What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-31 compared with 2023-03-01 · 293 added, 374 removed, 671 unchanged (50% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Three months ended Nine months ended

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

Three months ended

(in millions, except per share data) July 28, 2023 July 29, 2022

Net sales $ 7,702 $ 7,371

5 unchanged sentences

Restructuring charges, net 54 14

Certain litigation charges, net — 35 — 95

Other operating (income) expense, net ( 125 ) ( 63 ) ( 187 ) 719

Certain litigation charges 40 —

Other operating expense, net 1 35

Operating profit 1,268 1,125

13 unchanged sentences

Consolidated Statements of Comprehensive Income

Three months ended Nine months ended

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

Three months ended

(in millions) July 28, 2023 July 29, 2022

Net income $ 797 $ 931

Other comprehensive (loss) income, net of tax:

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

Unrealized loss on investment securities ( 19 ) ( 16 )

Translation adjustment 14 ( 884 )

9 unchanged sentences

Consolidated Balance Sheets

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

(in millions) July 28, 2023 April 28, 2023

Current assets:

5 unchanged sentences

Total current assets 21,869 21,675

Property, plant, and equipment 13,926 13,365

Accumulated depreciation ( 8,489 ) ( 7,952 )

Property, plant, and equipment, net 5,665 5,569

39 unchanged sentences

Net income — — — 791 — 791 6 797

Other comprehensive income (loss) — — — — 326 326 ( 2 ) 324

Other comprehensive loss — — — — ( 175 ) ( 175 ) — ( 175 )

Dividends to shareholders ($ 0.69 per ordinary share)

4 unchanged sentences

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

Net income — — — 427 — 427 8 435

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

Dividends to shareholders ($ 0.68 per ordinary share)

— — — ( 904 ) — ( 904 ) — ( 904 )

Issuance of shares under stock purchase and award plans 2 — 55 — — 55 — 55

Repurchase of ordinary shares ( 1 ) — ( 85 ) — — ( 85 ) — ( 85 )

Stock-based compensation — — 137 — — 137 — 137

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

13 unchanged sentences

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

Net income — — — 1,311 — 1,311 6 1,317

Other comprehensive income (loss) — — — — 167 167 ( 1 ) 166

Dividends to shareholders ($ 0.63 per ordinary share)

— — — ( 847 ) — ( 847 ) — ( 847 )

Issuance of shares under stock purchase and award plans 3 — 92 — — 92 — 92

Repurchase of ordinary shares ( 3 ) — ( 358 ) — — ( 358 ) — ( 358 )

Stock-based compensation — — 140 — — 140 — 140

Changes to noncontrolling ownership interests — — 1 — — 1 ( 16 ) ( 15 )

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

Nine months ended

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

Three months ended

(in millions) July 28, 2023 July 29, 2022

Operating Activities:

6 unchanged sentences

Loss on debt extinguishment — 53

MCS asset impairment and inventory write-down — 515

Other, net 135 121

15 unchanged sentences

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

Issuance of long-term debt 3,430 —

Payments on long-term debt — ( 2,311 )

24 unchanged sentences

Actual results could materially differ from these estimates.

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 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.

4 unchanged sentences

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.

Fiscal year 2021 was a 53-week year.

New Accounting Pronouncements

Recently Adopted

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.

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 .

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

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

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

Nine months ended

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

(in millions) July 28, 2023 July 29, 2022

Cardiac Rhythm & Heart Failure $ 1,446 $ 1,381

2 unchanged sentences

Cardiovascular 2,850 2,701

Surgical Innovations 1,425 1,519 4,162 4,570

Respiratory, Gastrointestinal, & Renal 712 771 2,047 2,341

Medical Surgical 2,137 2,290 6,208 6,910

Cranial & Spinal Technologies 1,103 1,043

2 unchanged sentences

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

Total $ 7,702 $ 7,371

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:

(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:

Developed Markets (2)

