Item 1. Financial Statements

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Item 1. Financial Statements

Medtronic plc

Consolidated Statements of Income

(Unaudited)


	Three months ended
(in millions, except per share data)	July 28, 2023		July 29, 2022
Net sales	$	7,702	$	7,371
Costs and expenses:
Cost of products sold, excluding amortization of intangible assets	2,628		2,516
Research and development expense	668		692
Selling, general, and administrative expense	2,613		2,567
Amortization of intangible assets	429		423
Restructuring charges, net	54		14
Certain litigation charges	40		—
Other operating expense, net	1		35
Operating profit	1,268		1,125
Other non-operating income, net	(76)		(83)
Interest expense, net	148		164
Income before income taxes	1,196		1,044
Income tax provision	400		112
Net income	797		931
Net income attributable to noncontrolling interests	(6)		(2)
Net income attributable to Medtronic	$	791	$	929
Basic earnings per share	$	0.59	$	0.70
Diluted earnings per share	$	0.59	$	0.70
Basic weighted average shares outstanding	1,330.5		1,329.4
Diluted weighted average shares outstanding	1,333.8		1,334.5

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

Medtronic plc

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Net income	$	797	$	931
Other comprehensive (loss) income, net of tax:
Unrealized loss on investment securities	(19)		(16)
Translation adjustment	14		(884)
Net investment hedge	(143)		1,002
Net change in retirement obligations	3		1
Unrealized (loss) gain on cash flow hedges	(30)		220
Other comprehensive (loss) income	(175)		324
Comprehensive income including noncontrolling interests	622		1,255
Comprehensive income attributable to noncontrolling interests	(6)		—
Comprehensive income attributable to Medtronic	$	616	$	1,255

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

Medtronic plc

Consolidated Balance Sheets

(Unaudited)


(in millions)	July 28, 2023		April 28, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,339	$	1,543
Investments	6,537		6,416
Accounts receivable, less allowances and credit losses of $190 and $176, respectively	5,806		5,998
Inventories, net	5,668		5,293
Other current assets	2,518		2,425
Total current assets	21,869		21,675
Property, plant, and equipment, net	5,665		5,569
Goodwill	41,436		41,425
Other intangible assets, net	14,434		14,844
Tax assets	3,461		3,477
Other assets	3,912		3,959
Total assets	$	90,776	$	90,948
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	519	$	20
Accounts payable	2,239		2,662
Accrued compensation	1,695		1,949
Accrued income taxes	1,013		840
Other accrued expenses	3,581		3,581
Total current liabilities	9,047		9,051
Long-term debt	24,463		24,344
Accrued compensation and retirement benefits	1,092		1,093
Accrued income taxes	2,407		2,360
Deferred tax liabilities	687		708
Other liabilities	1,715		1,727
Total liabilities	39,410		39,283
Commitments and contingencies (Note 16)
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,330,498,304 and 1,330,809,036 shares issued and outstanding, respectively	—		—
Additional paid-in capital	24,587		24,590
Retained earnings	30,265		30,392
Accumulated other comprehensive loss	(3,674)		(3,499)
Total shareholders’ equity	51,178		51,483
Noncontrolling interests	188		182
Total equity	51,366		51,665
Total liabilities and equity	$	90,776	$	90,948

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

Medtronic plc

Consolidated Statements of Equity

(Unaudited)


	Ordinary Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
(in millions)	Number	Par Value
April 28, 2023	1,331	$	—	$	24,590	$	30,392	$	(3,499)	$	51,483	$	182	$	51,665
Net income	—	—		—		791		—		791		6		797
Other comprehensive loss	—	—		—		—		(175)		(175)		—		(175)
Dividends to shareholders ($0.69 per ordinary share)	—	—		—		(918)		—		(918)		—		(918)
Issuance of shares under stock purchase and award plans	1	—		73		—		—		73		—		73
Repurchase of ordinary shares	(2)	—		(148)		—		—		(148)		—		(148)
Stock-based compensation	—	—		73		—		—		73		—		73


July 28, 2023	1,330	$	—	$	24,587	$	30,265	$	(3,674)	$	51,178	$	188	$	51,366


	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 29, 2022	1,331	$	—	$	24,566	$	30,250	$	(2,265)	$	52,551	$	171	$	52,722
Net income	—	—		—		929		—		929		2		931
Other comprehensive income (loss)	—	—		—		—		326		326		(2)		324
Dividends to shareholders ($0.68 per ordinary share)	—	—		—		(903)		—		(903)		—		(903)
Issuance of shares under stock purchase and award plans	2	—		41		—		—		41		—		41
Repurchase of ordinary shares	(3)	—		(333)		—		—		(333)		—		(333)
Stock-based compensation	—	—		62		—		—		62		—		62


July 29, 2022	1,329	$	—	$	24,335	$	30,276	$	(1,939)	$	52,672	$	170	$	52,843

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

Medtronic plc

Consolidated Statements of Cash Flows

(Unaudited)


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Operating Activities:
Net income	$	797	$	931
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	672		668
Provision for credit losses	21		15
Deferred income taxes	—		(18)
Stock-based compensation	73		62
Loss on debt extinguishment	—		53



Other, net	135		121
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net	164		89
Inventories, net	(410)		(380)
Accounts payable and accrued liabilities	(673)		(147)
Other operating assets and liabilities	96		(311)


Net cash provided by operating activities	875		1,083
Investing Activities:
Acquisitions, net of cash acquired	—		(1,191)

Additions to property, plant, and equipment	(354)		(426)
Purchases of investments	(1,916)		(1,884)
Sales and maturities of investments	1,748		1,886
Other investing activities, net	(17)		30
Net cash used in investing activities	(539)		(1,585)
Financing Activities:
Change in current debt obligations, net	500		—

Proceeds from short-term borrowings (maturities greater than 90 days)	—		2,284

Payments on long-term debt	—		(2,311)
Dividends to shareholders	(918)		(903)
Issuance of ordinary shares	77		43
Repurchase of ordinary shares	(152)		(336)
Other financing activities	(8)		273
Net cash used in financing activities	(501)		(950)
Effect of exchange rate changes on cash and cash equivalents	(39)		(122)
Net change in cash and cash equivalents	(204)		(1,574)
Cash and cash equivalents at beginning of period	1,543		3,714
Cash and cash equivalents at end of period	$	1,339	$	2,140

Supplemental Cash Flow Information
Cash paid for:
Income taxes	$	117	$	260
Interest	84		68

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

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Medtronic plc and its subsidiaries (Medtronic plc, Medtronic, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the consolidated financial statements include all the adjustments necessary for a fair statement in conformity with U.S. GAAP. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.

Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates.

The accompanying unaudited 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 eliminated in consolidation. Amounts reported in millions within this quarterly 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.

