(53)						85						(59)
Total			$	28,244					$	(9,704)					$	29,004					$	(9,048)
Indefinite-lived:
IPR&D			$	523					$	—					$	604					$	—

During fiscal year 2020, the Company recognized $37 million of definite-lived intangible asset charges, including $33 million and $4 million recognized in connection with business exits in the Restorative Therapies Group and Cardiac and Vascular Group, respectively. During fiscal year 2019, the Company recognized $87 million of definite-lived intangible asset charges, including $61 million and $26 million recognized in connection with business exits in the Cardiac and Vascular Group and Restorative Therapies Group, respectively. The Company did not recognize any definite-lived intangible asset impairments during fiscal year 2018. Definite-lived intangible asset charges are recognized in other operating expense, net in the consolidated statements of income.

During fiscal year 2020, the Company recognized $35 million of indefinite-lived intangible asset charges, including $25 million relating to a partial impairment of an IPR&D project within the Restorative Therapies Group and $10 million in connection with the discontinuation of an IPR&D project within the Cardiac and Vascular Group. During fiscal year 2019, the Company recognized $30 million of indefinite-lived intangible asset charges, including $11 million in connection with a business exit in the Restorative Therapies Group, and $10 million and $9 million in connection with the discontinuation of certain IPR&D projects within the Minimally Invasive Therapies Group and Cardiac and Vascular Group, respectively. During fiscal year 2018, the Company recognized impairment losses on indefinite-lived intangibles of $68 million as a result of the discontinuation of certain IPR&D projects within the Restorative Therapies Group. Indefinite-lived intangible asset charges are recognized in other operating expense, net in the consolidated statements of income. Due to the nature of IPR&D projects, the Company may experience future delays or failures to obtain regulatory approvals to conduct clinical trials, failures of such clinical trials, delays or failures to obtain required market clearances, other failures to achieve a commercially viable product, or the discontinuation of certain projects, and as a result, may recognize impairment losses in the future.

Amortization

Intangible asset amortization expense was $1.8 billion for fiscal years 2020, 2019 and 2018. Estimated aggregate amortization expense by fiscal year based on the current carrying value and remaining estimated useful lives of definite-lived intangible assets at April 24, 2020, excluding any possible future amortization associated with acquired IPR&D which has not met technological feasibility, is as follows:

(in millions)			Amortization Expense
2021			$	1,748
2022			1,706
2023			1,644
2024			1,615
2025			1,588

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

11. Property, Plant, and Equipment

Property, plant, and equipment balances and corresponding estimated useful lives were as follows:

(in millions)			April 24, 2020						April 26, 2019						Estimated Useful Lives (in years)
Equipment			$	5,859					$	5,519					Generally 2-7, up to 15
Computer software			2,131						1,842						Up to 5
Land and land improvements			175						181						Up to 20
Buildings and leasehold improvements			2,277						2,267						Up to 40
Construction in progress			1,202						1,111						—
Property, plant, and equipment			11,644						10,920
Less: Accumulated depreciation			(6,816)						(6,245)
Property, plant, and equipment, net			$	4,828					$	4,675

Depreciation expense of $907 million, $895 million, and $821 million was recognized in fiscal years 2020, 2019, and 2018, respectively.

12. Shareholders’ Equity

Share Capital Medtronic plc is authorized to issue 2.6 billion Ordinary Shares, $0.0001 par value; 40 thousand Euro Deferred Shares, €1.00 par value; 127.5 million Preferred Shares, $0.20 par value; and 500 thousand A Preferred Shares, $1.00 par value.

Euro Deferred Shares The authorized share capital of the Company includes 40 thousand Euro Deferred Shares, with a par value of €1.00 per share. At April 24, 2020, no Euro Deferred Shares were issued or outstanding.

Preferred Shares The authorized share capital of the Company includes 127.5 million of Preferred Shares, with a par value of $0.20 per share. At April 24, 2020, no Preferred Shares were issued or outstanding.

A Preferred Shares The authorized share capital of the Company includes 500 thousand A Preferred Shares, with a par value of $1.00 per share. At April 24, 2020, 1,872 A Preferred Shares were outstanding. The holders of A Preferred Shares are entitled to payment of dividends prior to any other class of shares in the Company equal to twice the dividend to be paid per Company ordinary share. On a return of assets, whether on liquidation or otherwise, the A Preferred Shares are entitled to repayment of the capital paid up thereon in priority to any repayment of capital to the holders of any other shares and the holders of the A Preferred Shares shall not be entitled to any further participation in the assets or profits of the Company. The holders of the A Preferred Shares are not entitled to receive notice of, nor to attend, speak, or vote at any general meeting of the Company.

Dividends The timing, declaration, and payment of future dividends to holders of the Company's ordinary and A Preferred shares falls within the discretion of the Company's Board of Directors and depends upon many factors, including the statutory requirements of Irish law, the Company's earnings and financial condition, the capital requirements of the Company's businesses, industry practice and any other factors the Board of Directors deems relevant.

Ordinary Share Repurchase Program Shares are repurchased from time to time to support the Company’s stock-based compensation programs and to return capital to shareholders. During fiscal years 2020 and 2019, the Company repurchased approximately 12 million and 31 million shares, respectively, at an average price of $106.22 and $91.43, respectively.

In June 2017, the Company’s Board of Directors authorized the repurchase of $5.0 billion of the Company's ordinary shares. In March 2019, the Company's Board of Directors authorized an incremental $6.0 billion for repurchase of the Company's ordinary shares. There is no specific time-period associated with these repurchase authorizations. At April 24, 2020, the Company had used approximately $5.0 billion of the $11.0 billion authorized under the repurchase program, leaving approximately $6.0 billion available for future repurchases. The Company accounts for repurchases of ordinary shares using the par value method and shares repurchased are canceled.

13. Stock Purchase and Award Plans

The Medtronic, Inc. 2013 Stock Award and Incentive Plan was originally approved by the Company's shareholders in August 2013. In January 2015, the Company's Board of Directors approved an amendment to and assumption of the Medtronic, Inc.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

2013 Stock Award and Incentive Plan, which created the Medtronic plc 2013 Stock Award and Incentive Plan (2013 Plan). In fiscal year 2020, the Company granted stock awards under the 2013 Plan. The 2013 Plan provides for the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and other stock and cash-based awards. At April 24, 2020, there were approximately 41 million shares available for future grants under the 2013 Plan.

Share Options Options are granted at the exercise price, which is equal to the closing price of the Company’s ordinary shares on the grant date. The majority of the Company’s options are non-qualified options with a 10-year life and a 4-year ratable vesting term.

Restricted Stock Restricted stock awards and restricted stock units (collectively referred to as restricted stock) are granted to officers and key employees. At April 24, 2020, the Company does not have any outstanding restricted stock awards. Beginning in fiscal year 2018, restricted stock units have a 4-year ratable vesting term. Restricted stock units issued prior to fiscal year 2018 cliff vest after four years. The expense recognized for restricted stock units is equal to the grant date fair value, which is equal to the closing stock price on the date of grant. Restricted stock units are expensed over the vesting period and are subject to forfeiture if employment terminates prior to the lapse of the restrictions. The Company also grants shares of performance-based restricted stock units that typically cliff vest after three years only if the Company has also achieved certain performance objectives. Performance awards are expensed over the performance period based on the probability of achieving the performance objectives. Restricted stock units are not considered issued or outstanding ordinary shares of the Company. Dividend equivalent units are accumulated on restricted stock units during the vesting period.

Employees Stock Purchase Plan The Medtronic plc Amended and Restated 2014 Employees Stock Purchase Plan (ESPP) allows participating employees to purchase the Company's ordinary shares at a discount through payroll deductions. The expense recognized for shares purchased under the Company’s ESPP is equal to the 15 percent discount the employee receives at the end of the calendar quarter purchase period.

Employees may contribute between 2 percent and 10 percent of their wages or the statutory limit under the U.S. Internal Revenue Code toward the purchase of newly-issued ordinary shares of the Company at 85 percent of its market value at the end of the calendar quarter purchase period. Employees purchased 2 million shares at an average price of $86.34 per share in fiscal year 2020. At April 24, 2020, plan participants had approximately $14 million withheld to purchase the Company's ordinary shares at 85 percent of its market value on June 30, 2020, the last trading day before the end of the calendar quarter purchase period. At April 24, 2020, approximately 11 million ordinary shares were available for future purchase under the ESPP.

Stock Option Valuation Assumptions The Company uses the Black-Scholes option pricing model (Black-Scholes model) to determine the fair value of stock options at the grant date. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price, and expected dividends.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following table provides the weighted average fair value of options granted to employees and the related assumptions used in the Black-Scholes model:

			Fiscal Year
			2020						2019						2018
Weighted average fair value of options granted			$	15.49					$	14.77					$	13.71
Assumptions used:
Expected life (years)(1)			6.1						6.1						6.2
Risk-free interest rate(2)			1.88		%				2.90		%				2.00		%
Volatility(3)			17.97		%				17.77		%				19.51		%
Dividend yield(4)			2.09		%				2.25		%				2.19		%

(1)The Company analyzes historical employee stock option exercise and termination data to estimate the expected life assumption. The Company calculates the expected life assumption using the midpoint scenario, which combines historical exercise data with hypothetical exercise data, as the Company believes this data currently represents the best estimate of the expected life of a new employee option.

