What changed in this filing

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Item 1. Financial Statements

2023-03-01 compared with 2022-12-01 · 235 added, 205 removed, 810 unchanged (35% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Three months ended Six months ended

(in millions, except per share data) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended

(in millions, except per share data) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Net sales $ 7,727 $ 7,763 $ 22,682 $ 23,597

9 unchanged sentences

Other non-operating income, net ( 149 ) ( 67 ) ( 342 ) ( 244 )

Interest expense 118 136 282 273

Interest expense, net 167 137 449 410

Income before income taxes 1,375 1,589 3,813 3,915

10 unchanged sentences

Consolidated Statements of Comprehensive Income

Three months ended Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Net income $ 1,229 $ 1,483 $ 2,595 $ 3,570

Other comprehensive (loss) income, net of tax:

Unrealized loss on investment securities ( 167 ) ( 56 ) ( 183 ) ( 44 )

Unrealized gain (loss) on investment securities 107 ( 70 ) ( 76 ) ( 114 )

Translation adjustment 1,689 ( 362 ) ( 20 ) ( 963 )

1 unchanged sentence

Net change in retirement obligations ( 2 ) 19 2 56

Unrealized gain on cash flow hedges 158 95 378 269

Unrealized (loss) gain on cash flow hedges ( 760 ) 100 ( 382 ) 369

Other comprehensive (loss) income ( 824 ) 162 ( 924 ) 602

5 unchanged sentences

Consolidated Balance Sheets

(in millions) October 28, 2022 April 29, 2022

(in millions) January 27, 2023 April 29, 2022

Current assets:

56 unchanged sentences

Net income — — — 427 — 427 8 435

Other comprehensive income (loss) — — — — ( 422 ) ( 422 ) ( 2 ) ( 424 )

Other comprehensive (loss) income — — — — ( 422 ) ( 422 ) ( 2 ) ( 424 )

Dividends to shareholders ($ 0.68 per ordinary share)

4 unchanged sentences

October 28, 2022 1,330 $ — $ 24,442 $ 29,799 $ ( 2,361 ) $ 51,880 $ 177 $ 52,057

Net income — — — 1,222 — 1,222 6 1,229

Other comprehensive (loss) income — — — — ( 828 ) ( 828 ) 4 ( 824 )

Dividends to shareholders ($ 0.68 per ordinary share)

— — — ( 904 ) — ( 904 ) — ( 904 )

Issuance of shares under stock purchase and award plans 1 — 48 — — 48 — 48

Repurchase of ordinary shares ( 1 ) — ( 63 ) — — ( 63 ) — ( 63 )

Stock-based compensation — — 81 — — 81 — 81

Changes to noncontrolling ownership interests — — 5 — — 5 ( 11 ) ( 6 )

January 27, 2023 1,330 $ — $ 24,513 $ 30,117 $ ( 3,189 ) $ 51,441 $ 177 $ 51,618

Ordinary Shares Additional Paid-in Capital Retained

22 unchanged sentences

October 29, 2021 1,345 $ — $ 26,059 $ 28,974 $ ( 3,042 ) $ 51,991 $ 168 $ 52,159

Net income — — — 1,480 — 1,480 4 1,483

Other comprehensive income (loss) — — — — 162 162 — 162

Dividends to shareholders ($ 0.63 per ordinary share)

— — — ( 847 ) — ( 847 ) — ( 847 )

Issuance of shares under stock purchase and award plans 1 — 49 — — 49 — 49

Repurchase of ordinary shares ( 3 ) — ( 372 ) — — ( 372 ) — ( 372 )

Stock-based compensation — — 78 — — 78 — 78

January 28, 2022 1,343 $ — $ 25,814 $ 29,607 $ ( 2,879 ) $ 52,542 $ 171 $ 52,713

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

1 unchanged sentence

Consolidated Statements of Cash Flows

Six months ended

(in millions) October 28, 2022 October 29, 2021

Nine months ended

(in millions) January 27, 2023 January 28, 2022

Operating Activities:

30 unchanged sentences

Other financing activities ( 276 ) ( 52 )

Net cash provided by (used in) financing activities 2,064 ( 2,210 )

Net cash used in financing activities ( 70 ) ( 3,387 )

Effect of exchange rate changes on cash and cash equivalents 317 ( 87 )

19 unchanged sentences

The COVID-19 pandemic ("COVID-19" or the "pandemic") 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 uncertain and unpredictable.

While there was not a material impact to the Company’s consolidated financial statements as of and for the three and six months ended October 28, 2022, changes in the Company’s assessment about the length and severity of the pandemic, as well as other factors, could result in actual results differing from estimates.

While there was not a material impact to the Company’s consolidated financial statements as of and for the three and nine months ended January 27, 2023, changes in the Company’s assessment about the length and severity of the pandemic, as well as other factors, could result in actual results differing from estimates.

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.

7 unchanged sentences

Recently Adopted

For the three and six months ended October 28, 2022, there were no newly adopted accounting pronouncements that had a material impact to our consolidated financial statements.

As of October 28, 2022, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our consolidated financial statements .

For the three and nine months ended January 27, 2023, there were no newly adopted accounting pronouncements that had a material impact to our consolidated financial statements.

As of January 27, 2023, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our consolidated financial statements .

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.

2 unchanged sentences

Notes to Consolidated Financial Statements

The table below illustrates net sales by segment and division for the three and six months ended October 28, 2022 and October 29, 2021:

The table below illustrates net sales by segment and division for the three and nine months ended January 27, 2023 and January 28, 2022:

Three months ended

Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Cardiac Rhythm & Heart Failure $ 1,431 $ 1,402 $ 4,255 $ 4,356

11 unchanged sentences

Total $ 7,727 $ 7,763 $ 22,682 $ 23,597

The table below illustrates net sales by market geography for each segment for the three and six months ended October 28, 2022 and October 29, 2021:

The table below illustrates net sales by market geography for each segment for the three and nine months ended January 27, 2023 and January 28, 2022:

Developed Markets (2)

1 unchanged sentence

Three months ended Three months ended Three months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Cardiovascular $ 1,375 $ 1,297 $ 859 $ 935 $ 538 $ 513

5 unchanged sentences

Emerging Markets (3)

Six months ended Six months ended Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Nine months ended Nine months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Cardiovascular $ 4,097 $ 4,090 $ 2,553 $ 2,886 $ 1,607 $ 1,486

9 unchanged sentences

Adjustments to rebates and returns reserves are recorded as increases or decreases to revenue.