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 28, 2023. The Company’s fiscal years 2024, 2023, and 2022 will end or ended on April 26, 2024, April 28, 2023, and April 29, 2022, respectively.

2. New Accounting Pronouncements

Recently Adopted

Supplier Finance Programs

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities— Supplier Finance Programs (Subtopic 405-50), which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The Company adopted this guidance on April 29, 2023. The adoption of this standard does not have a material impact on the Company’s Consolidated Financial Statements.

As of July 28, 2023, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our consolidated financial statements.

3. Revenue

The Company's revenues are principally derived from device-based medical therapies and services related to cardiac rhythm disorders, cardiovascular 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. Prior period revenue has been recast to reflect the new reporting structure, which primarily includes allocating certain prior Medical Surgical businesses to the Other line. Refer to Note 17 to the consolidated financial statements for additional information regarding the Company's new reporting structure.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The table below illustrates net sales by segment and division for the three months ended July 28, 2023 and July 29, 2022:


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Cardiac Rhythm & Heart Failure	$	1,446	$	1,381
Structural Heart & Aortic	814		741
Coronary & Peripheral Vascular	589		579
Cardiovascular	2,850		2,701
Cranial & Spinal Technologies	1,103		1,043
Specialty Therapies	695		667
Neuromodulation	420		405
Neuroscience	2,219		2,115
Surgical & Endoscopy	1,546		1,455
Patient Monitoring & Respiratory Interventions	493		479
Medical Surgical	2,039		1,933
Diabetes	578		541
Other(1)	16		81
Total	$	7,702	$	7,371

(1) Includes revenue from the divested Renal Care Solutions business and Transition Manufacturing Agreements from previously divested businesses.

The table below illustrates net sales by market geography for each segment for the three months ended July 28, 2023 and July 29, 2022:


	U.S.(1)				Non-U.S. Developed Markets(2)				Emerging Markets(3)
	Three months ended				Three months ended				Three months ended
(in millions)	July 28, 2023		July 29, 2022		July 28, 2023		July 29, 2022		July 28, 2023		July 29, 2022
Cardiovascular	$	1,350	$	1,286	$	956	$	892	$	544	$	523
Neuroscience	1,497		1,419		416		407		306		290
Medical Surgical	881		831		772		735		386		368
Diabetes	188		206		315		264		75		72
Other(4)	8		25		5		32		3		24
Total	$	3,924	$	3,766	$	2,463	$	2,328	$	1,314	$	1,276

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

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

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

(4)Includes revenue from the divested Renal Care Solutions (RCS) business and Transition Manufacturing Agreements from previously divested businesses.

The amount of revenue recognized is reduced by sales rebates and returns. Adjustments to rebates and returns reserves are recorded as increases or decreases to revenue. At July 28, 2023, $1.1 billion of rebates were classified as other accrued expenses, and $602 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. At April 28, 2023, $1.1 billion of rebates were classified as other accrued expenses, and $555 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet.

Deferred Revenue and Remaining Performance Obligations

Deferred revenue at July 28, 2023 and April 28, 2023 was $425 million and $405 million, respectively. At July 28, 2023 and April 28, 2023, $334 million and $314 million was included in other accrued expenses, respectively, and $90 million and $91 million was included in other liabilities, respectively. During the three months ended July 28, 2023, the Company recognized $124 million of revenue that was included in deferred revenue as of April 28, 2023.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Remaining performance obligations include goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments. At July 28, 2023, the estimated revenue expected to be recognized in future periods related to unsatisfied performance obligations for executed contracts with an original duration of one year or more was approximately $0.6 billion. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next three years.

4. Acquisitions and Dispositions

Fiscal Year 2024

The Company had no acquisitions that were accounted for as business combinations during the three months ended July 28, 2023. For the three months ended July 28, 2023, purchase price allocation adjustments were not significant.

Fiscal Year 2023

The Company had acquisitions that were accounted for as business combinations during the three months ended July 29, 2022. The assets and liabilities of the 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 these acquisitions was not significant, either individually or in the aggregate, to the consolidated results of the Company for the three months ended July 29, 2022. 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. For the three months ended July 29, 2022, purchase price allocation adjustments were not significant.

Intersect ENT

On May 13, 2022, the Company acquired Intersect ENT, a global ear, nose, and throat (ENT) medical technology leader which offers a broad suite of solutions to assist surgeons treating patients who suffer from chronic rhinosinusitis (CRS). Total consideration, net of cash acquired, for the transaction, was $1.2 billion consisting of $1.1 billion of cash and $98 million previously held investments in Intersect ENT. The Company acquired $615 million of goodwill, $635 million of technology-based intangible assets, $35 million of customer-related intangible assets, and $13 million of tradenames with estimated useful lives of 20 years. The goodwill is not deductible for tax purposes.

Revenue and net loss attributable to Intersect ENT since the date of acquisition as well as costs incurred in connection with the acquisition included in the consolidated statements of income were not significant for the three months ended July 29, 2022.

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


(in millions)	Intersect ENT
Cash and cash equivalents	$	39
Inventory	32
Goodwill	615
Other intangible assets	683
Other assets	40
Total assets acquired	1,408

Current liabilities	63
Deferred tax liabilities	51
Other liabilities	18
Total liabilities assumed	131
Net assets acquired	$	1,277

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Other acquisitions

For acquisitions, other than Intersect ENT, the acquisition date fair value of net assets acquired during the three months ended July 29, 2022, was $123 million. Assets acquired were primarily comprised of $66 million of goodwill and $57 million of technology-based intangible assets, with estimated useful lives of 16 years. The goodwill is deductible for tax purposes. The Company recognized $73 million of non-cash contingent consideration liabilities in connection with these acquisitions, which are comprised of revenue and product development milestone-based payments.

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

IPR&D with no alternative future use acquired outside of a business combination is expensed immediately. During the three months ended July 28, 2023, the Company did not acquire any IPR&D in connection with asset acquisitions of technology not yet approved. During the three months ended July 29, 2022, IPR&D acquired in connection with asset acquisitions of technology not yet approved by regulators was not significant.

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. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within other operating expense, net in the consolidated statements of income.

The fair value of contingent consideration liabilities at July 28, 2023 and April 28, 2023 was $206 million. At July 28, 2023, $33 million was recorded in other accrued expenses, and $173 million was recorded in other liabilities in the consolidated balance sheet. At April 28, 2023, $34 million was recorded in other accrued expenses, and $171 million was recorded in other liabilities in the consolidated balance sheet.