(2)The rate is based on the grant date yield of a zero-coupon U.S. Treasury bond whose maturity period equals the expected term of the option.

(3)Expected volatility is based on a blend of historical volatility and an implied volatility of the Company’s ordinary shares. Implied volatility is based on market traded options of the Company’s ordinary shares.

(4)The dividend yield rate is calculated by dividing the Company’s annual dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date.

Stock-Based Compensation Expense The following table presents the components and classification of stock-based compensation expense recognized for stock options, restricted stock, and ESPP in fiscal years 2020, 2019, and 2018:

			Fiscal Year
(in millions)			2020						2019						2018
Stock options			$	61					$	72					$	132
Restricted stock			205						189						185
Employee stock purchase plan			31						29						27
Total stock-based compensation expense			$	297					$	290					$	344
Cost of products sold			$	28					$	30					$	44
Research and development expense			36						36						38
Selling, general, and administrative expense			233						224						262
Total stock-based compensation expense			297						290						344
Income tax benefits			(51)						(54)						(82)
Total stock-based compensation expense, net of tax			$	246					$	236					$	262

Stock Options The following table summarizes all stock option activity, including activity from options assumed or issued as a result of acquisitions, during fiscal year 2020:

			Options (in thousands)						Wtd. Avg. Exercise Price						Wtd. Avg. Remaining Contractual Term (in years)						Aggregate Intrinsic Value (in millions)
Outstanding at April 26, 2019			31,677						$	71.52
Granted			4,349						103.26
Exercised			(8,165)						62.49
Expired/Forfeited			(793)						90.74
Outstanding at April 24, 2020			27,068						78.70						5.9						$	574
Expected to vest at April 24, 2020			8,742						94.12						8.4						60
Exercisable at April 24, 2020			17,878						70.70						4.5						512

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following table summarizes the total cash received from the issuance of new shares upon stock option award exercises, the total intrinsic value of options exercised, and the related tax benefit during fiscal years 2020, 2019, and 2018:

			Fiscal Year
(in millions)			2020						2019						2018
Cash proceeds from options exercised			$	484					$	825					$	250
Intrinsic value of options exercised			349						383						248
Tax benefit related to options exercised			75						78						75

Unrecognized compensation expense related to outstanding stock options at April 24, 2020 was $61 million and is expected to be recognized over a weighted average period of 2.5 years.

Restricted Stock The following table summarizes restricted stock activity, including activity from restricted stock assumed or issued as a result of acquisitions, during fiscal year 2020:

			Units (in thousands)						Wtd. Avg. Grant Price
Nonvested at April 26, 2019			7,996						$	84.78
Granted			3,205						103.52
Vested			(2,910)						83.30
Forfeited			(666)						89.75
Nonvested at April 24, 2020			7,625						92.52

The following table summarizes the weighted-average grant date fair value of restricted stock granted, total fair value of restricted stock vested and related tax benefit during fiscal years 2020, 2019, and 2018:

			Fiscal Year
(in millions, except per share data)			2020						2019						2018
Weighted-average grant-date fair value per restricted stock			$	103.52					$	88.78					$	83.88
Fair value of restricted stock vested			242						174						160
Tax benefit related to restricted stock vested			62						45						63

Unrecognized compensation expense related to restricted stock as of April 24, 2020 was $353 million and is expected to be recognized over a weighted average period of 2.5 years.

14. Income Taxes

The income tax (benefit) provision is based on income before income taxes reported for financial statement purposes. The components of income before income taxes, based on tax jurisdiction, are as follows:

			Fiscal Year
(in millions)			2020						2019						2018
U.S.			$	466					$	877					$	(958)
International			3,589						4,320						6,633
Income before income taxes			$	4,055					$	5,197					$	5,675

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The income tax (benefit) provision consists of the following:

			Fiscal Year
(in millions)			2020						2019						2018
Current tax expense:
U.S.			$	151					$	579					$	2,899
International			375						406						796
Total current tax expense			526						985						3,695
Deferred tax expense (benefit):
U.S.			(138)						(310)						45
International			(1,139)						(128)						(1,160)
Net deferred tax benefit			(1,277)						(438)						(1,115)
Income tax (benefit) provision			$	(751)					$	547					$	2,580

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Tax assets (liabilities), shown before jurisdictional netting of deferred tax assets (liabilities), are comprised of the following:

(in millions)			April 24, 2020						April 26, 2019
Deferred tax assets:
Net operating loss, capital loss, and credit carryforwards			$	6,432					$	6,574
Other accrued liabilities			390						389
Accrued compensation			285						315
Pension and post-retirement benefits			350						300
Stock-based compensation			136						162
Other			338						339
Inventory			191						194
Lease obligations			101						—
Federal and state benefit on uncertain tax positions			96						83
Interest limitation			236						111
Unrealized loss on available-for-sale securities and derivative financial instruments			—						17
Gross deferred tax assets			8,555						8,484
Valuation allowance			(5,482)						(6,300)
Total deferred tax assets			3,073						2,184
Deferred tax liabilities:
Intangible assets			(1,017)						(1,614)
Realized loss on derivative financial instruments			(65)						(70)
Other			(110)						(152)
Right of use leases			(97)						—
Unrealized gain on available-for-sale securities and derivative financial instruments			(12)						—
Accumulated depreciation			(87)						(38)
Outside basis difference of subsidiaries			(77)						(119)
Total deferred tax liabilities			(1,465)						(1,993)
Prepaid income taxes			449						363
Income tax receivables			381						335
Tax assets, net			$	2,438					$	889
Reported as (after valuation allowance and jurisdictional netting):
Other current assets			$	780					$	648
Tax assets			2,832						1,519
Deferred tax liabilities			(1,174)						(1,278)
Tax assets, net			$	2,438					$	889

No deferred taxes have been provided on the approximately $69.9 billion and $64.1 billion of undistributed earnings of the Company’s subsidiaries at April 24, 2020 and April 26, 2019, respectively, since these earnings have been, and under current plans will continue to be, permanently reinvested in these subsidiaries. During fiscal year 2018, the Company removed its permanently reinvested assertion on the undistributed earnings subject to the transition tax of foreign subsidiaries with a U.S. parent. Due to the number of legal entities and jurisdictions involved, the complexity of the legal entity structure of the Company, and the complexity of the tax laws in the relevant jurisdictions, the Company believes it is not practicable to estimate, within any reasonable range, the amount of additional taxes which may be payable upon distribution of these undistributed earnings.

At April 24, 2020, the Company had approximately $25.1 billion of net operating loss carryforwards in certain non-U.S. jurisdictions, of which $22.1 billion have no expiration, and the remaining $3.0 billion will expire during fiscal years 2021 through 2040. Included in these net operating loss carryforwards are $17.5 billion of net operating losses related to a subsidiary

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

of the Company, substantially all of which were recorded in fiscal year 2008 as a result of the receipt of a favorable tax ruling from certain non-U.S. taxing authorities. The Company has recorded a full valuation allowance against these net operating losses, as management does not believe that it is more likely than not that these net operating losses will be utilized. Certain of the remaining non-U.S. net operating loss carryforwards of $7.6 billion have a valuation allowance recorded against the carryforwards, as management does not believe that it is more likely than not that these net operating losses will be utilized.

At April 24, 2020, the Company had $524 million of U.S. federal net operating loss carryforwards, of which $102 million have no expiration. The remaining loss carryforwards will expire during fiscal years 2021 through 2038. For U.S. state purposes, the Company had $1.4 billion of net operating loss carryforwards at April 24, 2020, which will expire during fiscal years 2021 through 2040.

At April 24, 2020, the Company also had $200 million of tax credits available to reduce future income taxes payable, of which $96 million have no expiration. The remaining credits will expire during fiscal years 2021 through 2040.

The Company has established valuation allowances of $5.5 billion and $6.3 billion at April 24, 2020 and April 26, 2019, respectively, primarily related to the uncertainty of the utilization of certain deferred tax assets which are primarily comprised of tax loss and credit carryforwards in various jurisdictions. The decrease in the valuation allowance during fiscal year 2020 is primarily related to the utilization of certain net operating losses in connection with a planned intercompany sale of intellectual property and the effects of currency fluctuations. These valuation allowances would result in a reduction to the income tax provision in the consolidated statements of income if they are ultimately not required.