At October 28, 2022, $ 1.0 billion of rebates were classified as other accrued expenses , and $ 536 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet.

At January 27, 2023, $ 1.1 billion of rebates were classified as other accrued expenses , and $ 536 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet.

At April 29, 2022, $ 981 million of rebates were classified as other accrued expenses, and $ 548 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet.

3 unchanged sentences

The Company records a deferred revenue liability if a customer pays consideration, or the Company has the right to invoice, before the Company transfers a good or service to the customer.

Deferred revenue at October 28, 2022 and April 29, 2022 was $ 380 million and $ 399 million, respectively.

At October 28, 2022 and April 29, 2022, $ 293 million and $ 305 million was included in other accrued expenses, respectively, and $ 87 million and $ 94 million was included in other liabilities, respectively.

During the six months ended October 28, 2022, the Company recognized $ 160 million of revenue that was included in deferred revenue as of April 29, 2022.

Deferred revenue at January 27, 2023 and April 29, 2022 was $ 403 million and $ 399 million, respectively.

At January 27, 2023 and April 29, 2022, $ 311 million and $ 305 million was included in other accrued expenses, respectively, and $ 92 million and $ 94 million was included in other liabilities, respectively.

During the nine months ended January 27, 2023, the Company recognized $ 211 million of revenue that was included in deferred revenue as of April 29, 2022.

Remaining performance obligations include goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments.

At October 28, 2022, 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 $ 719 million.

At January 27, 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 $ 662 million.

The Company expects to recognize revenue on the majority of these remaining performance obligations over the next three years .

Acquisitions and Assets and Liabilities Held for Sale

During the three and six months ended October 28, 2022 and October 29, 2021, the Company had acquisitions that were accounted for as business combinations.

During the nine months ended January 27, 2023 and January 28, 2022, the Company had acquisitions that were accounted for as business combinations.

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 and six months ended October 28, 2022 and October 29, 2021.

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 and nine months ended January 27, 2023 and January 28, 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 and six months ended October 28, 2022, purchase price allocation adjustments were not significant.

For the three and nine months ended January 27, 2023, purchase price allocation adjustments were not significant.

Fiscal Year 2023

1 unchanged sentence

On May 13, 2022, the Company acquired Intersect ENT, a global ear, nose, and throat (ENT) medical technology leader.

The acquisition expands the Neuroscience segment portfolio of products used during ENT procedures, and combined with the Company's navigation, powered instruments, and existing tissue health products, will offer a broader suite of solutions to assist surgeons treating patients who suffer from chronic rhinosinusitis (CRS).

The acquisition expands the Neuroscience segment portfolio of products used during ENT procedures, and combined with the Company's navigation, powered instruments, and existing tissue health products, offers a broader suite of solutions to assist surgeons treating patients who suffer from chronic rhinosinusitis (CRS).

Total consideration, net of cash acquired, for the transaction, in which the Company acquired all outstanding shares of Intersect ENT for $ 28.25 per share, was $ 1.2 billion consisting of $ 1.1 billion of cash and $ 98 million previously held investments in Intersect ENT.

1 unchanged sentence

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 and six months ended October 28, 2022.

On August 30, 2022, the Company acquired Affera, Inc.

(Affera) a privately-held company focused on the development of cardiac mapping and navigation systems and catheter-based cardiac ablation technologies.

The acquisition expands the Cardiovascular segment portfolio of advanced cardiac ablation products and accessories to include its first cardiac mapping and navigation platform to meet physician needs within a growing patient population.

The acquisition expands the Cardiovascular segment suite of advanced cardiac ablation products and accessories, including its first cardiac mapping and navigation platform.

Total consideration, net of cash acquired for the transaction, was $ 904 million.

1 unchanged sentence

The goodwill is not deductible for tax purposes.

The Company recognized $ 201 million of contingent consideration liabilities in connection with the acquisition, which are comprised of product development milestone-based payments.

Revenue and net loss attributable to Affera 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 October 28, 2022.

The Company recognized $ 201 million of non-cash contingent consideration liabilities in connection with the acquisition, which are comprised of product development milestone-based payments.

Medtronic plc

14 unchanged sentences

Other acquisitions

For acquisitions other than Intersect ENT and Affera, the acquisition date fair value of net assets acquired during the six months ended October 28, 2022 was $ 123 million.

For acquisitions other than Intersect ENT and Affera, the acquisition date fair value of net assets acquired during the nine months ended January 27, 2023 was $ 123 million.

Based upon preliminary valuations, 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 contingent consideration liabilities in connection with these acquisitions during the six months ended October 28, 2022, which are comprised of revenue and product development milestone-based payments.

The Company recognized $ 73 million of contingent consideration liabilities in connection with these acquisitions during the nine months ended January 27, 2023, which are comprised of revenue and product development milestone-based payments.

Fiscal year 2022

The acquisition date fair value of net assets acquired during the six months ended October 29, 2021 was $ 125 million, consisting of $ 154 million of assets acquired and $ 29 million of liabilities assumed.

The acquisition date fair value of net assets acquired during the nine months ended January 28, 2022 was $ 125 million, consisting of $ 154 million of assets acquired and $ 29 million of liabilities assumed.

Assets acquired were primarily comprised of $ 80 million of goodwill and $ 50 million of technology-based intangible assets with estimated useful lives ranging from 15 years to 16 years.

The goodwill is not deductible for tax purposes.

