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 30, 2021 and April 24, 2020, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended April 30, 2021, including the related notes and financial statement schedule listed in the index 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 30, 2021, 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 30, 2021 and April 24, 2020, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2021 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 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 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

Table of Contents

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 matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Tax Reserve for the Uncertain Tax Position Related to Puerto Rico Manufacturing

As described in Notes 13 and 18 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 remaining unresolved issue with the IRS, 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 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 30, 2021 were $1.668 billion, of which the Puerto Rico manufacturing reserve makes up a significant portion.

The principal considerations for our determination that performing procedures relating to the income tax reserve for the uncertain tax position related to Puerto Rico manufacturing is a critical audit matter are the significant judgment by management when determining the reserves, including a high degree of estimation uncertainty relative to the unresolved issue with the IRS involving one of the Company’s manufacturing sites. This in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures and evaluating audit evidence to support management’s accurate measurement of the income tax reserve for the uncertain tax position related to Puerto Rico manufacturing, as the nature of the evidence is often highly subjective.

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 recognition of the income tax reserves for uncertain tax positions, as well as controls over measurement of the reserves. These procedures also included, among others, (i) testing management’s process for determining the reserve for the uncertain tax position, (ii) evaluating the status and results of the U. S. Tax Court case, and (iii) evaluating the consistency of the reserve calculation with the relevant documents related to the tax court case.

/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 25, 2021

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

Table of Contents

Medtronic plc

Consolidated Statements of Income

			Fiscal Year
(in millions, except per share data)			2021						2020						2019
Net sales			$	30,117					$	28,913					$	30,557
Costs and expenses:
Cost of products sold			10,483						9,424						9,155
Research and development expense			2,493						2,331						2,330
Selling, general, and administrative expense			10,148						10,109						10,418
Amortization of intangible assets			1,783						1,756						1,764
Restructuring charges, net			293						118						198
Certain litigation charges			118						313						166
Other operating expense, net			315						71						258
Operating profit			4,484						4,791						6,268
Other non-operating income, net			(336)						(356)						(373)
Interest expense			925						1,092						1,444
Income before income taxes			3,895						4,055						5,197
Income tax provision (benefit)			265						(751)						547
Net income			3,630						4,806						4,650
Net income attributable to noncontrolling interests			(24)						(17)						(19)
Net income attributable to Medtronic			$	3,606					$	4,789					$	4,631
Basic earnings per share			$	2.68					$	3.57					$	3.44
Diluted earnings per share			$	2.66					$	3.54					$	3.41
Basic weighted average shares outstanding			1,344.9						1,340.7						1,346.4
Diluted weighted average shares outstanding			1,354.0						1,351.1						1,357.5

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

Table of Contents

Medtronic plc

Consolidated Statements of Comprehensive Income

			Fiscal Year
(in millions)			2021						2020						2019
Net income			$	3,630					$	4,806					$	4,650
Other comprehensive income (loss), net of tax:
Unrealized gain on investment securities			92						45						102
Translation adjustment			1,699						(829)						(1,375)
Net investment hedge			(1,694)						405						88
Net change in retirement obligations			505						(544)						(191)
Unrealized (loss) gain on cash flow hedges			(519)						72						401
Other comprehensive income (loss)			83						(851)						(975)
Comprehensive income including noncontrolling interests			3,713						3,955						3,675
Comprehensive income attributable to noncontrolling interests			(32)						(15)						(16)
Comprehensive income attributable to Medtronic			$	3,681					$	3,940					$	3,659

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

Table of Contents

Medtronic plc

Consolidated Balance Sheets

(in millions)						April 30, 2021						April 24, 2020
ASSETS
Current assets:
Cash and cash equivalents						$	3,593					$	4,140
Investments						7,224						6,808
Accounts receivable, less allowances and credit losses of $241 and $208, respectively						5,462						4,645
Inventories, net						4,313						4,229
Other current assets						1,955						2,209
Total current assets						22,548						22,031
Property, plant, and equipment, net						5,221						4,828
Goodwill						41,961						39,841
Other intangible assets, net						17,740						19,063
Tax assets						3,169						2,832
Other assets						2,443						2,094
Total assets						$	93,083					$	90,689
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations						$	11					$	2,776
Accounts payable						2,106						1,996
Accrued compensation						2,482						2,099
Accrued income taxes						435						502
Other accrued expenses						3,475						2,993
Total current liabilities						8,509						10,366
Long-term debt						26,378						22,021
Accrued compensation and retirement benefits						1,557						1,910
Accrued income taxes						2,251						2,682
Deferred tax liabilities						1,028						1,174
Other liabilities						1,756						1,664
Total liabilities						41,481						39,817
Commitments and contingencies (Notes 3, 16, and 18)
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,345,400,671 and 1,341,074,724 shares issued and outstanding, respectively						—						—
Additional paid-in capital						26,319						26,165
Retained earnings						28,594						28,132
Accumulated other comprehensive loss						(3,485)						(3,560)
Total shareholders’ equity						51,428						50,737
Noncontrolling interests						174						135
Total equity						51,602						50,872
Total liabilities and equity						$	93,083					$	90,689

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

Table of Contents

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 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(1)						—						—												(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(2)						—						—						—						(33)						—						(33)						—						(33)
April 24, 2020						1,341						$	—					$	26,165					$	28,132					$	(3,560)					$	50,737					$	135					$	50,872
Net income						—						—						—						3,606						—						3,606						24						3,630
Other comprehensive income						—						—						—						—						75						75						8						83
Dividends to shareholders ($2.32 per ordinary share)						—						—						—						(3,120)						—						(3,120)						—						(3,120)
Issuance of shares under stock purchase and award plans						8						—						382						—						—						382						—						382
Repurchase of ordinary shares						(4)						—						(559)						—						—						(559)						—						(559)
Stock-based compensation						—						—						344						—						—						344						—						344
Changes to noncontrolling ownership interests						—						—						(13)						—						—						(13)						7						(6)
Cumulative effect of change in accounting principle(3)						—						—						—						(24)						—						(24)						—						(24)
April 30, 2021						1,345						$	—					$	26,319					$	28,594					$	(3,485)					$	51,428					$	174					$	51,602

(1) 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.

(2) The cumulative effect of change in accounting principle in fiscal year 2020 resulted from the adoption of accounting guidance that requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet. As a result of the adoption, the Company adjusted the opening balance of retained earnings for $33 million as of April 27, 2019.

(3) See Note 1 to the consolidated financial statements for discussion regarding the adoption of accounting standards during fiscal year 2021.

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

Table of Contents

Medtronic plc

Consolidated Statements of Cash Flows

			Fiscal Year
(in millions)			2021						2020						2019
Operating Activities:
Net income			$	3,630					$	4,806					$	4,650
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,702						2,663						2,659
Provision for doubtful accounts			128						99						78
Deferred income taxes			(422)						(1,315)						(304)
Stock-based compensation			344						297						290
Loss on debt extinguishment			308						406						457
Other, net			251						217						257
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net			(761)						1,291						(581)
Inventories, net			78						(577)						(274)
Accounts payable and accrued liabilities			531						(44)						399
Other operating assets and liabilities			(549)						(609)						(624)
Net cash provided by operating activities			6,240						7,234						7,007
Investing Activities:
Acquisitions, net of cash acquired			(994)						(488)						(1,827)
Additions to property, plant, and equipment			(1,355)						(1,213)						(1,134)
Purchases of investments			(11,808)						(11,039)						(2,532)
Sales and maturities of investments			11,345						9,574						4,683
Other investing activities, net			(54)						(37)						36
Net cash used in investing activities			(2,866)						(3,203)						(774)
Financing Activities:
Change in current debt obligations, net			(311)						(17)						(713)
Proceeds from short-term borrowings (maturities greater than 90 days)			2,789						—						—
Repayments from short-term borrowings (maturities greater than 90 days)			(2,853)						—						—
Issuance of long-term debt			7,172						5,568						7,794
Payments on long-term debt			(7,367)						(6,110)						(7,948)
Dividends to shareholders			(3,120)						(2,894)						(2,693)
Issuance of ordinary shares			474						662						992
Repurchase of ordinary shares			(652)						(1,326)						(2,877)
Other financing activities			(268)						(81)						14
Net cash used in financing activities			(4,136)						(4,198)						(5,431)
Effect of exchange rate changes on cash and cash equivalents			215						(86)						(78)
Net change in cash and cash equivalents			(547)						(253)						724
Cash and cash equivalents at beginning of period			4,140						4,393						3,669
Cash and cash equivalents at end of period			$	3,593					$	4,140					$	4,393
Supplemental Cash Flow Information
Cash paid for:
Income taxes			$	1,250					$	878					$	1,558
Interest			582						643						973

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 healthcare systems, 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. Amounts reported in millions within this annual report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in millions due to rounding. Additionally, certain columns and rows within tables may not sum due to rounding.

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 has had, and may 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 sales and customer demand than the prior year in many businesses as well as macroeconomic factors. As a result, the Company has also assessed the potential impact on certain accounting estimates 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 30, 2021 and through the date of this report. There was not a material impact to accounting estimates associated with the Company’s consolidated financial statements as of and for the fiscal years ended April 30, 2021 and April 24, 2020.