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


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Beginning balance	$	206	$	119
Purchase price contingent consideration	—		73

Payments	(3)		—
Change in fair value	3		2
Ending balance	$	206	$	193

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


	Fair Value at
(in millions)	July 28, 2023		Unobservable Input	Range	Weighted Average (1)
Revenue and other performance-based payments	$81		Discount rate	11.2% - 27.2%	17.3%
		Projected fiscal year of payment	2024 - 2027	2025
Product development and other milestone-based payments	$125		Discount rate	3.9% - 5.5%	4.1%
		Projected fiscal year of payment	2024 - 2027	2026

(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.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

On April 1, 2023, the Company and DaVita Inc. (“DaVita”) completed the transaction for the Company to sell half of its Renal Care Solutions (RCS) business. In connection with the sale, the Company may be entitled to receive additional consideration based on the achievement of certain revenue, regulatory, and profitability milestones, with potential payouts starting in fiscal year 2025 through 2029. The fair value of the contingent consideration receivable at July 28, 2023 and April 28, 2023 was $152 million and $195 million, respectively, and was recorded in other assets in the consolidated balance sheet.

The following table provides a reconciliation of the beginning and ending balances of the Level 3 measurement of contingent consideration receivable:


(in millions)	July 28, 2023
Beginning balance	$	195
Change in fair value	(43)
Ending balance	$	152

Renal Care Solutions disposition

This sale is part of an agreement between Medtronic and DaVita to form a new, independent kidney care-focused medical device company (“Mozarc Medical” or "Mozarc") with equal equity ownership. RCS was part of the Company’s Medical Surgical portfolio. At closing, the Company received $45 million cash consideration, recorded non-cash contingent consideration receivables valued at $195 million, made an additional cash investment of $224 million, and retained a 50% non-controlling equity interest in Mozarc valued at $307 million. For the contingent consideration receivables, the maximum consideration the Company could receive in the future is $300 million based on the achievement of the aforementioned milestones. The Company recorded a non-cash pre-tax impairment of $67 million in the three months ended July 29, 2022, primarily related to goodwill, recognized in other operating expense, net in the consolidated statements of income. Refer to Note 10 to the consolidated financial statements for additional information on the goodwill impairment. Refer to Note 6 to the consolidated financial statements for additional information on the Company’s retained 50% equity investment in Mozarc as a result of this transaction.

The Company determined that the sale of the RCS business did not meet the criteria to be classified as discontinued operations.

5. Restructuring and Other Costs

For the three months ended July 28, 2023, the Company incurred $91 million of restructuring and associated costs related to employee termination benefits and facility consolidations to support cost reduction initiatives. For the three months ended July 29, 2022, restructuring charges primarily related to the Enterprise Excellence and Simplification restructuring programs, both of which were substantially completed as of the end of fiscal year 2023. Enterprise Excellence was designed to leverage the Company’s global size and scale to focus on global operations, and functional and commercial optimization, and had total pre-tax charges of $1.8 billion. Simplification was designed to focus the organization on accelerating innovation, enhancing customer experience, driving revenue growth and winning market share, and had total pre-tax charges of $0.5 billion.

Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated and voluntary early retirement benefits. Associated costs primarily include salaries and wages of employees that are fully-dedicated to restructuring programs and consulting expenses.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents the classification of restructuring and associated costs in the consolidated statements of income:


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Cost of products sold	$	16	$	20
Selling, general, and administrative expenses	21		41
Restructuring charges, net	54		14
Total restructuring and associated costs	$	91	$	76

The following table summarizes the activity related to restructuring programs for the three months ended July 28, 2023:


(in millions)	Employee Termination Benefits		Associated Costs		Other Costs		Total
April 28, 2023	$	204	$	23	$	1	$	230
Charges	55		37		—		92
Cash payments	(147)		(53)		—		(201)
Accrual adjustments(1)	(2)		—		—		(2)
July 28, 2023	$	110	$	7	$	1	$	119

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

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

6. Financial Instruments

Debt Securities

The Company holds investments in marketable debt securities that are classified and accounted for as available-for-sale and are remeasured on a recurring basis. 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 July 28, 2023 and April 28, 2023:


	July 28, 2023
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	549	$	—	$	(28)	$	521	$	521	$	—
Level 2:
Corporate debt securities	4,219		5		(171)		4,053		4,053		—
U.S. government and agency securities	897		—		(52)		845		845		—
Mortgage-backed securities	574		—		(56)		518		518		—
Non-U.S. government and agency securities	14		—		—		14		14		—

Other asset-backed securities	601		—		(16)		585		585		—
Total Level 2	6,305		5		(295)		6,015		6,015		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	6,890	$	5	$	(326)	$	6,570	$	6,537	$	33


	April 28, 2023
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	527	$	—	$	(22)	$	505	$	505	$	—
Level 2:
Corporate debt securities	4,140		6		(162)		3,984		3,984		—
U.S. government and agency securities	879		—		(45)		834		834		—
Mortgage-backed securities	560		—		(54)		506		506		—
Non-U.S. government and agency securities	15		—		—		15		15		—
Certificates of deposit	10		—		—		10		10		—
Other asset-backed securities	580		—		(19)		561		561		—
Total Level 2	6,185		6		(281)		5,911		5,911		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	6,748	$	6	$	(305)	$	6,449	$	6,416	$	33

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

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 July 28, 2023 and April 28, 2023:


	July 28, 2023
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate debt securities	$	376	$	(6)	$	2,896	$	(165)
U.S. government and agency securities	86		(2)		860		(78)
Mortgage-backed securities	26		(1)		463		(55)
Other asset-backed securities	—		—		534		(16)
Auction rate securities	—		—		33		(3)
Total	$	488	$	(9)	$	4,786	$	(317)


	April 28, 2023
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate debt securities	$	286	$	(4)	$	2,901	$	(158)
U.S. government and agency securities	89		(3)		821		(64)
Mortgage-backed securities	26		(1)		460		(53)
Other asset-backed securities	—		—		545		(19)
Auction rate securities	—		—		33		(3)
Total	$	401	$	(8)	$	4,760	$	(297)

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 three months ended July 28, 2023 and July 29, 2022. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

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


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Proceeds from sales	$	1,747	$	1,864
Gross realized gains	5		1
Gross realized losses	(12)		(9)

The July 28, 2023 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)	July 28, 2023
Due in one year or less	$	1,339
Due after one year through five years	3,799
Due after five years through ten years	761
Due after ten years	672
Total	$	6,570

Interest income is recognized in other non-operating income, net, in the consolidated statements of income. During the three months ended July 28, 2023 and July 29, 2022, there was $111 million and $55 million of interest income, respectively.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Equity Securities, Equity Method Investments, and Other Investments