The Company recognized $ 31 million of contingent consideration liabilities in connection with business combinations during the six months ended October 29, 2021, which are comprised of revenue and product development milestone-based payments.

The Company recognized $ 31 million of contingent consideration liabilities in connection with business combinations during the nine months ended January 28, 2022, 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.

The Company did not acquire any IPR&D in connection with asset acquisitions of technology not yet approved during the three months ended October 28, 2022 and October 29, 2021.

During the six months ended October 28, 2022, IPR&D acquired in connection with asset acquisitions of technology not yet approved by regulators was not significant.

During the six months ended October 29, 2021, the Company acquired $ 90 million of IPR&D in connection with asset acquisitions of technology not yet approved by regulators, which was recognized in research and development expense in the consolidated statements of income.

The Company did not acquire any IPR&D in connection with asset acquisitions of technology not yet approved during the three months ended January 27, 2023.

During the three months ended January 28, 2022 and the nine months ended January 27, 2023, IPR&D acquired in connection with asset acquisitions of technology not yet approved by regulators was no t significant.

During the nine months ended January 28, 2022, the Company acquired $ 101 million of IPR&D in connection with asset acquisitions of technology not yet approved by regulators, which was recognized in research and development expense in the consolidated statements of income.

Contingent Consideration

2 unchanged sentences

The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within other operating (income) expense, net in the consolidated statements of income.

The fair value of contingent consideration at October 28, 2022 and April 29, 2022 was $ 349 million and $ 119 million, respectively.

At October 28, 2022, $ 149 million was recorded in other accrued expenses , and $ 200 million was recorded in other liabilities in the consolidated balance sheet.

The fair value of contingent consideration at January 27, 2023 and April 29, 2022 was $ 308 million and $ 119 million, respectively.

At January 27, 2023, $ 137 million was recorded in other accrued expenses , and $ 172 million was recorded in other liabilities in the consolidated balance sheet.

At April 29, 2022, $ 35 million was recorded in other accrued expenses , and $ 84 million was recorded in other liabilities in the consolidated balance sheet.

2 unchanged sentences

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

Three months ended Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Beginning balance $ 349 $ 269 $ 119 $ 270

6 unchanged sentences

Fair Value at

(in millions) October 28, 2022 Unobservable Input Range Weighted Average (1)

(in millions) January 27, 2023 Unobservable Input Range Weighted Average (1)

Revenue and other performance-based payments $ 88 Discount rate 11.2 % - 27.2 %

9 unchanged sentences

As a result of entering into the definitive agreement and as of that date, the RCS business met the criteria to be classified as held for sale.

The transaction is expected to close in calendar year 2023, subject to customary regulatory approvals and closing conditions.

The transaction is expected to close in the fourth fiscal quarter, subject to customary regulatory approvals and closing conditions.

RCS is part of the Company’s Medical Surgical portfolio.

The Company recorded non-cash pre-tax charges of $ 14 million and $ 81 million, primarily related to impairment of goodwill and changes in the carrying amount of the disposal group, in the three and six months ended October 28, 2022, respectively, recognized in other operating (income) expense, net in the consolidated statements of income.

The Company recorded non-cash pre-tax charges $ 81 million, primarily related to impairment of goodwill and changes in the carrying amount of the disposal group, in the nine months ended January 27, 2023, recognized in other operating (income) expense, net in the consolidated statements of income.

There were no impairment charges in the three months ended January 27, 2023.

Refer to Note 10 to the consolidated financial statements for additional information on the goodwill impairment.

2 unchanged sentences

The following table presents information related to the assets and liabilities that were classified as held for sale in our consolidated balance sheet:

(in millions) October 28, 2022

(in millions) January 27, 2023

Inventories, net $ 105

8 unchanged sentences

Restructuring and Other Costs

Enterprise Excellence

In the third quarter of fiscal year 2018, the Company announced its Enterprise Excellence restructuring program.

Further program details are described in Note 4 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2022.

Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of $ 1.7 billion in connection with the Enterprise Excellence program.

In total, the Company estimates it will recognize approximately $ 1.8 billion of exit and disposal costs and other costs related to the program by the end of fiscal year 2023.

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.

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

For the three and six months ended October 28, 2022, the Company recognized net charges of $ 53 million and $ 93 million, respectively, of which $ 19 million and $ 38 million, respectively, were recognized within cost of products sold and $ 27 million and $ 55 million, respectively, were recognized within selling, general, and administrative expense in the consolidated statements of income.

For the three months and six months ended October 29, 2021, the Company recognized net charges of $ 62 million and $ 136 million, of which $ 31 million and $ 64 million, respectively, were recognized within cost of products sold and $ 27 million and $ 57 million, respectively, were recognized within selling, general, and administrative expense in the consolidated statements of income.

Simplification

In the first quarter of fiscal year 2021, the Company initiated the Simplification restructuring program.

For the three and nine months ended January 27, 2023 and January 28, 2022, restructuring costs primarily related to Enterprise Excellence and Simplification restructuring programs, both of which the Company expects to be substantially completed by the end of this fiscal year.

Further program details are described in Note 4 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2022.

Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of $ 427 million in connection with the Simplification program.

In total, the Company estimates it will recognize approximately $ 450 million of exit and disposal costs and other costs related to the Simplification program by the end of fiscal year 2023.

The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program and consulting expenses.

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

For the three and six months ended October 28, 2022, the Company recognized net charges of $ 43 million and $ 78 million, respectively, of which $ 18 million and $ 31 million, respectively, were recognized within selling, general, and administrative expense in the consolidated statements of income.

For the three and six months ended October 29, 2021, the Company recognized net charges of $ 18 million and $ 25

Medtronic plc

Notes to Consolidated Financial Statements

million, respectively, of which $ 9 million and $ 16 million, respectively, were recognized within selling, general, and administrative expense in the consolidated statements of income.