The Company’s effective income tax rate varied from the U.S. federal statutory tax rate as follows:

			Fiscal Year
			2020						2019						2018
U.S. federal statutory tax rate			21.0		%				21.0		%				30.5		%
Increase (decrease) in tax rate resulting from:
U.S. state taxes, net of federal tax benefit			0.5						0.9						0.8
Research and development credit			(2.1)						(1.2)						(0.8)
Puerto Rico Excise Tax			(1.5)						(1.6)						(1.1)
International			(10.0)						(10.7)						(18.9)
U.S. Tax Reform			—						0.2						43.0
Stock based compensation			(1.5)						(1.0)						(1.0)
Other, net			0.4						(0.5)						1.6
Interest on uncertain tax positions			1.3						0.9						1.4
Base Erosion Anti-Abuse Tax			2.6						0.1						—
Foreign Derived Intangible Income Benefit			(1.2)						(0.6)						—
Divestiture-related			—						(0.4)						(3.8)
Certain tax adjustments			(30.8)						(0.6)						(8.9)
U.S. tax on foreign earnings			2.8						4.0						2.7
Effective tax rate			(18.5)		%				10.5		%				45.5		%

During fiscal year 2020, certain tax adjustments of $1.2 billion, recognized in income tax (benefit) provision in the consolidated statements of income, included the following:

• A net benefit of $63 million related to the finalization of certain state tax impacts from U.S. Tax Reform, and the issuance of certain final U.S. Treasury Regulations associated with U.S. Tax Reform. The primary impact of these regulations resulted in the Company re-establishing its permanently reinvested assertion on certain foreign earnings and reversing the previously accrued tax liability. This benefit was partially offset by additional tax associated with a previously executed internal reorganization of certain foreign subsidiaries.

• A benefit of $252 million related to tax legislative changes in Switzerland which abolished certain preferential tax regimes the Company benefited from and replaced them with a new set of internationally accepted measures. The

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.

• A benefit of $658 million related to the release of a valuation allowance previously recorded against certain net operating losses. Luxembourg enacted tax legislation during the year which required the Company to reassess the realizability of certain net operating losses. The Company evaluated both the positive and negative evidence and released valuation allowance equal to the expected benefit from the utilization of certain net operating losses in connection with a planned intercompany sale of intellectual property.

• A benefit of $269 million associated with the intercompany sale of intellectual property and the establishment of a deferred tax asset.

During fiscal year 2019, certain tax adjustments of $40 million, recognized in income tax (benefit) provision in the consolidated statements of income, included the following:

• A net benefit of $30 million associated with the finalization of the transition tax liability and the Tax Act impact to deferred tax assets, liabilities, and valuation allowances.

• A charge of $42 million related to the recognition of a prepaid tax expense resulting from the reduction in the U.S. statutory tax rate under the Tax Act and the current year sale of U.S. manufactured inventory held as of April 27, 2018.

• A benefit of $32 million related to intercompany legal entity restructuring.

• A net benefit of $20 million with the finalization of certain income tax aspects of the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.

During fiscal year 2018, certain tax adjustments of $1.9 billion, recognized in income tax (benefit) provision in the consolidated statements of income, included the following:

• A net charge of $2.4 billion associated with U.S. tax reform, inclusive of the transition tax, remeasurement of U.S. Federal deferred tax assets and liabilities, and the decrease in the U.S. statutory tax rate.

• A charge of $73 million associated with an internal reorganization of certain foreign subsidiaries.

• A net benefit of $579 million associated with the intercompany sale of intellectual property.

Currently, the Company’s operations in Puerto Rico, Singapore, Dominican Republic, Costa Rica, China, and Israel have various tax holidays and tax incentive grants. The tax reductions as compared to the local statutory rate favorably impacted earnings by $231 million, $437 million, and $446 million in fiscal years 2020, 2019, and 2018, respectively, and diluted earnings per share by $0.17, $0.32, and $0.33 in fiscal years 2020, 2019, and 2018, respectively. The tax holidays are conditional upon the Company meeting certain thresholds required under statutory law. The tax incentive grants, unless extended, will expire between fiscal years 2021 and 2030. The Company’s historical practice has been to renew, extend, or obtain new tax incentive grants upon expiration of existing tax incentive grants. If the Company is not able to renew, extend, or obtain new tax incentive grants, the expiration of existing tax incentive grants could have a material impact on the Company’s financial results in future periods. The tax incentive grants which expired during fiscal year 2020 did not have a material impact on the Company's consolidated financial statements.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The Company had $1.9 billion, $1.8 billion, and $1.7 billion of gross unrecognized tax benefits at April 24, 2020, April 26, 2019, and April 27, 2018, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2020, 2019, and 2018 is as follows:

			Fiscal Year
(in millions)			2020						2019						2018
Gross unrecognized tax benefits at beginning of fiscal year			$	1,836					$	1,727					$	1,896
Gross increases:
Prior year tax positions			12						34						13
Current year tax positions			55						109						63
Gross decreases:
Prior year tax positions			(9)						(14)						(120)
Settlements			(5)						—						(80)
Statute of limitation lapses			(27)						(20)						(45)
Gross unrecognized tax benefits at end of fiscal year			1,862						1,836						1,727
Cash advance paid to taxing authorities			(859)						(859)						(859)
Gross unrecognized tax benefits at end of fiscal year, net of cash advance			$	1,003					$	977					$	868

If all of the Company’s unrecognized tax benefits at April 24, 2020, April 26, 2019, and April 27, 2018 were recognized, $1.8 billion, $1.8 billion, and $1.7 billion would impact the Company’s effective tax rate, respectively. Although the Company believes that it has adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on the Company’s effective tax rate in future periods. The Company has recorded gross unrecognized tax benefits, net of cash advance, of $911 million as a noncurrent liability. The Company estimates that within the next 12 months it is reasonably possible that its uncertain tax positions excluding interest, could decrease by as much as $115 million, net as a result of the resolution of tax matters with the IRS and other taxing authorities as well as statute of limitation lapses.

The Company recognizes interest and penalties related to income tax matters in income tax (benefit) provision in the consolidated statements of income and records the liability in the current or noncurrent accrued income taxes in the consolidated balance sheets, as appropriate. The Company had $225 million, $172 million, and $128 million of accrued gross interest and penalties at April 24, 2020, April 26, 2019, and April 27, 2018, respectively. During fiscal years 2020, 2019, and 2018, the Company recognized gross interest expense of approximately $53 million, $48 million, and $84 million, respectively, in income tax (benefit) provision in the consolidated statements of income.

During fiscal year 2018, the Company made a $1.1 billion advance payment to the IRS in connection with certain tax matters for fiscal years 2005 through 2014. This payment was comprised of $859 million of tax and $285 million of interest.

The Company’s reserves for uncertain tax positions related to unresolved matters with the IRS and other taxing authorities. These reserves are subject to a high degree of estimation and management judgment. Resolution of these significant unresolved matters, or positions taken by the IRS or other tax authorities during future tax audits, could have a material impact on the Company’s financial results in future periods. The Company continues to believe that its reserves for uncertain tax positions are appropriate and that it has meritorious defenses for its tax filings and will vigorously defend them during the audit process, appellate process, and through litigation in courts, as necessary.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The major tax jurisdictions where the Company conducts business which remain subject to examination are as follows:

Jurisdiction						Earliest Year Open
United States - federal and state						2005
Australia						2016
Brazil						2015
Canada						2012
China						2009
Costa Rica						2016
Dominican Republic						2017
Germany						2014
India						2002
Ireland						2012
Israel						2010
Italy						2005
Japan						2017
Korea						2017
Luxembourg						2014
Mexico						2007
Puerto Rico						2011
Singapore						2013
Switzerland						2012
United Kingdom						2016

See Note 19 for additional information regarding the status of current tax audits and proceedings.

15. Earnings Per Share

Earnings per share is calculated using the two-class method, as the Company's A Preferred Shares are considered participating securities. Accordingly, earnings are allocated to both ordinary shares and participating securities in determining earnings per ordinary share. Due to the limited number of A Preferred Shares outstanding, this allocation had no effect on the ordinary earnings per share; therefore, it is not presented below. Basic earnings per share is computed based on the weighted average number of ordinary shares outstanding. Diluted earnings per share is computed based on the weighted number of ordinary shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive ordinary shares been issued, and reduced by the number of shares the Company could have repurchased with the proceeds from issuance of the potentially dilutive shares. Potentially dilutive ordinary shares include stock-based awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The table below sets forth the computation of basic and diluted earnings per share:

			Fiscal Year
(in millions, except per share data)			2020						2019						2018
Numerator:
Net income attributable to ordinary shareholders			$	4,789					$	4,631					$	3,104
Denominator:
Basic – weighted average shares outstanding			1,340.7						1,346.4						1,356.7
Effect of dilutive securities:
Employee stock options			7.2						7.6						7.9
Employee restricted stock units			2.8						3.2						3.3
Other			0.4						0.3						0.3
Diluted – weighted average shares outstanding			1,351.1						1,357.5						1,368.2
Basic earnings per share			$	3.57					$	3.44					$	2.29
Diluted earnings per share			$	3.54					$	3.41					$	2.27

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 4 million, 7 million, and 10 million ordinary shares in fiscal years 2020, 2019, and 2018, respectively, because their effect would have been anti-dilutive on the Company’s earnings per share.

16. Retirement Benefit Plans

The Company sponsors various retirement benefit plans, including defined benefit pension plans, post-retirement medical plans, defined contribution savings plans, and termination indemnity plans, covering substantially all U.S. employees and many employees outside the U.S. The expense related to these plans was $467 million, $539 million, and $552 million in fiscal years 2020, 2019, and 2018, respectively.