The Company holds investments in equity securities with readily determinable fair values, equity method investments for which the Company has elected the fair value option, 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 in Level 1 of the fair value hierarchy, as they are measured using quoted market prices. Equity method investments for which the Company has elected the fair value option 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 a discounted cash flow methodology, taking into consideration various assumptions including discount rate, and all pertinent financial information available related to the investees, including historical financial statements and projected future cash flows. Equity investments that do not have readily determinable fair values, and that are not accounted for via the fair value option, are included within Level 3 of the fair value hierarchy, as they are measured using the measurement alternative at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

The following table summarizes the Company's equity and other investments at July 28, 2023 and April 28, 2023, which are classified as other assets in the consolidated balance sheets:


(in millions)	July 28, 2023		April 28, 2023
Investments with readily determinable fair value (marketable equity securities)	$	51	$	115
Investments for which the fair value option has been elected	531		531
Investments without readily determinable fair values	899		872
Equity method and other investments	88		89
Total equity and other investments	$	1,569	$	1,607

Gains and losses on the Company's portfolio of equity and other investments are recognized in other non-operating income, net in the consolidated statements of income. During the three months ended July 28, 2023, there were $64 million of net unrealized losses on equity securities and other investments still held at July 28, 2023. During the three months ended July 29, 2022, there were $8 million of net unrealized gains on equity securities and other investments still held at July 29, 2022.

Mozarc Medical Investment

On April 1, 2023, the Company sold half of its RCS business to Mozarc, and as a result of the transaction the Company retained a 50% equity interest in Mozarc. Refer to Note 4 for additional information on this transaction. Although the equity investment provides the Company with the ability to exercise significant influence over Mozarc, the Company has elected the fair value option to account for this equity investment. The Company believes the fair value option best reflects the economics of the underlying transaction.

Under the fair value option, changes in the fair value of the investment are recognized through earnings each reporting period in other non-operating income, net in the consolidated statements of income. During the three months ended July 28, 2023, the change in fair value was insignificant.

7. Financing Arrangements

Commercial Paper

The Company maintains commercial paper programs that allow the Company to issue U.S. dollar or Euro-denominated unsecured commercial paper notes. The aggregate amount outstanding at any time under the commercial paper programs may not exceed the equivalent of $3.5 billion. Commercial paper outstanding at July 28, 2023 was $500 million. During the three months ended July 28, 2023, the commercial paper outstanding had a weighted average original maturity of 14 days and a weighted average interest rate of 5.262 percent. No commercial paper was outstanding at April 28, 2023. The issuance of commercial paper reduces the amount of credit available under the Company’s existing Credit Facility, as defined below.

Line of Credit

The Company has a $3.5 billion five-year unsecured revolving credit facility (Credit Facility), which provides back-up funding for the commercial paper programs described above. The Credit Facility includes a multi-currency borrowing feature for certain specified foreign currencies. At July 28, 2023 and April 28, 2023, 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 the covenants under the Credit Facility.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Debt Obligations

The Company's debt obligations consisted of the following:


(in millions)	Maturity by Fiscal Year	July 28, 2023		April 28, 2023
Current debt obligations	2024 - 2025	$	519	$	20

Long-term debt
0.250 percent six-year 2019 senior notes	2026	1,105		1,097
2.625 percent three-year 2022 senior notes	2026	552		549
0.000 percent five-year 2020 senior notes	2026	1,105		1,097
1.125 percent eight-year 2019 senior notes	2027	1,657		1,646
4.250 percent five-year 2023 senior notes	2028	1,000		1,000
3.000 percent six-year 2022 senior notes	2029	1,105		1,097
0.375 percent eight-year 2020 senior notes	2029	1,105		1,097
1.625 percent twelve-year 2019 senior notes	2031	1,105		1,097
1.000 percent twelve-year 2019 senior notes	2032	1,105		1,097
3.125 percent nine-year 2022 senior notes	2032	1,105		1,097
0.750 percent twelve-year 2020 senior notes	2033	1,105		1,097
4.500 percent ten-year 2023 senior notes	2033	1,000		1,000
3.375 percent twelve-year 2022 senior notes	2035	1,105		1,097
4.375 percent twenty-year 2015 senior notes	2035	1,932		1,932
6.550 percent thirty-year 2007 CIFSA senior notes	2038	253		253
2.250 percent twenty-year 2019 senior notes	2039	1,105		1,097
6.500 percent thirty-year 2009 senior notes	2039	158		158
1.500 percent twenty-year 2019 senior notes	2040	1,105		1,097
5.550 percent thirty-year 2010 senior notes	2040	224		224
1.375 percent twenty-year 2020 senior notes	2041	1,105		1,097
4.500 percent thirty-year 2012 senior notes	2042	105		105
4.000 percent thirty-year 2013 senior notes	2043	305		305
4.625 percent thirty-year 2014 senior notes	2044	127		127
4.625 percent thirty-year 2015 senior notes	2045	1,813		1,813
1.750 percent thirty-year 2019 senior notes	2050	1,105		1,097
1.625 percent thirty-year 2020 senior notes	2051	1,105		1,097

Finance lease obligations	2024 - 2036	57		57
Deferred financing costs	2026 - 2051	(120)		(124)
Debt discount, net	2026 - 2051	(65)		(64)
Total long-term debt		$	24,463	$	24,344

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 Senior Notes.

In September 2022, Medtronic Luxco issued four tranches of Euro-denominated Senior Notes with an aggregate principal of €3.5 billion, with maturities ranging from fiscal year 2026 to 2035, resulting in cash proceeds of approximately $3.4 billion, net of discounts and issuance costs. The Company used the net proceeds to repay at maturity €750 million of Medtronic Luxco Senior Notes for $772 million of total consideration in December 2022 and €2.8 billion of Medtronic Luxco Senior Notes for $2.9 billion of total consideration in March 2023.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

In March 2023, Medtronic Luxco issued two tranches of USD-denominated Senior Notes with an aggregate principal of $2.0 billion, with maturities ranging from fiscal year 2028 to 2033, resulting in cash proceeds of approximately $2.0 billion, net of discounts and issuance costs. The Company used the net proceeds supplemented by additional cash to repay the ¥297 billion Fiscal 2023 Loan Agreement discussed below for $2.3 billion of total consideration.

The Euro-denominated debt issued in September 2022 is designated as a net investment hedge of certain of the Company's European operations. Refer to Note 8 for additional information regarding the net investment hedge.

Term Loan Agreements

In May 2022, Medtronic Luxco entered into a term loan agreement (Fiscal 2023 Loan Agreement) by and among Medtronic Luxco, Medtronic plc, Medtronic, Inc., and Mizuho Bank, Ltd. as administrative agent and as lender. The Fiscal 2023 Loan Agreement provides an unsecured term loan in an aggregate principal amount of up to ¥300 billion with a term of 364 days. Borrowings under the Fiscal 2023 Loan Agreement bear interest at the TIBOR Rate (as defined in the Fiscal 2023 Loan Agreement) plus a margin of 0.40% per annum. Medtronic plc and Medtronic, Inc. have guaranteed the obligations of Medtronic Luxco under the Fiscal 2023 Loan Agreement. In May and June 2022, Medtronic Luxco borrowed an aggregate of ¥297 billion, or approximately $2.3 billion, of the term loan, under the Fiscal 2023 Loan Agreement. The Company used the net proceeds of the borrowings to fund the early redemption of $1.9 billion of Medtronic Inc.'s 3.500% Senior Notes due 2025 for $1.9 billion of total consideration, and $368 million of Medtronic Luxco's 3.350% Senior Notes due 2027 for $376 million of total consideration. The Company recognized a total loss on debt extinguishment of $53 million in the three months ended July 29, 2022, which primarily includes cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss was recognized in interest expense, net in the consolidated statements of income. During the fourth quarter of fiscal year 2023, the Company repaid the term loan in full, including interest.

Financial Instruments Not Measured at Fair Value

At July 28, 2023, the estimated fair value of the Company’s Senior Notes was $21.4 billion compared to a principal value of $24.6 billion. At April 28, 2023, the estimated fair value was $21.7 billion compared to a principal value of $24.5 billion. The fair value was estimated using quoted market prices for the publicly registered Senior Notes, which are classified as Level 2 within the fair value hierarchy. The fair values and principal values consider the terms of the related debt and exclude the impacts of debt discounts and hedging activity.

8. Derivatives and Currency Exchange Risk Management

The Company uses derivative instruments and foreign currency denominated debt to manage the impact that currency exchange rate and interest rate changes have on reported financial statements. The Company does not enter into derivative contracts for speculative purposes.

Cash Flow Hedges

The Company uses foreign currency forward and option contracts designated as cash flow hedges to manage its exposure to the variability of future cash flows that are denominated in a foreign currency.

At inception, foreign currency forward and option contracts are designated as cash flow hedges. Changes in the fair value of these derivatives are reported as a component of accumulated other comprehensive loss until the hedged transaction affects earnings. When the hedged transaction affects earnings, the gain or loss on the derivative is reclassified to earnings. Amounts excluded from the measurement of hedge effectiveness are recognized in earnings on a straight-line basis over the term of the hedge. Cash flows are reported as operating activities in the consolidated statements of cash flows.

The Company's cash flow hedges will mature within the subsequent three-year period. At July 28, 2023 and April 28, 2023, the Company had $63 million and $93 million in after-tax unrealized gains, respectively, associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that $122 million of after-tax net unrealized gains at July 28, 2023 will be recognized in the consolidated statements of income over the next 12 months.

Net Investment Hedges

The Company uses derivative instruments and foreign currency denominated debt to manage foreign currency risk associated with its net investment in foreign operations. The derivative instruments that the Company uses for this purpose may include foreign currency forward exchange contracts used on a standalone basis or in combination with option collars and standalone cross currency interest rate contracts.

For instruments that are designated 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 interest expense, net on a straight-line basis over the term of the hedge. During the three months ended July 28, 2023 and July 29, 2022, the Company recognized $49 million and $21 million, respectively, in after-tax gains representing excluded components in interest expense, net. The cash flows related to the Company's derivative instruments

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

designated as net investment hedges are reported as investing activities in the consolidated statements of cash flows. Cash flows attributable to amounts excluded from the assessment of effectiveness are reported as operating activities in the consolidated statements of cash flows.

Undesignated Derivatives

The Company uses foreign currency forward exchange contracts to offset the Company’s exposure to the change in the value of non-functional currency denominated assets, liabilities, and cash flows.

These foreign currency forward exchange rate contracts are not designated as hedges at inception, and therefore, changes in the fair value of these contracts are recognized in the consolidated statements of income. Cash flows related to the Company’s undesignated derivative contracts are reported in the consolidated statements of cash flows based on the nature of the derivative instrument.

Outstanding Instruments

The following table presents the contractual amounts of the Company's outstanding instruments:


		As of
(in billions)	Designation	July 28, 2023		April 28, 2023
Currency exchange rate contracts	Cash flow hedge	$	10.0	$	9.1
Currency exchange rate contracts(1)	Net investment hedge	7.3		7.2
Foreign currency-denominated debt(2)	Net investment hedge	17.7		17.6
Currency exchange rate contracts	Undesignated	5.7		5.8

(1)At July 28, 2023, includes derivative contracts with a notional value of €4.5 billion, or $5.0 billion, designated as hedges of a portion of our net investment in certain European operations and derivative contracts with a notional value of ¥322.2 billion, or $2.3 billion, designated as hedges of a portion of our net investment in certain Japanese operations. These derivative contracts mature in fiscal years 2024 through 2033.

(2)At July 28, 2023, includes €16.0 billion, or $17.7 billion, of outstanding Euro-denominated debt as hedges of a portion our net investment in foreign operations. This debt matures in fiscal years 2026 through 2051.

Gains and Losses on Hedging Instruments and Derivatives not Designated as Hedging Instruments

The amount of the gains and losses on our hedging instruments and the classification of those gains and losses within our consolidated financial statements for the three months ended July 28, 2023 and July 29, 2022 were as follows:


	(Gain) Loss Recognized in Accumulated Other Comprehensive Loss				(Gain) Loss Reclassified into Income

	Three months ended					Three months ended					Location of (Gain) Loss in Income Statement
(in millions)	July 28, 2023		July 29, 2022				July 28, 2023		July 29, 2022
Cash flow hedges
Currency exchange rate contracts	$	(4)	$	(342)			$	(51)	$	(137)		Other operating expense, net
Currency exchange rate contracts	(33)		(34)				(5)		18			Cost of products sold
Net investment hedges
Foreign currency-denominated debt	114		(945)				—		—			N/A
Currency exchange rate contracts	30		(57)				—		—			N/A
Total	$	106	$	(1,378)			$	(56)	$	(120)

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The amount of the gains and losses on our derivative instruments not designated as hedging instruments and the classification of those gains and losses within our consolidated financial statements during the three months ended July 28, 2023 and July 29, 2022 were as follows:


	(Gain) Loss Recognized in Income
	Three months ended				Location of (Gain) Loss in Income Statement
(in millions)	July 28, 2023		July 29, 2022
Derivatives not designated as hedging instruments
Currency exchange rate contracts	$	(2)	$	26		Other operating expense, net
Total return swaps	(19)		(1)			Other operating expense, net
Total	$	(21)	$	25

Balance Sheet Presentation

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at July 28, 2023 and April 28, 2023. 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.


	Fair Value - Assets					Fair Value - Liabilities
(in millions)	July 28, 2023		April 28, 2023		Balance Sheet Classification	July 28, 2023		April 28, 2023		Balance Sheet Classification
Derivatives designated as hedging instruments
Currency exchange rate contracts	$	300	$	318	Other current assets	$	136	$	109	Other accrued expenses

Currency exchange rate contracts	53		33		Other assets	121		117		Other liabilities
Total derivatives designated as hedging instruments	353		351			258		226
Derivatives not designated as hedging instruments
Currency exchange rate contracts	45		17		Other current assets	48		10		Other accrued expenses
Total return swaps	24		—		Other current assets	—		—		Other accrued expenses



Total derivatives not designated as hedging instruments	68		17			48		10
Total derivatives	$	421	$	368		$	306	$	236

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


	July 28, 2023				April 28, 2023
(in millions)	Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities
Level 1	$	398	$	306		$	368	$	236
Level 2	24		—			—		—
Total	$	421	$	306		$	368	$	236

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

(Unaudited)

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.


	July 28, 2023
			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	$	398	$	(223)	$	(6)	$	168


Total return swaps	24		—		—		24
	421		(223)		(6)		192
Derivative liabilities:
Currency exchange rate contracts	(306)		223		1		(82)




Total	$	115	$	—	$	(5)	$	110


	April 28, 2023
			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	$	368	$	(189)	$	(11)	$	168




Derivative liabilities:
Currency exchange rate contracts	(236)		189		—		(48)




Total	$	132	$	—	$	(11)	$	121

9. Inventories

Inventory balances, net of reserves, were as follows:


(in millions)	July 28, 2023		April 28, 2023
Finished goods	$	3,723	$	3,440
Work-in-process	816		789
Raw materials	1,130		1,063
Total	$	5,668	$	5,293

10. 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 28, 2023	$	7,873	$	19,579	$	11,718	$	2,255	$	41,425

Purchase accounting adjustments	(6)		—		—		—		(6)
Currency translation and other	13		11		(7)		—		17
July 28, 2023	$	7,880	$	19,590	$	11,711	$	2,255	$	41,436

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

As further described in Note 17, the Company has certain new operating segments as of the beginning of fiscal year 2024. Each new operating segment is considered a standalone reporting unit as of the beginning of fiscal year 2024. As a result of the change, the Company allocated all goodwill that was previously assigned to the Medical Surgical reporting unit to the new reporting units using a relative fair value allocation approach. Reporting units were tested for impairment before and after the alignment. No goodwill impairment was identified in either test; however, the Patient Monitoring & Respiratory Interventions reporting unit had an estimated fair value that exceeded its carrying value by less than 10 percent. As of July 28, 2023, $3.0 billion of goodwill was allocated to the Patient Monitoring & Respiratory Interventions reporting unit.

The goodwill allocation and the tests for impairment of goodwill require the Company to make several estimates related to projected future cash flows to determine the fair value of the goodwill reporting units. The Company calculates the excess of each reporting unit's fair value over its carrying amount, including goodwill, utilizing a discounted cash flow analysis. The test for goodwill is based on future cash flows that require significant judgment with respect to future revenue and expense growth rates and discount 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. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on the Company's results of operations.

As a result of the agreement with DaVita, as disclosed in Note 4 to the consolidated financial statements, the Company allocated $208 million of goodwill to the RCS business that met the criteria to be classified as held for sale during the first quarter of fiscal year 2023 and was subsequently sold on April 1, 2023. Upon allocation, a goodwill impairment test was performed for the RCS business, and the Company recognized $61 million of goodwill impairment during the three months ended July 29, 2022. The goodwill impairment charges are recognized in other operating expense, net in the consolidated statements of income.

Intangible Assets

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


	July 28, 2023				April 28, 2023
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Definite-lived:
Customer-related	$	16,956	$	(8,221)	$	16,956	$	(7,979)
Purchased technology and patents	11,664		(6,451)		11,659		(6,277)
Trademarks and tradenames	485		(282)		486		(280)
Other	124		(73)		116		(69)
Total	$	29,229	$	(15,027)	$	29,217	$	(14,605)
Indefinite-lived:
IPR&D	$	232	$	—	$	232	$	—

The Company did not recognize any definite-lived or indefinite-lived intangible asset charges during the three months ended July 28, 2023 and July 29, 2022. 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 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.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Amortization Expense

Intangible asset amortization expense for the three months ended July 28, 2023 and July 29, 2022 was $429 million and $423 million, respectively. Estimated aggregate amortization expense by fiscal year based on the carrying value of definite-lived intangible assets at July 28, 2023, excluding any possible future amortization associated with acquired IPR&D which has not yet met technological feasibility, is as follows:


(in millions)	Amortization Expense
Remaining 2024	$	1,256
2025	1,654
2026	1,642
2027	1,619
2028	1,568
2029	1,489

11. Income Taxes

The Israeli Central-Lod District Court issued its decision in Medtronic Ventor Technologies Ltd (Ventor) v. Kfar Saba Assessing Office on June 1, 2023. The court determined that there was a deemed taxable transfer of intellectual property. As a result, the Company has recorded a $187 million income tax charge during the three months ended July 28, 2023. At this time, the Company is evaluating whether or not it will appeal the decision.

The Company's effective tax rate for the three months ended July 28, 2023 was 33.4%, as compared to 10.7% for the three months ended July 29, 2022. The increase in our effective tax rate primarily relates to an income tax reserve adjustment associated with the Ventor court decision discussed above, an increase in Puerto Rico withholding tax rates, and the benefit from the release of a valuation allowance during the three months ended July 29, 2022.

At July 28, 2023 and April 28, 2023, the Company's gross unrecognized tax benefits were $2.8 billion and $2.7 billion, respectively. In addition, the Company had accrued gross interest and penalties of $154 million at July 28, 2023. If all of the Company’s unrecognized tax benefits were recognized, approximately $2.6 billion would impact the Company’s effective tax rate. At both July 28, 2023 and April 28, 2023, the amount of the Company's gross unrecognized tax benefits, net of cash advance, recorded as a noncurrent liability within accrued income taxes on the consolidated balance sheets was $1.8 billion. The Company recognizes interest and penalties related to income tax matters within income tax provision in the consolidated statements of income and records the liability within either current or noncurrent accrued income taxes on the consolidated balance sheets.

Refer to Note 16 to the consolidated financial statements for additional information regarding the status of current tax audits and proceedings.