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 30, 2021 and April 24, 2020 and for each of the three fiscal years ended April 30, 2021 (fiscal year 2021), April 24, 2020 (fiscal year 2020), and April 26, 2019 (fiscal year 2019). Fiscal year 2021 was a 53-week year, with the extra week having occurred in the first fiscal month of the first quarter. Fiscal years 2020 and 2019 were 52-week years.

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. 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 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.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Accounts Receivable and Allowance for Doubtful Accounts and Credit Losses 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 significant 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. Internal operational budgets and long-range strategic plans are used as a basis for the cash flow analysis. The Company also utilizes assumptions for working capital, capital expenditures, and terminal growth rates. The discount rate applied to the cash flow analysis is based on the weighted average cost of capital (“WACC”) for each reporting unit. 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.

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 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,

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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 15 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 as a fair value hedge or a cash flow hedge, based upon the exposure being hedged. See Note 7 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 with yield curves, and benchmark securities. In addition, interest rate swaps and total return swaps are included in Level 2 as

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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. For goodwill, other intangible assets, and IPR&D, 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.

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 $308 million, $347 million, and $350 million in fiscal years 2021, 2020, and 2019, 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, currency remeasurement and derivative gains and losses, Puerto Rico excise taxes, changes in fair value of contingent consideration, changes in amounts accrued for certain contingent liabilities for a recent acquisition, a commitment to the Medtronic Foundation, charges associated with business exits, impairment charges, IPR&D charges, and income from funded research and development arrangements.

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.

Recently Adopted Accounting Standards

Current Expected Credit Losses

In June 2016, the Financial Accounting Standards Board (FASB) issued guidance changing 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 Company adopted this guidance using the modified retrospective method in the first quarter of fiscal year 2021. The adoption of this guidance did not have a material impact to the Company’s consolidated financial statements.

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.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

During the implementation, 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.

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.

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 healthcare systems, clinics, third-party healthcare providers, distributors, and other institutions, including governmental healthcare programs and group purchasing organizations.

During the first and fourth quarters of fiscal year 2021, the Company realigned its divisions within Neuroscience and Cardiovascular, respectively. As a result, fiscal year 2020 and 2019 revenue has been recast to adjust for these realignments Additionally, the Company implemented a new operating model in fiscal year 2021, which was fully operational beginning in the fourth quarter.

The table below illustrates net sales by segment and division for fiscal years 2021, 2020, and 2019:

			Net Sales by Fiscal Year
(in millions)			2021						2020						2019
Cardiac Rhythm & Heart Failure			$	5,584					$	5,141					$	5,849
Structural Heart & Aortic			2,834						2,842						2,882
Coronary & Peripheral Vascular			2,354						2,486						2,774
Cardiovascular			10,772						10,468						11,505
Surgical Innovations			5,438						5,513						5,753
Respiratory, Gastrointestinal, & Renal			3,298						2,839						2,725
Medical Surgical			8,737						8,352						8,478
Cranial & Spinal Technologies			4,288						4,082						4,252
Specialty Therapies			2,307						2,147						2,195
Neuromodulation			1,601						1,497						1,736
Neuroscience			8,195						7,725						8,183
Diabetes			2,413						2,368						2,391
Total			$	30,117					$	28,913					$	30,557

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The table below includes net sales by market geography and segment for fiscal years 2021, 2020, and 2019:

			U.S.****(1)																		Non-U.S. Developed Markets**(2)**																		Emerging Markets**(3)**
(in millions)			Fiscal Year 2021						Fiscal Year 2020						Fiscal Year 2019						Fiscal Year 2021						Fiscal Year 2020						Fiscal Year 2019						Fiscal Year 2021						Fiscal Year 2020						Fiscal Year 2019
Cardiovascular			$	5,248					$	5,062					$	5,750					$	3,752					$	3,519					$	3,767					$	1,773					$	1,887					$	1,988
Medical Surgical			3,650						3,532						3,630						3,320						3,169						3,250						1,766						1,651						1,598
Neuroscience			5,456						5,122						5,478						1,724						1,659						1,759						1,015						945						946
Diabetes			1,171						1,204						1,336						1,019						940						855						222						224						200
Total			$	15,526					$	14,919					$	16,194					$	9,815					$	9,287					$	9,631					$	4,777					$	4,707					$	4,732

(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.

At April 30, 2021, $906 million of rebates were classified as other accrued expenses, and $485 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. 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. During fiscal year 2021, 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 30, 2021 and April 24, 2020 was $368 million and $303 million, respectively. At April 30, 2021 and April 24, 2020, $276 million and $213 million was included in other accrued expenses, respectively, and $93 million and $90 million was included in other liabilities, respectively. During the fiscal year ended April 30, 2021, the Company recognized $236 million of revenue that was included in deferred revenue as of April 24, 2020.

At April 30, 2021, 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 $1.3 billion. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next four years.

3. Acquisitions

The Company had acquisitions during fiscal years 2021 and 2020 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 2021 and 2020 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 2021

The acquisition date fair value of net assets acquired during fiscal year 2021 was $1.2 billion, consisting of $1.4 billion of assets acquired and $161 million of liabilities assumed. Based upon preliminary valuations, assets acquired were primarily comprised of $417 million of technology-based intangible assets and $13 million of customer-related intangible assets with estimated useful lives ranging from 8 to 15 years, and $816 million of goodwill. The goodwill is not deductible for tax purposes. The Company recognized $253 million of contingent consideration liabilities in connection with business combinations during fiscal year 2021, which are comprised of revenue and regulatory milestone-based payments. Additionally, the Company recognized a gain of $132 million related to a change in amounts accrued for certain contingent liabilities from a recent acquisition. The benefit was recognized in other operating expense, net in the consolidated statements of income as the purchase accounting was finalized in fiscal year 2020. Purchase price allocation adjustments for fiscal year 2021 business combinations were not significant.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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. 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.

Contingent Consideration

The fair value of contingent consideration at April 30, 2021 and April 24, 2020 was $270 million and $280 million, respectively. At April 30, 2021, $78 million was recorded in other accrued expenses, and $192 million was recorded in other liabilities on the consolidated balance sheets. At April 24, 2020, $112 million was reflected in other accrued expenses, and $168 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)			2021						2020
Beginning Balance			$	280					$	222
Purchase price contingent consideration			253						125
Payments			(299)						(34)
Change in fair value			36						(33)
Ending Balance			$	270					$	280

The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

(in millions)						Fair Value at April 30, 2021												Unobservable Input						Range						Weighted Average (1)
																		Discount rate						11.2% - 31.6%						17.0%
Revenue and other performance-based payments						$	250											Probability of payment						30% - 100%						99.1%
																		Projected fiscal year of payment						2022 - 2027						2025
																		Discount rate						5.5%						5.5%
Product development and other milestone-based payments						$	20											Probability of payment						100%						100%
																		Projected fiscal year of payment						2022 - 2027						2025

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

4. 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 40 percent of the estimated charges are related to employee termination benefits. The remaining charges are costs associated with the restructuring program, such as salaries and benefits for employees supporting the program, including program management and transition teams, and strategic and operational consulting services related to the three objectives of the program discussed above. These charges are recognized

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

within restructuring charges, net, cost of products sold, and selling, general, and administrative expense in the consolidated statements of income.

For fiscal years 2021, 2020 and 2019, the Company recognized net charges of $349 million, $441 million, and $424 million, respectively. For fiscal years 2021, 2020 and 2019, charges included $128 million, $155 million, and $91 million, respectively, recognized within cost of products sold, and $169 million, $168 million, and $118 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 2021, 2020, and 2019:

(in millions)			Employee Termination Benefits						Associated Costs**(1)**						Asset Write-downs						Other Costs						Total
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(2)			(13)						—						—						(8)						(21)
April 24, 2020			89						19						—						4						112
Charges			66						295						—						4						365
Cash payments			(77)						(296)						—						(5)						(378)
Accrual adjustments(2)			(14)						—						—						(2)						(16)
April 30, 2021			$	64					$	18					$	—					$	1					$	83

(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)Accrual adjustments relate to certain employees identified for termination finding other positions within Medtronic and contract terminations being settled for less than originally estimated.

Simplification

In the first quarter of fiscal year 2021, the Company initiated the Simplification restructuring program, designed to make the Company a more nimble and competitive organization focused on accelerating innovation, enhancing the customer experience, driving revenue growth, and winning market share, while also more efficiently and effectively leveraging the enterprise scale. Under the oversight of the portfolio leaders, this new operating model, which became fully operational the beginning of the fourth quarter of fiscal year 2021, will simplify the Company's organizational structure and accelerate decision-making and execution. Primary activities of the restructuring program will include reorganizing the Company into a portfolio-level structure, including the creation of highly focused, accountable, and empowered Operating Units (OUs), consolidating Operations at the enterprise level, establishing Technology Development Centers in areas where the Company has deep core technology competencies to be leveraged by multiple OUs, and forming dedicated sales organizations that leverage the Company's scale but move with the same agility as smaller, local competitors.