1 unchanged sentence

Three months ended Three months ended Three months ended

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

(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

Medical Surgical 965 990 760 812 412 488

Neuroscience 1,497 1,419 416 407 306 290

Diabetes 215 255 274 261 80 68

Total $ 4,062 $ 3,939 $ 2,294 $ 2,438 $ 1,371 $ 1,385

Developed Markets (2)

Emerging Markets (3)

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

Medical Surgical 881 831 772 735 386 368

Neuroscience 4,437 4,237 1,189 1,330 923 918

Diabetes 188 206 315 264 75 72

8 25 5 32 3 24

Total $ 3,924 $ 3,766 $ 2,463 $ 2,328 $ 1,314 $ 1,276

3 unchanged sentences

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 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.

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

Deferred Revenue and Remaining Performance Obligations

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 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 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.

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 .

Acquisitions and Assets and Liabilities Held for Sale

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

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

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

Fiscal Year 2023

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.

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.

Based upon a preliminary acquisition valuation, 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 and nine months ended January 27, 2023.

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 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.

Based upon a preliminary acquisition valuation, the Company acquired $ 660 million of goodwill and $ 300 million of in-process research and development.

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.

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.

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 and nine months ended January 27, 2023.

Medtronic plc

Notes to Consolidated Financial Statements

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

(in millions) Intersect ENT Affera

(in millions) Intersect ENT

Cash and cash equivalents $ 39

Inventory 32 —

Goodwill 615 660

Other intangible assets 683

6 unchanged sentences

Net assets acquired $ 1,277

Medtronic plc

Notes to Consolidated Financial Statements

Other acquisitions

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.

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 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 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 nine months ended January 28, 2022, which are comprised of revenue and product development milestone-based payments.

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.

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.

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

1 unchanged sentence

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 (income) expense, net in the consolidated statements of income.

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.

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.

Medtronic plc

Notes to Consolidated Financial Statements

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

Three months ended Nine months ended

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

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

Purchase price allocation adjustments — — — 25

Payments ( 3 ) —

3 unchanged sentences

Fair Value at

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

(in millions) July 28, 2023 Unobservable Input Range Weighted Average (1)

Revenue and other performance-based payments $ 81 Discount rate 11.2 % - 27.2 %

4 unchanged sentences

For projected fiscal year of payment, the amount represents the median of the inputs and is not a weighted average.

Assets and Liabilities Held for Sale

On May 25, 2022, the Company and DaVita Inc.

(“DaVita”) entered into a definitive agreement for the Company to sell half of its Renal Care Solutions (RCS) business.

This sale is part of an agreement between Medtronic and DaVita to form a new, independent kidney care-focused medical device company (“NewCo”) with equal equity ownership.

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 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 $ 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.

Medtronic plc

Notes to Consolidated Financial Statements

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) January 27, 2023

Inventories, net $ 105

Property, plant, and equipment, net 156

Other intangible assets, net 115

Total assets held for sale (1)

Total liabilities held for sale (1)(2)

(1) Total assets held for sale and total liabilities held for sale are reported in other current assets and other accrued expenses , respectively in the consolidated balance sheets.

(2) No separate class of liability classified as held for sale was individually significant enough for separate disclosure.

There were no assets or liabilities classified as held for sale at April 29, 2022.

The Company determined that the agreement to sell half of the RCS business does not meet the criteria to be classified as discontinued operations.

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.

Restructuring and Other Costs

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.

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

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

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

2 unchanged sentences

Total restructuring and associated costs $ 91 $ 76

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)

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

April 28, 2023 $ 204 $ 23 $ 1 $ 230

1 unchanged sentence

Cash payments ( 147 ) ( 53 ) — ( 201 )

Non-cash settlements and accrual adjustments (2)

Accrual adjustments (1)

( 2 ) — — ( 2 )

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 and contract terminations being settled for less than originally estimated.