12. Earnings Per Share

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

(Unaudited)

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


	Three months ended
(in millions, except per share data)	July 28, 2023		July 29, 2022
Numerator:
Net income attributable to ordinary shareholders	$	791	$	929
Denominator:
Basic – weighted average shares outstanding	1,330.5		1,329.4
Effect of dilutive securities:
Employee stock options	1.2		2.7
Employee restricted stock units	1.7		1.3
Employee performance share units	0.3		1.1
Diluted – weighted average shares outstanding	1,333.8		1,334.5
Basic earnings per share	$	0.59	$	0.70
Diluted earnings per share	$	0.59	$	0.70

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 22 million and 14 million ordinary shares for the three months ended July 28, 2023 and July 29, 2022, respectively, because their effect would have been anti-dilutive on the Company’s earnings per share.

13. Stock-Based Compensation

The following table presents the components and classification of stock-based compensation expense for stock options, restricted stock, performance share units, and employee stock purchase plan shares recognized for the three months ended July 28, 2023 and July 29, 2022:


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Stock options	$	12	$	12
Restricted stock	38		27
Performance share units	12		12
Employee stock purchase plan	11		11
Total stock-based compensation expense	$	73	$	62

Cost of products sold	$	7	$	6
Research and development expense	9		7
Selling, general, and administrative expense	58		49
Total stock-based compensation expense	73		62
Income tax benefits	(11)		(11)
Total stock-based compensation expense, net of tax	$	62	$	51

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

14. 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 periodic benefit cost of the defined benefit pension plans included the following components for the three months ended July 28, 2023 and July 29, 2022:


	U.S.				Non-U.S.
	Three months ended				Three months ended
(in millions)	July 28, 2023		July 29, 2022		July 28, 2023		July 29, 2022

Service cost	$	15	$	19	$	10	$	12
Interest cost	40		36		12		10
Expected return on plan assets	(65)		(56)		(17)		(16)
Amortization of prior service cost	(1)		—		—		—
Amortization of net actuarial loss	5		5		—		1
Net periodic benefit (credit) cost	$	(6)	$	4	$	5	$	7

Components of net periodic benefit cost other than the service component are recognized in other non-operating income, net in the consolidated statements of income.

15. Accumulated Other Comprehensive Loss

The following table provides changes in accumulated other comprehensive loss (AOCI), net of tax, and by component:


(in millions)	Unrealized (Loss) Gain on Investment Securities		Cumulative Translation Adjustments		Net Investment Hedges		Net Change in Retirement Obligations		Unrealized Gain (Loss) on Cash Flow Hedges		Total Accumulated Other Comprehensive (Loss) Income
April 28, 2023	$	(258)	$	(2,839)	$	245	$	(741)	$	93	$	(3,499)
Other comprehensive (loss) income before reclassifications	(28)		14		(143)		1		12		(144)
Reclassifications	8		—		—		2		(42)		(32)
Other comprehensive (loss) income	(19)		14		(143)		3		(30)		(175)
July 28, 2023	$	(277)	$	(2,825)	$	102	$	(738)	$	63	$	(3,674)


(in millions)	Unrealized (Loss) Gain on Investment Securities		Cumulative Translation Adjustment		Net Investment Hedges		Net Change in Retirement Obligations		Unrealized Gain (Loss) on Cash Flow Hedges		Total Accumulated Other Comprehensive (Loss) Income
April 29, 2022	$	(209)	$	(2,599)	$	841	$	(773)	$	474	$	(2,265)
Other comprehensive income (loss) before reclassifications	(22)		(881)		1,002		3		312		414
Reclassifications	6		—		—		(2)		(91)		(87)
Other comprehensive income (loss)	(16)		(881)		1,002		1		220		326

July 29, 2022	$	(225)	$	(3,480)	$	1,843	$	(772)	$	694	$	(1,939)

The income tax on gains and losses on investment securities in other comprehensive income before reclassifications during the three months ended July 28, 2023 and July 29, 2022 was a benefit of $3 million and $9 million, respectively. During the three months ended July 28, 2023 and July 29, 2022, realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $3 million and $2 million, respectively. When realized, gains and losses on investment securities reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 6 to the consolidated financial statements for additional information.

For the three months ended July 28, 2023, there was no income tax on cumulative translation adjustment. For the three months ended July 29, 2022, the income tax on cumulative translation adjustment was a benefit of $3 million.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

During the three months ended July 28, 2023 and July 29, 2022, there were no tax impacts on net investment hedges. Refer to Note 8 to the consolidated financial statements 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. During the three months ended July 28, 2023, there were no tax impacts on retirement obligations. During the three months ended July 29, 2022, the net change in retirement obligations in other comprehensive income before reclassifications resulted in income tax expense of $1 million. During the three months ended July 28, 2023 and July 29, 2022, the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $1 million and $6 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 14 to the consolidated financial statements for additional information.

The income tax on unrealized gains and losses on cash flow hedges in other comprehensive income before reclassifications during the three months ended July 28, 2023 and July 29, 2022, was an expense of $25 million and $64 million, respectively. During the three months ended July 28, 2023 and July 29, 2022, gains and losses on cash flow hedges reclassified from AOCI were reduced by income taxes of $13 million and $22 million, respectively. When realized, gains and losses on currency exchange rate contracts reclassified from AOCI are recognized within other operating expense, net or cost of products sold. Refer to Note 8 to the consolidated financial statements for additional information.

16. Commitments and Contingencies

Legal Matters

The Company and its affiliates are involved in a number of legal actions from time to time involving product liability, employment, 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 certain specified litigation charges and gains related to significant legal matters as certain litigation charges in the consolidated statements of income. The Company recognized $40 million of certain litigation charges during the three months ended July 28, 2023, whereas the Company recognized no certain litigation charges during the three months ended July 29, 2022. At July 28, 2023 and April 28, 2023, accrued litigation was approximately $0.3 billion. The ultimate cost to the Company with respect to accrued litigation could be materially different than the amount of the current estimates and accruals and could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows. The Company includes accrued litigation in other accrued expenses and other liabilities on the consolidated balance sheets. While it is not possible to predict the outcome for most of the legal matters discussed below, the Company believes it is possible that the costs associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.

Intellectual Property Matters

At any given time, the Company is involved in litigation relating to patents, trademarks, copyrights, trade secrets, and other intellectual property (IP) rights, and licenses, acquisitions or other agreements relating to such rights. This litigation includes, but is not limited to, alleged infringement or misappropriation of IP rights, or breach of obligations related to IP rights, or other claims asserted by competitors, individuals, or, consistent with a growing trend across technology-intensive industries, other entities created specifically to fund IP litigation. While the outcome of these litigation matters is inherently uncertain, it is possible that the results of such litigation could require the Company to pay significant monetary damages and/or royalty payments, and negatively impact the Company's ability to sell current or

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

future products, which could have a material adverse impact on the Company's business, results of operations, financial condition, and cash flows.