In the U.S., the Company maintains a qualified pension plan designed to provide guaranteed minimum retirement benefits to all eligible U.S. employees. Pension coverage for non-U.S. employees is provided, to the extent deemed appropriate, through separate plans. In addition to the benefits provided under the qualified pension plan, retirement benefits associated with wages in excess of the IRS allowable limits are provided to certain employees under a non-qualified plan. U.S. and Puerto Rico employees are also eligible to receive a medical benefit component, in addition to normal retirement benefits, through the Company’s post-retirement benefits.

At April 24, 2020 and April 26, 2019, the net underfunded status of the Company’s benefit plans was $1.4 billion and $1.1 billion, respectively.

As of April 24, 2020, the Company announced the freezing of U.S. pension benefits beginning in 2027. Employees will continue to earn benefits as required by the plan until April 30, 2027, after which date benefits will no longer be earned and employees will earn benefits under a new defined contribution structure. The Company recognized curtailment benefits of $94 million in fiscal year 2020 as a result of this change.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Defined Benefit Pension Plans The change in benefit obligation and funded status of the Company’s U.S. and Non-U.S. pension benefits are as follows:

			U.S. Pension Benefits																		Non-U.S. Pension Benefits
			Fiscal Year																		Fiscal Year
(in millions)			2020						2019						2020						2019
Accumulated benefit obligation at end of year:			$	3,440					$	3,121					$	1,785					$	1,621
Change in projected benefit obligation:
Projected benefit obligation at beginning of year			$	3,404					$	3,202					$	1,832					$	1,791
Service cost			106						109						59						59
Interest cost			126						129						28						30
Employee contributions			—						—						11						12
Plan curtailments and settlements			(94)						—						(2)						(5)
Actuarial loss			300						54						180						119
Benefits paid			(111)						(100)						(55)						(49)
Currency exchange rate changes and other			(8)						10						(29)						(125)
Projected benefit obligation at end of year			$	3,723					$	3,404					$	2,024					$	1,832
Change in plan assets:
Fair value of plan assets at beginning of year			$	2,728					$	2,661					$	1,409					$	1,404
Actual return on plan assets			(72)						64						2						62
Employer contributions			444						93						54						78
Employee contributions			—						—						11						12
Plan settlements			—						—						(2)						(3)
Benefits paid			(111)						(100)						(55)						(49)
Currency exchange rate changes and other			(7)						10						(15)						(95)
Fair value of plan assets at end of year			$	2,982					$	2,728					$	1,404					$	1,409
Funded status at end of year:
Fair value of plan assets			$	2,982					$	2,728					$	1,404					$	1,409
Benefit obligations			3,723						3,404						2,024						1,832
Underfunded status of the plans			(741)						(676)						(620)						(423)
Recognized liability			$	(741)					$	(676)					$	(620)					$	(423)
Amounts recognized on the consolidated balance sheets consist of:
Non-current assets			$	—					$	—					$	7					$	31
Current liabilities			(17)						(18)						(6)						(8)
Non-current liabilities			(724)						(658)						(621)						(446)
Recognized liability			$	(741)					$	(676)					$	(620)					$	(423)
Amounts recognized in accumulated other comprehensive loss:
Prior service cost (benefit)			$	1					$	2					$	7					$	(7)
Net actuarial loss			1,662						1,216						663						452
Ending balance			$	1,663					$	1,218					$	670					$	445

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

In certain countries outside the U.S., fully funding pension plans is not a common practice, as funding provides no income tax benefit. Consequently, certain pension plans were partially funded at April 24, 2020 and April 26, 2019. U.S. and non-U.S. plans with accumulated benefit obligations in excess of plan assets consist of the following:

			Fiscal Year
(in millions)			2020						2019
Accumulated benefit obligation			$	5,105					$	4,683
Projected benefit obligation			5,252						4,822
Plan assets at fair value			4,074						3,829

Plans with projected benefit obligations in excess of plan assets consist of the following:

			Fiscal Year
(in millions)			2020						2019
Projected benefit obligation			$	5,700					$	4,963
Plan assets at fair value			4,331						3,833

The net periodic benefit cost of the plans include the following components:

			U.S. Pension Benefits																														Non-U.S. Pension Benefits
			Fiscal Year																														Fiscal Year
(in millions)			2020						2019						2018						2020						2019						2018
Service cost			$	106					$	109					$	116					$	59					$	59					$	67
Interest cost			126						129						117						28						30						28
Expected return on plan assets			(225)						(215)						(205)						(58)						(57)						(53)
Amortization of prior service cost			1						1						1						(1)						(1)						—
Amortization of net actuarial loss			56						76						82						14						12						18
Settlement loss (gain)			—						—						16						—						(2)						—
Net periodic benefit cost			$	64					$	100					$	127					$	42					$	41					$	60

The other changes in plan assets and projected benefit obligations recognized in accumulated other comprehensive loss for fiscal year 2020 are as follows:

(in millions)			U.S. Pension Benefits						Non-U.S. Pension Benefits
Net actuarial gain			$	596					$	236
Prior service credit			(94)						—
Amortization of prior service cost			(1)						1
Amortization of net actuarial loss			(56)						(14)
Effect of exchange rates			—						(11)
Total recognized in accumulated other comprehensive loss			$	445					$	212
Total recognized in net periodic benefit cost and accumulated other comprehensive loss			$	509					$	254

The estimated net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost, before tax, in fiscal year 2021 for U.S. and non-U.S. pension benefits is expected to be $70 million and $23 million, respectively.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The actuarial assumptions are as follows:

			U.S. Pension Benefits																														Non-U.S. Pension Benefits
			Fiscal Year																														Fiscal Year
			2020						2019						2018						2020						2019						2018
Critical assumptions – projected benefit obligation:
Discount rate			3.10% - 3.70%						3.90% - 4.20%						4.20% - 4.35%						0.30% - 13.30%						0.40% - 13.90%						0.70% - 11.00%
Rate of compensation increase			3.90		%				3.90		%				3.90		%				2.91		%				2.87		%				2.88		%
Critical assumptions – net periodic benefit cost:
Discount rate – benefit obligation			3.90% - 4.30%						4.20% - 4.30%						4.00% - 4.30%						0.40% - 13.90%						0.50% - 11.00%						0.45% - 11.40%
Discount rate – service cost			3.70% - 4.00%						4.10% - 4.40%						3.70% - 4.45%						0.40% - 13.90%						0.50% - 11.00%						0.20% - 11.40%
Discount rate – interest cost			3.50% - 4.30%						4.00% - 4.10%						3.45% - 3.80%						0.40% - 13.90%						0.50% - 11.00%						0.45% - 11.40%
Expected return on plan assets			7.90		%				7.90		%				7.90		%				4.19		%				4.23		%				4.20		%
Rate of compensation increase			3.90		%				3.90		%				3.90		%				2.87		%				2.88		%				2.89		%

The Company utilizes a full yield curve approach methodology to estimate the service and interest cost components of net periodic pension cost and net periodic post-retirement benefit cost for the Company’s pension and other post-retirement benefits. The full yield curve approach applies specific spot rates along the yield curve to their underlying projected cash flows in estimation of the cost components. The current yield curves represent high quality, long-term fixed income instruments.

The expected long-term rate of return on plan assets assumptions are determined using a building block approach, considering historical averages and real returns of each asset class. In certain countries, where historical returns are not meaningful, consideration is given to local market expectations of long-term returns.

Retirement Benefit Plan Investment Strategy The Company sponsors trusts that hold the assets for U.S. pension plans and other U.S. post-retirement benefit plans, primarily retiree medical benefits. For investment purposes, the legacy Medtronic U.S. pension and other U.S. post-retirement benefit plans are managed in an identical way, as their objectives are similar.

The Company has a Qualified Plan Committee (the Plan Committee) that sets investment guidelines for U.S. pension plans and other U.S. post-retirement benefit plans with the assistance of external consultants. These guidelines are established based on market conditions, risk tolerance, funding requirements, and expected benefit payments. The Plan Committee also oversees the investment allocation process, selects the investment managers, and monitors asset performance. As pension liabilities are long-term in nature, the Company employs a long-term total return approach to maximize the long-term rate of return on plan assets for a prudent level of risk. An annual analysis on the risk versus the return of the investment portfolio is conducted to justify the expected long-term rate of return assumption.

The investment portfolios contain a diversified allocation of investment categories, including equities, fixed income securities, hedge funds, and private equity. Securities are also diversified in terms of domestic and international, short- and long-term, growth and value styles, large cap and small cap stocks, and active and passive management.

Outside the U.S., pension plan assets are typically managed by decentralized fiduciary committees. There is significant variation in policy asset allocation from country to country. Local regulations, funding rules, and financial and tax considerations are part of the funding and investment allocation process in each country. The weighted average target asset allocations at April 24, 2020 for the plans are 37% equity securities, 30% debt securities, and 33% other.

The plans did not hold any investments in the Company’s ordinary shares at April 24, 2020 or April 26, 2019.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The Company’s U.S. plans target asset allocations at April 24, 2020, compared to the U.S. plans actual asset allocations at April 24, 2020 and April 26, 2019 by asset category, are as follows:

U.S. Plans
			Target Allocation						Actual Allocation
			April 24, 2020						April 24, 2020						April 26, 2019
Asset Category:
Equity securities			49		%				39		%				50		%
Debt securities			32						27						34
Other			19						34						16
Total			100		%				100		%				100		%

Retirement Benefit Plan Asset Fair Values The following is a description of the valuation methodologies used for retirement benefit plan assets measured at fair value:

Short-term investments: Valued at the closing price reported in the active markets in which the individual security is traded.