Medtronic plc

Notes to Consolidated Financial Statements

Mechanical Circulatory Support (MCS)

In June 2021, the Company announced the decision to stop the distribution and sale of the Medtronic HVAD System in light of a growing body of observational clinical comparisons indicating a lower frequency of neurological adverse events and mortality with another circulatory support device available to patients compared to the HVAD system.

In connection with this decision, the Company recorded charges of $ 726 million (MCS charges) within the Cardiovascular segment during the three months ended July 30, 2021, including $ 58 million recognized in costs of products sold and $ 668 million recognized within other operating (income) expense, net in the consolidated statement of income .

The charges included $ 515 million of non-cash impairments and write-downs primarily related to $ 409 million of intangible asset impairments and $ 58 million of inventory write-downs.

The Company also recorded charges of $ 211 million for commitments and obligations associated with the decision, which included charges for patient support obligations, restructuring, and other associated costs.

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 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.

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

3 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 January 27, 2023 and April 29, 2022:

January 27, 2023

July 28, 2023

Valuation Balance Sheet Classification

7 unchanged sentences

government and agency securities 14 — — 14 14 —

Certificates of deposit 10 — — 10 10 —

Other asset-backed securities 601 — ( 16 ) 585 585 —

20 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 January 27, 2023 and April 29, 2022:

January 27, 2023

July 28, 2023

Less than 12 months More than 12 months

19 unchanged sentences

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

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 Nine months ended

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

Three months ended

(in millions) July 28, 2023 July 29, 2022

Proceeds from sales $ 1,747 $ 1,864

1 unchanged sentence

Gross realized losses ( 12 ) ( 9 )

The January 27, 2023 balance of available-for-sale debt securities by contractual maturity is shown in the following table.

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) January 27, 2023

(in millions) July 28, 2023

Due in one year or less $ 1,339

3 unchanged sentences

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

1 unchanged sentence

Equity Securities, Equity Method Investments, and Other Investments

The Company holds investments in equity securities with readily determinable fair values, equity investments without readily determinable fair values, investments accounted for under the equity method, and other investments.

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 and investments without readily determinable fair values are included within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value.

To determine the fair value of these investments, the Company uses all pertinent financial information available related to the investees, including financial statements, market participant valuations from recent and proposed equity offerings, and other third-party data.

The following table summarizes the Company's equity and other investments at 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

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

1 unchanged sentence

Total equity and other investments $ 1,569 $ 1,607

The table below includes activity related to the Company’s portfolio of equity and other investments.

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

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

Gross gains 10 29 47 99

Gross losses ( 2 ) ( 28 ) ( 13 ) ( 48 )

Impairment losses recognized — — ( 12 ) ( 10 )

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.

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.

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 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.

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.

3 unchanged sentences

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

At January 27, 2023 and April 29, 2022, no amounts were outstanding under the Credit Facility.

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.

6 unchanged sentences

(in millions) Maturity by

Fiscal Year January 27, 2023 April 29, 2022

Fiscal Year July 28, 2023 April 28, 2023

Current debt obligations 2024 - 2025 $ 519 $ 20

Long-term debt

3.500 percent ten-year 2015 senior notes

0.250 percent six-year 2019 senior notes

5 unchanged sentences

2027 1,657 1,646

3.350 percent ten-year 2017 senior notes

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

5 unchanged sentences

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

21 unchanged sentences

Debt discount, net 2026 - 2051 ( 65 ) ( 64 )

Long-term debt $ 22,210 $ 20,372

Total long-term debt $ 24,463 $ 24,344

The Company has outstanding unsecured senior obligations, described as senior notes in the tables above (collectively, the Senior Notes).

1 unchanged sentence

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

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.

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.

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.

9 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, net in the consolidated statements of income during the nine months ended January 27, 2023.

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 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 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.

2 unchanged sentences

Derivatives and Currency Exchange Risk Management

The Company uses operational and economic hedges, including currency exchange rate derivative contracts and interest rate derivative instruments, to manage the impact of currency exchange and interest rate changes on earnings and cash flows.