Colibri

The Company is a defendant in patent litigation brought by Colibri Heart Valve LLC (Colibri) in the U.S. District Court for the Central District of California. Colibri alleges infringement of one patent by the Company’s Evolut family of transcatheter aortic valve replacement devices. The patent asserted by Colibri has expired. On February 8, 2023, a jury returned a verdict against the Company for approximately $106 million. In July 2023, the Company filed its appeal with the U.S. Court of Appeals for the Federal Circuit. The Company has not recognized an expense in connection with this matter because it does not currently believe a loss is probable.

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 August 2, 2023, 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.

Hernia Mesh Litigation

Starting in fiscal year 2020, plaintiffs began filing lawsuits against certain subsidiaries of the Company in U.S. state and federal courts that allege personal injury from hernia mesh products sold by those subsidiaries. As of August 2, 2023, the Company and certain of its subsidiaries have been named as defendants in lawsuits filed on behalf of approximately 7,450 individual plaintiffs, and certain plaintiffs’ law firms have advised the Company that they may file additional cases in the future. Approximately 6,400 plaintiffs have filed lawsuits in a coordinated proceeding in Massachusetts state court, where they have been consolidated before a single judge. Approximately 500 plaintiffs have filed lawsuits in a coordinated action in Minnesota state court, and there are approximately 550 actions coordinated in a federal Multidistrict Litigation in the U.S. District Court for the District of Massachusetts. 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 and reasonably estimable. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from these matters.

Diabetes Pump Retainer Ring Litigation

Starting in fiscal year 2021, plaintiffs began filing lawsuits against the Diabetes operating unit in U.S. state and federal courts alleging personal injury from Series 600 insulin pumps with allegedly defective clear retainer rings that were subject to field corrective actions in 2019 and 2021. As of August 3, 2023, 63 individual plaintiffs have filed lawsuits, and certain plaintiffs’ law firms have notified the Company that they may file additional lawsuits in the future on behalf of thousands of additional claimants. Most of the filed suits are coordinated in California state court. The Company has not recorded an expense related to damages in connection with these matters because any potential loss is not currently probable and reasonably estimable. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from these matters.

Environmental Proceedings

The Company is a successor to several investigation and cleanup actions at various stages related to environmental remediation matters at a number of sites, including in Orrington, Maine. 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.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The Company is also a successor to a party named in a lawsuit filed in the U.S. District Court for the District of Maine in the early 2000's by the Natural Resources Defense Council and the Maine People's Alliance relating to mercury contamination of the Penobscot River and Bay and options for remediating such contamination. In March 2021, the parties notified the court that they had agreed on a settlement in principle of all issues in this matter, and in September 2022 the parties filed a joint motion for final approval by the court. In October 2022, the court issued a final order approving the settlement and the parties are working with consultants on implementation of remedial activities. The final court order did not result in a change to the Company's previous accrual for this matter.

The Company's accrued expenses for these various 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 (Tax Court) reviewed this dispute, and in June 2016, issued an opinion with respect to the allocation of income between the parties for fiscal years 2005 and 2006 whereby it generally rejected the IRS’s position, but also made certain modifications to the Medtronic, Inc. tax returns as filed. In April 2017, the IRS filed a Notice of Appeal to the U.S. Court of Appeals for the Eighth Circuit regarding the Tax Court opinion. Oral argument for the Appeal occurred in March 2018. The U.S. Court of Appeals issued its opinion in August 2018 and remanded the case back to the Tax Court for additional factual findings, which it concluded in June 2021. The Tax Court issued its opinion on August 18, 2022, and it remains subject to appeal by either or both parties. At this time, the Company is evaluating whether to file an appeal.

The IRS has issued its audit reports on Medtronic, Inc. for fiscal years 2007 through 2016. Medtronic, Inc. and the IRS have reached agreement on all significant issues except for 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 matter 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.

Covidien LP (a wholly owned subsidiary of Medtronic plc) has either reached agreement with the IRS or the statute of limitations has lapsed on its U.S. federal income tax returns through fiscal year 2019.

Although 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.

Refer to Note 11 for additional discussion of income taxes.

Guarantees

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.

17. Segment and Geographic Information

Segment disclosures are on a performance basis consistent with internal management reporting. Net sales of the Company's reportable segments include end-customer revenues from the sale of products the segment develops, manufactures, and distributes. The Company’s management evaluates 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 income or expense, amortization of intangible assets, centralized distribution costs, currency impact of remeasurement and hedging, non-operating income or expense items, certain corporate charges, stock-based compensation, and other items not allocated to the segments.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 2023. Certain depreciable assets may be recorded by one segment, while the depreciation expense is allocated to another segment. The allocation of depreciation expense is based on the proportion of the assets used by each segment.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

As of the beginning of fiscal year 2024, the Company realigned the operating segment structure as a result of how the Chief Operating Decision Maker assesses business performance. We continue to have four reportable segments: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio, and Diabetes Operating Unit. The Medical Surgical Portfolio now consists of two operating segments which have been aggregated based upon similar economic and operating characteristics. Prior period segment operating profit has been recast to reflect the new reporting structure, which primarily includes allocating certain prior Medical Surgical businesses to the Other line. Prior period amounts have also been recast to reallocate certain expenses from segment operating profit to centralized distribution costs to conform to classifications used in the current year.

The following tables present reconciliations of financial information from the segments to the applicable line items in the Company's consolidated financial statements:

Segment Operating Profit


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Cardiovascular	$	1,092	$	979
Neuroscience	929		841
Medical Surgical	719		693
Diabetes	84		79
Other (1)	4		(24)
Segment operating profit	2,828		2,567
Interest expense, net	(148)		(164)
Other non-operating income, net	76		83
Amortization of intangible assets	(429)		(423)
Corporate	(447)		(414)
Stock-based compensation	(73)		(62)
Centralized distribution costs	(395)		(406)
Currency (2)	(3)		81
Restructuring and associated costs	(91)		(76)
Acquisition and divestiture-related items	(50)		(109)
Certain litigation charges	(40)		—
Medical device regulations	(31)		(32)
Income before income taxes	$	1,196	$	1,044

(1)Includes the operations from the Renal Care Solutions business contributed to Mozarc Medical on April 1, 2023 and Transition Manufacturing and Service Agreements for previously divested businesses.

(2)Includes the net impact of remeasurement and the Company's hedging programs recorded in other operating expense, net.

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. The following table presents net sales for the three months ended July 28, 2023 and July 29, 2022 for the Company's country of domicile, countries with significant concentrations, and all other countries:


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Ireland	$	29	$	23

United States	3,924		3,766
Rest of world	3,749		3,582
Total other countries, excluding Ireland	7,673		7,348
Total	$	7,702	$	7,371

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