The following table summarizes the activity related to the restructuring programs above for the six months ended October 28, 2022:

In total, the Company expects it will recognize charges of approximately $ 1.8 billion for Enterprise Excellence and approximately $ 450 million for Simplification.

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

Three months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Cost of products sold $ 26 $ 27 $ 67 $ 91

Selling, general, and administrative expenses 40 39 125 114

Restructuring charges, net 38 12 81 32

Total restructuring and associated costs $ 104 $ 78 $ 275 $ 237

The following table summarizes the activity related to Enterprise Excellence and Simplification restructuring programs for the nine months ended January 27, 2023:

(in millions) Employee Termination Benefits Associated Costs (1)

2 unchanged sentences

Cash payments ( 102 ) ( 207 ) ( 6 ) ( 317 )

Accrual adjustments (2)

Non-cash settlements and accrual adjustments (2)

( 10 ) — ( 1 ) ( 11 )

October 28, 2022 $ 45 $ 15 $ 1 $ 61

January 27, 2023 $ 53 $ 12 $ 1 $ 66

(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.

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

Medtronic plc

Notes to Consolidated Financial Statements

Mechanical Circulatory Support (MCS)

4 unchanged sentences

During the fourth quarter of fiscal year 2022, the Company recorded additional charges of $ 155 million within other operating (income) expense, net primarily related to incremental commitments and obligations associated with the exit of the business.

As of October 28, 2022, accruals were recorded in the consolidated balance sheet for these obligations, with $ 83 million reflected in other accrued expenses and $ 120 million recorded in other liabilities .

As of January 27, 2023, accruals were recorded in the consolidated balance sheet for these obligations, with $ 84 million reflected in other accrued expenses and $ 104 million recorded in other liabilities .

Medtronic remains committed to serving the needs of the patients currently implanted with the HVAD system.

4 unchanged sentences

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 October 28, 2022 and April 29, 2022:

October 28, 2022

January 27, 2023

Valuation Balance Sheet Classification

30 unchanged sentences

Notes to Consolidated Financial Statements

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 October 28, 2022 and April 29, 2022:

October 28, 2022

January 27, 2023

Less than 12 months More than 12 months

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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 and six months ended October 28, 2022 and October 29, 2021.

There were no transfers into or out of Level 3 during the three and nine months ended January 27, 2023 and January 28, 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 Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Proceeds from sales $ 1,777 $ 2,481 $ 5,365 $ 7,052

1 unchanged sentence

Gross realized losses ( 8 ) ( 6 ) ( 27 ) ( 10 )

The October 28, 2022 balance of available-for-sale debt securities by contractual maturity is shown in the following table.

The January 27, 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) October 28, 2022

(in millions) January 27, 2023

Due in one year or less $ 1,381

10 unchanged sentences

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 October 28, 2022 and April 29, 2022, which are classified as other assets in the consolidated balance sheets:

(in millions) October 28, 2022 April 29, 2022

The following table summarizes the Company's equity and other investments at January 27, 2023 and April 29, 2022, which are classified as other assets in the consolidated balance sheets:

(in millions) January 27, 2023 April 29, 2022

Investments with readily determinable fair value (marketable equity securities) $ 77 $ 64

4 unchanged sentences

Gains and losses on equity and other investments are recognized in other non-operating income, net in the consolidated statements of income.

Three months ended Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Proceeds from sales $ 1 $ 15 $ 22 $ 82

2 unchanged sentences

Impairment losses recognized — — ( 12 ) ( 10 )

During the three and six months ended October 28, 2022, there were $ 7 million of net unrealized losses and $ 1 million of net unrealized gains, respectively, on equity securities and other investments still held at October 28, 2022.

During the three and six months ended October 29, 2021, there were $ 8 million of net unrealized losses and $ 7 million of net unrealized gains, respectively, on equity securities and other investments still held at October 29, 2021.

During the three and nine months ended January 27, 2023, there were $ 10 million and $ 15 million of net unrealized gains, respectively, on equity securities and other investments still held at January 27, 2023.

During the three and nine months ended January 28, 2022, there were $ 1 million and $ 8 million of net unrealized gains, respectively, on equity securities and other investments still held at January 28, 2022.

Financing Arrangements

3 unchanged sentences

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 October 28, 2022 was $ 349 million.

During the three months ended October 28, 2022, the commercial paper outstanding had a weighted average original maturity of 26 days and a weighted average interest rate of 3.057 percent.

Commercial paper outstanding at January 27, 2023 was $ 625 million.

During the three months ended January 27, 2023, the commercial paper outstanding had a weighted average original maturity of 24 days and a weighted average interest rate of 4.392 percent.

During the nine months ended January 27, 2023, the commercial paper outstanding had a weighted average original maturity of 24 days and a weighted average interest rate of 3.925 percent.

No commercial paper was outstanding at April 29, 2022.

3 unchanged sentences

The Credit Facility includes a multi-currency borrowing feature for certain specified foreign currencies.

At October 28, 2022 and April 29, 2022, no amounts were outstanding under the Credit Facility.

At January 27, 2023 and April 29, 2022, 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.

6 unchanged sentences

(in millions) Maturity by

Fiscal Year October 28, 2022 April 29, 2022

Fiscal Year January 27, 2023 April 29, 2022

Current debt obligations 2023 - 2024 $ 5,918 $ 3,742

47 unchanged sentences

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 € 3.5 billion, net of discounts and issuance costs.

Medtronic plc

Notes to Consolidated Financial Statements

The Company used a portion of the net proceeds to repay at maturity € 750 million of Medtronic Luxco Senior Notes for $ 772 million of total consideration in December 2022.

The Company designated € 750 million of the Euro-denominated debt issued in September 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

8 unchanged sentences

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 in the consolidated statements of income during the six months ended October 28, 2022.

The loss was recognized in interest expense, net in the consolidated statements of income during the nine months ended January 27, 2023.

Financial Instruments Not Measured at Fair Value

At October 28, 2022, the estimated fair value of the Company’s Senior Notes was $ 21.1 billion compared to a principal value of $ 24.4 billion.