The Company estimates that, in connection with its Simplification restructuring program, it will recognize pre-tax exit and disposal costs and other costs across all segments of approximately $400 million to $450 million, the majority of which are expected to be incurred by the end of fiscal year 2022. Approximately three quarters 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 to execute the reorganization of our business into a portfolio-like structure as discussed above. These charges are recognized within restructuring charges, net and selling, general, and administrative expense in the consolidated statements of income.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

For fiscal year 2021, the Company recognized net charges of $268 million, which included $97 million of incremental defined benefit pension and post-retirement related expenses for employees that accepted voluntary early retirement packages. These costs are not included in the table summarizing restructuring charges below, as they are associated with costs that are accounted for under the pension and post-retirement rules. See Note 15 for further discussion on the incremental defined benefit pension and post-retirement expenses. The charges recognized for fiscal year 2021 included $27 million recognized within selling, general, and administrative expense in the consolidated statements of income.

The following table summarizes the activity related to the Simplification restructuring program for fiscal year 2021:

(in millions)			Employee Termination Benefits						Associated Costs**(1)**																		Total
April 24, 2020			$	—					$	—																	$	—
Charges			147						27																		174
Cash payments			(85)						(23)																		(108)
Accrual adjustments(2)			(3)						—																		(3)
April 30, 2021			$	59					$	4																	$	63

(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) Accrual adjustments relate to certain employees identified for termination finding other positions within the Company.

5. 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. 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 30, 2021 and April 24, 2020:

			April 30, 2021
			Valuation																								Balance Sheet Classification
(in millions)			Cost						Unrealized Gains						Unrealized Losses						Fair Value						Investments						Other Assets
Level 1:
U.S. government and agency securities			$	505					$	26					$	(3)					$	528					$	528					$	—
Level 2:
Corporate debt securities			4,557						103						(13)						4,647						4,647						—
U.S. government and agency securities			810						—						(7)						804						804						—
Mortgage-backed securities			645						21						(16)						650						650						—
Non-U.S. government and agency securities			31						1						—						33						33						—
Certificates of deposit			19						—						—						19						19
Other asset-backed securities			534						4						(1)						537						537						—
Debt funds			7						—						—						7						7						—
Total Level 2			6,603						129						(36)						6,696						6,696						—
Level 3:
Auction rate securities			36						—						(3)						33						—						33
Total available-for-sale debt securities			$	7,144					$	155					$	(42)					$	7,257					$	7,224					$	33

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

			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

The amortized cost of debt securities excludes accrued interest, which is reported in other current assets in the consolidated balance sheets.

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 30, 2021 and April 24, 2020:

			April 30, 2021
			Less than 12 months												More than 12 months
(in millions)			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
U.S. government and agency securities			$	946					$	(10)					$	—					$	—
Corporate debt securities			1,437						—						3,209						(13)
Mortgage-backed securities			1						—						650						(16)
Other asset-backed securities			6						—						531						(1)
Auction rate securities			—						—						33						(3)
Total			$	2,389					$	(10)					$	4,423					$	(32)

			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)

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. There were no transfers into or out of Level 3 during the fiscal years ended April 30, 2021 and April 24, 2020. 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.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Activity related to the Company’s available for sale securities portfolio is as follows:

(in millions)			April 30, 2021						April 24, 2020						April 26, 2019
Proceeds from sales and maturities			$	10,420					$	9,559					$	3,718
Gross realized gains			15						25						18
Gross realized losses			(14)						(22)						(62)

During the fiscal year ended April 30, 2021, the Company had proceeds from maturities of investments classified as held to maturity of $911 million.

The April 30, 2021 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 30, 2021
Due in one year or less			$	1,891
Due after one year through five years			2,862
Due after five years through ten years			1,838
Due after ten years			666
Total debt securities			$	7,257

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 30, 2021 and April 24, 2020, which are classified as other assets in the consolidated balance sheets:

(in millions)						April 30, 2021						April 24, 2020
Investments with readily determinable fair values (marketable equity securities)						$	74					$	18
Investments without readily determinable fair values						537						391
Equity method and other investments						76						71
Total equity and other investments						$	687					$	480

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 30, 2021						April 24, 2020						April 26, 2019
Proceeds from sales						$	13					$	15					$	964
Gross gains						68						17						134
Gross losses						(3)						(30)						(30)
Recognized impairment losses						(4)						(4)						(45)

During the fiscal year ended April 30, 2021, there were $63 million of net unrealized gains on equity securities and other investments still held at April 30, 2021. During the fiscal year ended April 24, 2020, there were $15 million of net unrealized losses on equity securities and other investments still held at April 24, 2020.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

6. Financing Arrangements

Current debt obligations consisted of the following:

(in millions)			April 30, 2021						April 24, 2020
Bank borrowings			$	2					$	325
0.000 percent two-year 2019 senior notes			—						1,631
Floating rate two-year 2019 senior notes			—						815
Finance lease obligations			9						5
Current debt obligations			$	11					$	2,776

Bank Borrowings Outstanding bank borrowings at April 30, 2021 were not significant. Outstanding bank borrowings at April 24, 2020 were short-term advances primarily to non-U.S. subsidiaries under credit agreements with various banks. These bank borrowings consisted primarily of borrowings in Japanese Yen at an interest rate of 0.21%, and were 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 30, 2021 and April 24, 2020 or during fiscal year 2021. During fiscal year 2020, the weighted average original maturity of the commercial paper outstanding was approximately 7 days and the weighted average interest rate was 2.31 percent. 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, 2020, 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 2025.

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 30, 2021 and April 24, 2020, 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 Company is in compliance with all covenants related to the Credit Facility.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Long-term debt consisted of the following:

									April 30, 2021												April 24, 2020
(in millions, except interest rates)			Maturity by Fiscal Year						Amount						Effective Interest Rate						Amount						Effective Interest Rate
3.150 percent seven-year 2015 senior notes			2022						$	—					—		%				$	1,534					3.29		%
3.200 percent ten-year 2012 CIFSA senior notes			2023						—						—						650						2.72
2.750 percent ten-year 2013 senior notes			2023						—						—						530						3.25
0.000 percent three-year 2019 senior notes			2023						907						0.08						815						0.09
0.375 percent four-year 2019 senior notes			2023						1,813						0.55						1,631						0.56
0.000 percent two-year 2020 senior notes			2023						1,511						0.12						—						—
2.950 percent ten-year 2013 CIFSA senior notes			2024						—						—						310						2.71
3.625 percent ten-year 2014 senior notes			2024						—						—						432						3.61
3.500 percent ten-year 2015 senior notes			2025						1,890						3.74						2,700						3.74
0.250 percent six-year 2019 senior notes			2026						1,209						0.43						1,087						0.44
0.000 percent five-year 2020 senior notes			2026						1,209						0.22						—						—
1.125 percent eight-year 2019 senior notes			2027						1,813						1.24						1,631						1.25
3.350 percent ten-year 2017 senior notes			2027						368						3.53						368						3.53
0.375 percent eight-year 2020 senior notes			2029						1,209						0.51						—						—
1.625 percent twelve-year 2019 senior notes			2031						1,209						1.74						1,087						1.75
1.000 percent twelve-year 2019 senior notes			2032						1,209						1.05						1,087						1.06
0.750 percent twelve-year 2020 senior notes			2033						1,209						0.81						—						—
4.375 percent twenty-year 2015 senior notes			2035						1,932						4.47						1,932						4.47
6.550 percent thirty-year 2007 CIFSA senior notes			2038						253						4.67						253						4.68
2.250 percent twenty-year 2019 senior notes			2039						1,209						2.34						1,087						2.34
6.500 percent thirty-year 2009 senior notes			2039						158						6.56						158						6.56
1.500 percent twenty-year 2019 senior notes			2040						1,209						1.58						1,087						1.58
5.550 percent thirty-year 2010 senior notes			2040						224						5.58						224						5.58
1.375 percent twenty-year 2020 senior notes			2041						1,209						1.46						—						—
4.500 percent thirty-year 2012 senior notes			2042						105						4.54						105						4.54
4.000 percent thirty-year 2013 senior notes			2043						305						4.09						305						4.10
4.625 percent thirty-year 2014 senior notes			2044						127						4.67						127						4.67
4.625 percent thirty-year 2015 senior notes			2045						1,813						4.69						1,813						4.67
1.750 percent thirty-year 2019 senior notes			2050						1,209						1.87						1,087						1.87
1.625 percent thirty-year 2020 senior notes			2051						1,209						1.75						—						—
Bank borrowings			N/A						—						—						55						2.11
Finance lease obligations			2022-2059						62						9.29						45						8.93
Debt discount, net			2022-2051						(75)						—						(15)						—
Deferred financing costs			2022-2051						(125)						—						(104)						—
Long-term debt									$	26,378											$	22,021

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 Company is in compliance with all covenants related to the Seniors notes.