U.S. government securities: Certain U.S. government securities are valued at the closing price reported in the active markets in which the individual security is traded. Other U.S. government securities are valued based on inputs other than quoted prices that are observable.

Corporate debt securities: Valued based on inputs other than quoted prices that are observable.

Equity commingled trusts: Comprised of investments in equity securities held in pooled investment vehicles. The valuations of equity commingled trusts are based on the respective net asset values which are determined by the fund daily at market close. The net asset values are calculated based on the valuation of the underlying assets which are determined using observable inputs. The net asset values are not publicly reported, and funds are valued at the net asset value practical expedient.

Fixed income commingled trusts: Comprised of investments in fixed income securities held in pooled investment vehicles. The valuations of fixed income commingled trusts are based on the respective net asset values which are determined by the fund daily at market close. The net asset values are calculated based on the valuation of the underlying assets which are determined using observable inputs. The net asset values are not publicly reported, and funds are valued at the net asset value practical expedient.

Partnership units: Valued based on the year-end net asset values of the underlying partnerships. The net asset values of the partnerships are based on the fair values of the underlying investments of the partnerships. Quoted market prices are used to value the underlying investments of the partnerships, where the partnerships consist of the investment pools which invest primarily in common stocks. Partnership units include partnerships, private equity investments, and real asset investments. Partnerships primarily include long/short equity and absolute return strategies. These investments may be redeemed monthly with notice periods ranging from 45 to 95 days. At April 24, 2020, there are no funds in the process of liquidation. Private equity investments consist of common stock and debt instruments of private companies. For private equity funds, the sum of the unfunded commitments at April 24, 2020 is $194 million, and the estimated liquidation period of these funds is expected to be one to 15 years. Real asset investments consist of commodities, derivatives, Real Estate Investment Trusts, and illiquid real estate holdings. These investments have redemption and liquidation periods ranging from 30 days to 10 years. At April 24, 2020, there are no real estate investments in the process of liquidation. Valuation procedures are utilized to arrive at fair value if a quoted market price is not available for a partnership investment.

Registered investment companies: Valued at net asset values which are not publicly reported. The net asset values are calculated based on the valuation of the underlying assets. The underlying assets are valued at the quoted market prices of shares held by the plan at year-end in the active market on which the individual securities are traded.

Insurance contracts: Comprised of investments in collective (group) insurance contracts, consisting of individual insurance policies. The policyholder is the employer and each member is the owner/beneficiary of their individual insurance policy. These policies are a part of the insurance company’s general portfolio and participate in the insurer’s profit-sharing policy on an excess yield basis.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The methods described above may produce fair values that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

There were no transfers between Level 1, Level 2, or Level 3 during fiscal years 2020 or 2019.

The following tables provide information by level for the retirement benefit plan assets that are measured at fair value, as defined by U.S. GAAP. In accordance with authoritative guidance adopted in fiscal year 2017, certain investments for which the fair value is measured using the net asset value per share (or its equivalent) practical expedient are not presented within the fair value hierarchy. The fair value amounts presented for these investments are intended to permit reconciliation to the total fair value of plan assets at April 24, 2020 and April 26, 2019.

U.S. Pension Benefits

			Fair Value at						Fair Value Measurements Using Inputs Considered as																														Investments Measured at Net Asset Value
(in millions)			April 24, 2020						Level 1						Level 2						Level 3
Short-term investments			$	548					$	548					$	—					$	—					$	—
Equity commingled trusts			1,204						—						—						—						1,204
Fixed income commingled trusts			605						—						—						—						605
Partnership units			625						—						—						625						—
			$	2,982					$	548					$	—					$	625					$	1,809

			Fair Value at						Fair Value Measurements Using Inputs Considered as																														Investments Measured at Net Asset Value
(in millions)			April 26, 2019						Level 1						Level 2						Level 3
Short-term investments			$	61					$	61					$	—					$	—					$	—
U.S. government securities			228						228						—						—						—
Corporate debt securities			144						—						144						—						—
Equity commingled trusts			1,365						—						—						—						1,365
Fixed income commingled trusts			301						—						—						—						301
Partnership units			629						—						—						629						—
			$	2,728					$	289					$	144					$	629					$	1,666

The following tables provide a reconciliation of the beginning and ending balances of U.S. pension benefit assets measured at fair value that used significant unobservable inputs (Level 3):

(in millions)									Partnership Units
April 26, 2019									$	629
Total unrealized gains									(45)
Purchases and sales, net									41
April 24, 2020									$	625

(in millions)															Partnership Units
April 27, 2018															$	537
Total realized losses															(1)
Total unrealized gains															52
Purchases and sales, net															41
April 26, 2019															$	629

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Non-U.S. Pension Benefits

			Fair Value at						Fair Value Measurements Using Inputs Considered as																														Investments Measured at Net Asset Value
(in millions)			April 24, 2020						Level 1						Level 2						Level 3
Registered investment companies			$	1,361					$	—					$	—					$	—					$	1,361
Insurance contracts			43						—						—						43						—
			$	1,404					$	—					$	—					$	43					$	1,361

			Fair Value at						Fair Value Measurements Using Inputs Considered as																														Investments Measured at Net Asset Value
(in millions)			April 26, 2019						Level 1						Level 2						Level 3
Registered investment companies			$	1,368					$	—					$	—					$	—					$	1,368
Insurance contracts			41						—						—						41						—
			$	1,409					$	—					$	—					$	41					$	1,368

The following tables provide a reconciliation of the beginning and ending balances of non-U.S. pension benefit assets measured at fair value that used significant unobservable inputs (Level 3):

(in millions)									Insurance Contracts
April 26, 2019									$	41
Total unrealized gains									2
Purchases and sales, net									1
Currency exchange rate changes									(1)
April 24, 2020									$	43

(in millions)									Insurance Contracts
April 27, 2018									$	42
Total unrealized gains									1
Purchases and sales, net									1
Currency exchange rate changes									(3)
April 26, 2019									$	41

Retirement Benefit Plan Funding It is the Company’s policy to fund retirement costs within the limits of allowable tax deductions. During fiscal year 2020, the Company made discretionary contributions of approximately $444 million to the U.S. pension plan. Internationally, the Company contributed approximately $54 million for pension benefits during fiscal year 2020. The Company anticipates that it will make contributions of $17 million and $63 million to its U.S. pension benefit plans and non-U.S. pension benefit plans, respectively, in fiscal year 2021. Based on the guidelines under the U.S. Employee Retirement Income Security Act of 1974 and the various guidelines which govern the plans outside the U.S., the majority of anticipated fiscal year 2021 contributions will be discretionary. The Company believes that pension assets, returns on invested pension assets, and Company contributions will be able to meet its pension and other post-retirement obligations in the future.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Retiree benefit payments, which reflect expected future service, are anticipated to be paid as follows:

(in millions)			Gross Payments
Fiscal Year			U.S. Pension Benefits						Non-U.S. Pension Benefits
2021			$	122					$	51
2022			132						50
2023			143						56
2024			153						56
2025			165						60
2026 – 2030			999						340
Total			$	1,714					$	613

Post-retirement Benefit Plans The net periodic benefit cost associated with the Company’s post-retirement benefit plans was income of $15 million, $17 million, and $9 million in fiscal years 2020, 2019, and 2018, respectively. The Company’s projected benefit obligation for all post-retirement benefit plans was $339 million and $323 million at April 24, 2020 and April 26, 2019, respectively. The Company’s fair value of plan assets for all post-retirement benefit plans was $296 million and $297 million at April 24, 2020 and April 26, 2019, respectively. The post-retirement benefit plan assets at both April 24, 2020 and April 26, 2019 primarily comprised of equity commingled trusts, consistent with the U.S. retirement benefit plan assets outlined in the fair value leveling tables above.

Defined Contribution Savings Plans The Company has defined contribution savings plans that cover substantially all U.S. employees and certain non-U.S. employees. The general purpose of these plans is to provide additional financial security during retirement by providing employees with an incentive to make regular savings. Company contributions to the plans are based on employee contributions and Company performance. Expense recognized under these plans was $376 million, $415 million, and $374 million in fiscal years 2020, 2019, and 2018, respectively.

Effective May 1, 2005, the Company froze participation in the original defined benefit pension plan in the U.S. and implemented two new plans: an additional defined benefit pension plan, the Personal Pension Account (PPA), and a new defined contribution plan, the Personal Investment Account (PIA). Employees in the U.S. hired on or after May 1, 2005 but before January 1, 2016 had the option to participate in either the PPA or the PIA. Participants in the PPA receive an annual allocation of their salary and bonus on which they will receive an annual guaranteed rate of return, which is based on the ten-year Treasury bond rate. Participants in the PIA also receive an annual allocation of their salary and bonus; however, they are allowed to determine how to invest their funds among identified fund alternatives. The cost associated with the PPA is included in U.S. Pension Benefits in the tables presented earlier. The defined contribution cost associated with the PIA was approximately $52 million, $54 million, and $56 million in fiscal years 2020, 2019, and 2018, respectively.