At January 27, 2023, the estimated fair value of the Company’s Senior Notes was $ 22.7 billion compared to a principal value of $ 25.3 billion.

At April 29, 2022, the estimated fair value was $ 22.9 billion compared to a principal value of $ 24.2 billion.

7 unchanged sentences

At inception of the contract, the derivative is designated as either a freestanding derivative or a cash flow hedge.

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.

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 $ 17.9 billion and $ 13.8 billion at October 28, 2022 and April 29, 2022, 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 gross notional amount of all currency exchange rate derivative instruments outstanding was $ 19.6 billion and $ 13.8 billion at January 27, 2023 and April 29, 2022, respectively.

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.

1 unchanged sentence

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 October 28, 2022 and April 29, 2022 was $ 5.1 billion and $ 4.9 billion, respectively.

The gross notional amount of the Company's freestanding currency exchange rate contracts outstanding at January 27, 2023 and April 29, 2022 was $ 5.4 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 October 28, 2022 and April 29, 2022 was $ 208 million and $ 226 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 gross notional amount of the Company's total return swaps outstanding at January 27, 2023 and April 29, 2022 was $ 222 million and $ 226 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

Medtronic plc

Notes to Consolidated Financial Statements

The cash flows related to the Company's freestanding derivative contracts are reported as operating or financing activities, depending on the nature of the underlying hedged item, in the consolidated statements of cash flows.

1 unchanged sentence

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 October 28, 2022 and April 29, 2022 was $ 8.3 billion and $ 8.8 billion, respectively, and will mature within the subsequent three-year period.

For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the

Medtronic plc

Notes to Consolidated Financial Statements

derivative instrument is reported as a component of accumulated other comprehensive loss .

The gross notional amount of these contracts, designated as cash flow hedges, outstanding at January 27, 2023 and April 29, 2022 was $ 9.3 billion and $ 8.8 billion, respectively, and will mature within the subsequent three-year period.

For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss .

The gain or loss on the derivative instrument is reclassified into earnings and is included in other operating (income) 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.

1 unchanged sentence

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.

At October 28, 2022 and April 29, 2022, the Company had $ 852 million and $ 474 million in after-tax net unrealized gains, respectively, associated with cash flow hedging instruments recorded in accumulated other comprehensive loss .

The Company expects that $ 617 million of after-tax net unrealized gains at October 28, 2022 will be recognized in the consolidated statements of income over the next 12 months.

At January 27, 2023 and April 29, 2022, the Company had $ 92 million and $ 474 million in after-tax net unrealized gains, respectively, associated with cash flow hedging instruments recorded in accumulated other comprehensive loss .

The Company expects that $ 179 million of after-tax net unrealized gains at January 27, 2023 will be recognized in the consolidated statements of income over the next 12 months.

Net Investment Hedges

The Company has designated Euro-denominated and Yen-denominated debt as net investment hedges of certain of its European and Japanese operations to manage the exposure to currency and exchange rate movements for foreign currency-denominated net investments in foreign operations.

At October 28, 2022, the Company had € 16.0 billion, or $ 15.9 billion, of outstanding Euro-denominated debt designated as a hedge of its net investment in certain of its European operations, and ¥ 297 billion, or $ 2.0 billion, of outstanding Yen-denominated debt designated as a hedge of its net investment in certain of its Japanese operations.

At January 27, 2023, the Company had € 16.0 billion, or $ 17.4 billion, of outstanding Euro-denominated debt designated as a hedge of its net investment in certain of its European operations, and ¥ 297 billion, or $ 2.3 billion, of outstanding Yen-denominated debt designated as a hedge of its net investment in certain of its Japanese operations.

The Euro-denominated debt will mature in fiscal year s 2023 through 2051, and the Yen-denominated debt will mature in fiscal year 2024.

1 unchanged sentence

Foreign currency forward contracts may be used on a standalone basis or in combination with option collars.

At October 28, 2022, the Company had foreign currency contracts with a notional value of € 4.5 billion, or $ 4.5 billion, hedging a portion of its net investment in certain of its European operations.

At January 27, 2023, the Company had foreign currency contracts with a notional value of € 4.5 billion, or $ 4.9 billion, hedging a portion of its net investment in certain of its European operations.

The foreign exchange contracts mature in fiscal years 2024 and 2025.

1 unchanged sentence

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 on a straight-line basis over the term of the hedge.

During the three and six months ended October 28, 2022, the Company recognized $ 27 million and $ 47 million in after-tax unrealized gains representing excluded components in interest expense .

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 and nine months ended January 27, 2023, the Company recognized $ 26 million and $ 74 million in after-tax unrealized gains representing excluded components in interest 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.

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

Medtronic plc

Notes to Consolidated Financial Statements

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 and six months ended October 28, 2022 and October 29, 2021 were as follows:

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 and nine months ended January 27, 2023 and January 28, 2022 were as follows:

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

Three months ended Six months ended Three months ended Six months ended Location of (Gain) Loss in Income Statement

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended Three months ended Nine months ended Location of (Gain) Loss in Income Statement

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Cash flow hedges

5 unchanged sentences

Total $ 2,570 $ ( 614 ) $ 386 $ ( 1,672 ) $ ( 208 ) $ ( 39 ) $ ( 530 ) $ ( 9 )

Medtronic plc

Notes to Consolidated Financial Statements

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 and six months ended October 28, 2022 and October 29, 2021 were as follows:

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 and nine months ended January 27, 2023 and January 28, 2022 were as follows:

(Gain) Loss Recognized in Income (Gain) Loss Recognized in Income

Three months ended Six months ended Location of (Gain) Loss in Income Statement

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended Location of (Gain) Loss in Income Statement

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Derivatives not designated as hedging instruments

2 unchanged sentences

Total $ ( 10 ) $ ( 24 ) $ 50 $ ( 82 )

Medtronic plc

Notes to Consolidated Financial Statements

Balance Sheet Presentation

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at October 28, 2022 and April 29, 2022.