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 Company used the net proceeds of the offering to fund the cash tender offer and early redemption of $5.2 billion of Medtronic Inc., CIFSA, and Medtronic Luxco Senior Notes for $5.6 billion of total consideration. The Company recognized a loss on debt extinguishment of $413 million in fiscal year 2020, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss was recognized in interest expense in the consolidated statement of income.

In September 2020, Medtronic Luxco issued an additional six tranches of Euro-denominated Senior Notes with an aggregate principal of €6.3 billion, with maturities ranging from fiscal year 2023 to fiscal year 2051, resulting in cash proceeds of approximately $7.2 billion, net of discounts and issuance costs. The Company used the net proceeds of the offering to fund the early redemption of $4.3 billion of Medtronic Inc. and CIFSA Senior Notes and €1.5 billion of Medtronic Luxco Senior Notes for $6.3 billion of total consideration in October 2020. Additionally, the Company used the proceeds to repay its €750 million floating rate senior notes at maturity in March 2021. The Company recognized a loss on debt extinguishment of $308 million in fiscal year 2021, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss was recognized in interest expense in the consolidated statement of income.

The Euro-denominated debt issued in June 2019 and September 2020 is designated as a net investment hedge of certain of the Company's European operations. Refer to Note 7 for additional information regarding the net investment hedge.

Term Loan Agreements On May 12, 2020, Medtronic Luxco entered into a term loan agreement (Loan Agreement) by and among Medtronic Luxco, Medtronic plc, Medtronic, Inc., and Mizuho Bank, Ltd. as administrative agent and as lender. The Loan Agreement provided an unsecured term loan in an aggregate principal amount of up to ¥300 billion, with a term of six months and the option to extend for an additional six months at Medtronic Luxco’s option. On May 13, 2020, Medtronic Luxco borrowed the entire amount of the term loan under the Loan Agreement. The Japanese Yen-denominated debt was designated as a net investment hedge of certain of our Japanese operations. Borrowings under the Loan Agreement carried interest at the TIBOR Rate (as defined in the Loan Agreement) plus a margin of 0.50% per annum. Medtronic plc and Medtronic, Inc. guaranteed the obligations of Medtronic Luxco under the Loan Agreement. On November 12, 2020, the Company exercised its option to extend the term loan for an additional six months. During the fourth quarter of fiscal year 2021, the Company de-designated the Yen-denominated debt as a net investment hedge and repaid the term loan in full, including interest.

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)
2022			$	11
2023			4,237
2024			6
2025			1,895
2026			2,423
Thereafter			18,016
Total			$	26,588

Financial Instruments Not Measured at Fair Value

At April 30, 2021, the estimated fair value of the Company’s Senior Notes was $28.6 billion compared to a principal value of $26.5 billion. At April 24, 2020 the estimated fair value was $27.1 billion compared to a principal value of $24.5 billion. There was no commercial paper outstanding during fiscal year 2021. 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.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

7. 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 $14.7 billion and $11.9 billion at April 30, 2021 and April 24, 2020, 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 30, 2021 and April 24, 2020 was $5.7 billion and $4.9 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 30, 2021 and April 24, 2020 was $243 million and $181 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 or financing activities, depending on the nature of the underlying hedged item, 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 2021, 2020, and 2019 were as follows:

												Fiscal Year
(in millions)						Classification						2021						2020						2019
Currency exchange rate contracts						Other operating expense, net						$	247					$	(133)					$	(218)
Total return swaps						Other operating expense, net						(81)						7						(18)
Total												$	166					$	(126)					$	(236)

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 30, 2021 and April 24, 2020 was $9.0 billion and $7.0 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 or cost of products sold 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 2021, 2020, or 2019.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The amount of the (gains) losses recognized in accumulated other comprehensive loss (AOCI) related to currency exchange rate contract derivative instruments designated as cash flow hedges for fiscal years 2021, 2020, and 2019 were as follows:

			Fiscal Year
(in millions)			2021						2020						2019
Currency exchange rate contracts			$	627					$	(397)					$	(615)

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 2021, 2020, and 2019 were as follows:

						Fiscal Year
						2021												2020												2019
(in millions)						Other operating expense, net						Cost of products sold						Other operating expense, net						Cost of products sold						Other operating expense, net						Cost of products sold
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						$	315					$	10,483					$	71					$	9,424					$	258					$	9,155
Currency exchange rate contracts designated as cash flow hedges:
Amount of (gain) loss reclassified from AOCI into income						(17)						15						(335)						—						(108)						—

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 2021, 2020, and 2019, 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 30, 2021 and April 24, 2020, the Company had $253 million in after-tax unrealized losses and $266 million in after-tax net unrealized gains, respectively, associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that $146 million of after-tax net unrealized losses at April 30, 2021 will be recognized in the consolidated statements of income over the next 12 months.

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 30, 2021, the Company had €16.0 billion, or $19.3 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 2023 through fiscal year 2051.

In February 2021, the Company de-designated ¥300 billion of outstanding Yen-denominated debt previously designated as a net investment hedge and concurrently entered into freestanding forward derivative contracts with a total notional value of ¥300 billion, or approximately $2.9 billion. These forward contracts were not designated as hedges. The Company used the proceeds from these forward derivative contracts to repay the ¥300 billion of Yen-denominated debt in conjunction with the maturity of these forward contracts in March and April of 2021.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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 30, 2021 and April 24, 2020, the Company had $1.5 billion in after-tax unrealized losses, and $236 million in after-tax unrealized gains associated with net investment hedges recorded in accumulated other comprehensive loss, respectively. The Company does not expect any of the after-tax unrealized losses at April 30, 2021 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 2021, 2020, or 2019 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:

												Fiscal Year
(in millions)						Classification						2021						2020						2019
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 2021, 2020, or 2019 were as follows:

			Fiscal Year
(in millions)			2021						2020						2019
Net investment hedges			$	(1,694)					$	(405)					$	(88)

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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 30, 2021 and April 24, 2020. 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 30, 2021
			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						$	49					Other accrued expenses						$	190
Currency exchange rate contracts			Other assets						22						Other liabilities						94
Total derivatives designated as hedging instruments									70												285
Derivatives not designated as hedging instruments
Currency exchange rate contracts			Other current assets						14						Other accrued expenses						11
Total return swaps			Other current assets						18						Other accrued expenses						—
Total derivatives not designated as hedging instruments									32												11
Total derivatives									$	102											$	296
			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

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

			April 30, 2021												April 24, 2020
(in millions)			Level 1						Level 2						Level 1						Level 2
Derivative assets			$	85					$	18					$	399					$	3
Derivative liabilities			296						—						17						25

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.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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 30, 2021
												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						$	85					$	(83)					$	—								$	1
Total return swaps						18						—						—									18
						102						(83)						—									19
Derivative liabilities:
Currency exchange rate contracts						(296)						83						46									(167)
Total						$	193					$	—					$	46								$	(148)

						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

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. As of April 30, 2021, the Company posted net cash collateral of $46 million to its counterparties. As of April 24, 2020, the Company received net cash collateral of $48 million from its counterparties. Cash collateral posted is recorded as a reduction in cash and cash equivalents, with the offset recorded

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

as an increase in other current assets in the consolidated balance sheets. Cash collateral received is recorded as an increase in cash and cash equivalents with the offset recorded in other accrued expenses in the consolidated balance sheets.

8. Inventories

Inventory balances, net of reserves, were as follows:

(in millions)			April 30, 2021						April 24, 2020
Finished goods			$	2,906					$	2,874
Work-in-process			611						608
Raw materials			796						747
Total			$	4,313					$	4,229

9. Goodwill and Other Intangible Assets

Goodwill

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

(in millions)			Cardiovascular						Medical Surgical						Neuroscience						Diabetes						Total
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
Goodwill as a result of acquisitions			248						12						210						346						816
Purchase accounting adjustments			(2)						(5)						3						(4)						(8)
Currency translation and other			132						1,012						167						1						1,312
April 30, 2021			$	7,209					$	21,195					$	11,300					$	2,257					$	41,961

The Company did not recognize any goodwill impairments during fiscal years 2021, 2020, or 2019.

Intangible Assets

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

			April 30, 2021												April 24, 2020
(in millions)			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Definite-lived:
Customer-related			$	17,036					$	(6,058)					$	16,963					$	(5,065)
Purchased technology and patents			11,286						(5,156)						10,742						(4,354)
Trademarks and tradenames			475						(251)						464						(232)
Other			82						(68)						75						(53)
Total			$	28,879					$	(11,533)					$	28,244					$	(9,704)
Indefinite-lived:
IPR&D			$	394					$	—					$	523					$	—

During fiscal year 2021, the Company recognized $30 million of definite-lived intangible asset charges in connection with the abandonment of certain intangible assets within the Neuroscience segment. 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

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

business exits in the Neuroscience and Cardiovascular segments, 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 Cardiovascular and Neuroscience segments, respectively. Definite-lived intangible asset charges are recognized in other operating expense, net in the consolidated statements of income.

During fiscal year 2021, the Company recognized $45 million of indefinite-lived intangible asset charges related to the abandonment of certain IPR&D projects in the Neuroscience segment. 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 Neuroscience segment and $10 million in connection with the discontinuation of an IPR&D project within the Cardiovascular segment. 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 Neuroscience segment, and $10 million and $9 million in connection with the discontinuation of certain IPR&D projects within the Medical Surgical and Cardiovascular segments, respectively. 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 2021, 2020 and 2019. 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 30, 2021, excluding any possible future amortization associated with acquired IPR&D which has not met technological feasibility, is as follows:

(in millions)			Amortization Expense
2022			$	1,758
2023			1,693
2024			1,662
2025			1,635
2026			1,623

10. Property, Plant, and Equipment

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

(in millions)			April 30, 2021						April 24, 2020						Estimated Useful Lives (in years)
Equipment			$	6,308					$	5,859					Generally 2-7, up to 15
Computer software			2,346						2,131						Up to 5
Land and land improvements			178						175						Up to 20
Buildings and leasehold improvements			2,370						2,277						Up to 40
Construction in progress			1,498						1,202						—
Property, plant, and equipment			12,700						11,644
Less: Accumulated depreciation			(7,479)						(6,816)
Property, plant, and equipment, net			$	5,221					$	4,828

Depreciation expense of $919 million, $907 million, and $895 million was recognized in fiscal years 2021, 2020, and 2019, respectively.

11. 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.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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 30, 2021, 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 30, 2021, 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 30, 2021, 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 2021 and 2020, the Company repurchased approximately 4 million and 12 million shares, respectively, at an average price of $126.80 and $106.22, respectively.

In March 2019, the Company's Board of Directors authorized $6.0 billion for repurchase of the Company's ordinary shares. There is no specific time-period associated with these repurchase authorizations. At April 30, 2021, the Company had used $608 million of the $6.0 billion authorized under the repurchase program, leaving approximately $5.4 billion available for future repurchases. The Company accounts for repurchases of ordinary shares using the par value method and shares repurchased are cancelled.

12. Stock Purchase and Award Plans

In fiscal year 2021, the Company granted stock awards under the Medtronic plc 2013 Plan (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 30, 2021, there were approximately 26 million shares available for future grants under the 2013 Plan.

Stock-Based Compensation Expense The following table presents the components and classification of stock-based compensation expense recognized for stock options, restricted stock, performance share units, and employee stock purchase plan (ESPP) in fiscal years 2021, 2020, and 2019:

			Fiscal Year
(in millions)			2021						2020						2019
Stock options			$	72					$	61					$	72
Restricted stock			185						205						189
Performance share units			49						—						—
Employee stock purchase plan			38						31						29
Total stock-based compensation expense			$	344					$	297					$	290
Cost of products sold			$	35					$	28					$	30
Research and development expense			38						36						36
Selling, general, and administrative expense			272						233						224
Total stock-based compensation expense			344						297						290
Income tax benefits			(59)						(51)						(54)
Total stock-based compensation expense, net of tax			$	285					$	246					$	236

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Stock 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. 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.

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
			2021						2020						2019
Weighted average fair value of options granted			$	16.15					$	15.49					$	14.77
Assumptions used:
Expected life (years)			6.0						6.1						6.1
Risk-free interest rate			0.33		%				1.88		%				2.90		%
Volatility			24.17		%				17.97		%				17.77		%
Dividend yield			2.36		%				2.09		%				2.25		%

The following table summarizes stock option activity during fiscal year 2021:

			Options (in thousands)						Wtd. Avg. Exercise Price						Wtd. Avg. Remaining Contractual Term (in years)						Aggregate Intrinsic Value (in millions)
Outstanding at April 24, 2020			27,068						$	78.70
Granted			6,182						98.16
Exercised			(4,370)						66.91
Expired/Forfeited			(908)						95.54
Outstanding at April 30, 2021			27,972						84.38						5.7						$	1,302
Expected to vest at April 30, 2021			9,184						97.01						8.5						311
Exercisable at April 30, 2021			18,149						77.48						4.2						970

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 2021, 2020, and 2019:

			Fiscal Year
(in millions)			2021						2020						2019
Cash proceeds from options exercised			$	277					$	484					$	825
Intrinsic value of options exercised			205						349						383
Tax benefit related to options exercised			47						75						78

Unrecognized compensation expense related to outstanding stock options at April 30, 2021 was $76 million and is expected to be recognized over a weighted average period of 2.6 years.

Restricted Stock 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 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. 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 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

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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.

The following table summarizes restricted stock activity during fiscal year 2021:

			Units (in thousands)						Wtd. Avg. Grant Price
Nonvested at April 24, 2020			7,625						$	92.52
Granted			2,193						99.48
Vested			(3,228)						86.89
Forfeited			(610)						95.79
Nonvested at April 30, 2021			5,980						97.66

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 2021, 2020, and 2019:

			Fiscal Year
(in millions, except per share data)			2021						2020						2019
Weighted-average grant-date fair value per restricted stock			$	99.48					$	103.52					$	88.78
Fair value of restricted stock vested			280						242						174
Tax benefit related to restricted stock vested			65						62						45

Unrecognized compensation expense related to restricted stock as of April 30, 2021 was $316 million and is expected to be recognized over a weighted average period of 2.4 years.

Performance Share Units Beginning in fiscal year 2021, the Company granted performance share units to officers and key employees. Performance share units typically cliff vest after three years. The awards include three metrics: relative total shareholder return (rTSR), revenue growth, and return on investor capital (ROIC). rTSR is considered a market condition metric, and the expense is determined at the grant date and will not be adjusted even if the market condition is not met. Revenue growth and ROIC are considered performance metrics, and the expense is recorded over the performance period, which will be reassessed each reporting period based on the probability of achieving the various performance conditions. The number of shares earned at the end of the three-year period will vary, based on only actual performance, from 0% to 200% of the target number of performance share units granted. Performance share units are subject to forfeiture if employment terminates prior to the lapse of the restrictions. Performance share units are not considered issued or outstanding ordinary shares of the Company. Dividend equivalent units are accumulated on performance share units for each component of the award during the vesting period.

The Company calculates the fair value of the performance share units for each component individually. The fair value of the rTSR metric will be determined using the Monte Carlo valuation model. The fair value of the revenue growth and ROIC metrics are equal to the closing stock price on the grant date.

The following table summarizes performance share unit activity during fiscal year 2021:

			Units (in thousands)						Wtd. Avg. Grant Price
Nonvested at April 24, 2020			—						$	—
Granted			854						129.04
Forfeited			(25)						128.51
Nonvested at April 30, 2021			828						129.05

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following table summarizes the weighted-average grant date fair value of performance share units granted, total fair value of performance share units vested and related tax benefit during fiscal year 2021:

			Fiscal Year
(in millions, except per share data)			2021
Weighted-average grant-date fair value per performance share units			$	129.04
Fair value of performance share units vested			—
Tax benefit related to performance share units vested			—

Unrecognized compensation expense related to performance share units as of April 30, 2021 was $57 million and is expected to be recognized over a weighted average period of 2.2 years.

Employees Stock Purchase Plan The Medtronic plc Amended and Restated 2014 Employees Stock Purchase Plan 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. Employees purchased 2 million shares at an average price of $90.16 per share in fiscal year 2021. At April 30, 2021, approximately 9 million ordinary shares were available for future purchase under the ESPP.

13. Income Taxes

The income tax provision (benefit) 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)			2021						2020						2019
U.S.			$	(358)					$	466					$	877
International			4,253						3,589						4,320
Income before income taxes			$	3,895					$	4,055					$	5,197

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

			Fiscal Year
(in millions)			2021						2020						2019
Current tax expense:
U.S.			$	287					$	151					$	579
International			439						375						406
Total current tax expense			726						526						985
Deferred tax (benefit) expense:
U.S.			(625)						(138)						(310)
International			165						(1,139)						(128)
Net deferred tax benefit			(461)						(1,277)						(438)
Income tax provision (benefit)			$	265					$	(751)					$	547

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 30, 2021						April 24, 2020
Deferred tax assets:
Net operating loss, capital loss, and credit carryforwards			$	6,114					$	6,432
Capitalization of research and development			408						—
Other accrued liabilities			442						390
Accrued compensation			411						285
Pension and post-retirement benefits			234						350
Stock-based compensation			132						136
Inventory			164						191
Lease obligations			106						101
Federal and state benefit on uncertain tax positions			55						96
Interest limitation			352						266
Other			336						308
Gross deferred tax assets			8,754						8,555
Valuation allowance			(5,822)						(5,482)
Total deferred tax assets			2,932						3,073
Deferred tax liabilities:
Intangible assets			(320)						(1,017)
Realized loss on derivative financial instruments			(75)						(65)
Right of use leases			(102)						(97)
Unrealized gain on available-for-sale securities and derivative financial instruments			(16)						(12)
Accumulated depreciation			(151)						(87)
Outside basis difference of subsidiaries			(101)						(77)
Other			(81)						(110)
Total deferred tax liabilities			(846)						(1,465)
Prepaid income taxes			458						449
Income tax receivables			353						381
Tax assets, net			$	2,897					$	2,438
Reported as (after valuation allowance and jurisdictional netting):
Other current assets			$	756					$	780
Tax assets			3,169						2,832
Deferred tax liabilities			(1,028)						(1,174)
Tax assets, net			$	2,897					$	2,438

No deferred taxes have been provided on the approximately $74.2 billion and $69.9 billion of undistributed earnings of the Company’s subsidiaries at April 30, 2021 and April 24, 2020, respectively, since these earnings have been, and under current plans will continue to be, permanently reinvested in these subsidiaries. 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 30, 2021, the Company had approximately $25.2 billion of net operating loss carryforwards in certain non-U.S. jurisdictions, of which $20.2 billion have no expiration, and the remaining $5.0 billion will expire during fiscal years 2022 through 2041. Included in these net operating loss carryforwards are $18.5 billion of net operating losses related to a subsidiary 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

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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 $6.7 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 30, 2021, the Company had $361 million of U.S. federal net operating loss carryforwards, of which $81 million have no expiration. The remaining loss carryforwards will expire during fiscal years 2022 through 2038. For U.S. state purposes, the Company had $1.4 billion of net operating loss carryforwards at April 30, 2021, $57 million of which have no expiration. The remaining U.S. state loss carryforwards will expire during fiscal years 2022 through 2041.