In addition, the Company uses cross currency interest rate swaps to manage currency risk related to certain debt.

In order to minimize earnings and cash flow volatility resulting from currency exchange rate changes, the Company enters into derivative instruments, principally forward currency exchange rate contracts.

These contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets and liabilities.

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

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 $ 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.

Freestanding Derivative Contracts

Freestanding derivative contracts are primarily used to offset the Company’s exposure to the change in value of specific foreign-currency-denominated assets and liabilities, and to offset variability of cash flows associated with forecasted transactions denominated in foreign currencies.

The gross notional amount of the Company's freestanding currency exchange rate contracts outstanding at 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 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.

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

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 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.

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.

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 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.

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 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 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.

The Company may also use derivative instruments to hedge the currency risk associated with its net investment in foreign operations.

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

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.

For instruments that are designated and qualify as net investment hedges, the gains or losses are reported as a component of accumulated other comprehensive loss .

The 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 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.

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

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:

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

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 $ 557 $ ( 180 ) $ ( 51 ) $ ( 502 ) $ ( 199 ) $ ( 56 ) $ ( 542 ) $ ( 51 ) Other operating (income) expense, net

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

Non-derivative instruments 1,731 ( 475 ) 381 ( 1,254 ) — — — — N/A

Foreign currency-denominated debt 114 ( 945 ) — — N/A

Currency exchange rate contracts 30 ( 57 ) — — N/A

Total $ 106 $ ( 1,378 ) $ ( 56 ) $ ( 120 )

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 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

Currency exchange rate contracts $ ( 1 ) $ ( 34 ) $ 46 $ ( 67 ) Other operating (income) expense, net

Total return swaps ( 9 ) 10 4 ( 15 ) Other operating (income) expense, net

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

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 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 January 27, 2023 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 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) January 27, 2023 April 29, 2022 Balance Sheet Classification January 27, 2023 April 29, 2022 Balance Sheet Classification

(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

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.

January 27, 2023 April 29, 2022

July 28, 2023 April 28, 2023

(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.

January 27, 2023

July 28, 2023

Gross Amount Not Offset on the Balance Sheet

14 unchanged sentences

Currency exchange rate contracts ( 236 ) 189 — ( 48 )

Total return swaps ( 20 ) — — ( 20 )

( 129 ) 109 — ( 20 )

Total $ 132 $ — $ ( 11 ) $ 121

Inventory balances, net of reserves, were as follows:

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

(in millions) July 28, 2023 April 28, 2023

Finished goods $ 3,723 $ 3,440

2 unchanged sentences

Total $ 5,668 $ 5,293

Medtronic plc

Notes to Consolidated Financial Statements

Goodwill and Other Intangible Assets

2 unchanged sentences

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

Goodwill as a result of acquisitions 726 — 615 — 1,340

Purchase accounting adjustments ( 6 ) — — — ( 6 )

Transfer to held for sale — ( 208 ) — — ( 208 )

Currency translation and other 13 11 ( 7 ) — 17

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.

July 28, 2023 $ 7,880 $ 19,590 $ 11,711 $ 2,255 $ 41,436

Medtronic plc

Notes to Consolidated Financial Statements

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.

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 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.

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 nine months ended January 27, 2023.

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

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.

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:

January 27, 2023 April 29, 2022

July 28, 2023 April 28, 2023

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

7 unchanged sentences

IPR&D $ 232 $ — $ 232 $ —

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 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

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 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:

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

On August 18, 2022, the U.S.

Tax Court (Tax Court) issued its opinion on the previously disclosed litigation regarding the allocation of income between Medtronic, Inc.

and its wholly-owned subsidiary operating in Puerto Rico for fiscal years 2005 and 2006 (Opinion).

While the Opinion rejected the IRS’s position and the Tax Court determined the methodology advanced by Medtronic was appropriate for purposes of determining the intercompany royalty rate between Puerto Rico and the U.S., it determined that the royalty rate should be higher, thereby increasing income allocated to the U.S.

and consequently subject to U.S.