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at January 27, 2023 and April 29, 2022.

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) October 28, 2022 April 29, 2022 Balance Sheet Classification October 28, 2022 April 29, 2022 Balance Sheet Classification

(in millions) January 27, 2023 April 29, 2022 Balance Sheet Classification January 27, 2023 April 29, 2022 Balance Sheet Classification

Derivatives designated as hedging instruments

8 unchanged sentences

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

October 28, 2022 April 29, 2022

January 27, 2023 April 29, 2022

(in millions) Derivative assets Derivative Liabilities Derivative assets Derivative Liabilities

8 unchanged sentences

Derivatives not subject to master netting arrangements are not eligible for net presentation.

October 28, 2022

January 27, 2023

Gross Amount Not Offset on the Balance Sheet

2 unchanged sentences

Currency exchange rate contracts $ 325 $ ( 174 ) $ ( 41 ) $ 110

Derivative liabilities:

Currency exchange rate contracts ( 36 ) 31 1 ( 4 )

Total return swaps 16 — — 16

341 ( 174 ) ( 41 ) 126

Derivative liabilities:

Currency exchange rate contracts ( 267 ) 174 — ( 93 )

Total $ 74 $ — $ ( 41 ) $ 33

10 unchanged sentences

Inventory balances, net of reserves, were as follows:

(in millions) October 28, 2022 April 29, 2022

(in millions) January 27, 2023 April 29, 2022

Finished goods $ 3,545 $ 3,070

12 unchanged sentences

Currency translation and other ( 1 ) ( 44 ) ( 12 ) 1 ( 56 )

October 28, 2022 $ 7,784 $ 18,798 $ 11,581 $ 2,254 $ 40,417

January 27, 2023 $ 7,874 $ 19,705 $ 11,732 $ 2,255 $ 41,565

The Company assesses goodwill for impairment annually as of the first day of the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired.

Impairment testing for goodwill is performed at the reporting unit level.

The test for impairment of goodwill requires 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.

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.

The Company did no t recognize any goodwill impairments during the three months ended January 27, 2023 and the three and nine months ended January 28, 2022.

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.

Upon allocation, a goodwill impairment test was performed for the RCS business, and the Company recognized $ 61 million of goodwill impairment during the six months ended October 28, 2022.

Upon allocation, a goodwill impairment test was performed for the RCS business, and the Company recognized $ 61 million of goodwill impairment during the nine months ended January 27, 2023.

The goodwill impairment charges are recognized in other operating (income) expense, net in the consolidated statements of income.

The Company did no t recognize any goodwill impairments during the three months ended October 28, 2022 and the three and six months ended October 29, 2021.

Intangible Assets

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

October 28, 2022 April 29, 2022

January 27, 2023 April 29, 2022

(in millions) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization

7 unchanged sentences

IPR&D $ 578 $ — $ 293 $ —

The Company did no t recognize any definite-lived intangible asset charges during the three and six months ended October 28, 2022 and the three months ended October 29, 2021.

During the six months ended October 29, 2021, the Company recognized $ 409 million of definite-lived intangible asset charges in connection with MCS within the Cardiovascular Portfolio.

The Company did no t recognize any definite-lived intangible asset charges during the three and nine months ended January 27, 2023 and the three months ended January 28, 2022.

During the nine months ended January 28, 2022, the Company recognized $ 409 million of definite-lived intangible asset charges in connection with MCS within the Cardiovascular Portfolio.

Refer to Note 5 to the consolidated financial statements for additional information on what led to the impairment.

Intangible asset impairment charges are recognized in other operating (income) expense, net in the consolidated statements of income.

The Company did no t recognize any indefinite-lived intangible asset impairments during the three and six months ended October 28, 2022 and October 29, 2021.

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

Indefinite-lived intangible asset impairments were not significant for the three and nine months ended January 27, 2023 and January 28, 2022.

Amortization Expense

Intangible asset amortization expense for the three months ended October 28, 2022 and October 29, 2021 was $ 421 million and $ 431 million, respectively.

Intangible asset amortization expense for the six months ended October 28, 2022 and October 29, 2021 was $ 844 million and $ 866 million, respectively.

Estimated aggregate amortization expense by fiscal year based on the carrying value of definite-lived intangible assets at October 28, 2022, excluding any possible future amortization associated with acquired IPR&D which has not yet met technological feasibility, is as follows:

Intangible asset amortization expense for the three months ended January 27, 2023 and January 28, 2022 was $ 431 million and $ 432 million, respectively.

Intangible asset amortization expense for the nine months ended January 27, 2023 and January 28, 2022 was $ 1.3 billion.

Estimated aggregate amortization expense by fiscal year based on the carrying value of definite-lived intangible assets at January 27, 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

9 unchanged sentences

As a result, the Company recorded a $ 764 million net tax charge during the three months ended October 28, 2022 to recognize the estimated tax impact of the Tax Court Opinion.

The Company's effective tax rate for the three and six months ended October 28, 2022 was 68.7 % and 44.0 %, respectively, as compared to 11.8 % and 10.3 % for the three and six months ended October 29, 2021, respectively.

The increase in our effective tax rate for the three and six months ended October 28, 2022, as compared to the corresponding periods in the prior fiscal year, was primarily due to the $ 764 million net tax charge referenced above.

At October 28, 2022 and April 29, 2022, the Company's gross unrecognized tax benefits were $ 2.6 billion and $ 1.7 billion, respectively.

In addition, the Company had accrued gross interest and penalties of $ 196 million at October 28, 2022.

The Company's effective tax rate for the three and nine months ended January 27, 2023 was 10.6 % and 31.9 %, respectively, as compared to 6.7 % and 8.8 % for the three and nine months ended January 28, 2022, respectively.

The increase in our effective tax rate for the three months ended January 27, 2023, as compared to the three months ended January 28, 2022, primarily relates to the deferred tax impact associated with a step up in basis for Swiss Cantonal purposes recorded during the three months ended January 28, 2022.