At April 30, 2021, the Company also had $270 million of tax credits available to reduce future income taxes payable, of which $107 million have no expiration. The remaining credits will expire during fiscal years 2022 through 2041.

The Company has established valuation allowances of $5.8 billion and $5.5 billion at April 30, 2021 and April 24, 2020, 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 increase in the valuation allowance during fiscal year 2021 is primarily related to the generation of certain net operating losses 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
			2021						2020						2019
U.S. federal statutory tax rate			21.0		%				21.0		%				21.0		%
Increase (decrease) in tax rate resulting from:
U.S. state taxes, net of federal tax benefit			(1.1)						0.5						0.9
Research and development credit			(2.3)						(2.1)						(1.2)
Puerto Rico Excise Tax			(2.0)						(1.5)						(1.6)
International			(12.6)						(10.0)						(10.7)
U.S. Tax Reform			—						—						0.2
Stock based compensation			(0.8)						(1.5)						(1.0)
Other, net			0.9						0.4						(0.5)
Interest on uncertain tax positions			0.9						1.3						0.9
Base Erosion Anti-Abuse Tax			0.5						2.6						0.1
Foreign Derived Intangible Income Benefit			(1.9)						(1.2)						(0.6)
Divestiture-related			—						—						(0.4)
Certain tax adjustments			(1.0)						(30.8)						(0.6)
Legal entity restructuring			1.8						—						—
U.S. tax on foreign earnings			3.4						2.8						4.0
Effective tax rate			6.8		%				(18.5)		%				10.5		%

During fiscal year 2021, the net benefit from certain tax adjustments of $41 million, recognized in income tax provision (benefit) in the consolidated statements of income, included the following:

• A net benefit of $106 million associated with the resolution of an audit at the IRS Appellate level for fiscal years 2012, 2013, and 2014. The issues resolved relate to the utilization of certain net operating losses and the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico for businesses that are not the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006.

• A net cost of $73 million related to a tax basis adjustment of previously established deferred tax assets from intercompany intellectual property transactions. The cumulative amount of deferred tax benefit previously recognized from intercompany intellectual property transactions and recorded as Certain Tax Adjustments is $1.5 billion. The corresponding deferred tax assets will be amortized over a period of approximately 20 years.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

• A cost of $50 million associated with the amortization of the previously established deferred tax assets from intercompany intellectual property transactions.

• A net cost of $25 million associated with an internal restructuring and intercompany sale of assets.

• A benefit of $83 million related to the capitalization of certain research and development costs for U.S. income tax purposes and the establishment of a deferred tax asset at the U.S. federal statutory tax rate.

During fiscal year 2020, the net benefit from certain tax adjustments of $1.2 billion, recognized in income tax provision (benefit) 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 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 that 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 requiring 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, the net benefit from certain tax adjustments of $40 million, recognized in income tax provision (benefit) 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.

Currently, the Company’s operations in Puerto Rico, Singapore, Dominican Republic, Costa Rica, and China have various tax holidays and tax incentive grants. The tax reductions as compared to the local statutory rate favorably impacted earnings by $301 million, $231 million, and $437 million in fiscal years 2021, 2020, and 2019, respectively, and diluted earnings per share by $0.22, $0.17, and $0.32 in fiscal years 2021, 2020, and 2019, 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 2022 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 2021 did not have a material impact on the Company's consolidated financial statements.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The Company had $1.7 billion, $1.9 billion, and $1.8 billion of gross unrecognized tax benefits at April 30, 2021, April 24, 2020, and April 26, 2019, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2021, 2020, and 2019 is as follows:

			Fiscal Year
(in millions)			2021						2020						2019
Gross unrecognized tax benefits at beginning of fiscal year			$	1,862					$	1,836					$	1,727
Gross increases:
Prior year tax positions			88						12						34
Current year tax positions			62						55						109
Gross decreases:
Prior year tax positions			(106)						(9)						(14)
Settlements			(216)						(5)						—
Statute of limitation lapses			(21)						(27)						(20)
Gross unrecognized tax benefits at end of fiscal year			1,668						1,862						1,836
Cash advance paid to taxing authorities			(859)						(859)						(859)
Gross unrecognized tax benefits at end of fiscal year, net of cash advance			$	809					$	1,003					$	977

If all of the Company’s unrecognized tax benefits at April 30, 2021, April 24, 2020, and April 26, 2019 were recognized, $1.6 billion, $1.8 billion, and $1.8 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 $809 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 $14 million, net as a result of statute of limitation lapses.

The Company recognizes interest and penalties related to income tax matters in income tax provision (benefit) 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 $99 million, $225 million, and $172 million of accrued gross interest and penalties at April 30, 2021, April 24, 2020, and April 26, 2019, respectively. During fiscal years 2021, 2020, and 2019, the Company recognized gross interest income of $44 million, expense of $53 million, and expense of $48 million, respectively, in income tax provision (benefit) in the consolidated statements of income.

The Company 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						2016
Canada						2013
China						2015
Costa Rica						2017
Dominican Republic						2018
France						2016
Germany						2014
India						2002
Ireland						2012
Israel						2010
Italy						2005
Japan						2017
Korea						2017
Luxembourg						2015
Mexico						2007
Puerto Rico						2011
Singapore						2016
Switzerland						2010
United Kingdom						2017

See Note 18 for additional information regarding the status of current tax audits and proceedings.

14. 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)			2021						2020						2019
Numerator:
Net income attributable to ordinary shareholders			$	3,606					$	4,789					$	4,631
Denominator:
Basic – weighted average shares outstanding			1,344.9						1,340.7						1,346.4
Effect of dilutive securities:
Employee stock options			6.6						7.2						7.6
Employee restricted stock units			2.1						2.8						3.2
Other			0.5						0.4						0.3
Diluted – weighted average shares outstanding			1,354.0						1,351.1						1,357.5
Basic earnings per share			$	2.68					$	3.57					$	3.44
Diluted earnings per share			$	2.66					$	3.54					$	3.41

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 4 million, 4 million, and 7 million ordinary shares in fiscal years 2021, 2020, and 2019, respectively, because their effect would have been anti-dilutive on the Company’s earnings per share.

15. 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 net expense related to these plans was $668 million, $467 million, and $539 million in fiscal years 2021, 2020, and 2019, respectively.

In the U.S., the Company maintain qualified pension plans designed to provide guaranteed minimum retirement benefits to all eligible U.S. participants. 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 30, 2021 and April 24, 2020, the net underfunded status of the Company’s benefit plans was $705 million and $1.4 billion, respectively.

During fiscal year 2021, as part of the Simplification restructuring program, the Company offered certain eligible U.S. employees voluntary early retirement packages, resulting in incremental expense of $97 million recognized. Of this amount, $73 million related to U.S. pension benefits, $11 million related to defined contribution plans, $11 million related to U.S. post-retirement benefits, and $2 million related to cash payments and administrative fees. See Note 4 for additional information on the Simplification restructuring program.

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)			2021						2020						2021						2020
Accumulated benefit obligation at end of year:			$	3,786					$	3,440					$	2,035					$	1,785
Change in projected benefit obligation:
Projected benefit obligation at beginning of year			$	3,723					$	3,404					$	2,024					$	1,832
Service cost			106						106						70						59
Interest cost			109						126						28						28
Employee contributions			—						—						12						11
Plan curtailments and settlements			—						(94)						(4)						(2)
Actuarial loss(1)			99						300						6						180
Benefits paid			(129)						(111)						(41)						(55)
Special termination benefits			73						—						—						—
Currency exchange rate changes and other			—						(8)						200						(29)
Projected benefit obligation at end of year			$	3,979					$	3,723					$	2,294					$	2,024
Change in plan assets:
Fair value of plan assets at beginning of year			$	2,982					$	2,728					$	1,404					$	1,409
Actual return on plan assets			715						(72)						232						2
Employer contributions			95						444						149						54
Employee contributions			—						—						12						11
Plan settlements			—						—						(4)						(2)
Benefits paid			(129)						(111)						(41)						(55)
Currency exchange rate changes and other			—						(7)						149						(15)
Fair value of plan assets at end of year			$	3,660					$	2,982					$	1,900					$	1,404
Funded status at end of year:
Fair value of plan assets			$	3,660					$	2,982					$	1,900					$	1,404
Benefit obligations			3,979						3,723						2,294						2,024
Underfunded status of the plans			(319)						(741)						(394)						(620)
Recognized liability			$	(319)					$	(741)					$	(394)					$	(620)
Amounts recognized on the consolidated balance sheets consist of:
Non-current assets			$	110					$	—					$	48					$	7
Current liabilities			(20)						(17)						(6)						(6)
Non-current liabilities			(408)						(724)						(436)						(621)
Recognized liability			$	(319)					$	(741)					$	(394)					$	(620)
Amounts recognized in accumulated other comprehensive loss:
Prior service cost			$	—					$	1					$	(6)					$	7
Net actuarial loss			1,220						1,662						530						663
Ending balance			$	1,220					$	1,663					$	524					$	670

(1)Actuarial gains and losses result from changes in actuarial assumptions (such as changes in the discount rate and revised mortality rates). The actuarial losses in fiscal years 2021 and 2020 were primarily related to decreases in discount rates.

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 30, 2021 and April 24, 2020. U.S. and non-U.S. pension plans with accumulated benefit obligations in excess of plan assets consist of the following:

			Fiscal Year
(in millions)			2021						2020
Accumulated benefit obligation			$	5,089					$	5,105
Projected benefit obligation			5,198						5,252
Plan assets at fair value			4,561						4,074

U.S. and non-U.S. pension plans with projected benefit obligations in excess of plan assets consist of the following:

			Fiscal Year
(in millions)			2021						2020
Projected benefit obligation			$	5,921					$	5,700
Plan assets at fair value			5,159						4,331

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

			U.S. Pension Benefits																		Non-U.S. Pension Benefits
			Fiscal Year																		Fiscal Year
(in millions)			2021						2020						2019						2021						2020						2019
Service cost			$	106					$	106					$	109					$	70					$	59					$	59
Interest cost			109						126						129						28						28						30
Expected return on plan assets			(242)						(225)						(215)						(59)						(58)						(57)
Amortization of prior service cost			1						1						1						(1)						(1)						(1)
Amortization of net actuarial loss			69						56						76						25						14						12
Settlement loss (gain)			—						—						—						1						—						(2)
Special termination benefits			73						—						—						—						—						—
Net periodic benefit cost			$	115					$	64					$	100					$	64					$	42					$	41

The other changes in plan assets and projected benefit obligations recognized in accumulated other comprehensive loss for fiscal year 2021 are as follows:

(in millions)			U.S. Pension Benefits						Non-U.S. Pension Benefits
Net actuarial gain			$	(373)					$	(168)
Amortization of prior service cost			(1)						1
Amortization and settlement recognition of actuarial loss			(69)						(26)
Effect of exchange rates			—						61
Total recognized in accumulated other comprehensive loss			$	(443)					$	(132)
Total recognized in net periodic benefit cost and accumulated other comprehensive loss			$	(328)					$	(67)

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
			2021						2020						2019						2021						2020						2019
Critical assumptions – projected benefit obligation:
Discount rate			2.80% - 3.50%						3.10% - 3.70%						3.90% - 4.20%						0.30% - 13.30%						0.30% - 13.30%						0.40% - 13.90%
Rate of compensation increase			4.83		%				3.90		%				3.90		%				2.90		%				2.91		%				2.87		%
Critical assumptions – net periodic benefit cost:
Discount rate – benefit obligation			3.10% - 3.70%						3.90% - 4.30%						4.20% - 4.30%						0.30% - 13.90%						0.40% - 13.90%						0.50% - 11.00%
Discount rate – service cost			2.60% - 3.90%						3.70% - 4.00%						4.10% - 4.40%						0.30% - 13.90%						0.40% - 13.90%						0.50% - 11.00%
Discount rate – interest cost			2.80% - 3.20%						3.50% - 4.30%						4.00% - 4.10%						0.30% - 13.90%						0.40% - 13.90%						0.50% - 11.00%
Expected return on plan assets			7.50		%				7.90		%				7.90		%				3.78		%				4.19		%				4.23		%
Rate of compensation increase			3.90		%				3.90		%				3.90		%				2.91		%				2.87		%				2.88		%

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 Medtronic U.S. pension and other U.S. post-retirement benefit plans employ similar investment strategies with different asset allocation targets.

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 30, 2021 for the plans are 40% equity securities, 31% debt securities, and 29% other.

The plans did not hold any investments in the Company’s ordinary shares at April 30, 2021 or April 24, 2020.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The Company’s U.S. plans target asset allocations at April 30, 2021, compared to the U.S. plans actual asset allocations at April 30, 2021 and April 24, 2020 by asset category, are as follows:

U.S. Plans
			Target Allocation						Actual Allocation
			April 30, 2021						April 30, 2021						April 24, 2020
Asset Category:
Equity securities			34		%				39		%				39		%
Debt securities			51						32						27
Other			15						29						34
Total			100		%				100		%				100		%

Strong performance on equity securities during the fiscal year resulted in asset allocations different than targets. Management expects to move the allocations closer to target over the intermediate term.

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.

Mutual funds: Comprised of investments in equity and fixed income securities held in pooled investment vehicles. The valuations of mutual funds 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 publicly reported.

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 30, 2021, 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 30, 2021 is $171 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 30, 2021, 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.

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. 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 30, 2021 and April 24, 2020.

U.S. Pension Benefits

			Fair Value at
			Fair Value Measurements Using Inputs Considered as																		Investments Measured at Net Asset Value
(in millions)			April 30, 2021			Level 1						Level 2						Level 3
Short-term investments			$	232					$	232					$	—					$	—					$	—
Mutual funds			99						99						—						—						—
Equity commingled trusts			1,420						—						—						—						1,420
Fixed income commingled trusts			1,050						—						—						—						1,050
Partnership units			860						—						—						860						—
			$	3,660					$	331					$	—					$	860					$	2,470

			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

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 losses, net			(45)
Purchases and sales, net			41
April 24, 2020			625
Total realized gains, net			8
Total unrealized gains, net			89
Purchases and sales, net			139
April 30, 2021			$	860

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 30, 2021			Level 1						Level 2						Level 3
Registered investment companies			$	1,850					$	—					$	—					$	—					$	1,850
Insurance contracts			49						—						—						49						—
			$	1,900					$	—					$	—					$	49					$	1,850

			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

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, net			2
Purchases and sales, net			1
Currency exchange rate changes			(1)
April 24, 2020			43
Total unrealized gains, net			2
Purchases and sales, net			1
Currency exchange rate changes			4
April 30, 2021			$	49

There were no transfers into or out of Level 3 for both the U.S. and non-US pension plans during the fiscal years ended April 30, 2021 and April 24, 2020.

Retirement Benefit Plan Funding It is the Company’s policy to fund retirement costs within the limits of allowable tax deductions. During fiscal year 2021, the Company made discretionary contributions of approximately $95 million to the U.S. pension plan. Internationally, the Company contributed approximately $149 million for pension benefits during fiscal year 2021. The Company anticipates that it will make contributions of $20 million and $78 million to its U.S. pension benefit plans and non-U.S. pension benefit plans, respectively, in fiscal year 2022. 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 2022 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
2022			$	135					$	62
2023			145						63
2024			157						62
2025			170						67
2026			182						67
2027 – 2031			1,068						395
Total			$	1,856					$	717

Post-retirement Benefit Plans The net periodic benefit cost associated with the Company’s post-retirement benefit plans was income of $6 million, $15 million, and $17 million in fiscal years 2021, 2020, and 2019, respectively. The Company’s projected benefit obligation for all post-retirement benefit plans was $337 million and $339 million at April 30, 2021 and April 24, 2020, respectively. The Company’s fair value of plan assets for all post-retirement benefit plans was $345 million and $296 million at April 30, 2021 and April 24, 2020, respectively. The post-retirement benefit plan assets at both April 30, 2021 and April 24, 2020 primarily comprised of equity and fixed 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 $495 million, $376 million, and $415 million in fiscal years 2021, 2020, and 2019, 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 $50 million, $52 million, and $54 million in fiscal years 2021, 2020, and 2019, 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 or rehired after July 1, 2020. 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 $73 million, $66 million, and $58 million and in fiscal years 2021, 2020, and 2019, respectively.