This case relates only to fiscal years 2005 and 2006.

The Opinion remains subject to finalization by the Tax Court and to appeal by either or both parties.

The Company has assumed the Tax Court findings will be applied for all years following fiscal year 2006.

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 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.

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 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.

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.

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

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 Nine months ended

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

Three months ended

(in millions, except per share data) July 28, 2023 July 29, 2022

Net income attributable to ordinary shareholders $ 791 $ 929

7 unchanged sentences

Diluted earnings per share $ 0.59 $ 0.70

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.

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.

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 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

Three months ended

(in millions) July 28, 2023 July 29, 2022

Stock options $ 12 $ 12

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

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:

Three months ended Three months ended

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

Service cost $ 19 $ 25 $ 12 $ 16

Interest cost 36 26 10 7

Expected return on plan assets ( 56 ) ( 57 ) ( 16 ) ( 16 )

Amortization of net actuarial loss 5 16 1 5

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

Nine months ended Nine months ended

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

(in millions) July 28, 2023 July 29, 2022 July 28, 2023 July 29, 2022

Service cost $ 15 $ 19 $ 10 $ 12

1 unchanged sentence

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 cost $ 12 $ 30 $ 21 $ 36

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.

1 unchanged sentence

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

(in millions) Unrealized Gain (Loss) 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

(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 )

2 unchanged sentences

Other comprehensive (loss) income ( 19 ) 14 ( 143 ) 3 ( 30 ) ( 175 )

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

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 )

2 unchanged sentences

Other comprehensive income (loss) ( 16 ) ( 881 ) 1,002 1 220 326

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

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.

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 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.

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

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 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.

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 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.

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, net.

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.

12 unchanged sentences

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, net in the consolidated statements of income.

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 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.

1 unchanged sentence

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.

Medtronic plc

Notes to Consolidated Financial Statements

Intellectual Property Matters

1 unchanged sentence

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

Medtronic plc

Notes to Consolidated Financial Statements

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.

3 unchanged sentences

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.

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.

12 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 February 1, 2023, the Company had reached agreements to settle approximately 15,900 of these claims.

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.

2 unchanged sentences

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

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.

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.

7 unchanged sentences

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.

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.

1 unchanged sentence

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

2 unchanged sentences

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

The Company is also a successor to a party named in a lawsuit filed in the U.S.

1 unchanged sentence

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.

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.

30 unchanged sentences

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

2 unchanged sentences

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, non-operating income or expense items, certain corporate charges, and other items not allocated to the segments.

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.

1 unchanged sentence

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 January 27, 2023.

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

Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio, and Diabetes Operating Unit.

Medtronic plc

Notes to Consolidated Financial Statements

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 Nine months ended

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

Three months ended

(in millions) July 28, 2023 July 29, 2022

Cardiovascular $ 1,092 $ 979

Medical Surgical 748 923 2,104 2,746

Neuroscience 929 841

Medical Surgical 719 693

Diabetes 84 79

4 unchanged sentences

Corporate ( 447 ) ( 414 )

Stock-based compensation ( 73 ) ( 62 )

Centralized distribution costs ( 395 ) ( 406 )

Restructuring and associated costs ( 91 ) ( 76 )

Acquisition-related items ( 24 ) 60 ( 61 ) 54

Certain litigation charges, net — ( 35 ) — ( 95 )

RCS impairments / costs ( 10 ) — ( 109 ) —

MCS impairments / costs — — — ( 726 )

IPR&D charges — ( 11 ) — ( 101 )

Acquisition and divestiture-related items ( 50 ) ( 109 )

Certain litigation charges ( 40 ) —

Medical device regulations ( 31 ) ( 32 )

Exit of business — — ( 37 ) —

Income before income taxes $ 1,196 $ 1,044

Medtronic plc

Notes to Consolidated Financial Statements

(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 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

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

4 unchanged sentences

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