The increase in our effective tax rate for the nine months ended January 27, 2023, as compared to the nine months ended January 28, 2022 primarily relates to the $ 764 million net tax charge referenced above, and the deferred tax impact associated with a step up in basis for Swiss Cantonal purposes recorded during the prior fiscal year.

At January 27, 2023 and April 29, 2022, the Company's gross unrecognized tax benefits were $ 2.6 billion and $ 1.7 billion, respectively.

In addition, the Company had accrued gross interest and penalties of $ 56 million at January 27, 2023.

If all of the Company’s unrecognized tax benefits were recognized, approximately $ 2.4 billion would impact the Company’s effective tax rate.

At October 28, 2022 and April 29, 2022, 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 and $ 802 million, respectively.

At January 27, 2023 and April 29, 2022, 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 $ 1.7 billion and $ 802 million, respectively.

The increase in the Company's gross unrecognized tax benefits, net of cash advance, was primarily due to an increase in unrecognized tax benefits relating to the Tax Court Opinion.

During the three months ended January 27, 2023, the Company made a $ 300 million cash deposit with the Internal Revenue Service.

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.

2 unchanged sentences

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

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.

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

Three months ended Six months ended

(in millions, except per share data) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended

(in millions, except per share data) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Net income attributable to ordinary shareholders $ 1,222 $ 1,480 $ 2,579 $ 3,554

7 unchanged sentences

Diluted earnings per share $ 0.92 $ 1.10 $ 1.94 $ 2.63

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 25 million and 20 million ordinary shares for the three and six months ended October 28, 2022, respectively, and 4 million and 2 million ordinary shares for the three and six months ended October 29, 2021, respectively, because their effect would have been anti-dilutive on the Company’s earnings per share.

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 28 million and 23 million ordinary shares for the three and nine months ended January 27, 2023, respectively, and 6 million and 4 million ordinary shares for the three and nine months ended January 28, 2022, respectively, because their effect would have been anti-dilutive on the Company’s earnings per share.

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 and six months ended October 28, 2022 and October 29, 2021:

Three months ended Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

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 and nine months ended January 27, 2023 and January 28, 2022:

Three months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Stock options $ 15 $ 13 $ 64 $ 58

14 unchanged sentences

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 and six months ended October 28, 2022 and October 29, 2021:

The net periodic benefit cost of the defined benefit pension plans included the following components for the three and nine months ended January 27, 2023 and January 28, 2022:

Three months ended Three months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Service cost $ 19 $ 25 $ 12 $ 16

3 unchanged sentences

Net periodic benefit cost $ 4 $ 10 $ 7 $ 12

Six months ended Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Nine months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Service cost $ 57 $ 75 $ 36 $ 48

8 unchanged sentences

April 29, 2022 $ ( 209 ) $ ( 2,599 ) $ 841 $ ( 773 ) $ 474 $ ( 2,265 )

Other comprehensive income (loss) before reclassifications ( 195 ) ( 1,705 ) 1,409 3 634 146

Other comprehensive (loss) income before reclassifications ( 94 ) ( 20 ) ( 449 ) — 43 ( 520 )

Reclassifications 18 — — 2 ( 424 ) ( 404 )

Other comprehensive income (loss) ( 183 ) ( 1,705 ) 1,409 4 378 ( 97 )

October 28, 2022 $ ( 392 ) $ ( 4,304 ) $ 2,250 $ ( 769 ) $ 852 $ ( 2,361 )

Other comprehensive (loss) income ( 76 ) ( 20 ) ( 449 ) 2 ( 382 ) ( 924 )

January 27, 2023 $ ( 285 ) $ ( 2,619 ) $ 392 $ ( 771 ) $ 92 $ ( 3,189 )

(in millions) Unrealized Gain (Loss) 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

3 unchanged sentences

Other comprehensive income (loss) ( 114 ) ( 960 ) 1,254 56 369 605

October 29, 2021 $ 48 $ ( 1,118 ) $ ( 678 ) $ ( 1,310 ) $ 16 $ ( 3,042 )

The income tax on gains and losses on investment securities in other comprehensive income before reclassifications during the six months ended October 28, 2022 and October 29, 2021 was a benefit of $ 41 million and $ 6 million, respectively.

During the six months ended

January 28, 2022 $ ( 22 ) $ ( 1,479 ) $ ( 204 ) $ ( 1,291 ) $ 116 $ ( 2,879 )

The income tax on gains and losses on investment securities in other comprehensive income before reclassifications during the nine months ended January 27, 2023 and January 28, 2022 was a benefit of $ 22 million and $ 18 million, respectively.

During the nine months ended

Medtronic plc

Notes to Consolidated Financial Statements

October 28, 2022, realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $ 4 million.

During the six months ended October 29, 2021, realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $ 1 million.

January 27, 2023, realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $ 6 million.

During the nine months ended January 28, 2022, there was no income tax on realized gains and losses on investment securities reclassified from AOCI.

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 six months ended October 28, 2022, the income tax on cumulative translation adjustment was a benefit of $ 3 million.

During the six months ended October 29, 2021, there was no income tax on cumulative translation adjustment.

During the six months ended October 28, 2022 and October 29, 2021, there were no tax impacts on net investment hedges.

For the nine months ended January 27, 2023 and January 28, 2022, the income tax on cumulative translation adjustment was a benefit of $ 4 million.

During the nine months ended January 27, 2023 and January 28, 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 six months ended October 28, 2022 and October 29, 2021, the net change in retirement obligations in other comprehensive income before reclassifications resulted in income tax expense of $ 1 million and $ 2 million, respectively.

During both the six months ended October 28, 2022 and October 29, 2021, the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $ 7 million.

During the nine months ended January 27, 2023 and January 28, 2022, the net change in retirement obligations in other comprehensive income before reclassifications resulted in income tax benefit of $ 1 million and income tax expense of $ 3 million, respectively.