16. 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 2021 and 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 30, 2021 or April 24, 2020 or for fiscal year 2021 or 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 30, 2021 and April 24, 2020:

(in millions)			Balance Sheet Classification						April 30, 2021						April 24, 2020
Right-of-use assets			Other assets						$	998					$	927
Current liability			Other accrued expenses						186						171
Non-current liability			Other liabilities						829						774

The following table summarizes the weighted-average remaining lease term and weighted-average discount rate for the Company's operating leases at April 30, 2021 and April 24, 2020:

						April 30, 2021						April 24, 2020
Weighted-average remaining lease term						7.5 years						7.2 years
Weighted-average discount rate						2.3%						3.0%

The following table summarizes the components of total operating lease cost for fiscal year 2021 and 2020:

						Fiscal Year						Fiscal Year
(in millions)						2021						2020
Operating lease cost						$	216					$	223
Short-term lease cost						35						46
Total operating lease cost						$	251					$	269

Rent expense for all operating leases was $305 million in fiscal year 2019.

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 2021 and 2020:

						Fiscal Year						Fiscal Year
(in millions)						2021						2020
Cash paid for amounts included in the measurement of operating lease liabilities						$	216					$	221
Right-of-use assets obtained in exchange for operating lease liabilities						230						174

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

The following table summarizes the maturities of the Company's operating leases at April 30, 2021:

(in millions) Fiscal Year						Operating Leases
2022						$	223
2023						166
2024						147
2025						119
2026						97
Thereafter						338
Total expected lease payments						1,090
Less: Imputed interest						(75)
Total lease liability						$	1,015

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 or for the fiscal year ended April 30, 2021 and April 30, 2021.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

17. 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 (Loss) Gain on Cash Flow Hedges						Total Accumulated Other Comprehensive (Loss) Income
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(1)			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)
Other comprehensive income (loss) before reclassifications			92						1,691						(1,694)						432						(541)						(20)
Reclassifications			—						—						—						73						22						95
Other comprehensive income (loss)			92						1,691						(1,694)						505						(519)						75
April 30, 2021			$	92					$	(519)					$	(1,458)					$	(1,347)					$	(253)					$	(3,485)

(1) 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 2021, 2020, and 2019 was an expense of $31 million, a benefit of $13 million and a benefit of $5 million, respectively. Realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $2 million for fiscal year 2021 and $3 million for fiscal years 2020 and 2019. When realized, gains and losses on investment securities reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 5 for additional information.

During fiscal years 2021, 2020, and 2019, the income tax on cumulative translation adjustment was an expense of $7 million, a benefit of $9 million, and a benefit of $7 million, respectively.

During fiscal years 2021, 2020, and 2019, there were no tax impacts on net investment hedges. Refer to Note 7 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 2021, 2020, and 2019 resulted in an expense of $115 million and a benefit of $159 million, and $63 million, respectively. During fiscal years 2021, 2020, and 2019, the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $16 million, $12 million, and $19 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 15 for additional information.

The income tax on unrealized gains and losses on cash flow hedges in other comprehensive income before reclassifications during fiscal years 2021, 2020, and 2019 was a benefit of $87 million and an expense of $88 million and $158 million, respectively. Amounts reclassified from AOCI related to cash flow hedges included income taxes of $14 million, $80 million, and $24 million for fiscal years 2021, 2020, and 2019, 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

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

interest rate derivatives reclassified from AOCI are recognized within interest expense. Refer to Note 7 for additional information.

18. 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 2021, 2020, and 2019, the Company recognized $118 million, $313 million, and $166 million, respectively, of certain litigation charges. At April 30, 2021 and April 24, 2020, accrued litigation was approximately $0.4 billion and $0.5 billion, respectively. 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 2, 2021, the Company had reached agreements to settle approximately 15,900 of these claims. The Company's accrued expenses for this matter are included within accrued litigation as discussed above.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

Hernia Mesh Litigation

Starting in 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, where they have been consolidated before a single judge. Certain plaintiffs' law firms have advised the Company that they may file a large volume of additional cases in the future. The pending lawsuits relate almost entirely 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 March 2021, the consolidated action was dismissed with prejudice, pursuant to a settlement agreement.

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. On June 15, 2021, pursuant to an order from the state court, the Company paid the judgment plus accrued interest to Dr. Sasso, subject to repayment if the Company's ongoing appeal is successful.

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. In April 2021, the parties reach an agreement to resolve this matter, bringing it to a conclusion.

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.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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. In March 2021, the parties notified the Court that they had agreed on a settlement in principle of all issues in this matter. Finalization of the proposed settlement remains subject to a fairness hearing and Court approval.

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

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 trial was held in June 2021.

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. During January 2021, Medtronic, Inc. and the IRS resolved the outstanding matters related to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are not the subject of the U.S. Tax Court Case and the utilization of certain net operating losses. The remaining unresolved issue for fiscal years 2012, 2013 and 2014 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 November 2020, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2015 and 2016. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The significant issue that remains unresolved 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.

Medtronic, Inc.’s fiscal years 2017, 2018, and 2019 U.S. federal income tax returns are currently being audited by the IRS.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

In January 2021, the IRS issued its audit report for Covidien's fiscal year 2015 U.S. federal income tax returns. Covidien reached agreement with the IRS on all matters related to fiscal year 2015. The statute of limitations for Covidien's 2016 and 2017 U.S. federal income tax returns lapsed during the third quarter of fiscal year 2020 and 2021, respectively.

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 13 for additional discussion of income taxes.

Guarantees

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, and/or cash flows.

19. Segment and Geographic Information

Effective February 1, 2021, the Company implemented a new operating model, moving from a Group structure to a Portfolio structure: Cardiovascular Portfolio (formerly Cardiac and Vascular Group), Neuroscience Portfolio (formerly Restorative Therapies Group), and Medical Surgical Portfolio (formerly Minimally Invasive Therapies Group). The Diabetes Operating Unit (formerly Diabetes Group) remains a separate operating and reportable segment in the new structure. There were no changes to the reportable segments during the fiscal year ended April 30, 2021, such that the four principal operating and reportable segments are as follows: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio, and Diabetes Operating Unit.

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 Cardiovascular Portfolio 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 Medical Surgical Portfolio 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 Neuroscience Portfolio 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 Operating Unit segment derives its revenues include those focused on diabetes management, including insulin pumps, continuous glucose monitoring systems, smart insulin pens, and insulin pump consumables.

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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 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.

Segment Operating Profit

			Fiscal Year
(in millions)			2021						2020						2019
Cardiovascular			$	3,850					$	3,719					$	4,532
Medical Surgical			3,021						3,044						3,262
Neuroscience			3,162						2,915						3,319
Diabetes			598						546						739
Segment operating profit			10,632						10,224						11,852
Interest expense			(925)						(1,092)						(1,444)
Other non-operating income, net			336						356						373
Amortization of intangible assets			(1,783)						(1,756)						(1,764)
Corporate			(1,577)						(1,239)						(1,291)
Centralized distribution costs			(1,877)						(1,420)						(1,689)
Restructuring and associated costs			(617)						(441)						(407)
Acquisition-related items			15						(66)						(88)
Certain litigation charges			(118)						(313)						(166)
Impairment charges			(76)						—						—
IPR&D charges			(31)						(25)						(58)
Exit of businesses			—						(52)						(149)
Debt tender premium and other charges			—						7						28
Medical device regulations			(83)						(48)						—
Contribution to Medtronic Foundation			—						(80)						—
Income before income taxes			$	3,895					$	4,055					$	5,197

Total Assets and Depreciation Expense

			Total Assets												Depreciation Expense
(in millions)			April 30, 2021						April 24, 2020						2021						2020						2019
Cardiovascular			$	15,027					$	14,844					$	212					$	210					$	194
Medical Surgical			39,319						39,666						195						194						206
Neuroscience			17,151						16,850						236						233						217
Diabetes			3,671						3,165						53						38						34
Segments			75,168						74,525						696						675						651
Corporate			17,915						16,164						223						232						244
Total			$	93,083					$	90,689					$	919					$	907					$	895

Medtronic plc

Notes to Consolidated Financial Statements (Continued)

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.

The following table presents net sales for fiscal years 2021, 2020, and 2019, and property, plant, and equipment, net at April 30, 2021 and April 24, 2020 for the Company's country of domicile, countries with significant concentrations, and all other countries:

			Net sales																		Property, plant, and equipment, net
(in millions)			2021						2020						2019						April 30, 2021						April 24, 2020
Ireland			$	100					$	85					$	91					$	170					$	164
United States			15,526						14,919						16,194						3,688						3,459
Rest of world			14,491						13,909						14,272						1,363						1,205
Total other countries, excluding Ireland			30,017						28,828						30,466						5,051						4,664
Total			$	30,117					$	28,913					$	30,557					$	5,221					$	4,828

No single customer represented over 10 percent of the Company’s consolidated net sales in fiscal years 2021, 2020, or 2019.

20. Subsequent Events

On June 3, 2021, the Company announced the decision to stop the distribution and sale of the Medtronic HVAD System in light of a growing body of observational clinical comparisons indicating a lower frequency of neurological adverse events and mortality with another circulatory support device available to patients compared to the HVAD system. Fiscal year 2021 HVAD system and associated accessory revenue was $141 million and is included in our Cardiovascular segment. The Company expects to record a non-cash pre-tax impairment of long-lived assets of $400 million to $500 million in the quarter ending July 30, 2021 primarily related to intangible assets. The Company remains committed to serving the needs of the 4,000 patients currently implanted with this device.