Effective January 1, 2016, the Company froze participation in the existing defined benefit (PPA) and contribution (PIA) pension plans in the U.S. and implemented a new form of benefit under the existing defined contribution plan for legacy Covidien employees and employees in the U.S. hired on or after January 1, 2016. Participants in the Medtronic Core Contribution (MCC) also receive an annual allocation of their salary and bonus and are allowed to determine how to invest their funds among identified fund alternatives. The defined contribution cost associated with the MCC was approximately $66 million, $58 million, and $49 million and in fiscal years 2020, 2019, and 2018, respectively.

17. Leases

The Company leases office, manufacturing, and research facilities and warehouses, as well as transportation, data processing, and other equipment. The Company determines whether a contract is a lease or contains a lease at inception date. Upon commencement, the Company recognizes a right-of-use asset and lease liability. Right-of-use assets represent the Company's right to use the underlying asset for the lease term. Lease liabilities are the Company's obligation to make the lease payments arising from a lease. As the Company’s leases typically do not provide an implicit rate, the Company’s lease liabilities are measured on a discounted basis using the Company's incremental borrowing rate. Lease terms used in the recognition of right-of-use assets and lease liabilities include only options to extend the lease that are reasonably certain to be exercised. Additionally, lease terms underlying the right-of-use assets and lease liabilities consider terminations that are reasonably certain to be executed.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The Company's lease agreements include leases that have both lease and associated nonlease components. The Company has elected to account for lease components and the associated nonlease components as a single lease component. The consolidated balance sheets do not include recognized assets or liabilities for leases that, at the commencement date, have a term of twelve months or less and do not include an option to purchase the underlying asset that is reasonably certain to be exercised. The Company recognizes such leases in the consolidated statements of income on a straight-line basis over the lease term. Additionally, the Company recognizes variable lease payments not included in its lease liabilities in the period in which the obligation for those payments is incurred. Variable lease payments for fiscal year 2020 were not material.

The Company's lease agreements include leases accounted for as operating leases and those accounted for as finance leases. The right-of-use assets, lease liabilities, lease costs, cash flows, and lease maturities associated with the Company's finance leases were not material to the consolidated financial statements at April 24, 2020 or for fiscal year 2020. Finance lease right-of-use assets are included in property, plant, and equipment, net, and finance lease liabilities are included in current debt obligations and long-term debt on the consolidated balance sheets.

The following table summarizes the balance sheet classification of the Company's operating leases and amounts of the right-of-use assets and lease liabilities at April 24, 2020:

(in millions)			Balance Sheet Classification						April 24, 2020
Right-of-use assets			Other assets						$	927
Current liability			Other accrued expenses						171
Non-current liability			Other liabilities						774

The following table summarizes the weighted-average remaining lease term and weighted-average discount rate for the Company's operating leases at April 24, 2020:

						April 24, 2020
Weighted-average remaining lease term						7.2 years
Weighted-average discount rate						3.0%

The following table summarizes the components of total operating lease cost for fiscal year 2020:

												Fiscal Year
(in millions)												2020
Operating lease cost												$	223
Short-term lease cost												46
Total operating lease cost												$	269

The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right-of-use assets obtained in exchange for operating lease liabilities for fiscal year 2020:

									Fiscal Year
(in millions)									2020
Cash paid for amounts included in the measurement of operating lease liabilities									$	221
Right-of-use assets obtained in exchange for operating lease liabilities									174

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following table summarizes the maturities of the Company's operating leases at April 24, 2020:

(in millions) Fiscal Year						Operating Leases
2021						$	218
2022						175
2023						144
2024						118
2025						102
Thereafter						277
Total expected lease payments						1,034
Less: Imputed interest						(89)
Total lease liability						$	945

The Company makes certain products available to customers under lease arrangements, including arrangements whereby equipment is placed with customers who then purchase consumable products to accompany the use of the equipment. Income arising from arrangements where the Company is the lessor is recognized within net sales in the consolidated statements of income and the Company's net investments in sales-type leases are included in other current assets and other assets in the consolidated balance sheets. Lessor income and the related assets and lease maturities were not material to the consolidated financial statements at April 24, 2020 or for fiscal year 2020.

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended April 26, 2019, minimum payments under non-cancelable operating leases at April 26, 2019 were:

(in millions) Fiscal Year									Operating Leases
2020									$	216
2021									157
2022									103
2023									61
2024									34
Thereafter									81
Total minimum lease payments									$	652

Rent expense for all operating leases was $305 million, and $319 million in fiscal years 2019, and 2018, respectively.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

18. Accumulated Other Comprehensive Loss

The following table provides changes in AOCI, net of tax and by component:

(in millions)			Unrealized (Loss) Gain on Investment Securities						Cumulative Translation Adjustments						Net Investment Hedges						Net Change in Retirement Obligations						Unrealized Gain (Loss) on Cash Flow Hedges						Total Accumulated Other Comprehensive (Loss) Income
April 28, 2017			$	(69)					$	(1,195)					$	(257)					$	(1,129)					$	37					$	(2,613)
Other comprehensive (loss) income before reclassifications			(95)						1,218						—						100						(272)						951
Reclassifications			(8)						(34)						—						67						54						79
Other comprehensive (loss) income			(103)						1,184						—						167						(218)						1,030
Cumulative effect of change in accounting principle(1)			(22)						—						—						(155)						(26)						(203)
April 27, 2018			(194)						(11)						(257)						(1,117)						(207)						(1,786)
Other comprehensive income (loss) before reclassifications			67						(1,372)						88						(266)						457						(1,026)
Reclassifications			35						—						—						75						(56)						54
Other comprehensive income (loss)			102						(1,372)						88						(191)						401						(972)
Cumulative effect of change in accounting principle(2)			47						—						—						—						—						47
April 26, 2019			(45)						(1,383)						(169)						(1,308)						194						(2,711)
Other comprehensive income (loss) before reclassifications			43						(827)						405						(596)						309						(666)
Reclassifications			2						—						—						52						(237)						(183)
Other comprehensive income (loss)			45						(827)						405						(544)						72						(849)
April 24, 2020			$	—					$	(2,210)					$	236					$	(1,852)					$	266					$	(3,560)

(1) The cumulative effect of change in accounting principle in fiscal year 2018 related to the Company's adoption of accounting guidance which permitted reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act.

(2) The cumulative effect of change in accounting principle in fiscal year 2019 resulted from the adoption of accounting guidance that requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.

The income tax on gains and losses on investment securities in other comprehensive income before reclassifications during fiscal years 2020, 2019, and 2018 was a benefit of $13 million, a benefit of $5 million, and an expense of $26 million, respectively. During fiscal years 2020, 2019, and 2018, realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $3 million, $3 million, and $4 million, respectively. When realized, gains and losses on investment securities reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 6 for additional information.

During fiscal years 2020 and 2019, there was a $9 million and $7 million income tax benefit on cumulative translation adjustments. During 2018, taxes were not provided on cumulative translation adjustments as substantially all translation adjustments related to earnings that were intended to be indefinitely reinvested outside of the U.S.

During fiscal years 2020, 2019, and 2018, there were no tax impacts on net investment hedges. Refer to Note 8 for additional information.

The net change in retirement obligations in other comprehensive income includes amortization of net actuarial losses included in net periodic benefit cost. The income tax on the net change in retirement obligations in other comprehensive income before reclassifications during fiscal years 2020, 2019, and 2018 was a benefit of $159 million, a benefit of $63 million, and an expense of $14 million, respectively. During fiscal years 2020, 2019, and 2018, the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $12 million, $19 million, and $27 million, respectively. When realized, net gains and losses on defined benefit and pension items reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 16 for additional information.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The income tax on unrealized gains and losses on cash flow hedges in other comprehensive income before reclassifications during fiscal years 2020, 2019, and 2018 was an expense of $88 million, an expense of $158 million, and a benefit of $132 million, respectively. During fiscal years 2020, 2019, and 2018, gains and losses on cash flow hedges reclassified from AOCI were reduced by income taxes of $80 million, $24 million, and $22 million, respectively. When realized, gains and losses on currency exchange rate contracts reclassified from AOCI are recognized within other operating expense, net and gains and losses on forward starting interest rate derivatives reclassified from AOCI are recognized within interest expense. Refer to Note 8 for additional information.

19. Commitments and Contingencies

Legal Matters

The Company and its affiliates are involved in a number of legal actions involving product liability, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, tax disputes, and governmental proceedings and investigations, including those described below. With respect to governmental proceedings and investigations, like other companies in our industry, the Company is subject to extensive regulation by national, state and local governmental agencies in the United States and in other jurisdictions in which the Company and its affiliates operate. As a result, interaction with governmental agencies is ongoing. The Company’s standard practice is to cooperate with regulators and investigators in responding to inquiries. The outcomes of legal actions are not within the Company’s complete control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies (including injunctions barring the sale of products that are the subject of the proceeding), that could require significant expenditures, result in lost revenues, or limit the Company's ability to conduct business in the applicable jurisdictions.

The Company records a liability in the consolidated financial statements on an undiscounted basis for loss contingencies related to legal actions when a loss is known or considered probable and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. When determining the estimated loss or range of loss, significant judgment is required. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages with incomplete scientific facts or legal discovery, involve unsubstantiated or indeterminate claims for damages, potentially involve penalties, fines or punitive damages, or could result in a change in business practice. The Company classifies litigation charges and gains related to significant legal matters as certain litigation charges. During fiscal years 2020, 2019, and 2018, the Company recognized $313 million, $166 million, and $61 million, respectively, of certain litigation charges. At both April 24, 2020 and April 26, 2019, accrued litigation was approximately $0.5 billion. The ultimate cost to the Company with respect to accrued litigation could be materially different than the amount of the current estimates and accruals and could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows. The Company includes accrued litigation in other accrued expenses and other liabilities on the consolidated balance sheets. While it is not possible to predict the outcome for most of the legal matters discussed below, the Company believes it is possible that the costs associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.

Product Liability Matters

Pelvic Mesh Litigation

The Company is currently involved in litigation in various state and federal courts against manufacturers of pelvic mesh products alleging personal injuries resulting from the implantation of those products. Two subsidiaries of Covidien supplied pelvic mesh products to one of the manufacturers, C.R. Bard (Bard), named in the litigation. The litigation includes a federal multi-district litigation in the U.S. District Court for the Northern District of West Virginia and cases in various state courts and jurisdictions outside the U.S. Generally, complaints allege design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. In fiscal year 2016, Bard paid the Company $121 million towards the settlement of 11,000 of these claims. In May 2017, the agreement with Bard was amended to extend the terms to apply to up to an additional 5,000 claims. That agreement does not resolve the dispute between the Company and Bard with respect to claims that do not settle, if any. As part of the agreement, the Company and Bard agreed to dismiss without prejudice their pending litigation with respect to Bard’s obligation to defend and indemnify the Company. The Company estimates law firms representing approximately 16,200 claimants have asserted or may assert claims involving products manufactured by Covidien’s subsidiaries. As of June 3, 2020, the Company had reached agreements to settle

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

approximately 15,900 of these claims. The Company's accrued expenses for this matter are included within accrued litigation as discussed above.

Hernia Mesh Litigation

During fiscal year 2020, plaintiffs filed lawsuits against certain subsidiaries of the Company in U.S. state and federal courts alleging personal injury from hernia mesh products sold by those subsidiaries. The majority of the pending cases are in Massachusetts state court, and a motion for consolidation of those cases was filed during the fourth quarter of fiscal year 2020. Certain plaintiffs law firms have advised the Company that they may file additional cases in the future. The pending lawsuits relate to hernia mesh products that have not been subject to recalls, withdrawals or other adverse regulatory action. The Company has not recorded an expense related to damages in connection with these matters because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from these matters.

Patent Litigation

Ethicon

On December 14, 2011, Ethicon filed an action against Covidien in the U.S. District Court for the Southern District of Ohio, alleging patent infringement and seeking monetary damages and injunctive relief. On January 22, 2014, the district court entered summary judgment in Covidien's favor, and the majority of this ruling was affirmed by the Federal Circuit on August 7, 2015. Following appeal, the case was remanded back to the District Court with respect to one patent. On January 21, 2016, Covidien filed a second action in the U.S. District Court for the Southern District of Ohio, seeking a declaration of non-infringement with respect to a second set of patents held by Ethicon. The court consolidated this second action with the remaining patent issues from the first action. Following consolidation of the cases, Ethicon dismissed six of the asserted patents, leaving a single asserted patent. In addition to claims of non-infringement, the Company asserts an affirmative defense of invalidity. The Company has not recognized an expense related to damages in connection with this matter, because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from this matter.

Sasso

The Company is involved in litigation in Indiana relating to certain patent and royalty disputes with Dr. Sasso under agreements originally entered into in 1999 and 2001. On November 28, 2018, a jury in Indiana state court returned a verdict against the Company for approximately $112 million. The Company has strong arguments to appeal the verdict and has filed post-trial motions and appeals with the appropriate appellate courts. The Company's accrued expenses for this matter are included within accrued litigation as discussed above.

Shareholder Related Matters

Covidien Acquisition

On July 2, 2014, Lewis Merenstein filed a putative shareholder class action in Hennepin County, Minnesota, District Court seeking to enjoin the then-potential acquisition of Covidien. The lawsuit named Medtronic, Inc., Covidien, and each member of the Medtronic, Inc. Board of Directors at the time as defendants, and alleged that the directors breached their fiduciary duties to shareholders with regard to the then-potential acquisition. On August 21, 2014, Kenneth Steiner filed a putative shareholder class action in Hennepin County, Minnesota, District Court, also seeking an injunction to prevent the potential Covidien acquisition. In September 2014, the Merenstein and Steiner matters were consolidated and in December 2014, the plaintiffs filed a preliminary injunction motion seeking to enjoin the Covidien transaction. On March 20, 2015, the District Court issued an order and opinion granting Medtronic’s motion to dismiss the case. In May of 2015, the plaintiffs filed an appeal, and, in January of 2016, the Minnesota State Court of Appeals affirmed in part, and reversed in part. On April 19, 2016, the Minnesota Supreme Court granted the Company’s petition to review the issue of whether most of the original claims are properly characterized as direct or derivative under Minnesota law. In August of 2017, the Minnesota Supreme Court affirmed the decision of the Minnesota State Court of Appeals, sending the matter back to the trial court for further proceedings, which are ongoing. In April of 2020, the District Court issued an order and opinion denying the plaintiffs' motion for class certification. The Company has not recognized an expense related to damages in connection with this matter, because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from these matters.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Environmental Proceedings

The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. These projects relate to a variety of activities, including removal of solvents, metals and other hazardous substances from soil and groundwater. The ultimate cost of site cleanup and timing of future cash flows is difficult to predict given uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods.

The Company is a successor to a company which owned and operated a chemical manufacturing facility in Orrington, Maine from 1967 until 1982, and is responsible for the costs of completing an environmental site investigation as required by the Maine Department of Environmental Protection (MDEP). MDEP served a compliance order on Mallinckrodt LLC and U.S. Surgical Corporation, subsidiaries of Covidien, in December 2008, which included a directive to remove a significant volume of soils at the site. After a hearing on the compliance order before the Maine Board of Environmental Protection (Maine Board) to challenge the terms of the compliance order, the Maine Board modified the MDEP order and issued a final order requiring removal of two landfills, capping of the remaining three landfills, installation of a groundwater extraction system and long-term monitoring of the site and the three remaining landfills.

The Company has proceeded with implementation of the investigation and remediation at the site in accordance with the MDEP order as modified by the Maine Board order.

Since the early 2000s, the Company or its predecessors have also been involved in a lawsuit filed in the U.S. District Court for the District of Maine by the Natural Resources Defense Council and the Maine People’s Alliance. Plaintiffs sought an injunction requiring the Company's predecessor to conduct extensive studies of mercury contamination of the Penobscot River and Bay and options for remediating such contamination, and to perform appropriate remedial activities, if necessary.

Following a trial in March 2002, the Court held that conditions in the Penobscot River and Bay may pose an imminent and substantial endangerment and that the Company’s predecessor was liable for the cost of performing a study of the River and Bay. Following a second trial in June 2014, the Court ordered that further engineering study and engineering design work was needed to determine the nature and extent of remediation in the Penobscot River and Bay. The Court also appointed an engineering firm to conduct such studies and issue a report on potential remediation alternatives. In connection with these proceedings, reports have been produced including a variety of cost estimates for a variety of potential remedial options. A third trial to determine the course of remediation to be pursued is scheduled to occur in fiscal year 2021.

The Company's accrued expenses for environmental proceedings are included within accrued litigation as discussed above.

Government Matters

Since 2017, the Company has been responding to requests from the Department of Justice and U.S. Department of Health and Human Services for information about business practices relating to a neurovascular product developed and first marketed by ev3 and Covidien. The Company has provided information in response to these requests and is cooperating with the inquiry. The Company has not recognized an expense in connection with any ongoing investigation, because any such potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from the ongoing information requests.

Income Taxes

In March 2009, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2005 and 2006. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2005 and 2006 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of the Company's key manufacturing sites. The U.S. Tax Court reviewed this dispute, and on June 9, 2016, issued its opinion with respect to the allocation of income between the parties for fiscal years 2005 and 2006. The U.S. Tax Court generally rejected the IRS’s position, but also made certain modifications to the Medtronic, Inc. tax returns as filed. On April 21, 2017, the IRS filed their Notice of Appeal to the U.S. Court of Appeals for the 8th Circuit regarding the Tax Court Opinion. Oral argument for the Appeal occurred on March 14, 2018. The 8th Circuit Court of Appeals issued their opinion on August 16, 2018, and remanded the case back to the U.S. Tax Court for additional factual findings. The U.S. Tax Court scheduled for April of 2020 was postponed due to the challenges of COVID-19. The new trial date has not been re-scheduled.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

In October 2011, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2007 and 2008. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2007 and 2008 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006.

In April 2014, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2009, 2010, and 2011. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2009, 2010, and 2011 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006.

In May 2017, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2012, 2013, and 2014. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The significant issues that remain unresolved relate to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, and proposed adjustments associated with the utilization of certain net operating losses. The Company disagrees with the IRS and will attempt to resolve these matters at the IRS Appellate level.

Medtronic, Inc.’s fiscal years 2015 and 2016 U.S. federal income tax returns are currently being audited by the IRS.

Covidien and the IRS have concluded and reached agreement on its audit of Covidien’s U.S. federal income tax returns for all tax years through 2012. The statute of limitations for Covidien’s 2013 and 2014 U.S. federal income tax returns lapsed during the first quarter of fiscal years 2018 and 2019, respectively. Covidien's fiscal year 2015 U.S. federal income tax returns are currently being audited by the IRS. The statute of limitations for Covidien's 2016 U.S. federal income tax return lapsed during the third quarter of fiscal year 2020.

While it is not possible to predict the outcome for most of the income tax matters discussed above, the Company believes it is possible that charges associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.

See Note 14 for additional discussion of income taxes.

Guarantees

As a result of the acquisition of Covidien, the Company had a guarantee commitment related to certain contingent tax liabilities as a party to the Tax Sharing Agreement that was entered into on June 29, 2007, between Covidien, Tyco International (now Johnson Controls), and Tyco Electronics (now TE Connectivity), associated with the spin-off from Tyco. The Tax Sharing Agreement covered certain income tax liabilities for periods prior to and including the spin-off. Medtronic’s share of the income tax liabilities for these periods was 42 percent, with Johnson Controls and TE Connectivity share being 27 percent, and 31 percent, respectively. If Johnson Controls and TE Connectivity default on their obligations to the Company under the Tax Sharing Agreement, the Company would be liable for the entire amount of these liabilities. All costs and expenses associated with the management of these tax liabilities were being shared equally among the parties. The most significant amounts at risk under this Tax Sharing Agreement were resolved with the U.S. Tax Court and IRS Appeals resolutions reached in May 2016. The parties terminated the Tax Sharing Agreement during the fourth quarter of fiscal year 2020.

As part of the Company’s sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses to Cardinal on July 29, 2017, the Company has indemnified Cardinal for certain contingent tax liabilities related to the divested businesses that existed prior to the date of divestiture. The actual amounts that the Company may be required to ultimately accrue or pay could vary depending upon the outcome of the unresolved tax matters.

In the normal course of business, the Company and/or its affiliates periodically enter into agreements that require one or more of the Company and/or its affiliates to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising as a result of the Company or its affiliates’ products, the negligence of the Company's personnel, or claims alleging that the Company's products infringe on third-party patents or other intellectual property. The Company also offers warranties on various products. The Company’s maximum exposure under these guarantees is unable to be estimated. Historically, the Company has not experienced significant losses on these types of guarantees.

The Company believes the ultimate resolution of the above guarantees is not expected to have a material effect on the Company’s consolidated earnings, financial position, or cash flows.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

20. Quarterly Financial Data (unaudited)

The table below summarizes select unaudited quarterly financial data for fiscal years 2020 and 2019:

						Fiscal Year 2020																																										Fiscal Year 2019
(in millions, except per share data)						First Quarter						Second Quarter						Third Quarter						Fourth Quarter						First Quarter						Second Quarter						Third Quarter						Fourth Quarter
Net sales						$	7,493					$	7,706					$	7,717					$	5,998					$	7,384					$	7,481					$	7,546					$	8,146
Gross profit						5,127						5,312						5,317						3,734						5,180						5,278						5,281						5,663
Net income						877						1,371						1,919						640						1,077						1,120						1,271						1,182
Net income attributable to Medtronic						864						1,364						1,915						646						1,075						1,115						1,269						1,172
Basic earnings per share						0.64						1.02						1.43						0.48						0.79						0.83						0.95						0.87
Diluted earnings per share						0.64						1.01						1.42						0.48						0.79						0.82						0.94						0.87

The data in the schedule above has been intentionally rounded to the nearest million, and therefore, the quarterly amounts may not sum to the fiscal year-to-date amounts.

21. Segment and Geographic Information

The Company’s organizational structure is based upon four principal operating and reportable segments: the Cardiac and Vascular Group, the Minimally Invasive Therapies Group, the Restorative Therapies Group, and the Diabetes Group. The Company's management has chosen to organize the entity based upon therapy solutions provided by each segment. The four principal segments are strategic businesses that are managed separately, as each one develops and manufactures products and provides services oriented toward targeted therapy solutions.

The primary products and services from which the Cardiac and Vascular Group segment derives its revenues include products for the diagnosis, treatment, and management of cardiac rhythm disorders and cardiovascular disease, as well as services to diagnose, treat, and manage heart- and vascular-related disorders and diseases.

The primary products and services from which the Minimally Invasive Therapies Group segment derives its revenues include those focused on diseases of the respiratory system, gastrointestinal tract, renal system, lungs, pelvic region, kidneys, obesity, and other preventable complications.

The primary products and services from which the Restorative Therapies Group segment derives its revenues include those focused on neurostimulation therapies and drug delivery systems for the treatment of chronic pain, as well as various areas of the spine and brain, along with pelvic health and conditions of the ear, nose, and throat.

The primary products from which the Diabetes Group segment derives its revenues include those focused on diabetes management, including insulin pumps, continuous glucose monitoring systems, and insulin pump consumables.

Segment disclosures are on a performance basis, consistent with internal management reporting. Net sales of the Company's segments include end-customer revenues from the sale of products the segment develops, manufactures, and distributes. There are certain corporate and centralized expenses that are not allocated to the segments. The Company's management evaluates the performance of the segments and allocates resources based on net sales and segment operating profit. Segment operating profit represents income before income taxes, excluding interest expense, amortization of intangible assets, centralized distribution costs, non-operating income or expense items, certain corporate charges, and other items not allocated to the segments. The financial information that is regularly reviewed by the Company's chief operating decision maker to assess performance and allocate resources changed during the first quarter of fiscal year 2020 to remove the impact of non-service pension and post-retirement benefit costs from segment results. This change did not have a material impact on the segment results reviewed. As a result of the change, the Company has revised the disclosures for the prior periods to align with the current presentation.

The accounting policies of the segments are the same as those described in Note 1. Certain depreciable assets may be recorded by one segment, while the depreciation expense is allocated to another segment. The allocation of depreciation expense is based on the proportion of the assets used by each segment.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Segment Operating Profit

			Fiscal Year
(in millions)			2020						2019						2018
Cardiac and Vascular Group			$	3,719					$	4,532					$	4,461
Minimally Invasive Therapies Group			3,044						3,262						3,346
Restorative Therapies Group			2,915						3,319						3,058
Diabetes Group			546						739						634
Segment operating profit			10,224						11,852						11,499
Interest expense			(1,092)						(1,444)						(1,146)
Other non-operating income, net			356						373						170
Amortization of intangible assets			(1,756)						(1,764)						(1,823)
Corporate			(1,239)						(1,291)						(1,211)
Centralized distribution costs			(1,420)						(1,689)						(1,936)
Restructuring and associated costs			(441)						(407)						(107)
Acquisition-related items			(66)						(88)						(132)
Certain litigation charges			(313)						(166)						(61)
IPR&D charges			(25)						(58)						(46)
Exit of businesses			(52)						(149)						—
Debt tender premium and other charges			7						28						—
Divestiture-related items			—						—						(115)
Medical device regulations			(48)						—						—
Contribution to Medtronic Foundation			(80)						—						(80)
Gain on sale of businesses			—						—						697
Hurricane Maria			—						—						(34)
Income before income taxes			$	4,055					$	5,197					$	5,675

Total Assets and Depreciation Expense

			Total Assets																		Depreciation Expense
(in millions)			April 24, 2020						April 26, 2019						2020						2019						2018
Cardiac and Vascular Group			$	14,844					$	15,453					$	210					$	194					$	183
Minimally Invasive Therapies Group			39,666						41,186						194						206						217
Restorative Therapies Group			16,850						16,825						233						217						146
Diabetes Group			3,165						3,095						38						34						29
Segments			74,525						76,559						675						651						575
Corporate			16,164						13,135						232						244						246
Total			$	90,689					$	89,694					$	907					$	895					$	821

Geographic Information

Net sales are attributed to the country based on the location of the customer taking possession of the products or in which the services are rendered. Geographic property, plant, and equipment are attributed to the country based on the physical location of the assets.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following table presents net sales for fiscal years 2020, 2019, and 2018, and property, plant, and equipment, net at April 24, 2020 and April 26, 2019 for the Company's country of domicile, countries with significant concentrations, and all other countries:

			Net sales																														Property, plant, and equipment, net
(in millions)			2020						2019						2018						April 24, 2020						April 26, 2019
Ireland			$	85					$	91					$	85					$	164					$	156
United States			14,919						16,194						15,875						3,459						3,122
Rest of world			13,909						14,272						13,993						1,205						1,397
Total other countries, excluding Ireland			28,828						30,466						29,868						4,664						4,519
Total			$	28,913					$	30,557					$	29,953					$	4,828					$	4,675

No single customer represented over 10 percent of the Company’s consolidated net sales in fiscal years 2020, 2019, or 2018.