During the nine months ended January 27, 2023 and January 28, 2022, the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $ 8 million and $ 14 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 six months ended October 28, 2022 and October 29, 2021 was an expense of $ 141 million and $ 42 million, respectively.

During the six months ended October 28, 2022 and October 29, 2021, gains and losses on cash flow hedges reclassified from AOCI were reduced by income taxes of $ 59 million and $ 1 million, respectively.

When realized, gains and losses on currency exchange rate contracts reclassified from AOCI are recognized within other operating (income) expense, net or cost of products sold, and gains and losses on forward starting interest rate derivatives reclassified from AOCI are recognized within interest expense.

The income tax on unrealized gains and losses on cash flow hedges in other comprehensive income before reclassifications during the nine months ended January 27, 2023 and January 28, 2022 was an expense of $ 20 million and $ 51 million, respectively.

During the nine months ended January 27, 2023 and January 28, 2022, gains and losses on cash flow hedges reclassified from AOCI were reduced by income taxes of $ 98 million and $ 11 million, respectively.

Refer to Note 8 to the consolidated financial statements for additional information.

13 unchanged sentences

The Company classifies certain specified litigation charges and gains related to significant legal matters as certain litigation charges, net in the consolidated statements of income.

The Company recognized no certain litigation charges during the three and six months ended October 28, 2022, respectively, whereas the Company recognized $ 34 million and $ 60 million of certain litigation charges during the three and six months ended October 29, 2021, respectively.

At October 28, 2022 and April 29, 2022, accrued litigation was approximately $ 0.3 billion.

The Company recognized no certain litigation charges during the three and nine months ended January 27, 2023, respectively, whereas the Company recognized $ 35 million and $ 95 million of certain litigation charges during the three and nine months ended January 28, 2022, respectively.

At January 27, 2023 and April 29, 2022, 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.

7 unchanged sentences

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

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.

The Company has strong arguments to appeal the verdict and will file post-trial motions and, if necessary, appeals with the appropriate appellate courts.

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

11 unchanged sentences

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 November 2, 2022, the Company had reached agreements to settle approximately 15,900 of these claims.

As of February 1, 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.

2 unchanged sentences

state and federal courts that allege personal injury from hernia mesh products sold by those subsidiaries.

As of November 10, 2022, subsidiaries of the Company have been named as defendants in lawsuits filed on behalf of approximately 6,050 individual plaintiffs, and certain plaintiffs’ law firms have advised the Company that they may file additional cases in the future.

As of February 17, 2023, the Company and certain of its subsidiaries have been named as defendants in lawsuits filed on behalf of approximately 6,070 individual plaintiffs, and certain plaintiffs’ law firms have advised the Company that they may file additional cases in the future.

Approximately 5,950 plaintiffs have filed lawsuits in a coordinated proceeding in Massachusetts state court, where they have been consolidated before a single judge.

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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.

A dditionally, 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 February 17, 2023, 60 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.

Medtronic plc

Notes to Consolidated Financial Statements

Environmental Proceedings

The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites.

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.

The Company is a successor to a company which owned and operated a chemical manufacturing facility in Orrington, Maine from 1967 until 1982, and is responsible for the costs of completing an environmental site investigation as required by the Maine Department of Environmental Protection (MDEP).

MDEP served a compliance order on Mallinckrodt LLC and U.S.

Surgical Corporation, subsidiaries of Covidien, in December 2008, which included a directive to remove a significant volume of soils at the site.

After a hearing on the compliance order before the Maine Board of Environmental Protection (Maine Board) to challenge the terms of the compliance order, the Maine Board modified the MDEP order and issued a final order requiring removal of two landfills, capping of the remaining three landfills, installation of a groundwater extraction system and long-term monitoring of the site and the three remaining landfills.

The Company has proceeded with remediation 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

Medtronic plc

Notes to Consolidated Financial Statements

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.

Following conditional approval of the settlement by the court in August 2022, in September 2022 the parties filed a joint motion for final approval by the court.

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.

The court has conditionally approved the settlement and the parties are awaiting issuance of the final court order approving the settlement.

The conditional court approval did not result in a change to the Company's previous accrual for this matter.

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

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

In March 2009, the IRS issued its audit report on Medtronic, Inc.

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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.

Medtronic plc

Notes to Consolidated Financial Statements

Segment and Geographic Information

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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 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.

Medtronic plc

Notes to Consolidated Financial Statements

Segment operating profit represents income before income taxes, excluding interest income or 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 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 29, 2022.

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The allocation of depreciation expense is based on the proportion of the assets used by each segment.

There were no changes to the reportable segments during the quarter ended October 28, 2022.

There were no changes to the reportable segments during the quarter ended January 27, 2023.

The Company's four principal operating and reportable segments are as follows:

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Segment Operating Profit

Three months ended Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

Three months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Cardiovascular $ 1,034 $ 1,077 $ 3,037 $ 3,333

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Segment operating profit 2,784 3,064 8,008 9,282

Interest expense ( 118 ) ( 136 ) ( 282 ) ( 273 )

Interest expense, net ( 167 ) ( 137 ) ( 449 ) ( 410 )

Other non-operating income, net 149 67 342 244

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Income before income taxes $ 1,375 $ 1,589 $ 3,813 $ 3,915

Medtronic plc

Notes to Consolidated Financial Statements

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 and six months ended October 28, 2022 and October 29, 2021 for the Company's country of domicile, countries with significant concentrations, and all other countries:

Three months ended Six months ended

(in millions) October 28, 2022 October 29, 2021 October 28, 2022 October 29, 2021

The following table presents net sales for the three and nine months ended January 27, 2023 and January 28, 2022 for the Company's country of domicile, countries with significant concentrations, and all other countries:

Three months ended Nine months ended

(in millions) January 27, 2023 January 28, 2022 January 27, 2023 January 28, 2022

Ireland $ 23 $ 24 $ 70 $ 76

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements