UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	July ~~30, 2021~~29, 2022

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from __________ to __________

Commission File Number 001-36820


Medtronic plc
(Exact name of registrant as specified in its charter)

Ireland			98-1183488
(State of incorporation)			(I.R.S. Employer Identification No.)

20 On Hatch, Lower Hatch Street

Dublin 2, Ireland

(Address of principal executive offices) (Zip Code)

+353 1 438-1700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Ordinary shares, par value $0.0001 per share	MDT	New York Stock Exchange

0.00% Senior Notes due 2022	MDT/22B	New York Stock Exchange
0.375% Senior Notes due 2023	MDT/23B	New York Stock Exchange
0.000% Senior Notes due 2023	MDT/23C	New York Stock Exchange
0.25% Senior Notes due 2025	MDT/25	New York Stock Exchange
0.000% Senior Notes due 2025	MDT/25A	New York Stock Exchange
1.125% Senior Notes due 2027	MDT/27	New York Stock Exchange
0.375% Senior Notes due 2028	MDT/28	New York Stock Exchange
1.625% Senior Notes due 2031	MDT/31	New York Stock Exchange
1.00% Senior Notes due 2031	MDT/31A	New York Stock Exchange
0.750% Senior Notes due 2032	MDT/32	New York Stock Exchange
2.250% Senior Notes due 2039	MDT/39A	New York Stock Exchange
1.50% Senior Notes due 2039	MDT/39B	New York Stock Exchange
1.375% Senior Notes due 2040	MDT/40A	New York Stock Exchange
1.75% Senior Notes due 2049	MDT/49	New York Stock Exchange
1.625% Senior Notes due 2050	MDT/50	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller Reporting Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 1(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of August ~~31, 2021, 1,345,809,975~~29, 2022, 1,329,153,289 ordinary shares, par value $0.0001, ~~and 1,872 A preferred shares, par value $1.00,~~ of the registrant were outstanding.

TABLE OF CONTENTS

Item Description Page

PART I

1.
Financial Statements (unaudited)

1
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

29
3.
Quantitative and Qualitative Disclosures About Market Risk

50
4.
Controls and Procedures

51

PART II

1.
Legal Proceedings

51
2.
Unregistered Sales of Equity Securities and Use of Proceeds

52
5.
Other Information
52
6.
Exhibits

52
Signature
53

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Medtronic plc

Consolidated Statements of Income

(Unaudited)

Three months ended
(in millions, except per share data) July 30, 2021 July 31, 2020
Net sales $ 7,987 $ 6,507
Costs and expenses:
Cost of products sold 2,598 2,505
Research and development expense 750 621
Selling, general, and administrative expense 2,547 2,417
Amortization of intangible assets 436 440
Restructuring charges, net 11 53
Certain litigation charges, net 26 (88)
Other operating expense (income), net 760 (114)
Operating profit 859 673
Other non-operating income, net (111) (82)
Interest expense 137 171
Income before income taxes 833 584
Income tax provision 64 93
Net income 769 491
Net income attributable to noncontrolling interests (6) (4)
Net income attributable to Medtronic $ 763 $ 487
Basic earnings per share $ 0.57 $ 0.36
Diluted earnings per share $ 0.56 $ 0.36
Basic weighted average shares outstanding 1,344.5 1,341.9
Diluted weighted average shares outstanding 1,356.4 1,350.0


	Three months ended
(in millions, except per share data)	July 29, 2022		July 30, 2021
Net sales	$	7,371	$	7,987
Costs and expenses:
Cost of products sold, excluding amortization of intangible assets	2,516		2,598
Research and development expense	692		750
Selling, general, and administrative expense	2,567		2,547
Amortization of intangible assets	423		436
Restructuring charges, net	14		11
Certain litigation charges, net	—		26
Other operating expense, net	35		760
Operating profit	1,125		859
Other non-operating income, net	(83)		(111)
Interest expense	164		137
Income before income taxes	1,044		833
Income tax provision	112		64
Net income	931		769
Net income attributable to noncontrolling interests	(2)		(6)
Net income attributable to Medtronic	$	929	$	763
Basic earnings per share	$	0.70	$	0.57
Diluted earnings per share	$	0.70	$	0.56
Basic weighted average shares outstanding	1,329.4		1,344.5
Diluted weighted average shares outstanding	1,334.5		1,356.4

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

Medtronic plc

Consolidated Statements of Comprehensive Income

(Unaudited)

Three months ended
(in millions) July 30, 2021 July 31, 2020
Net income $ 769 $ 491
Other comprehensive income (loss), net of tax:
Unrealized gain on investment securities 12 125
Translation adjustment (355) 1,117
Net investment hedge 424 (1,112)
Net change in retirement obligations 19 3
Unrealized gain (loss) on cash flow hedges 174 (350)
Other comprehensive income (loss) 274 (217)
Comprehensive income including noncontrolling interests 1,043 274
Comprehensive income attributable to noncontrolling interests (4) (9)
Comprehensive income attributable to Medtronic $ 1,039 $ 265


	Three months ended
(in millions)	July 29, 2022		July 30, 2021
Net income	$	931	$	769

Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on investment securities	(16)		12
Translation adjustment	(884)		(355)
Net investment hedge	1,002		424
Net change in retirement obligations	1		19
Unrealized gain on cash flow hedges	220		174
Other comprehensive income	324		274
Comprehensive income including noncontrolling interests	1,255		1,043
Comprehensive income attributable to noncontrolling interests	—		(4)
Comprehensive income attributable to Medtronic	$	1,255	$	1,039

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

Medtronic plc

Consolidated Balance Sheets

(Unaudited)

(in millions) July 30, 2021 April 30, 2021
ASSETS
Current assets:
Cash and cash equivalents $ 3,004 $ 3,593
Investments 7,591 7,224
Accounts receivable, less allowances and credit losses of $257 and $241, respectively 5,431 5,462
Inventories, net 4,288 4,313
Other current assets 2,120 1,955
Total current assets 22,434 22,548
Property, plant, and equipment 12,808 12,700
Accumulated depreciation (7,646) (7,479)
Property, plant, and equipment, net 5,162 5,221
Goodwill 41,720 41,961
Other intangible assets, net 16,890 17,740
Tax assets 3,187 3,169
Other assets 2,409 2,443
Total assets $ 91,802 $ 93,083
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations $ 6 $ 11
Accounts payable 1,864 2,106
Accrued compensation 1,901 2,482
Accrued income taxes 341 435
Other accrued expenses 3,652 3,475
Total current liabilities 7,764 8,509
Long-term debt 25,958 26,378
Accrued compensation and retirement benefits 1,521 1,557
Accrued income taxes 2,262 2,251
Deferred tax liabilities 1,054 1,028
Other liabilities 1,579 1,756
Total liabilities 40,137 41,481
Commitments and contingencies (Note 16) 0 0
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,344,671,106 and 1,345,400,671 shares issued and outstanding, respectively — —
Additional paid-in capital 26,184 26,319
Retained earnings 28,511 28,594
Accumulated other comprehensive loss (3,209) (3,485)
Total shareholders’ equity 51,486 51,428
Noncontrolling interests 178 174
Total equity 51,664 51,602
Total liabilities and equity $ 91,802 $ 93,083


(in millions)	July 29, 2022		April 29, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	2,140	$	3,714
Investments	6,733		6,859
Accounts receivable, less allowances and credit losses of $219 and $230, respectively	5,308		5,551
Inventories, net	4,809		4,616
Other current assets	3,145		2,318
Total current assets	22,135		23,059
Property, plant, and equipment	13,323		13,365
Accumulated depreciation	(8,043)		(7,952)
Property, plant, and equipment, net	5,281		5,413
Goodwill	40,324		40,502
Other intangible assets, net	15,775		15,595
Tax assets	3,311		3,403
Other assets	3,088		3,008
Total assets	$	89,914	$	90,981
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	5,729	$	3,742
Accounts payable	2,180		2,276
Accrued compensation	1,773		2,121
Accrued income taxes	549		704
Other accrued expenses	3,816		3,551
Total current liabilities	14,049		12,394
Long-term debt	17,481		20,372
Accrued compensation and retirement benefits	1,102		1,113
Accrued income taxes	2,102		2,087
Deferred tax liabilities	899		884
Other liabilities	1,440		1,410
Total liabilities	37,071		38,260
Commitments and contingencies (Note 16)
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,329,276,973 and 1,330,743,395 shares issued and outstanding, respectively	—		—
Additional paid-in capital	24,335		24,566
Retained earnings	30,276		30,250
Accumulated other comprehensive loss	(1,939)		(2,265)
Total shareholders’ equity	52,672		52,551
Noncontrolling interests	170		171
Total equity	52,843		52,722
Total liabilities and equity	$	89,914	$	90,981

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

Medtronic plc

Consolidated Statements of Equity

(Unaudited)

Ordinary Shares Additional Paid-in Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shareholders’
Equity Noncontrolling Interests Total Equity
(in millions) Number Par Value
April 30, 2021 1,345 $ — $ 26,319 $ 28,594 $ (3,485) $ 51,428 $ 174 $ 51,602
Net income — — — 763 — 763 6 769
Other comprehensive (loss) income — — — — 276 276 (2) 274
Dividends to shareholders ($0.63 per ordinary share) — — — (846) — (846) — (846)
Issuance of shares under stock purchase and award plans 2 — 107 — — 107 — 107
Repurchase of ordinary shares (2) — (311) — — (311) — (311)
Stock-based compensation — — 69 — — 69 — 69
July 30, 2021 1,345 $ — $ 26,184 $ 28,511 $ (3,209) $ 51,486 $ 178 $ 51,664


	Ordinary Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
(in millions)	Number	Par Value
April 29, 2022	1,331	$	—	$	24,566	$	30,250	$	(2,265)	$	52,551	$	171	$	52,722
Net income	—	—		—		929		—		929		2		931
Other comprehensive income (loss)	—	—		—		—		326		326		(2)		324
Dividends to shareholders ($0.68 per ordinary share)	—	—		—		(903)		—		(903)		—		(903)
Issuance of shares under stock purchase and award plans	2	—		41		—		—		41		—		41
Repurchase of ordinary shares	(3)	—		(333)		—		—		(333)		—		(333)
Stock-based compensation	—	—		62		—		—		62		—		62


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

Ordinary Shares Additional Paid-in Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shareholders’
Equity Noncontrolling Interests Total Equity
(in millions) Number Par Value
April 24, 2020 1,341 $ — $ 26,165 $ 28,132 $ (3,560) $ 50,737 $ 135 $ 50,872
Net income — — — 487 — 487 4 491
Other comprehensive (loss) income — — — — (222) (222) 5 (217)
Dividends to shareholders ($0.58 per ordinary share) — — — (778) — (778) — (778)
Issuance of shares under stock purchase and award plans 2 — 26 — — 26 — 26
Stock-based compensation — — 70 — — 70 — 70
Changes to noncontrolling ownership interests — — — — — — 3 3
Cumulative effect of change in accounting principle(1)
— — — (24) — (24) — (24)
July 31, 2020 1,343 $ — $ 26,261 $ 27,817 $ (3,782) $ 50,296 $ 147 $ 50,443

(1) The cumulative effect of change in accounting principle during the first quarter of fiscal year 2021 resulted from the adoption of accounting guidance that requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of certain financial instruments and financial assets, including trade receivables. As a result of the adoption, the Company adjusted the opening balance of retained earnings for $24 million as of April 25, 2020.


	Ordinary Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
(in millions)	Number	Par Value
April 29, 2021	1,345	$	—	$	26,319	$	28,594	$	(3,485)	$	51,428	$	174	$	51,602
Net income	—	—		—		763		—		763		6		769
Other comprehensive income (loss)	—	—		—		—		276		276		(2)		274
Dividends to shareholders ($0.63 per ordinary share)	—	—		—		(846)		—		(846)		—		(846)
Issuance of shares under stock purchase and award plans	2	—		107		—		—		107		—		107
Repurchase of ordinary shares	(2)	—		(311)		—		—		(311)		—		(311)
Stock-based compensation	—	—		69		—		—		69		—		69


July 30, 2021	1,345	$	—	$	26,184	$	28,511	$	(3,209)	$	51,486	$	178	$	51,664

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

Medtronic plc

Consolidated Statements of Cash Flows

(Unaudited)

Three months ended
(in millions) July 30, 2021 July 31, 2020
Operating Activities:
Net income $ 769 $ 491
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 671 669
Provision for doubtful accounts 15 37
Deferred income taxes (11) 3
Stock-based compensation 69 70
MCS asset impairment and inventory write-down 515 —
Other, net 116 68
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net (40) (142)
Inventories (75) (235)
Accounts payable and accrued liabilities (416) (541)
Other operating assets and liabilities (321) (142)
Net cash provided by operating activities 1,292 278
Investing Activities:
Additions to property, plant, and equipment (378) (334)
Purchases of investments (2,654) (2,045)
Sales and maturities of investments 2,324 2,403
Other investing activities, net (76) (16)
Net cash provided by (used in) investing activities (784) 8
Financing Activities:
Change in current debt obligations, net — (16)
Proceeds from short-term borrowings (maturities greater than 90 days) — 2,789
Payments on long-term debt (1) (11)
Dividends to shareholders (846) (778)
Issuance of ordinary shares 111 26
Repurchase of ordinary shares (315) —
Other financing activities (4) (51)
Net cash provided by (used in) financing activities (1,055) 1,959
Effect of exchange rate changes on cash and cash equivalents (42) 114
Net change in cash and cash equivalents (589) 2,359
Cash and cash equivalents at beginning of period 3,593 4,140
Cash and cash equivalents at end of period $ 3,004 $ 6,499
Supplemental Cash Flow Information
Cash paid for:
Income taxes $ 249 $ 72
Interest 63 72


	Three months ended
(in millions)	July 29, 2022		July 30, 2021
Operating Activities:
Net income	$	931	$	769
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	668		671
Provision for credit losses	15		15
Deferred income taxes	(18)		(11)
Stock-based compensation	62		69
Loss on debt extinguishment	53		—


MCS asset impairment and inventory write-down	—		515
Other, net	121		116
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net	89		(40)
Inventories, net	(380)		(75)
Accounts payable and accrued liabilities	(147)		(416)
Other operating assets and liabilities	(311)		(321)


Net cash provided by operating activities	1,083		1,292
Investing Activities:
Acquisitions, net of cash acquired	(1,191)		—

Additions to property, plant, and equipment	(426)		(378)
Purchases of investments	(1,884)		(2,654)
Sales and maturities of investments	1,886		2,324
Other investing activities, net	30		(76)
Net cash used in investing activities	(1,585)		(784)
Financing Activities:


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

Payments on long-term debt	(2,311)		(1)
Dividends to shareholders	(903)		(846)
Issuance of ordinary shares	43		111
Repurchase of ordinary shares	(336)		(315)
Other financing activities	273		(4)
Net cash used in financing activities	(950)		(1,055)
Effect of exchange rate changes on cash and cash equivalents	(122)		(42)
Net change in cash and cash equivalents	(1,574)		(589)
Cash and cash equivalents at beginning of period	3,714		3,593
Cash and cash equivalents at end of period	$	2,140	$	3,004

Supplemental Cash Flow Information
Cash paid for:
Income taxes	$	260	$	249
Interest	68		63

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

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

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

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

The ~~Covid-19~~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 ~~highly~~ uncertain and unpredictable. While there was not a material impact to the Company’s consolidated financial statements as of and for the three months ended July ~~30, 2021,~~29, 2022, changes in the Company’s assessment about the length and severity of the pandemic, as well as other factors, could result in actual results differing from estimates.

The accompanying unaudited consolidated financial statements include the accounts of Medtronic plc, its wholly-owned subsidiaries, entities for which the Company has a controlling financial interest, and variable interest entities for which the Company is the primary beneficiary. Intercompany transactions and balances have been eliminated in consolidation. Amounts reported in millions within this quarterly report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in millions due to rounding. Additionally, certain columns and rows within tables may not sum due to rounding.

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended April ~~30, 2021.~~29, 2022. The Company’s fiscal years 2023, 2022, ~~2021,~~ and ~~2020~~2021 will end or ended on April 28, 2023, April 29, 2022, and April 30, 2021, ~~and April 24, 2020,~~ respectively. Fiscal year 2021 was a 53-week ~~year, with the extra week having occurred in the first fiscal month of the first quarter.~~year.

2. New Accounting Pronouncements

Recently Adopted

For the three months ended July ~~30, 2021,~~29, 2022, there were no newly adopted accounting pronouncements that had a material impact to our consolidated financial statements. As of July ~~30, 2021,~~29, 2022, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our consolidated financial statements.

3. Revenue

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

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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

The table below illustrates net sales by segment and division for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:


		Three months ended				Three months ended
(in millions)	(in millions)	July 30, 2021		July 31, 2020			(in millions)	July 29, 2022		July 30, 2021
Cardiac Rhythm & Heart Failure	Cardiac Rhythm & Heart Failure	$	1,483	$	1,247		Cardiac Rhythm & Heart Failure	$	1,393	$	1,483
Structural Heart & Aortic	Structural Heart & Aortic	787		627			Structural Heart & Aortic	741		787
Coronary & Peripheral Vascular	Coronary & Peripheral Vascular	620		558			Coronary & Peripheral Vascular	579		620
Cardiovascular	Cardiovascular	2,890		2,433			Cardiovascular	2,713		2,890
Surgical Innovations	Surgical Innovations	1,554		1,080			Surgical Innovations	1,338		1,554
Respiratory, Gastrointestinal, & Renal	Respiratory, Gastrointestinal, & Renal	768		720			Respiratory, Gastrointestinal, & Renal	664		768
Medical Surgical	Medical Surgical	2,322		1,801			Medical Surgical	2,001		2,322
Cranial & Spinal Technologies	Cranial & Spinal Technologies	1,123		944			Cranial & Spinal Technologies	1,043		1,123
Specialty Therapies	Specialty Therapies	641		453			Specialty Therapies	667		641
Neuromodulation	Neuromodulation	440		314			Neuromodulation	405		440
Neuroscience	Neuroscience	2,204		1,712			Neuroscience	2,115		2,204
Diabetes	Diabetes	572		562			Diabetes	541		572
Total	Total	$	7,987	$	6,507		Total	$	7,371	$	7,987

The table below illustrates net sales by market geography for each segment for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:


		U.S.(1)				Non-U.S. Developed Markets(2)				Emerging Markets(3)					U.S.(1)				Non-U.S. Developed Markets(2)				Emerging Markets(3)
		Three months ended				Three months ended				Three months ended					Three months ended				Three months ended				Three months ended
(in millions)	(in millions)	July 30, 2021		July 31, 2020		July 30, 2021		July 31, 2020		July 30, 2021		July 31, 2020		(in millions)	July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021
Cardiovascular	Cardiovascular	$	1,420	$	1,206	$	1,003	$	853	$	467	$	374	Cardiovascular	$	1,298	$	1,420	$	892	$	1,003	$	523	$	467
Medical Surgical	Medical Surgical	990		722		869		719		463		359		Medical Surgical	843		990		767		869		392		463
Neuroscience	Neuroscience	1,446		1,136		465		376		293		199		Neuroscience	1,419		1,446		407		465		290		293
Diabetes	Diabetes	245		287		263		226		63		48		Diabetes	206		245		264		263		72		63
Total	Total	$	4,101	$	3,351	$	2,601	$	2,175	$	1,286	$	981	Total	$	3,766	$	4,101	$	2,328	$	2,601	$	1,276	$	1,286

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

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

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

The amount of revenue recognized is reduced by sales rebates and returns. Adjustments to rebates and returns reserves are recorded as increases or decreases to revenue. At July ~~30, 2021, $987~~29, 2022, $955 million of rebates were classified as other accrued expenses, and $~~535~~576 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. At April ~~30, 2021, $906~~29, 2022, $981 million of rebates were classified as other accrued expenses, and ~~$485~~$548 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. For the three months ended July 30, 2021 and July 31, 2020, adjustments to rebate and return reserves recognized in revenue that were included in the rebate and return reserves at the beginning of the period were not material.

Deferred Revenue and Remaining Performance Obligations

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 July ~~30, 2021~~29, 2022 and April ~~30, 2021~~29, 2022 was ~~$375~~$391 million and ~~$368~~$399 million, respectively. At July ~~30, 2021~~29, 2022 and April ~~30, 2021, $278~~29, 2022, $302 million and ~~$276~~$305 million was included in other accrued expenses, respectively, and ~~$96~~$90 million and ~~$93~~$94 million was included in other liabilities, respectively. During the three months ended July ~~30, 2021,~~29, 2022, the Company recognized ~~$84~~$87 million of revenue that was included in deferred revenue as of April ~~30, 2021.~~29, 2022.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Remaining performance obligations include goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments. At July ~~30, 2021,~~29, 2022, the estimated revenue expected to be recognized in future periods related to unsatisfied performance obligations for executed contracts with an original duration of one year or more was approximately ~~$1.2 billion.~~$801 million. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next ~~four~~three years.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

4. Acquisitions and Assets and Liabilities Held for Sale

~~The~~During the three months ended July 29, 2022, the Company had no acquisitions that were accounted for as business combinations. The assets and liabilities of the businesses acquired were recorded and consolidated on the acquisition date at their respective fair values. Goodwill resulting from business combinations ~~during~~is largely attributable to future, yet to be defined technologies, new customer relationships, existing workforce of the acquired businesses, and synergies expected to arise after the Company's acquisition of these businesses. The pro forma impact of these acquisitions was not significant, either individually or in the aggregate, to the consolidated results of the Company for the three months ended July ~~30, 2021 or July 31, 2020.~~29, 2022. The results of operations of acquired businesses have been included in the Company's consolidated statements of income since the date each business was acquired. For the three months ended July 29, 2022 and July 30, 2021, purchase price allocation adjustments were not significant. ~~During the three months ended July 31, 2020,~~

Fiscal Year 2023

Intersect ENT

On May 13, 2022, the Company ~~recognized~~acquired Intersect ENT, a ~~gain~~global ear, nose, and throat (ENT) medical technology leader. The acquisition expands the Neuroscience segment portfolio of ~~$132~~products used during ENT procedures, and combined with the Company's navigation, powered instruments, and existing tissue health products, will offer a broader suite of solutions to assist surgeons treating patients who suffer from chronic rhinosinusitis (CRS). 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 ~~related~~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 ~~a change~~Intersect ENT since the date of acquisition as well as costs incurred in ~~amounts accrued for certain contingent liabilities from a recent acquisition. The benefit was recognized in~~ ~~other operating expense (income), net~~ connection with the acquisition included in the consolidated statements of income were not significant for the three months ended July 29, 2022.

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


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

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

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Other acquisitions

For acquisitions other than Intersect ENT, the ~~purchase accounting~~acquisition date fair value of net assets acquired during the three months ended July 29, 2022 was ~~finalized~~$123 million. Based upon preliminary valuations, assets acquired were primarily comprised of $66 million of goodwill and $57 million of technology-based intangible assets with estimated useful lives of 16 years. The goodwill is deductible for tax purposes. The Company recognized $73 million of contingent consideration liabilities in ~~fiscal year 2020.~~connection with these acquisitions during the three months ended July 29, 2022, which are comprised of revenue and regulatory milestone-based payments.

Subsequent Acquisitions

Subsequent to July 29, 2022, on August 30, 2022 the Company acquired Affera, Inc. (Affera) a privately-held manufacturer of cardiac mapping and navigation systems and catheter-based cardiac ablation technologies. The acquisition expands the Cardiovascular segment portfolio of advanced cardiac ablation products and accessories to include its first cardiac mapping and navigation platform to meet physician needs within a growing patient population. Total consideration for the transaction is up to $1.0 billion, including up to $250 million of undiscounted contingent consideration related to certain technical and regulatory milestones. The transaction will be accounted for as a business combination using the acquisition method of accounting. This requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

Due to the limited amount of time since the acquisition date and the significant limitations on access to Affera information prior to the acquisition date, the preliminary acquisition valuation for the business combination is incomplete at this time. As a result, the Company is unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill. We will include such disclosures in our Form 10-Q for the quarter ending October 28, 2022.

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

IPR&D with no alternative future use acquired outside of a business combination is expensed immediately. During the three months ended July 29, 2022, IPR&D acquired in connection with asset acquisitions of technology not yet approved by regulators was not significant. During the three months ended July 30, 2021, the Company acquired $90 million of IPR&D in connection with asset acquisitions of technology not yet approved by regulators, which was recognized in research and development expense in the consolidated statements of income. ~~During the three months ended July 31, 2020, IPR&D acquired in connection with asset acquisitions was not significant.~~

Contingent Consideration

Certain of the Company’s business combinations involve potential payment of future consideration that is contingent upon the achievement of certain product development milestones and/or contingent on the acquired business reaching certain performance milestones. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within other operating expense, ~~(income),~~ net in the consolidated statements of income. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows.

The fair value of contingent consideration at July ~~30, 2021~~29, 2022 and April ~~30, 2021~~29, 2022 was ~~$294~~$193 million and ~~$270~~$119 million, respectively. At July ~~30, 2021, $99~~29, 2022, $64 million was recorded in other accrued expenses, and ~~$195~~$129 million was recorded in other liabilities in the consolidated balance sheet. At April ~~30, 2021, $78~~29, 2022, $35 million was recorded in other accrued expenses, and ~~$192~~$84 million was recorded in other liabilities in the consolidated balance sheet.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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


		Three months ended				Three months ended
(in millions)	(in millions)	July 30, 2021		July 31, 2020			(in millions)	July 29, 2022		July 30, 2021
Beginning balance	Beginning balance	$	270	280			Beginning balance	$	119	$	270

Purchase price contingent consideration							Purchase price contingent consideration	73		—
Purchase price allocation adjustments	Purchase price allocation adjustments	25		—			Purchase price allocation adjustments	—		25
Payments	Payments	(11)		(1)			Payments	—		(11)
Change in fair value	Change in fair value	10		18			Change in fair value	2		10
Ending balance	Ending balance	$	294	$	297		Ending balance	$	193	$	294

The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based consideration). Projected revenues are based on the Company's most recent internal operational budgets and long-range strategic plans. Changes in projected payment dates, discount rates, probabilities of payment, and projected revenues may result in adjustments

Medtronic plc

Notes to ~~the fair value measurement.~~ Consolidated Financial Statements

(Unaudited)

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

Fair Value at

(in millions)

July 30, 2021

Unobservable Input

Range

Weighted Average (1)

(in millions)

July 29, 2022

Unobservable Input

Range

Weighted Average (1)

Discount rate

11.2% - 31.6%

17.2%

Revenue and other performance-based payments

td59

Probability of payment

30% - 100%

91.4%

Revenue and other performance-based payments

td43

Discount rate

11.2% - 27.2%

15.0%

Projected fiscal year of payment

2022 - 2027

2024

Discount rate

5.5%

Revenue and other performance-based payments

td43

Projected fiscal year of payment

2023 - 2027

2025

Product development and other milestone-based payments

$35

Probability of payment

100%

100.0%

Discount rate

5.5%

Projected fiscal year of payment

2022 - 2027

2024

Product development and other milestone-based payments

$50

Projected fiscal year of payment

2023 - 2024

2023

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

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, the RCS business met the criteria to be classified as held for sale on the date the agreement was entered into. The transaction is expected to close in calendar year 2023, subject to customary regulatory approvals and closing conditions. RCS is part of the Company’s Medical Surgical portfolio. The Company recorded a non-cash pre-tax impairment of $67 million, primarily related to goodwill, in the three months ending July 29, 2022 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.

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)	July 29, 2022
Inventories, net	$	119
Property, plant, and equipment, net	141
Goodwill	147
Other intangible assets, net	114
Other	48
Total assets held for sale (1)	$	568

Total liabilities held for sale (1)(2)	$	38

(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.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

5. Restructuring and Other Costs

Enterprise Excellence

In the third quarter of fiscal year 2018, the Company announced its Enterprise Excellence restructuring program. Further program ~~which was designed~~details are described in Note 4 to ~~leverage~~the consolidated financial statements included in the Company's ~~global size and scale, as well as enhance~~Annual Report on Form 10-K for the customer and employee experience, with a focus on three objectives: global operations, functional optimization, and commercial optimization. Primary activities of the restructuring program include integrating and enhancing global manufacturing and supply processes, systems and site presence, enhancing and leveraging global operating models across several enabling functions, and optimizing certain commercial processes, systems, and models.fiscal year ended April 29, 2022.

Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of ~~$1.4~~$1.6 billion in connection with the Enterprise Excellence program. In total, the Company estimates it will recognize approximately ~~$1.6 billion to~~ $1.8 billion of exit and disposal costs and other costs related to the ~~Enterprise Excellence~~ program ~~the majority of which are expected to be incurred~~ by the end of ~~this~~ fiscal ~~year. Approximately 40 percent of the estimated charges are related to employee termination benefits.~~year 2023. The remaining charges are costs associated with the restructuring program, such as salaries and benefits for employees supporting the program, including program management and transition teams, and strategic and operational consulting services related to the three objectives of the ~~program discussed above.~~program. These charges are recognized within restructuring charges, net, cost of products sold, and selling, general, and administrative expense in the consolidated statements of income.

For the three months ended July 29, 2022, the Company recognized net charges of $40 million, of which $19 million was recognized within cost of products sold and $28 million was recognized within selling, general, and administrative expense in the consolidated statements of income. For the three months ended July 30, 2021, the Company recognized net charges of $74 million, of which $33 million were recognized within cost of products sold and $30 million were recognized within ~~selling, general, and administrative expense~~ ~~in the consolidated statements of income.~~

~~For the three months ended July 31, 2020, the Company recognized net charges of $77 million, of which $27 million were recognized within~~ ~~cost of products sold~~ ~~and $47 million were recognized within~~ selling, general, and administrative expense in the consolidated statements of income.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~The following table summarizes the activity related to the Enterprise Excellence restructuring program for the three months ended July 30, 2021:~~

(in millions) Employee Termination Benefits
Associated Costs(1)
Other Costs Total
April 30, 2021 $ 64 $ 18 $ 1 $ 83
Charges 12 63 — 75
Cash payments (14) (68) — (82)
Accrual adjustments(2)
(1) — — (1)
July 30, 2021 $ 61 $ 13 $ 1 $ 75

~~(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.~~

Simplification

In the first quarter of fiscal year 2021, the Company initiated the Simplification restructuring program. Further program ~~designed~~details are described in Note 4 to ~~make~~ the ~~Company a more nimble and competitive organization focused~~consolidated financial statements included in the Company's Annual Report on ~~accelerating innovation, enhancing~~Form 10-K for the customer experience, driving revenue growth, and winning market share, while also more efficiently and effectively leveraging the enterprise scale. Under the oversight of the portfolio leaders, this new operating model, which became fully operational the beginning of the fourth quarter of fiscal year 2021, simplifies the Company's organizational structure and accelerates decision-making and execution. Primary activities of the restructuring program included reorganizing the Company into a portfolio-level structure, including the creation of highly focused, accountable, and empowered Operating Units (OUs), consolidating Operations at the enterprise level, establishing Technology Development Centers in areas where the Company has deep core technology competencies to be leveraged by multiple OUs, and forming dedicated sales organizations that leverage the Company's scale but move with the same agility as smaller, local competitors.ended April 29, 2022.

Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of ~~$274~~$385 million in connection with the Simplification program. In total, the Company estimates it will recognize approximately ~~$400 million to~~ $450 million of exit and disposal costs and other costs related to the Simplification program ~~the majority of which are expected to be incurred~~ by the end of ~~this~~ fiscal ~~year. Approximately three quarters of the estimated charges are related to employee termination benefits.~~year 2023. The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program and consulting expenses. These charges are recognized within restructuring charges, net, cost of products sold, and selling, general, and administrative expense in the consolidated statements of income.

For the three months ended July 29, 2022, the Company recognized net charges of $36 million of which $13 million were recognized within selling, general, and administrative expense in the consolidated statements of income. For the three months ended July 30, 2021, the Company recognized net charges of $7 million which were all recognized withinselling, general, and administrative expense in the consolidated statements of income.

For the three months ended July 31, 2020, the Company recognized net charges of $51 million, which primarily included $50 million recognized within restructuring charges, net in the consolidated statements of income, mostly comprised of employee termination benefits.

The following table summarizes the activity related to the ~~Simplification~~ restructuring ~~program~~programs above for the three months ended July ~~30, 2021:~~

(in millions) Employee Termination Benefits
Associated Costs(1)
Total
April 30, 2021 $ 59 $ 4 $ 63
Charges 3 7 10
Cash payments (32) (9) (41)
Accrual adjustments(2)
(3) — (3)
July 30, 2021 $ 27 $ 2 $ 29
29, 2022:


(in millions)	Employee Termination Benefits		Associated Costs(1)		Other Costs		Total
April 29, 2022	$	81	$	27	$	1	$	110
Charges	23		61		1		85
Cash payments	(26)		(75)		(1)		(103)
Accrual adjustments(2)	(9)		—		—		(9)
July 29, 2022	$	69	$	13	$	1	$	83

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

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

1011

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Mechanical Circulatory Support (MCS)

OnIn June 3, 2021, the Company announced the decision to stop the distribution and sale of the Medtronic HVAD System in light of a growing body of observational clinical comparisons indicating a lower frequency of neurological adverse events and mortality with another circulatory support device available to patients compared to the HVAD system. In connection with this decision, the Company recorded charges of $726 million (MCS charges) within the Cardiovascular segment during the ~~quarter,~~three months ended July 30, 2021, including $58 million recognized in costs of products sold and $668 million recognized within other operating expense, ~~(income),~~ net in the consolidated statement of income. The charges ~~include~~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 ~~include~~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 expense, net primarily related to incremental commitments and obligations associated with the exit of the business. As of July ~~30, 2021,~~29, 2022, accruals were recorded in the consolidated balance sheet for these obligations, with ~~$130~~$81 million reflected in other accrued expenses and ~~$41~~$136 million recorded in other liabilities. Medtronic remains committed to serving the needs of the approximately ~~4,000~~3,200 patients currently implanted with the HVAD system.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

6. Financial Instruments

Debt Securities

The Company holds investments in marketable debt securities that are classified and accounted for as available-for-sale and are remeasured on a recurring basis. The following tables summarize the Company's investments in available-for-sale debt securities by significant investment category and the related consolidated balance sheet classification at July ~~30, 2021~~29, 2022 and April ~~30, 2021:~~

July 30, 2021
Valuation Balance Sheet Classification
(in millions) Cost Unrealized
Gains Unrealized
Losses Fair Value Investments Other Assets
Level 1:
U.S. government and agency securities $ 522 $ 29 $ (2) $ 549 $ 549 $ —
Level 2:
Corporate debt securities 4,807 104 (10) 4,901 4,901 —
U.S. government and agency securities 880 1 (3) 878 878 —
Mortgage-backed securities 649 24 (16) 656 656 —
Non-U.S. government and agency securities 30 1 — 31 31 —
Certificates of deposit 15 — — 15 15 0
Other asset-backed securities 552 3 — 555 555 —
Debt funds 6 — — 6 6 —
Total Level 2 6,939 133 (30) 7,042 7,042 —
Level 3:
Auction rate securities 36 — (3) 33 — 33
Total available-for-sale debt securities $ 7,497 $ 162 $ (35) $ 7,624 $ 7,591 $ 33
29, 2022:


	July 29, 2022
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	532	$	1	$	(13)	$	520	$	520	$	—
Level 2:
Corporate debt securities	4,339		4		(156)		4,186		4,186		—
U.S. government and agency securities	928		—		(37)		891		891		—
Mortgage-backed securities	573		—		(38)		535		535		—
Non-U.S. government and agency securities	17		—		—		17		17		—
Certificates of deposit	10		—		—		10		10		—
Other asset-backed securities	595		—		(22)		574		574		—
Total Level 2	6,462		4		(253)		6,213		6,213		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	7,030	$	5	$	(269)	$	6,767	$	6,733	$	33

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


		April 30, 2021													April 29, 2022
		Valuation								Balance Sheet Classification					Valuation								Balance Sheet Classification
(in millions)	(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets		(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:	Level 1:													Level 1:
U.S. government and agency securities	U.S. government and agency securities	$	505	$	26	$	(3)	$	528	$	528	$	—	U.S. government and agency securities	$	533	$	1	$	(15)	$	518	$	518	$	—
Level 2:	Level 2:													Level 2:
Corporate debt securities	Corporate debt securities	4,557		103		(13)		4,647		4,647		—		Corporate debt securities	4,457		4		(140)		4,321		4,321		—
U.S. government and agency securities	U.S. government and agency securities	810		—		(7)		804		804		—		U.S. government and agency securities	910		—		(41)		869		869		—
Mortgage-backed securities	Mortgage-backed securities	645		21		(16)		650		650		—		Mortgage-backed securities	592		—		(35)		558		558		—
Non-U.S. government and agency securities	Non-U.S. government and agency securities	31		1		—		33		33		—		Non-U.S. government and agency securities	17		—		—		17		17		—
Certificates of deposit	Certificates of deposit	19		—		—		19		19		0		Certificates of deposit	20		—		—		20		20		—
Other asset-backed securities	Other asset-backed securities	534		4		(1)		537		537		—		Other asset-backed securities	567		—		(11)		556		556		—
Debt funds		7		—		—		7		7		—
Total Level 2	Total Level 2	6,603		129		(36)		6,696		6,696		—		Total Level 2	6,563		4		(227)		6,341		6,341		—
Level 3:	Level 3:													Level 3:
Auction rate securities	Auction rate securities	36		—		(3)		33		—		33		Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	Total available-for-sale debt securities	$	7,144	$	155	$	(42)	$	7,257	$	7,224	$	33	Total available-for-sale debt securities	$	7,131	$	5	$	(245)	$	6,893	$	6,859	$	33

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

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The following tables present the gross unrealized losses and fair values of the Company’s available-for-sale debt securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category at July ~~30, 2021~~29, 2022 and April ~~30, 2021:~~29, 2022:


	July 29, 2022
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate debt securities	$	243	$	(2)	$	3,044	$	(155)
U.S. government and agency securities	—		—		942		(50)
Mortgage-backed securities	—		—		521		(38)
Other asset-backed securities	—		—		532		(22)
Auction rate securities	—		—		33		(3)
Total	$	243	$	(2)	$	5,072	$	(267)

July 30, 2021
Less than 12 months More than 12 months
(in millions) Fair Value Unrealized
Losses Fair Value Unrealized
Losses
U.S. government and agency securities $ 976 $ (6) $ — $ —
Corporate debt securities — — 3,265 (10)
Mortgage-backed securities — — 656 (16)
Auction rate securities — — 33 (3)
Total $ 976 $ (6) $ 3,954 $ (29)


		April 30, 2021									April 29, 2022
		Less than 12 months				More than 12 months					Less than 12 months				More than 12 months
(in millions)	(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate debt securities										Corporate debt securities	$	222	$	(1)	$	2,993	$	(139)
U.S. government and agency securities	U.S. government and agency securities	$	946	$	(10)	$	—	$	—	U.S. government and agency securities	—		—		945		(56)
Corporate debt securities		—		—		3,209		(13)
Mortgage-backed securities	Mortgage-backed securities	—		—		650		(16)		Mortgage-backed securities	—		—		507		(35)
Other asset-backed securities	Other asset-backed securities	—		—		531		(1)		Other asset-backed securities	—		—		526		(11)
Auction rate securities	Auction rate securities	—		—		33		(3)		Auction rate securities	—		—		33		(3)
Total	Total	$	946	$	(10)	$	4,423	$	(32)	Total	$	222	$	(1)	$	5,004	$	(244)

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. There were no transfers into or out of Level 3 during the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020.~~30, 2021. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

Three months ended
(in millions) July 30, 2021 July 31, 2020
Proceeds from sales $ 2,272 $ 2,403
Gross realized gains 4 5
Gross realized losses (2) (6)


	Three months ended
(in millions)	July 29, 2022		July 30, 2021
Proceeds from sales	$	1,864	$	2,272
Gross realized gains	1		4
Gross realized losses	(9)		(2)

The July ~~30, 2021~~29, 2022 balance of available-for-sale debt securities by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


(in millions)	July ~~30, 2021~~29, 2022
Due in one year or less	$	~~2,170~~1,378
Due after one year through five years	~~2,978~~3,597
Due after five years through ten years	~~1,817~~1,102
Due after ten years	~~660~~690
Total	$	~~7,624~~6,767

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Equity Securities, Equity Method Investments, and Other Investments

The Company holds investments in equity securities with readily determinable fair values, equity 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 July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~29, 2022, which are classified as other assets in the consolidated balance sheets:


(in millions)	(in millions)	July 30, 2021		April 30, 2021		(in millions)	July 29, 2022		April 29, 2022
Investments with readily determinable fair value (marketable equity securities)	Investments with readily determinable fair value (marketable equity securities)	$	74	$	74	Investments with readily determinable fair value (marketable equity securities)	$	26	$	64
Investments without readily determinable fair values	Investments without readily determinable fair values	540		537		Investments without readily determinable fair values	770		732
Equity method and other investments	Equity method and other investments	78		76		Equity method and other investments	84		85
Total equity and other investments	Total equity and other investments	$	692	$	687	Total equity and other investments	$	880	$	881

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				Three months ended
(in millions)	(in millions)	July 30, 2021		July 31, 2020			(in millions)	July 29, 2022		July 30, 2021
Proceeds from sales	Proceeds from sales	$	52	$	—		Proceeds from sales	$	21	$	52
Gross gains	Gross gains	58		12			Gross gains	15		58
Gross losses	Gross losses	(5)		—			Gross losses	(4)		(5)
Impairment losses recognized	Impairment losses recognized	(10)		(2)			Impairment losses recognized	(7)		(10)

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. During the three months ended July 30, 2021, there were $15 million of net unrealized gains on equity securities and other investments still held at July 30, 2021. ~~During the three months ended July 31, 2020, there were $12 million of net unrealized gains on equity securities and other investments still held at July 31, 2020.~~

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

7. Financing Arrangements

Commercial Paper

The Company maintains commercial paper programs that allow the Company to issue U.S. dollar or Euro-denominated unsecured commercial paper notes. The aggregate amount outstanding at any time under the commercial paper programs may not exceed the equivalent of $3.5 billion. No commercial paper was outstanding at July ~~30, 2021~~29, 2022 and April ~~30, 2021.~~29, 2022. The issuance of commercial paper reduces the amount of credit available under the Company’s existing Credit Facility, as defined below.

Line of Credit

The Company has a $3.5 billion five-year unsecured revolving credit facility (Credit Facility), which provides back-up funding for the commercial paper programs described above. The Credit Facility includes a multi-currency borrowing feature for certain specified foreign currencies. At July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~29, 2022, no amounts were outstanding under the Credit Facility.

Interest rates on advances on the Credit Facility are determined by a pricing matrix, based on the Company’s long-term debt ratings, assigned by Standard & Poor’s Ratings Services and Moody’s Investors Service. Facility fees are payable on the Credit Facility and are determined in the same manner as the interest rates. The Company is in compliance with the covenants under the Credit Facility.

1415

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Debt Obligations

The Company's debt obligations consisted of the following:

(in millions) Maturity by
Fiscal Year July 30, 2021 April 30, 2021
Current debt obligations 2022 - 2023 $ 6 $ 11
Long-term debt
0.000 percent three-year 2019 senior notes
2023 887 907
0.375 percent four-year 2019 senior notes
2023 1,773 1,813
0.000 percent two-year 2020 senior notes
2023 1,478 1,511
3.500 percent ten-year 2015 senior notes
2025 1,890 1,890
0.250 percent six-year 2019 senior notes
2026 1,182 1,209
0.000 percent five-year 2020 senior notes
2026 1,182 1,209
3.350 percent ten-year 2017 senior notes
2027 368 368
1.125 percent eight-year 2019 senior notes
2027 1,773 1,813
0.375 percent eight-year 2020 senior notes
2029 1,182 1,209
1.625 percent twelve-year 2019 senior notes
2031 1,182 1,209
1.000 percent twelve-year 2019 senior notes
2032 1,182 1,209
0.750 percent twelve-year 2020 senior notes
2033 1,182 1,209
4.375 percent twenty-year 2015 senior notes
2035 1,932 1,932
6.550 percent thirty-year 2007 CIFSA senior notes
2038 253 253
6.500 percent thirty-year 2009 senior notes
2039 158 158
2.250 percent twenty-year 2019 senior notes
2039 1,182 1,209
5.550 percent thirty-year 2010 senior notes
2040 224 224
1.500 percent twenty-year 2019 senior notes
2040 1,182 1,209
1.375 percent twenty-year 2020 senior notes
2041 1,182 1,209
4.500 percent thirty-year 2012 senior notes
2042 105 105
4.000 percent thirty-year 2013 senior notes
2043 305 305
4.625 percent thirty-year 2014 senior notes
2044 127 127
4.625 percent thirty-year 2015 senior notes
2045 1,813 1,813
1.750 percent thirty-year 2019 senior notes
2050 1,182 1,209
1.625 percent thirty-year 2020 senior notes
2051 1,182 1,209
Finance lease obligations 2022 - 2036 60 62
Deferred financing costs 2022 - 2051 (120) (125)
Debt discount, net 2022 - 2051 (71) (75)
Long-term debt $ 25,958 $ 26,378


(in millions)	Maturity by Fiscal Year	July 29, 2022		April 29, 2022
Current debt obligations	2023 - 2024	$	5,729	$	3,742

Long-term debt
3.500 percent ten-year 2015 senior notes	2025	—		1,890
0.250 percent six-year 2019 senior notes	2026	1,012		1,064
0.000 percent five-year 2020 senior notes	2026	1,012		1,064
1.125 percent eight-year 2019 senior notes	2027	1,518		1,596
3.350 percent ten-year 2019 senior notes	2027	—		368
0.375 percent eight-year 2020 senior notes	2029	1,012		1,064
1.625 percent twelve-year 2019 senior notes	2031	1,012		1,064
1.000 percent twelve-year 2019 senior notes	2032	1,012		1,064
0.750 percent twelve-year 2020 senior notes	2033	1,012		1,064
4.375 percent twenty-year 2015 senior notes	2035	1,932		1,932
6.550 percent thirty-year 2007 CIFSA senior notes	2038	253		253
2.250 percent twenty-year 2019 senior notes	2039	1,012		1,064
6.500 percent thirty-year 2009 senior notes	2039	158		158
1.500 percent twenty-year 2019 senior notes	2040	1,012		1,064
5.550 percent thirty-year 2010 senior notes	2040	224		224
1.375 percent twenty-year 2020 senior notes	2041	1,012		1,064
4.500 percent thirty-year 2012 senior notes	2042	105		105
4.000 percent thirty-year 2013 senior notes	2043	305		305
4.625 percent thirty-year 2014 senior notes	2044	127		127
4.625 percent thirty-year 2015 senior notes	2045	1,813		1,813
1.750 percent thirty-year 2019 senior notes	2050	1,012		1,064
1.625 percent thirty-year 2020 senior notes	2051	1,012		1,064






Finance lease obligations	2023 - 2036	58		56
Deferred financing costs	2023 - 2051	(101)		(109)
Debt discount, net	2023 - 2051	(40)		(52)
Long-term debt		$	17,481	$	20,372

Senior Notes

The Company has outstanding unsecured senior obligations, described as senior notes in the tables above (collectively, the Senior Notes). The Senior Notes rank equally with all other unsecured and unsubordinated indebtedness of the Company. The Company is in compliance with all covenants related to the Senior Notes.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In September 2020, Medtronic Global Holdings S.C.A. (Medtronic Luxco) issued 6 tranches of Euro-denominated Senior Notes with an aggregate principal of €6.3 billion, with maturities ranging from fiscal year 2023 to fiscal year 2051, resulting in cash proceeds of approximately $7.2 billion, net of discounts and issuance costs. The Company used the net proceeds of the offering to fund the early redemption of $4.3 billion of Medtronic Inc. and CIFSA Senior Notes and €1.5 billion of Medtronic Luxco Senior Notes for $6.3 billion of total consideration in October 2020. Additionally, the Company used the proceeds to repay its €750 million floating rate senior notes at maturity in March 2021. The Company recognized a loss on debt extinguishment of $308 million during the second quarter of fiscal year 2021, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss was recognized in ~~interest expense~~ ~~in the consolidated statement of income.~~

The Euro-denominated debt issued in September 2020 is designated as a net investment hedge of certain of the Company's European operations. Refer to Note 8 for additional information regarding the net investment hedge.

Term Loan Agreements

On May ~~12, 2020,~~2, 2022, Medtronic Luxco entered into a term loan agreement ~~(Loan~~(Fiscal 2023 Loan Agreement) by and among Medtronic Luxco, Medtronic plc, Medtronic, Inc., and Mizuho Bank, Ltd. as administrative agent and as lender. The Fiscal 2023 Loan Agreement provides an unsecured term loan in an aggregate principal amount of up to ¥300 billion with a term of six months and the option to extend for an additional six months at Medtronic Luxco’s option. On May 13, 2020, Medtronic Luxco borrowed the entire amount of the term loan under the Loan Agreement. The Japanese Yen-denominated debt was designated as a net investment hedge for certain of the Company's Japanese operations.364 days. Borrowings under the Fiscal 2023 Loan Agreement ~~carried~~bear interest at the TIBOR Rate (as defined in the Fiscal 2023 Loan Agreement) plus a margin of ~~0.50%~~0.40% per annum. Medtronic plc and Medtronic, Inc. have guaranteed the obligations of Medtronic Luxco under the Fiscal 2023 Loan Agreement. ~~On November 12, 2020, the Company exercised its option to extend~~In May and June 2022, Medtronic Luxco borrowed an aggregate of ¥297 billion, or approximately $2.3 billion, of the term loan, under the Fiscal 2023 Loan Agreement. The Company used the net proceeds of the borrowings to fund the early redemption of $1.9 billion of Medtronic Inc.'s 3.500% Senior Notes due 2025 for ~~an additional six months. During~~$1.9 billion of total consideration, and $368 million of Medtronic Luxco's 3.350% Senior Notes due 2027 for $376 million of total consideration. The Company recognized a total loss on debt extinguishment of $53 million in the ~~fourth~~ quarter ended

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

July 29, 2022, which primarily includes cash premiums and accelerated amortization of ~~fiscal year 2021,~~deferred financing costs and debt discounts and premiums. The loss is recognized in interest expense in the ~~Company de-designated the Yen-denominated debt as a net investment hedge and repaid the term loan in full, including interest.~~consolidated statements of income.

Financial Instruments Not Measured at Fair Value

At July ~~30, 2021,~~29, 2022, the estimated fair value of the Company’s Senior Notes was ~~$29.2~~$20.1 billion compared to a principal value of ~~$26.1~~$21.1 billion. At April ~~30, 2021,~~29, 2022, the estimated fair value was ~~$28.6~~$22.9 billion compared to a principal value of ~~$26.5~~$24.2 billion. The fair value was estimated using quoted market prices for the publicly registered Senior Notes, which are classified as Level 2 within the fair value hierarchy. The fair values and principal values consider the terms of the related debt and exclude the impacts of debt discounts and hedging activity.

8. Derivatives and Currency Exchange Risk Management

The Company uses operational and economic hedges, including currency exchange rate derivative contracts and interest rate derivative instruments, to manage the impact of currency exchange and interest rate changes on earnings and cash flows. In addition, the Company uses cross currency interest rate swaps to manage currency risk related to certain debt. In order to minimize earnings and cash flow volatility resulting from currency exchange rate changes, the Company enters into derivative instruments, principally forward currency exchange rate contracts. These contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets and liabilities. At inception of the contract, the derivative is designated as either a freestanding derivative or a cash flow hedge. Currencies of our derivative instruments include the Euro, Japanese Yen, Chinese Yuan, and others. The Company does not enter into currency exchange rate derivative contracts for speculative purposes. The gross notional amount of all currency exchange rate derivative instruments outstanding was ~~$15.0~~$17.7 billion and ~~$14.7~~$13.8 billion at July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~29, 2022, respectively.

The Company also uses derivative and non-derivative instruments to manage the impact of currency exchange rate changes on net investments in foreign currency-denominated operations. The 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 July ~~30, 2021~~29, 2022 and April ~~30, 2021~~29, 2022 was ~~$5.2~~$5.1 billion and ~~$5.7~~$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 July ~~30, 2021~~29, 2022 and April ~~30, 2021~~29, 2022 was ~~$235~~$212 million and ~~$243~~$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~~

~~(Unaudited)~~

earnings. 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 amounts and classification of the (gains) losses in the consolidated statements of income related to derivative instruments not designated as hedging instruments for the three months ended July 30, 2021 and July 31, 2020 were as follows:

Three months ended
(in millions) Classification July 30, 2021 July 31, 2020
Currency exchange rate contracts Other operating expense (income), net $ (17) $ 127
Total return swaps Other operating expense (income), net (13) (27)
Total $ (30) $ 100

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 July ~~30, 2021~~29, 2022 and April ~~30, 2021~~29, 2022 was ~~$9.8~~$8.1 billion and ~~$9.0~~$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 expense, ~~(income),~~ net or cost of products sold in the consolidated statements of income in the same period or periods during which the hedged transaction affects earnings. Amounts excluded from the measurement of hedge effectiveness are recognized in earnings in the current period. The cash flows related to all of the Company's derivative instruments designated as cash flow hedges are reported as operating activities in the consolidated statements of cash flows. No components of the hedge contracts were excluded in the measurement of hedge effectiveness, and no forward contracts designated as cash flow hedges were derecognized or discontinued during the three months ended July 30, 2021 and July 31, 2020.

The amount of the (gains) losses recognized in accumulated other comprehensive loss (AOCI) related to the currency exchange rate contract derivative instruments designated as cash flow hedges for the three months ended July 30, 2021 and July 31, 2020 were as follows:

Three months ended
(in millions) July 30, 2021 July 31, 2020
Currency exchange rate contracts $ (160) $ 389

The amount of the (gains) losses recognized in the consolidated statements of income related to derivative instruments designated as cash flow hedges for the three months ended July 30, 2021 and July 31, 2020 were as follows:

Three months ended
July 30, 2021 July 31, 2020
(in millions) Cost of products sold Other operating expense (income), net Cost of products sold Other operating expense (income), net
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of cash flow hedges are recorded $ 2,598 $ 760 $ 2,505 $ (114)
Currency exchange rate contracts designated as cash flow hedges:
Amount of (gain) loss reclassified from AOCI into income 11 19 — (53)

~~Forecasted Debt Issuance Interest Rate Risk~~

Forward starting interest rate derivative instruments designated as cash flow hedges are designed to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. The gains or losses on forward starting interest rate derivative instruments that are designated and qualify as cash flow hedges are reported as a component of ~~accumulated other comprehensive loss. Beginning in the period in which the planned debt issuance occurs and the related derivative instruments are terminated, the gains or losses are then reclassified into~~ ~~interest expense~~ over the term of the related debt. For the three months ended July 30, 2021 and July 31, 2020, the reclassifications of net (gains) losses on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense were not significant.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

At July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~29, 2022, the Company had ~~$79~~$694 million and ~~$253~~$474 million in after-tax net unrealized ~~losses,~~gains, respectively, associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that ~~$33~~$510 million of after-tax net unrealized ~~losses~~gains at July ~~30, 2021~~29, 2022 will be recognized in the consolidated statements of income over the next 12 months.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Net Investment Hedges

The Company has designated Euro-denominated and Yen-denominated debt as a net investment ~~hedge~~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 July ~~30, 2021,~~29, 2022, the Company had €16.0 billion, or ~~$18.9~~$16.2 billion, of outstanding Euro-denominated debt designated as a hedge of its net investment in certain of its European operations, and ¥297 billion, or $2.2 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 ~~years~~years 2023 through ~~2051.~~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 July 29, 2022, the Company had foreign currency contracts with a notional value of €4.5 billion, or $4.6 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 gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary. Amounts excluded from the assessment of effectiveness are recognized in ~~other operating~~interest expense ~~(income), net~~on a straight-line basis over the term of the hedge. During the three months ended July 29, 2022, the Company recognized $21 million in after-tax unrealized gains representing excluded components in interest expense. 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.

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

The amount of the gains and losses on our hedging instruments and the classification of those gains and losses within our consolidated financial statements for the three months ended July 29, 2022 and July 30, 2021 ~~and April 30, 2021, the Company had $1.0 billion and $1.5 billion in after-tax unrealized losses, respectively, associated with net investment hedges recorded in~~ ~~accumulated other comprehensive loss~~. were as follows:


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

	Three months ended					Three months ended					Location of (Gain) Loss in Income Statement
(in millions)	July 29, 2022		July 30, 2021				July 29, 2022		July 30, 2021
Cash flow hedges
Currency exchange rate contracts	$	(342)	$	(164)			$	(137)	$	19		Other operating expense, net
Currency exchange rate contracts	(34)		4				18		11			Cost of products sold
Net investment hedges
Non-derivative instruments	(945)		(424)				—		—			N/A
Currency exchange rate contracts	(57)		—				—		—			N/A
Total	$	(1,378)	$	(584)			$	(120)	$	30

The ~~Company does not expect any~~amount of the ~~after-tax unrealized~~ gains ~~at July 30, 2021 to be recognized in~~and losses on our derivative instruments not designated as hedging instruments and the classification of those gains and losses within our consolidated financial statements ~~of income over the next 12 months.~~

~~The Company did not recognize any gains or losses~~ during the three months ended July 30, 2021 or July 31, 2020 on instruments that no longer qualify as net investment hedges. Additionally, The Company did not recognize any gains or losses in the consolidated statements of income for portions of the net investment hedges excluded from the measurement of hedge effectiveness during the three months ended July 30, 2021 or July 31, 2020.

~~The amount of the (gains) losses recognized in AOCI related to instruments designated as net investment hedges for the three months ended~~29, 2022 and July 30, 2021 were as follows:

(Gain) Loss Recognized in Income

Three months ended

Location of (Gain) Loss in Income Statement

(in millions)

July 30, 2021

July 31, 2020

(in millions)

July 29, 2022

July 30, 2021

Location of (Gain) Loss in Income Statement

Net investment hedges

(424)

1,112

Derivatives not designated as hedging instruments

Currency exchange rate contracts

(17)

Other operating expense, net

Total return swaps

(1)

(13)

Other operating expense, net

Total

(30)

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Balance Sheet Presentation

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at July ~~30, 2021~~29, 2022 and April ~~30, 2021.~~29, 2022. The fair value amounts are presented on a gross basis, and are segregated between derivatives that are designated and qualify as hedging instruments and those that are not designated and do not qualify as hedging instruments, and are further segregated by type of contract within those two categories.

July 30, 2021
Derivative Assets Derivative Liabilities
(in millions) Balance Sheet Classification Fair Value Balance Sheet Classification Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts Other current assets $ 88 Other accrued expenses $ 109
Currency exchange rate contracts Other assets 42 Other liabilities 51
Total derivatives designated as hedging instruments 130 160
Derivatives not designated as hedging instruments
Currency exchange rate contracts Other current assets 16 Other accrued expenses 21
Total return swaps Other current assets 13 Other accrued expenses —
Total derivatives not designated as hedging instruments 30 21
Total derivatives $ 160 $ 181

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


		April 30, 2021
		Derivative Assets			Derivative Liabilities				Fair Value - Assets					Fair Value - Liabilities
(in millions)	(in millions)	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value		(in millions)	July 29, 2022		April 29, 2022		Balance Sheet Classification	July 29, 2022		April 29, 2022		Balance Sheet Classification
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments							Derivatives designated as hedging instruments
Currency exchange rate contracts	Currency exchange rate contracts	Other current assets	$	49	Other accrued expenses	$	190	Currency exchange rate contracts	$	621	$	481	Other current assets	$	24	$	43	Other accrued expenses

Currency exchange rate contracts	Currency exchange rate contracts	Other assets	22		Other liabilities	94		Currency exchange rate contracts	268		168		Other assets	8		16		Other liabilities
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments		70			285		Total derivatives designated as hedging instruments	889		649			33		60
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments							Derivatives not designated as hedging instruments
Currency exchange rate contracts	Currency exchange rate contracts	Other current assets	14		Other accrued expenses	11		Currency exchange rate contracts	18		46		Other current assets	20		49		Other accrued expenses
Total return swaps	Total return swaps	Other current assets	18		Other accrued expenses	—		Total return swaps	—		—		Other current assets	9		20		Other accrued expenses

Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments		32			11		Total derivatives not designated as hedging instruments	18		46			29		69
Total derivatives	Total derivatives		$	102		$	296	Total derivatives	$	907	$	695		$	61	$	129

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

July 30, 2021 April 30, 2021
(in millions) Level 1 Level 2 Level 1 Level 2
Derivative assets $ 147 $ 13 $ 85 $ 18
Derivative liabilities 181 — 296 —


	July 29, 2022				April 29, 2022
(in millions)	Derivative assets		Derivative Liabilities			Derivative assets		Derivative Liabilities
Level 1	$	907	$	53		$	695	$	109
Level 2	—		9			—		20
Total	$	907	$	61		$	695	$	129

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

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

July 30, 2021
Gross Amount Not Offset on the Balance Sheet
(in millions) Gross Amount of Recorded Assets (Liabilities) Financial Instruments Cash Collateral Posted (Received) Net Amount
Derivative assets:
Currency exchange rate contracts $ 147 $ (111) $ — $ 36
Total return swaps 13 — — 13
160 (111) — 49
Derivative liabilities:
Currency exchange rate contracts (181) 111 25 (46)
Total $ (21) $ — $ 25 $ 4


	July 29, 2022
			Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recognized Assets (Liabilities)		Financial Instruments		Cash Collateral (Received) Posted		Net Amount
Derivative assets:
Currency exchange rate contracts	$	907	$	(42)	$	(531)	$	335




Derivative liabilities:
Currency exchange rate contracts	(53)		42		—		(11)

Total return swaps	(9)		—		—		(9)

	(61)		42		—		(20)
Total	$	845	$	—	$	(531)	$	315

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

April 30, 2021
Gross Amount Not Offset on the Balance Sheet
(in millions) Gross Amount of Recorded Assets (Liabilities) Financial Instruments Cash Collateral Posted (Received) Net Amount
Derivative assets:
Currency exchange rate contracts $ 85 $ (83) $ — $ 1
Total return swaps 18 — — 18
102 (83) — 19
Derivative liabilities:
Currency exchange rate contracts (296) 83 46 (167)
Total $ (194) $ — $ 46 $ (148)


	April 29, 2022
			Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recognized Assets (Liabilities)		Financial Instruments		Cash Collateral (Received) Posted		Net Amount
Derivative assets:
Currency exchange rate contracts	$	695	$	(109)	$	(254)	$	332




Derivative liabilities:
Currency exchange rate contracts	(109)		109		—		—


Total return swaps	(20)		—		—		(20)
	(129)		109		—		(20)
Total	$	566	$	—	$	(254)	$	312

9. Inventories

Inventory balances, net of reserves, were as follows:

(in millions) July 30, 2021 April 30, 2021
Finished goods $ 2,884 $ 2,906
Work in-process 602 611
Raw materials 802 796
Total $ 4,288 $ 4,313


(in millions)	July 29, 2022		April 29, 2022
Finished goods	$	3,145	$	3,070
Work in-process	739		682
Raw materials	926		864
Total	$	4,809	$	4,616

10. Goodwill and Other Intangible Assets

Goodwill

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


(in millions)	(in millions)	Cardiovascular		Medical Surgical		Neuroscience		Diabetes		Total		(in millions)	Cardiovascular		Medical Surgical		Neuroscience		Diabetes		Total
April 30, 2021		$	7,209	$	21,195	$	11,300	$	2,257	$	41,961

April 29, 2022												April 29, 2022	$	7,160	$	19,957	$	11,132	$	2,254	$	40,502
Goodwill as a result of acquisitions												Goodwill as a result of acquisitions	66		—		615		—		680
Purchase accounting adjustments	Purchase accounting adjustments	26		—		3		(2)		27		Purchase accounting adjustments	(10)		—		—		—		(10)
Transfer to held for sale												Transfer to held for sale	—		(208)		—		—		(208)
Currency translation and other	Currency translation and other	(17)		(203)		(48)		—		(268)		Currency translation and other	(49)		(507)		(83)		(1)		(640)
July 30, 2021		$	7,218	$	20,992	$	11,255	$	2,255	$	41,720
July 29, 2022												July 29, 2022	$	7,166	$	19,242	$	11,664	$	2,253	$	40,324

~~The Company assesses goodwill for impairment annually as~~As a result of the ~~first day of~~agreement with DaVita, as disclosed in Note 4 to the ~~third quarter of~~consolidated financial statements, 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 impairmentCompany allocated $208 million of goodwill ~~requires~~to the RCS business that met the criteria to be classified as held for sale. Upon allocation, a goodwill impairment test was performed for the RCS business, and the Company ~~to make several estimates about fair value, most~~recognized $61 million of which are based on projected future cash flows. The Company calculates the excess of each reporting unit's fair value over its carrying amount, including goodwill, utilizing a discounted cash flow analysis. Internal operational budgets and long-range strategic plans are used as a basis for the cash flow analysis. The Company also utilizes assumptions for working capital, capital expenditures, and terminal growth rates. The discount rate applied to the cash flow analysis is based on the weighted average cost of capital ("WACC") for each reporting unit. An impairment loss is recognized when the carrying amount of the reporting unit's net assets exceeds the estimated fair value of the reporting unit. The Company did not recognize any 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. The Company did not recognize any goodwill impairments during the three months ended July 30, ~~2021 or July 31, 2020.~~2021.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Intangible Assets

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

July 30, 2021 April 30, 2021
(in millions) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Definite-lived:
Customer-related $ 17,010 $ (6,296) $ 17,036 $ (6,058)
Purchased technology and patents 10,687 (5,143) 11,286 (5,156)
Trademarks and tradenames 475 (255) 475 (251)
Other 78 (60) 82 (68)
Total $ 28,250 $ (11,754) $ 28,879 $ (11,533)
Indefinite-lived:
IPR&D $ 394 $ — $ 394 $ —


	July 29, 2022				April 29, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Definite-lived:
Customer-related	$	16,927	$	(7,238)	$	16,953	$	(7,005)
Purchased technology and patents	11,311		(5,758)		10,802		(5,667)
Trademarks and tradenames	485		(268)		473		(266)
Other	97		(65)		80		(69)
Total	$	28,820	$	(13,328)	$	28,308	$	(13,006)
Indefinite-lived:
IPR&D	$	283	$	—	$	293	$	—

The Company ~~assesses~~did not recognize any definite-lived intangible ~~assets for impairment whenever events or changes in circumstances indicate that~~asset charges during the carrying value of an intangible asset (asset group) may not be recoverable. When events or changes in circumstances indicate that the carrying value of an intangible asset may not be recoverable, the Company calculates the excess of an intangible asset's carrying value over its undiscounted future cash flows. If the carrying value is not recoverable, an impairment loss is recognized based on the amount by which the carrying value exceeds the fair value.three months ended July 29, 2022. During the three months ended July 30, 2021 the Company recognized $409 million of definite-lived intangible asset charges in connection with MCS within the Cardiovascular Portfolio. Refer to Note 5 ~~Restructuring and Other Costs~~to the consolidated financial statements for additional information on what led to the impairment. Intangible asset impairment charges are recognized in ~~Other~~other operating expense, ~~(income),~~ net in the consolidated statements of income. ~~The Company did not recognize any definite-lived intangible asset charges during the three months ended July 31, 2020.~~

The Company assesses indefinite-lived intangibles for impairment annually in the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate that the carrying value may be impaired. The Company did not recognize any indefinite-lived intangible asset impairments during the three months ended July 29, 2022 and July 30, ~~2021 or July 31, 2020.~~2021. Due to the nature of IPR&D projects, the Company may experience future delays or failures to obtain regulatory approvals to conduct clinical trials, failures of clinical trials, delays or failures to obtain required market clearances, other failures to achieve a commercially viable product, or the discontinuation of certain projects, and as a result, may recognize impairment losses in the future.

Amortization Expense

Intangible asset amortization expense for the three months ended July 29, 2022 and July 30, 2021 ~~and July 31, 2020~~ was ~~$436~~$423 million and ~~$440~~$436 million, respectively. Estimated aggregate amortization expense by fiscal year based on the carrying value of definite-lived intangible assets at July ~~30, 2021,~~29, 2022, excluding any possible future amortization associated with acquired IPR&D which has not yet met technological feasibility, is as follows:


(in millions)	(in millions)	Amortization Expense		(in millions)	Amortization Expense
Remaining 2022		$	1,286
2023		1,654
Remaining 2023				Remaining 2023	$	1,261
2024	2024	1,619		2024	1,649
2025	2025	1,597		2025	1,627
2026	2026	1,583		2026	1,613
2027	2027	1,558		2027	1,589
2028				2028	1,539

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

11. Income Taxes

The Company's effective tax rate for the three months ended July ~~30, 2021~~29, 2022 was ~~7.7 percent,~~10.7%, as compared to ~~15.9 percent~~7.7% for the three months ended July ~~31, 2020.~~30, 2021. The ~~decrease~~increase in our effective tax rate for the three months ended July ~~30, 2021, as compared to the corresponding period in the prior fiscal year,~~29, 2022, was primarily due to the tax impact of ~~the~~ MCS charges ~~and year-over-year changes~~ in ~~operational results by jurisdiction~~the three months ended July 30, 2021, partially offset by a $39 million charge in the three months ended July 30, 2021 related to a change in the Company's permanent reinvestment assertion on certain historical earnings. The increase was also partially offset by a $25 million benefit in the three months ended July 29, 2022 related to a valuation allowance release associated with certain carryover attributes due to the anticipated RCS transaction, as discussed in Note 4 to the consolidated financial statements.

At both July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~29, 2022, the Company's gross unrecognized tax benefits were $1.7 billion. In addition, the Company had accrued gross interest and penalties of ~~$104~~$123 million at July ~~30, 2021.~~29, 2022. If all of the Company’s unrecognized tax benefits were recognized, approximately $1.6 billion would impact the Company’s effective tax rate. At July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~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 ~~$810~~$889 million and ~~$809~~$802 million, respectively. The increase in the Company's gross unrecognized tax benefits, net of cash advance, was primarily due to the decrease in advance payments available to offset unrecognized tax benefits. The

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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.

Subsequent to the quarter close on July 29, 2022, 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. tax. 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. At this time, the Company is evaluating the impact of the Opinion and whether the Company will appeal. If the Opinion is finalized as is, without appeal by either party, the Company anticipates the findings will likely be applied for all years following fiscal year 2006. Under this potential scenario, the Company has currently estimated a potential income tax charge, including interest, of up to $2.0 billion.

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

12. Earnings Per Share

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

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


		Three months ended				Three months ended
(in millions, except per share data)	(in millions, except per share data)	July 30, 2021		July 31, 2020			(in millions, except per share data)	July 29, 2022		July 30, 2021
Numerator:	Numerator:						Numerator:
Net income attributable to ordinary shareholders	Net income attributable to ordinary shareholders	$	763	$	487		Net income attributable to ordinary shareholders	$	929	$	763
Denominator:	Denominator:						Denominator:
Basic – weighted average shares outstanding	Basic – weighted average shares outstanding	1,344.5		1,341.9			Basic – weighted average shares outstanding	1,329.4		1,344.5
Effect of dilutive securities:	Effect of dilutive securities:						Effect of dilutive securities:
Employee stock options	Employee stock options	8.5		4.7			Employee stock options	2.7		8.5
Employee restricted stock units	Employee restricted stock units	2.3		2.7			Employee restricted stock units	1.3		2.3
Other		1.0		0.7
Employee performance share units							Employee performance share units	1.1		1.0
Diluted – weighted average shares outstanding	Diluted – weighted average shares outstanding	1,356.4		1,350.0			Diluted – weighted average shares outstanding	1,334.5		1,356.4

Basic earnings per share	Basic earnings per share	$	0.57	$	0.36		Basic earnings per share	$	0.70	$	0.57
Diluted earnings per share	Diluted earnings per share	$	0.56	$	0.36		Diluted earnings per share	$	0.70	$	0.56

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 114 million and 71 million ordinary shares for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020,~~30, 2021, respectively, because their effect would have been anti-dilutive on the Company’s earnings per share.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

13. Stock-Based Compensation

The following table presents the components and classification of stock-based compensation expense for stock options, restricted stock, performance share units, and employee stock purchase plan shares recognized for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

Three months ended
(in millions) July 30, 2021 July 31, 2020
Stock options $ 10 $ 8
Restricted stock 41 50
Performance share units 6 —
Employee stock purchase plan 11 12
Total stock-based compensation expense $ 69 $ 70
Cost of products sold $ 7 $ 7
Research and development expense 8 8
Selling, general, and administrative expense 55 55
Total stock-based compensation expense 69 70
Income tax benefits (11) (11)
Total stock-based compensation expense, net of tax $ 58 $ 59


	Three months ended
(in millions)	July 29, 2022		July 30, 2021
Stock options	$	12	$	10
Restricted stock	27		41
Performance share units	12		6
Employee stock purchase plan	11		11
Total stock-based compensation expense	$	62	$	69

Cost of products sold	$	6	$	7
Research and development expense	7		8
Selling, general, and administrative expense	49		55
Total stock-based compensation expense	62		69
Income tax benefits	(11)		(11)
Total stock-based compensation expense, net of tax	$	51	$	58

14. Retirement Benefit Plans

The Company sponsors various retirement benefit plans, including defined benefit pension plans, post-retirement medical plans, defined contribution savings plans, and termination indemnity plans, covering substantially all U.S. employees and many employees outside the U.S. The net periodic benefit cost of the defined benefit pension plans included the following components for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

U.S. Non-U.S.
Three months ended Three months ended
(in millions) July 30, 2021 July 31, 2020 July 30, 2021 July 31, 2020
Service cost $ 25 $ 27 $ 16 $ 17
Interest cost 26 27 7 6
Expected return on plan assets (57) (61) (16) (14)
Amortization of net actuarial loss 16 18 5 6
Net periodic benefit cost $ 10 $ 11 $ 12 $ 15


	U.S.				Non-U.S.
	Three months ended				Three months ended
(in millions)	July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021

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

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.

During fiscal year 2021, as part of the Simplification restructuring program, the Company offered certain eligible U.S. employees voluntary early retirement packages, resulting in incremental expense of $97 million recognized. Of this amount, $73 million related to U.S. pension benefits, $11 million related to defined contribution plans, $11 million related to U.S. post-retirement benefits, and $2 million related to cash payments and administrative fees. See Note 5 for additional information on the Simplification restructuring program.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

15. Accumulated Other Comprehensive Loss

The following table provides changes in 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
April 30, 2021 $ 92 $ (519) $ (1,458) $ (1,347) $ (253) $ (3,485)
Other comprehensive income (loss) before reclassifications 14 (353) 424 1 144 230
Reclassifications (2) — — 18 30 46
Other comprehensive income (loss) 12 (353) 424 19 174 276
July 30, 2021 $ 104 $ (872) $ (1,034) $ (1,328) $ (79) $ (3,209)
(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
April 24, 2020 $ — $ (2,210) $ 236 $ (1,852) $ 266 $ (3,560)
Other comprehensive income (loss) before reclassifications 125 1,112 (1,112) (12) (309) (196)
Reclassifications — — — 15 (41) (26)
Other comprehensive income (loss) 125 1,112 (1,112) 3 (350) (222)
July 31, 2020 $ 125 $ (1,098) $ (876) $ (1,849) $ (84) $ (3,782)


(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
April 29, 2022	$	(209)	$	(2,599)	$	841	$	(773)	$	474	$	(2,265)
Other comprehensive income (loss) before reclassifications	(22)		(881)		1,002		3		312		414
Reclassifications	6		—		—		(2)		(91)		(87)
Other comprehensive income (loss)	(16)		(881)		1,002		1		220		326
July 29, 2022	$	(225)	$	(3,480)	$	1,843	$	(772)	$	694	$	(1,939)


(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
April 30, 2021	$	92	$	(519)	$	(1,458)	$	(1,347)	$	(253)	$	(3,485)
Other comprehensive income (loss) before reclassifications	14		(353)		424		1		144		230
Reclassifications	(2)		—		—		18		30		46
Other comprehensive income (loss)	12		(353)		424		19		174		276

July 30, 2021	$	104	$	(872)	$	(1,034)	$	(1,328)	$	(79)	$	(3,209)

The income tax on gains and losses on investment securities in other comprehensive income before reclassifications during the three months ended July 29, 2022 and July 30, 2021 was a benefit of $9 million and ~~July 31, 2020 was~~ an expense of $2 million, ~~and $30 million,~~ respectively. ~~There was no income tax on~~During the three months ended July 29, 2022, realized gains and losses on investment securities reclassified from AOCI ~~for~~were reduced by income taxes of $2 million. During the three months ended July 30, 2021, there was no income tax on realized gains and ~~July 31, 2020.~~losses on investment securities reclassified from AOCI. When realized, gains and losses on investment securities reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 6 to the consolidated financial statements for additional information.

For the three months ended July 29, 2022, the income tax on cumulative translation adjustment was a benefit of $3 million. During the three months ended July 30, 2021, there was no income tax on cumulative translation adjustment. ~~For the three months ended July 31, 2020 the income tax on cumulative translation adjustment was an expense of $4 million.~~

During the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020,~~30, 2021, there were no tax impacts on net investment hedges. Refer to Note 8 to the consolidated financial statements for additional information.

The net change in retirement obligations in other comprehensive income includes amortization of net actuarial losses included in net periodic benefit cost. During the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020,~~30, 2021, the net change in retirement obligations in other comprehensive income before reclassifications resulted in income tax expense of $1 ~~million and income tax benefit of $5 million, respectively.~~million. During the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020,~~30, 2021, the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $2$6 million and $4$2 million, respectively. When realized, net gains and losses on defined benefit and pension items reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 14 to the consolidated financial statements for additional information.

The income tax on unrealized gains and losses on cash flow hedges in other comprehensive income before reclassifications during the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020~~30, 2021 was an expense of ~~$16~~$64 million and ~~a benefit of $80~~$16 million, respectively. During the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020,~~30, 2021, gains and losses on cash flow hedges reclassified from AOCI included income taxes of $22 million and were reduced by income taxes of $1 ~~million and $11~~ million, respectively. When realized, gains and losses on currency exchange rate contracts reclassified from AOCI are recognized within other operating expense, ~~(income),~~ netor cost of products sold, and gains and losses on forward starting interest rate derivatives reclassified from AOCI are recognized within interest expense. Refer to Note 8 to the consolidated financial statements for additional information.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

16. Commitments and Contingencies

Legal Matters

The Company and its affiliates are involved in a number of legal actions from time to time involving product liability, employment, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, tax disputes, and governmental

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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

The Company records a liability in the consolidated financial statements on an undiscounted basis for loss contingencies related to legal actions when a loss is known or considered probable and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. When determining the estimated loss or range of loss, significant judgment is required. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages with incomplete scientific facts or legal discovery, involve unsubstantiated or indeterminate claims for damages, potentially involve penalties, fines or punitive damages, or could result in a change in business practice. The Company classifies certain specified litigation charges and gains related to significant legal matters as certain litigation ~~charges. During~~charges in the consolidated statements of income. The Company recognized no certain litigation charges during the three months ended July ~~30, 2021,~~29, 2022, whereas the Company recognized $26 million of certain litigation ~~charges. During~~charges during the three months ended July ~~31, 2020, the Company recognized a net benefit of $88 million primarily related to favorable settlements for certain legal matters.~~30, 2021. At July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~29, 2022, accrued litigation was approximately $0.3 ~~billion and $0.4 billion, respectively.~~billion. The ultimate cost to the Company with respect to accrued litigation could be materially different than the amount of the current estimates and accruals and could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows. The Company includes accrued litigation in other accrued expenses and other liabilities on the consolidated balance sheets. While it is not possible to predict the outcome for most of the legal matters discussed below, the Company believes it is possible that the costs associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.

Product Liability Matters

Pelvic Mesh Litigation

The Company is currently involved in litigation in various state and federal courts against manufacturers of pelvic mesh products alleging personal injuries resulting from the implantation of those products. ~~NaN~~Two subsidiaries of Covidien supplied pelvic mesh products to 1one of the manufacturers, C.R. Bard (Bard), named in the litigation. The litigation includes a federal multi-district litigation in the U.S. District Court for the Northern District of West Virginia and cases in various state courts and jurisdictions outside the U.S. Generally, complaints allege design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. In fiscal year 2016, Bard paid the Company $121 million towards the settlement of 11,000 of these claims.In May 2017, the agreement with Bard was amended to extend the terms to apply to up to an additional 5,000 claims. That agreement does not resolve the dispute between the Company and Bard with respect to claims that do not settle, if any. As part of the agreement, the Company and Bard agreed to dismiss without prejudice their pending litigation with respect to Bard’s obligation to defend and indemnify the Company. The Company estimates law firms representing approximately 16,200 claimants have asserted or may assert claims involving products manufactured by Covidien’s subsidiaries. As of August ~~4, 2021,~~3, 2022, the Company had reached agreements to settle approximately 15,900 of these claims. The Company's accrued expenses for this matter are included within accrued litigation as discussed above.

Hernia Mesh Litigation

Starting in fiscal year 2020, plaintiffs ~~filed~~began filing lawsuits against certain subsidiaries of the Company in U.S. state and federal courts ~~alleging~~that allege personal injury from hernia mesh products sold by those subsidiaries. ~~The majority~~As of August 10, 2022, subsidiaries of the ~~pending~~Company have been named as defendants in lawsuits filed on behalf of approximately 6,050 individual plaintiffs, and certain plaintiffs’ law firms have advised the Company that they may file additional cases ~~are~~in the future. Approximately 5,600 plaintiffs have filed lawsuits in a coordinated proceeding in Massachusetts state court, where they have been consolidated before a single judge. ~~Certain plaintiffs' law firms~~Approximately 350 plaintiffs have ~~advised the Company that they may file~~filed lawsuits in a ~~large volume of additional cases~~coordinated action in Minnesota state court, and there are approximately 90 actions coordinated in a federal Multidistrict Litigation in the ~~future.~~U.S. District Court for the District of Massachusetts. The pending lawsuits relate almost entirely to hernia mesh products that have not been subject to recalls, withdrawals, or other adverse regulatory action. The Company has not recorded an expense related to damages in connection with these matters because any potential loss is not currently probable orand reasonably ~~estimable under U.S. GAAP.~~estimable. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from these matters.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

~~Patent Litigation~~

~~Sasso~~

The Company is involved in litigation in Indiana relating to certain patent and royalty disputes with Dr. Sasso under agreements originally entered into in 1999 and 2001. On November 28, 2018, a jury in Indiana state court returned a verdict against the Company for approximately $112 million.~~On June 15, 2021, pursuant to an order from the state court, the Company paid the judgment plus accrued interest to Dr. Sasso, subject to repayment if the Company's ongoing appeal is successful.~~

Environmental Proceedings

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

The Company is a successor to a company which owned and operated a chemical manufacturing facility in Orrington, Maine from 1967 until 1982, and is responsible for the costs of completing an environmental site investigation as required by the Maine Department of Environmental Protection (MDEP). MDEP served a compliance order on Mallinckrodt LLC and U.S. Surgical Corporation, subsidiaries of Covidien, in December 2008, which included a directive to remove a significant volume of soils at the site. After a hearing on the compliance order before the Maine Board of Environmental Protection (Maine Board) to challenge the terms of the compliance order, the Maine Board modified the MDEP order and issued a final order requiring removal of 2two landfills, capping of the remaining 3three landfills, installation of a groundwater extraction system and long-term monitoring of the site and the 3three remaining landfills.

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

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

Following a trial in March 2002, the ~~Court~~court held that conditions in the Penobscot River and Bay may pose an imminent and substantial endangerment and that the Company’s predecessor was liable for the cost of performing a study of the River and Bay. Following a second trial in June 2014, the ~~Court~~court ordered that further engineering study and engineering design work was needed to determine the nature and extent of remediation in the Penobscot River and Bay. The ~~Court~~court also appointed an engineering firm to conduct such studies and issue a report on potential remediation alternatives. In connection with these proceedings, reports have been produced including a variety of cost estimates for a variety of potential remedial options. In March 2021, the parties notified the ~~Court~~court that they had agreed on a settlement in principle of all issues in this matter. Finalization of the proposed settlement remains subject to ~~a fairness hearing and Court~~court approval.

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

Income Taxes

In March 2009, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2005 and 2006. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2005 and 2006 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of the Company's key manufacturing sites. The U.S. Tax Court reviewed this dispute, and onin June 9, 2016, issued ~~its~~an opinion with respect to the allocation of income between the parties for fiscal years 2005 and ~~2006. The U.S. Tax Court~~2006 whereby it generally rejected the IRS’s position, but also made certain modifications to the Medtronic, Inc. tax returns as filed. OnIn April ~~21,~~ 2017, the IRS filed ~~their~~a Notice of Appeal to the U.S. Court of Appeals for the ~~8th~~Eighth Circuit regarding the Tax Court ~~Opinion.~~opinion. Oral argument for the Appeal occurred onin March ~~14,~~ 2018. The ~~8th Circuit~~ Court of Appeals issued ~~their~~its opinion onin August ~~16,~~ 2018 and remanded the case back to the ~~U.S.~~ Tax Court for additional factual ~~findings. The U.S. Tax Court trial relating to the issues remanded by the 8th Circuit Court of Appeals~~findings, which it concluded ~~during~~in June 2021. The ~~parties are awaiting the~~ Tax Court ~~decision, which will remain~~issued its opinion on August 18, 2022, and it remains subject to appeal by either ~~party upon its issuance.~~or both parties. At this time, the Company is evaluating the impact of the opinion and whether the Company will appeal.

The IRS has issued its audit reports on Medtronic, Inc. for fiscal years 2007 through 2016. Medtronic, Inc. and the IRS have reached agreement on all significant issues except for the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court ~~Case~~matter for fiscal years 2005 and 2006.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

Covidien LP (a wholly owned subsidiary of Medtronic plc) has either reached agreement with the IRS or the statute of limitations has lapsed on ~~their~~its U.S. federal income tax returns through fiscal year ~~2017.~~2018.

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

Refer to Note 11 for additional discussion of income taxes.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Guarantees

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

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

17. Segment and Geographic Information

Segment disclosures are on a performance basis consistent with internal management reporting. Net sales of the Company's reportable segments include end-customer revenues from the sale of products the segment develops, manufactures, and distributes. ~~There are certain corporate and centralized expenses that are not allocated to the segments.~~

The Company’s management evaluates performance of the segments and allocates resources based on net sales and segment operating profit. Segment operating profit represents income before income taxes, excluding interest expense, amortization of intangible assets, centralized distribution costs, non-operating income or expense items, certain corporate charges, and other items not allocated to the segments.

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 ~~30, 2021.~~29, 2022. Certain depreciable assets may be recorded by one segment, while the depreciation expense is allocated to another segment. The allocation of depreciation expense is based on the proportion of the assets used by each segment.

Effective February 1, 2021, the Company implemented a new operating model, moving from a Group structure to a Portfolio structure: Cardiovascular Portfolio (formerly Cardiac and Vascular Group), Neuroscience Portfolio (formerly Restorative Therapies Group), and Medical Surgical Portfolio (formerly Minimally Invasive Therapies Group). The Diabetes Operating Unit (formerly Diabetes Group) remains a separate operating and reportable segment in the new structure. There were no changes to the reportable segments during the ~~fiscal year~~quarter ended ~~April 30, 2021, such that the 4~~July 29, 2022. The Company's four principal operating and reportable segments are as follows: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio, and Diabetes Operating Unit.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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				Three months ended
(in millions)	(in millions)	July 30, 2021		July 31, 2020			(in millions)	July 29, 2022		July 30, 2021
Cardiovascular	Cardiovascular	$	1,161	$	759		Cardiovascular	$	956	$	1,161
Medical Surgical	Medical Surgical	914		455			Medical Surgical	642		914
Neuroscience	Neuroscience	962		523			Neuroscience	815		962
Diabetes	Diabetes	133		103			Diabetes	77		133
Segment operating profit	Segment operating profit	3,170		1,840			Segment operating profit	2,490		3,170
Interest expense	Interest expense	(137)		(171)			Interest expense	(164)		(137)
Other non-operating income, net	Other non-operating income, net	111		82			Other non-operating income, net	83		111
Amortization of intangible assets	Amortization of intangible assets	(436)		(440)			Amortization of intangible assets	(423)		(436)
Corporate	Corporate	(449)		(365)			Corporate	(414)		(449)
Centralized distribution costs	Centralized distribution costs	(464)		(399)			Centralized distribution costs	(311)		(464)
Restructuring and associated costs	Restructuring and associated costs	(81)		(128)			Restructuring and associated costs	(76)		(81)
Acquisition-related items	Acquisition-related items	(109)		95			Acquisition-related items	(35)		(19)
Certain litigation charges, net	Certain litigation charges, net	(26)		88			Certain litigation charges, net	—		(26)
RCS impairments / costs							RCS impairments / costs	(74)		—
MCS impairments / costs	MCS impairments / costs	(726)		—			MCS impairments / costs	—		(726)

IPR&D charges							IPR&D charges	—		(90)
Medical device regulations	Medical device regulations	(21)		(18)			Medical device regulations	(32)		(21)
Income before income taxes	Income before income taxes	$	833	$	584		Income before income taxes	$	1,044	$	833

Geographic Information

Net sales are attributed to the country based on the location of the customer taking possession of the products or in which the services are rendered. The following table presents net sales for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020~~30, 2021 for the Company's country of domicile, countries with significant concentrations, and all other countries:

Three months ended
(in millions) July 30, 2021 July 31, 2020
Ireland $ 26 $ 24
United States 4,101 3,351
Rest of world 3,860 3,132
Total other countries, excluding Ireland 7,961 6,483
Total $ 7,987 $ 6,507


	Three months ended
(in millions)	July 29, 2022		July 30, 2021
Ireland	$	23	$	26

United States	3,766		4,101
Rest of world	3,582		3,860
Total other countries, excluding Ireland	7,348		7,961
Total	$	7,371	$	7,987

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

UNDERSTANDING OUR FINANCIAL INFORMATION

The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of Medtronic plc and its subsidiaries (Medtronic plc, Medtronic, or the Company, or we, us, or our). For a full understanding of financial condition and results of operations, you should read this discussion along with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended April ~~30, 2021.~~29, 2022. In addition, you should read this discussion along with our consolidated financial statements and related notes thereto at and for the three months ended July ~~30, 2021.~~29, 2022. Amounts reported in millions within this quarterly report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in millions due to rounding. Additionally, certain columns and rows within tables may not sum due to rounding.

Financial Trends

Throughout this Management’s Discussion and Analysis, we present certain financial measures that ~~we use to evaluate~~facilitate management's review of the operational performance of the Company and as a basis for strategic planning; however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S.) (U.S. GAAP). These financial measures are considered "non-GAAP financial measures" and are intended to supplement, and should not be considered as superior to, financial measures presented in accordance with U.S. GAAP. ~~We generally use non-GAAP financial measures to facilitate management's review of the operational performance of the Company and as a basis for strategic planning.~~ We believe that non-GAAP financial measures provide information useful to investors in understanding the Company's underlying operational performance and trends and may facilitate comparisons with the performance of other companies in the medical technologies industry.

As presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measures exclude the impact of certain charges or benefits that contribute to or reduce earnings and that may affect financial trends and include certain charges or benefits that result from transactions or events that we believe may or may not recur with similar materiality or impact to our operations in future periods (Non-GAAP Adjustments).

In the event there is a Non-GAAP Adjustment recognized in our operating results, the tax cost or benefit attributable to that item is separately calculated and reported. Because the effective rate can be significantly impacted by the Non-GAAP Adjustments that take place during the period, we often refer to our tax rate using both the effective rate and the non-GAAP nominal tax rate (Non-GAAP Nominal Tax Rate). The Non-GAAP Nominal Tax Rate is calculated as the income tax provision, adjusted for the impact of Non-GAAP Adjustments, as a percentage of income before income taxes, excluding Non-GAAP Adjustments.

Free cash flow is a non-GAAP financial measure calculated by subtracting property, plant, and equipment additions from operating cash flows.

Refer to the “GAAP to Non-GAAP Reconciliations," "Income Taxes," and "Free Cash Flow" sections for reconciliations of the non-GAAP financial measures to their most directly comparable financial measures prepared in accordance with U.S. GAAP.

EXECUTIVE LEVEL OVERVIEW

Medtronic is ~~among~~ the ~~world's largest medical~~leading global healthcare technology ~~services, and solutions companies –~~company — alleviating pain, restoring health, and extending life for millions of people around the world. Our primary products include those for cardiac rhythm disorders, cardiovascular disease, advanced and general surgical care, respiratory and monitoring solutions, renal care, neurological disorders, spinal conditions and musculoskeletal trauma, urological and digestive disorders, and ear, nose, and throat, and diabetes conditions.

The global healthcare system is continuing to respond to the ~~unprecedented~~ challenge posed by the ~~Covid-19~~COVID-19 pandemic ("COVID-19" or the "pandemic"). ~~While most~~Several of our businesses ~~were~~continued to be affected by ~~a decline~~the pandemic, including the most recent COVID-19 lockdowns in ~~global~~China which began in late March and continued through the end of May, and the impacts of healthcare system staffing shortages on procedural ~~volumes during fiscal year 2021, particularly in~~volumes. In addition to the ~~first and second quarters,~~impacts of the pandemic, certain businesses continue to be impacted by supply chain disruptions that began during the ~~first~~fourth quarter of fiscal year 2022 most of our businesses performed at or above pre-COVID-19 levels. At the same time, we did experience a slowdown in elective procedures in certain businesses and geographies, including some areas of the U.S. during the last few weeks of July as a result of the Delta variant of COVID-19. While we believe the impact of the Delta variant may be less severe than prior waves of COVID-19 as healthcare systems are more prepared and vaccination rates continue to rise, we2022. We cannot predict with confidence the duration and severity of the pandemic and its impact on global procedure volumes. We expect medical procedure rates tomay continue to vary by therapy and country and to be impacted by regional COVID-19 case volumes, vaccine and booster immunization rates, and new COVID-19 variants. Additionally, we cannot predict the impact further healthcare system staffing shortages will have on procedural volumes, and the continued impact supply chain disruptions will have on the business.

The following is a summary of revenue and diluted earnings per share for the three months ended July 29, 2022 and July 30, 2021, and operating cash flow for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

GAAP to Non-GAAP Reconciliations

Starting with the quarter ended April 29, 2022, the Company no longer adjusts non-GAAP financial measures for certain license payments for, or acquisitions of, technology not approved by regulators due to recent industry guidance from the U.S. Securities and Exchange Commission. Historical non-GAAP financial measures presented in this quarterly report have been recast for comparability.

The tables below present our GAAP to Non-GAAP reconciliations for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

Three months ended July 30, 2021
(in millions, except per share data) Income Before Income Taxes Income
Tax Provision
(Benefit) Net Income Attributable to Medtronic Diluted EPS Effective
Tax Rate
GAAP $ 833 $ 64 $ 763 $ 0.56 7.7 %
Non-GAAP Adjustments:
Restructuring and associated costs (1)
81 17 65 0.05 21.0
Acquisition-related items (2)
109 22 87 0.06 20.2
Certain litigation charges 26 5 21 0.02 19.2
(Gain)/loss on minority investments (3)
(31) — (29) (0.02) —
Medical device regulations (4)
21 4 17 0.01 19.0
Amortization of intangible assets 436 69 366 0.27 15.8
MCS impairments / costs (5)
726 162 564 0.42 22.3
Certain tax adjustments, net (6)
— (53) 53 0.04 —
Non-GAAP $ 2,201 $ 290 $ 1,908 $ 1.41 13.2 %
Three months ended July 31, 2020
(in millions, except per share data) Income Before Income Taxes Income
Tax Provision (Benefit) Net Income Attributable to Medtronic Diluted EPS Effective
Tax Rate
GAAP $ 584 $ 93 $ 487 $ 0.36 15.9 %
Non-GAAP Adjustments:
Restructuring and associated costs (1)
128 22 106 0.08 17.2
Acquisition-related items (7)
(95) (28) (67) (0.05) 29.5
Certain litigation charges (88) (18) (70) (0.05) 20.5
(Gain)/loss on minority investments (3)
(10) — (10) (0.01) —
Medical device regulations (4)
18 2 16 0.01 11.1
Amortization of intangible assets 440 70 370 0.27 15.9
Certain tax adjustments, net — (4) 4 — —
Non-GAAP $ 977 $ 137 $ 836 $ 0.62 14.0 %


	Three months ended July 29, 2022
(in millions, except per share data)	Income Before Income Taxes		Income Tax Provision (Benefit)		Net Income Attributable to Medtronic		Diluted EPS		Effective Tax Rate
GAAP	$	1,044	$	112	$	929	$	0.70	10.7	%
Non-GAAP Adjustments:
Restructuring and associated costs (1)	76		16		60		0.04		21.1
Acquisition-related items (2)	35		6		29		0.02		17.1

(Gain)/loss on minority investments (3)	(4)		—		(4)		—		—
Medical device regulations (4)	32		6		26		0.02		18.8
Amortization of intangible assets	423		65		359		0.27		15.4
RCS impairments / costs (5)	74		1		73		0.05		1.4
Debt redemption premium and other charges (6)	53		11		42		0.03		20.8
Certain tax adjustments, net (7)	—		13		(13)		(0.01)		—
Non-GAAP	$	1,734	$	230	$	1,502	$	1.13	13.3	%

	Three months ended July 30, 2021
(in millions, except per share data)	Income Before Income Taxes		Income Tax Provision (Benefit)		Net Income Attributable to Medtronic		Diluted EPS		Effective Tax Rate
GAAP	$	833	$	64	$	763	$	0.56	7.7	%
Non-GAAP Adjustments:
Restructuring and associated costs (1)	81		17		65		0.05		21.0
Acquisition-related items (2)	19		1		17		0.01		5.3
Certain litigation charges	26		5		21		0.02		19.2
(Gain)/loss on minority investments (3)	(31)		—		(29)		(0.02)		—
Medical device regulations (4)	21		4		17		0.01		19.0
Amortization of intangible assets	436		69		366		0.27		15.8
MCS impairment / costs (8)	726		162		564		0.42		22.3
Certain tax adjustments, net (9)	—		(53)		53		0.04		—
Non-GAAP	$	2,111	$	269	$	1,838	$	1.36	12.7	%

(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)The charges primarily include ~~acquisitions of, and certain license payments for, unapproved technology,~~ business combination costs and changes in fair value of contingent consideration.

(3)We exclude unrealized and realized gains and losses on our minority investments as we do not believe that these components of income or expense have a direct correlation to our ongoing or future business operations.

(4)The charges represent incremental costs of complying with the new European Union (E.U.) medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses. We consider these costs to be duplicative of previously incurred costs and/or one-time costs, which are limited to a specific time period.

(5)The charges predominantly include non-cash pre-tax impairments, primarily related to goodwill, as a result of the anticipated sale of half of the Company's Renal Care Solutions (RCS) business related to the May 25, 2022 agreement with DaVita Inc.

(6)The charges relate to the early redemption of approximately $2.3 billion of senior notes and were recorded within interest expense within the consolidated statements of income.

(7)The net benefit is due to a valuation allowance release associated with certain carryover attributes as a result of the anticipated RCS transaction listed above in (5) partially offset by the amortization of previously established deferred tax assets from intercompany intellectual property transactions.

(8)The charges relate to the Company’s June 3, 2021 decision to stop the distribution and sale of the Medtronic HVAD System within the Mechanical Circulatory Support Operating Unit (MCS). The charges ~~include~~included $515 million of ~~noncash~~non-cash impairments, primarily related to $409 million of intangible asset impairments, as well as $211 million for commitments and obligations in connection with ~~our~~the decision, including customer support obligations, restructuring, and other associated costs. Medtronic ~~remains~~is committed to serving the needs of the approximately ~~4,000~~3,200 patients currently implanted with the HVAD System.

~~(6)~~(9)The charges are associated with a change in the company’s ~~permanent~~permanently reinvestment assertion on certain historical earnings and the amortization ofon previously established deferred tax assets from intercompany intellectual property transactions.

~~(7)~~The charges primarily include business combination costs, certain license payments for unapproved technology, changes in fair value of contingent consideration, and a change in amounts accrued for certain contingent liabilities for recent acquisitions.

Free Cash Flow

Free cash flow, a non-GAAP financial measure, is calculated by subtracting additions to property, plant, and equipment from net cash provided by operating activities. Management uses this non-GAAP financial measure, in addition to U.S. GAAP financial measures, to evaluate our operating results. Free cash flow should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with U.S. GAAP. Reconciliations between net cash provided by operating activities (the most comparable U.S. GAAP measure) and free cash flow are as follows:


		Three months ended					Three months ended
(in millions)	(in millions)	July 30, 2021		July 31, 2020		(in millions)	July 29, 2022		July 30, 2021
Net cash provided by operating activities	Net cash provided by operating activities	$	1,292	$	278	Net cash provided by operating activities	$	1,083	$	1,292
Additions to property, plant, and equipment	Additions to property, plant, and equipment	(378)		(334)		Additions to property, plant, and equipment	(426)		(378)
Free cash flow	Free cash flow	$	914	$	(56)	Free cash flow	$	657	$	914

Refer to the Summary of Cash Flows section for drivers of the change in cash provided by operating activities.

NET SALES

Segment and Division

The charts below illustrate the percent of net sales by segment for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

The table below illustrates net sales by segment and division for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

Three months ended
(in millions) July 30, 2021 July 31, 2020 % Change
Cardiac Rhythm & Heart Failure $ 1,483 $ 1,247 19 %
Structural Heart & Aortic 787 627 26
Coronary & Peripheral Vascular 620 558 11
Cardiovascular 2,890 2,433 19
Surgical Innovations 1,554 1,080 44
Respiratory, Gastrointestinal, & Renal 768 720 7
Medical Surgical 2,322 1,801 29
Cranial & Spinal Technologies 1,123 944 19
Specialty Therapies 641 453 42
Neuromodulation 440 314 40
Neuroscience 2,204 1,712 29
Diabetes 572 562 2
Total $ 7,987 $ 6,507 23 %


	Three months ended
(in millions)	July 29, 2022		July 30, 2021		% Change
Cardiac Rhythm & Heart Failure	$	1,393	$	1,483	(6)	%
Structural Heart & Aortic	741		787		(6)
Coronary & Peripheral Vascular	579		620		(7)
Cardiovascular	2,713		2,890		(6)
Surgical Innovations	1,338		1,554		(14)
Respiratory, Gastrointestinal, & Renal	664		768		(14)
Medical Surgical	2,001		2,322		(14)
Cranial & Spinal Technologies	1,043		1,123		(7)
Specialty Therapies	667		641		4
Neuromodulation	405		440		(8)
Neuroscience	2,115		2,204		(4)
Diabetes	541		572		(5)
Total	$	7,371	$	7,987	(8)	%

Segment and Market Geography

The charts below illustrate the percent of net sales by market geography for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

The table below includes net sales by market geography for each of our segments for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

U.S.(1)
Non-U.S. Developed Markets(2)
Emerging Markets(3)
Three months ended Three months ended Three months ended
(in millions) July 30, 2021 July 31, 2020 % Change July 30, 2021 July 31, 2020 % Change July 30, 2021 July 31, 2020 % Change
Cardiovascular $ 1,420 $ 1,206 18 % $ 1,003 $ 853 18 % $ 467 $ 374 25 %
Medical Surgical 990 722 37 869 719 21 463 359 29
Neuroscience 1,446 1,136 27 465 376 24 293 199 47
Diabetes 245 287 (15) 263 226 16 63 48 31
Total $ 4,101 $ 3,351 22 % $ 2,601 $ 2,175 20 % $ 1,286 $ 981 31 %


	U.S.(1)						Non-U.S. Developed Markets(2)						Emerging Markets(3)
	Three months ended						Three months ended						Three months ended
(in millions)	July 29, 2022		July 30, 2021		% Change		July 29, 2022		July 30, 2021		% Change		July 29, 2022		July 30, 2021		% Change
Cardiovascular	$	1,298	$	1,420	(9)	%	$	892	$	1,003	(11)	%	$	523	$	467	12	%
Medical Surgical	843		990		(15)		767		869		(12)		392		463		(15)
Neuroscience	1,419		1,446		(2)		407		465		(12)		290		293		(1)
Diabetes	206		245		(16)		264		263		—		72		63		14
Total	$	3,766	$	4,101	(8)	%	$	2,328	$	2,601	(10)	%	$	1,276	$	1,286	(1)	%

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

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

The ~~increase~~decline in net sales for ~~the~~ three months ended July ~~30, 2021,~~29, 2022, as compared to the corresponding period in the prior fiscal year, was driven primarily by the ~~recovery~~impact of ~~global procedural volumes as compared to the decline experienced during three months ended July 31, 2020 as a result of the pandemic.~~supply chain challenges in certain businesses. For the three months ended July ~~30, 2021, most of our businesses and geographies achieved revenue levels at or above pre-pandemic levels. Currency~~29, 2022, currency had ~~a favorable~~an unfavorable impact on ~~net sales of $245 million for the three months ended July 30, 2021, which was comprised of favorable impacts in Non-U.S. developed and~~ emerging markets and non-U.S. developed markets of ~~$182~~$35 million and ~~$63~~$315 million, respectively.

During the fourth quarter of fiscal year 2021, we realigned our divisions within the Cardiovascular Portfolio. As a result, fiscal year 2021 results have been recast to adjust for this realignment. Additionally, in fiscal year 2021 we implemented our new operating model, which was fully operational the beginning of the fourth quarter. Our new operating model simplifies our organization in order to accelerate decision making, improve commercial execution, and more effectively leverage the scale of our company.

Looking ahead, ~~the uncertain~~a number of macro-economic and ~~uneven impact of COVID-19 on future procedural volumes and resulting demand for our products and therapies~~geopolitical factors could negatively impact our ~~business. Additionally, our segments may face competitive~~business, including without limitation:

•Competitive product launches and pricing pressure, geographic macro-economic risks including general price inflation, rising interest rates, reimbursement challenges, impacts from changes in the mix of our product offerings, delays in product registration approvals, replacement cycle challenges, and fluctuations in currency exchange ~~rates.~~rates;

•National and provincial tender pricing for certain products, particularly in China;

•The uncertain and uneven impact of COVID-19 on future procedural volumes, supply constraints including certain electronic components and semiconductors, healthcare staffing, worker absenteeism with our customers, suppliers, and in our own operations and field teams, and resulting impacts on demand for our products and therapies; and

•The potential impact that sanctions and other measures being imposed in response to the Russia-Ukraine conflict could have on revenue and supply chain. The financial impact of the conflict in the first quarter of fiscal year 2023, including on accounts receivable and inventory reserves, was not material and for the three months ended July 29, 2022, the business of the Company in these countries represented less than 1% of the Company's consolidated revenues and assets. Although the implications of this conflict are difficult to predict at this time, the ongoing conflict may increase pressure on the global economy and supply chains, resulting in increased future volatility risk for our business operations and performance.

Cardiovascular

Cardiovascular products include pacemakers, insertable cardiac monitors, cardiac resynchronization therapy devices, implantable cardioverter defibrillators (ICD), leads and delivery systems, ~~ablation products,~~ electrophysiology catheters, products for the treatment of atrial fibrillation, information systems for the management of patients with Cardiac Rhythm & Heart Failure devices, products designed to reduce surgical site infections, coronary and peripheral stents and related delivery systems, balloons and related delivery systems, endovascular stent graft systems, heart valve replacement technologies, cardiac tissue ablation systems, and open heart and coronary bypass grafting surgical products. Cardiovascular also includes Care Management Services and Cath Lab Managed Services (CLMS) within the Cardiac Rhythm & Heart Failure division. Cardiovascular's net sales for the three months ended July ~~30, 2021~~29, 2022 were ~~$2.9~~$2.7 billion, ~~an increase~~which represents a decrease of 196 percent compared to the corresponding period in the prior fiscal year. Currency had ~~a favorable~~an unfavorable impact of ~~$96~~$138 million on net sales for the three months ended July ~~30, 2021. Cardiovascular's~~29, 2022. The net sales ~~increase~~decrease for the three months ended July 29, 2022 was primarily due to ~~the recovery of global procedure volumes from the downturn experienced~~supply chain challenges in ~~the first quarter of fiscal year 2021 resulting from the pandemic.~~certain businesses.

The graphs below illustrate the percent of Cardiovascular net sales by division for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

Cardiac Rhythm & Heart Failure (CRHF) net sales for the three months ended July ~~30, 2021 increased 19~~29, 2022 decreased 6 percent as compared to the corresponding period in the prior fiscal year. The ~~increase~~decrease was led by Cardiac ~~Ablation Solutions, including strong sales of Artic Front cryoablation system. Cardiac~~ Rhythm Management due to supply constraints within Defibrillation Solutions. The decrease was partially offset by increases in Cardiac Pacing Therapies and ~~Cardiovascular Diagnostics also contributed~~Procedure Innovations, due to ~~growth as the business benefited from strong sales~~continued adoption of ~~the~~ Micra ~~leadless pacing system, Cobalt~~AV and ~~Crome ICDs and CRT-Ds,~~ TYRX antibacterial envelopes, ~~and the LINQ family of cardiac monitors. These increases were partially offset by a decline of Medtronic HVAD System~~respectively. Cardiac Ablation Solutions net sales for the three months ended July 29, 2022 also decreased due to COVID lockdowns as ~~a result of our June 3, 2021 decision to stop~~well as hospital staffing shortages in markets outside the ~~distribution and sale of the system.~~U.S.

Structural Heart & Aortic (SHA) net sales for the three months ended July ~~30, 2021 increased~~ 2629, 2022 decreased 6 percent as compared to the corresponding ~~periods~~period in the prior fiscal year. The ~~increase~~decrease was led by ~~growth in~~ transcatheter aortic valve replacement (TAVR) ~~net sales~~performance as a result of ~~continued adoption~~strong sales in the comparative period, the impact from a FCA, and supply shortages of ~~the CoreValve Evolut transcatheter aortic valve replacement platform. Cardiac Surgery~~contrast. Aortic also contributed to the ~~net increase~~decrease caused by supply chain challenges and FCAs issued in sales as a result of broad-based growth across the business. Partially offsetting these increases was a decline in net sales of the Valiant Navion Thoracic Stent Graft System as a result of our voluntary recall of the system in the fourth quarter ofprior fiscal ~~year 2021.~~years.

Coronary & Peripheral Vascular (CPV) net sales for the three months ended July ~~30, 2021 increased 11~~29, 2022 decreased 7 percent as compared to the corresponding period in the prior fiscal year. The ~~increase~~decrease was led by ~~growth~~Coronary and Renal Denervation with market procedural volumes remaining below pre-COVID levels in several major markets and headwinds related to U.S. hospital contrast shortages early in the quarter. Peripheral Vascular Health ~~driven by strong performance of the recently launched Abre venous self-expanding stent system for Deep Venous disease and our VenaSeal vein closure system. While Coronary & Renal Denervation~~ also experienced ~~growth, the~~a decrease in net sales offor the ~~business were negatively impacted by Chinese national~~three months ended July 29, 2022 due to competitors re-entering the market and ~~provincial tenders which significantly reduced the price of drug-eluting stents and coronary balloons in China.~~supply chain challenges.

In addition to the ~~general impacts of COVID-19 on our Company as~~macro-economic and geopolitical factors described in the Executive Level Overview, looking ahead, we expect Cardiovascular could be affected by the following:

•Continued growth of our Micra transcatheter pacing system. The Micra AV ~~received U.S. FDA approval~~launched in Japan in November 2021 and ~~CE Mark~~received approval in ~~January and April 2020, respectfully.~~China in May 2022. Micra AV expands the Micra target population from 15 percent to 45 percent of pacemaker patients.

•Continued acceptance and growth from the Azure XT and S SureScan pacing systems. Azure pacemakers feature Medtronic-exclusive BlueSync technology, which enables automatic, secure wireless remote monitoring with increased device longevity.

•~~Acceptance and growth~~Growth of the Cobalt and Crome portfolio of ICDs and CRT-Ds. ~~These devices received CE Mark approval during the fourth quarter of fiscal year 2020 and U.S. FDA approval during the first quarter of fiscal year 2021.~~

•Continued acceptance and ~~growth~~expansion of the Claria MRI CRT-D system with ~~EffectivCRT Diagnostic~~AdaptivCRT and ~~EffectivCRT~~compatibility with TriageHF technology.

•Continued acceptance and expansion of the LINQ II cardiac monitor. Supply for the LINQ II cardiac monitor is improving as we continue to ramp our wafer scale manufacturing. During ~~AF Algorithm.~~the third quarter of fiscal year 2022, we

•~~Acceptance and growth of~~launched two AccuRhythm AI algorithms on the LINQ II ~~cardiac monitor, which received CE Mark~~platform to significantly reduce false positive alerts for Atrial Fibrillation and Pause while retaining sensitivity for true positive detection and reduce clinic workload and burden. AccuRhythm AI launched in ~~November 2019 and gained U.S. FDA approval~~Europe during the first quarter of fiscal year ~~2021. We are currently experiencing supply constrains for the LINQ II cardiac monitor as we ramp our wafer scale manufacturing.~~2023.

•~~Continued acceptance and growth~~Growth of the CRT-P quadripolar pacing system.

•Continued growth, adoption, and utilization of the TYRX Envelope for implantable ~~devices driven by the favorable results of the WRAP-IT clinical study.~~devices.

•Continued ~~acceptance and market expansion~~growth of Arctic Front cryoablation for ~~treatment of atrial fibrillation. In June, 2021, the Arctic Front cryoablation system received a first line therapy designation from the U.S. FDA for the~~ treatment of atrial fibrillation.

•Continued acceptance and growth of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform into intermediate risk indication globally and for the treatment of patients determined to be at low risk with surgery. The Platform received both CE Mark for low risk and bicuspid labeling indication in Europe during the first quarter of fiscal year 2021. In August 2020, the U.S. FDA approved revised commercial labeling for the platform that modified a precaution for the treatment of patients at low risk.

•Continued expansion and training of field support to increase coverage in the U.S. centers performing ~~transcatheter aortic valve replacement~~TAVR procedures.

•Continued acceptance and growth from Evolut PRO, which provides industry-leading hemodynamics, reliable delivery, enhanced durability versus SAVR procedures at 5 years, and advanced sealing with an excellent safety profile. In August 2021, the U.S. FDA approved the Evolut FX TAVR, a system enhancement designed to improve the overall procedural experience through enhancements in deliverability, implant visibility and deployment stability.

•~~The Chinese national and provincial tenders that have negatively impacted drug-eluting stent and coronary balloon prices in China could impact other products~~ During the third quarter of fiscal year 2022, Evolut PRO received NMPA approval within ~~the division.~~China.

•Continued acceptance and growth from the VenaSeal Closure System in the U.S. The VenaSeal Closure System is a unique non-thermal solution to address superficial venous disease that provides improved patient comfort, reduces the recovery time, and eliminates the risk of thermal nerve injury.

•Pressure from competitors re-entering the market contributing to the decline in the Abre venous self-expanding stent system. Abre is designed for the unique challenges of venous disease. It offers easy deployment and delivers demonstrated endurance, to give patients freedom of movement.

•Our voluntary recall of the Valiant Navion Thoracic Stent Graft System and our ability to ramp production of our previous generation product, the Valiant Captivia Thoracic Stent Graft ~~System and resume selling this product in markets globally.~~System. We are currently ramping production of the Valiant Captivia Thoracic Stent Graft System and plan to reach full production capacity in ~~December 2021.~~

•~~Our June 3, 2021 decision to stop~~ the ~~distribution and sale~~second quarter of the Medtronic HVAD System in light of a growing body of observational clinical comparisons indicating a lower frequency of neurological adverse events and mortality with another circulatory support device available to patients compared to the HVAD System.fiscal year 2023.

•Our ability to successfully develop, ~~and~~ obtain regulatory approval of and commercialize the products within our pipeline, which include, but not limited to, the Symplicity Spyral Multi-Electrode Renal Denervation Catheter, ~~for the treatment of hypertension through a one-time, minimally invasive catheter procedure,~~ Pulse Field Ablation, a novel energy source that is non-thermal ~~for the treatment of atrial fibrillation,~~ and ~~transcatheter mitral and tricuspid therapy products led by our Intrepid system.~~Aurora Extravascular ICD.

Medical Surgical

Medical Surgical’s products span the entire continuum of patient care from diagnosis to recovery, with a focus on diseases of the gastrointestinal tract, lungs, pelvic region, kidneys, obesity, and preventable complications. The products include those for advanced and general surgical products, surgical stapling devices, vessel sealing instruments, wound closure, electrosurgery products, hernia mechanical devices, mesh implants, advanced ablation, interventional lung, ventilators, airway products, renal care products, and sensors and monitors for pulse oximetry, capnography, level of consciousness and cerebral oximetry. Medical Surgical's net sales for the three months ended July ~~30, 2021~~29, 2022 were ~~$2.3~~$2.0 billion, ~~an increase~~a decrease of 2914 percent as compared to the corresponding period in the prior fiscal year. Currency had ~~a favorable~~an unfavorable impact of ~~$77~~$115 million on net sales for the three months ended July ~~30, 2021. Medical Surgical's~~29, 2022. The net sales ~~increase~~decrease for the three months ended July 29, 2022 was primarily driven by supply chain disruptions, the recent COVID-19 lockdowns and provincial volume-based procurement (VBP) stapling tenders in China, and a decline in ventilator sales due to the ~~recovery of global procedure volumes from the declines experienced~~high COVID-19 demand in the ~~first quarter of fiscal year 2021 resulting from~~corresponding period in the ~~pandemic.~~prior year.

The graphs below illustrate the percent of Medical Surgical net sales by division for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

Surgical Innovations (SI) net sales for the three months ended July ~~30, 2021 increased 44~~29, 2022 decreased 14 percent, as compared to the corresponding period in the prior fiscal year. ~~Net sales growth~~The decrease was led by Advanced ~~Stapling and Vessel Sealing, particularly in the U.S. and Western Europe,~~Surgical instruments, driven by ~~the continued adoption of the company’s LigaSure, Sonicision,~~global supply chain challenges, including resins, semiconductors, and ~~Tri-Staple technologies. Hernia~~packaging trays, which impacted energy and ~~Wound Management also attributed to the sales growth due to strength~~stapling products, and recent COVID-19 lockdowns in ~~sutures and hernia product lines.~~China.

Respiratory, Gastrointestinal, & Renal (RGR) net sales for the three months ended July ~~30, 2021 increased 7~~29, 2022 decreased 14 percent as compared to the corresponding period in the prior fiscal year. ~~Respiratory, Gastrointestinal, & Renal net sales growth~~The decrease was led by Patient Monitoring, particularly the Nellcor pulse oximetry system, as well as in Gastrointestinal, driven by the esophageal product portfolio and PillCam capsule endoscopy. The net sales increases were partially offset by Respiratory Interventionslargely due to declines in ventilator demand when compared to the corresponding period in the prior year as demand ~~returns to~~dropped below pre-pandemic ~~levels.~~levels as expected.

In addition to the ~~general impacts of COVID-19 on our Company as~~macro-economic and geopolitical factors described in the Executive Level Overview, looking ahead we expect Medical Surgical could be affected by the following:

•~~Continued acceptance~~Acceptance and ~~future~~continued growth of Open-to-MIS (minimally invasive surgery) techniques and tools ~~supported by~~through our efforts to transition open surgery to ~~MIS (minimally invasive surgery). The~~MIS. Open-to-MIS initiative focuses on ~~furthering our presence in and working to optimize open surgery globally, while~~ capturing the market opportunity that exists in transitioning open procedures to MIS, whether through traditional MIS, advanced instrumentation, or ~~advanced technologies including~~ robotics. Through our approach, in parallel, we also expand our presence and optimize open surgery in current open surgery markets.

•Continued global acceptance and future growth of powered stapling and energy ~~platform, along with our ability to execute ongoing strategies to develop, gain regulatory approval, and commercialize new products including our surgical soft tissue robotics~~ platform.

•Our ability to execute ongoing strategies ~~in order to address~~addressing the competitive pressure of reprocessing ~~of our~~ vessel sealing disposables and growth of our surgical soft tissue robotics procedures in the U.S.

•Our ability to create markets and drive products and procedures into emerging ~~markets. We have~~markets with our high quality and cost-effective surgical products designed for customers in emerging ~~markets such as the~~markets. An example is our ValleyLab LS10 single channel vessel sealing generator, which is compatible with our line of LigaSure instruments and designed for simplified use and affordability.

•Continued ~~acceptance and growth within the end stage renal disease market. The population of patients treated for end stage renal disease globally is expected to double over the next decade.~~

•~~Continued~~ elevation of the standard of care for respiratory compromise, ~~a progressive condition impacting a patient’s ability to breathe effectively, which leverages~~leveraging our market leading MicroStream capnography technology.

•Continued acceptance and growth in patient monitoring, airway, and ventilation management. Key products in this area include the Puritan Bennett 980 ventilator, Microstream Capnography, Nellcor pulse oximetry system with OxiMax technology, Shiley tracheostomy and endotracheal tubes, McGRATH MAC video laryngoscopes, ~~as well as the~~ SonarMed Airway Monitoring System for the NICU, ~~that was launched in~~and the ~~U.S~~Nellcor Oxysoft pulse oximetry system for neonatal and adult critical care patients, which received U.S. FDA clearance during the ~~quarter.~~fourth quarter of fiscal year 2022.

•~~Continued and future acceptance~~Acceptance of less invasive standards of care in Gastrointestinal and Hepatology products, including ~~the areas of~~ GI Diagnostic and Therapeutic product lines. Recently launched products include the PillCam COLON capsule endoscopy, the Barrx platform through ablation with the Barrx 360 Express catheter, ~~EndoFLIP~~Endoflip imaging systems, Bravo Calibration-free reflux testing, and the Emprint ablation system with Thermosphere ~~Technology, which maintains predictable spherical ablation zones throughout procedures reducing procedure time and cost.~~Technology.

•Continued and future acceptance of Interventional Lung Solutions. Products include our Illumisite navigation platform, combined with our portfolio of biopsy tools including the Arcpoint pulmonary needle, and to access lesions outside the airway, the CrossCountry transbronchial access tool. This comprehensive portfolio gives the power to display position and access lung nodules in the periphery of the lungs, in a minimally invasive approach to accessing difficult-to-reach areas of the lung, which may aid in the diagnosis of lung cancer.

•Expanding the use of less invasive treatments and furthering our commitment to improving options for women with abnormal uterine bleeding. Our expanded and strengthened surgical offerings ~~are expected to~~ complement our global gynecology business.

•~~Our ability to successfully develop~~Global adoption of robotic-assisted surgery and ~~obtain regulatory approval~~installations of ~~products within our pipeline, which include our~~ Hugo robotic assisted surgery (RAS) system for urologic, bariatric, gynecologic, and general surgery procedures. This includes continued integration and adoption of Touch Surgery Enterprise with the first artificial intelligence powered surgical videos and analytics platform to make it easier to train and discover new techniques within the robotics platform. The Hugo RAS system, which received CE Mark in October 2021, as well as secured additional regulatory approvals outside the U.S., is designed to help reduce unwanted variability, improve patient outcomes, and, by extension, lower ~~per-procedure~~per procedure cost.

•The pending contribution of our Renal Care Solutions business as a result of the May 25, 2022 definitive agreement with DaVita Inc.

•Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include, but are not limited to, our Hugo RAS system ~~completed its First~~ in ~~Human Experience in Chile~~the U.S., our NextGen McGrath MAC video laryngoscopes, Signia power stapling devices, and ~~Panama during the quarter.~~our Ligasure and Sonicision vessel sealing devices.

Neuroscience

Neuroscience's products include various spinal implants, bone graft substitutes, biologic products, image-guided surgery and intra-operative imaging systems, robotic guidance systems used in the robot-assisted spine procedures, and systems that incorporate advanced energy surgical instruments. Neuroscience's products also focus on the treatment of overactive bladder, urinary retention, fecal incontinence, ~~gastroparesis,~~ as well as products to treat ear, nose, and throat (ENT), and therapies to treat the diseases of the vasculature in and around the brain, including coils, neurovascular stents and flow diversion products. Neuroscience also manufactures products related to implantable neurostimulation therapies and drug delivery systems for the treatment of chronic pain, movement disorders, and epilepsy. Neuroscience’s net sales for the three months ended July ~~30, 2021 were $2.2~~29, 2022 was $2.1 billion, ~~an increase~~a decrease of 294 percent, as compared to the corresponding period in the prior fiscal year. Currency had ~~a favorable~~an unfavorable impact of ~~$47~~$64 million on net sales for the three months ended July ~~30, 2021. Neuroscience's~~29, 2022. The net sales ~~growth~~decrease for the three months ended July 29, 2022, was ~~achieved across all divisions~~primarily due to supply chain challenges in certain businesses, prolonged purchasing timelines for large capital, and ~~reflected the recovery~~reduced Spinal sales in China in advance of ~~global procedural volumes, particularly on deferrable procedures, from the declines experienced in the first quarter of fiscal year 2021 as a result of the pandemic.~~potential national VBP tenders and COVID-19 lockdowns.

The graphs below illustrate the percent of Neuroscience net sales by division for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

Cranial and Spinal Technologies (CST) net sales for the three months ended July ~~30, 2021 increased 19~~29, 2022 decreased 7 percent, as compared to the corresponding period in the prior fiscal year. ~~Growth was~~Neurosurgery experienced ~~by both Enabling Technologies~~decreases in large capital sales of StealthStation Navigation, and ~~Spine. Enabling Technologies net sales growth was driven by capital equipment recovery~~Spine and Cranial Robotics from prolonged customer purchasing timelines. Additionally, Biologics saw decreases in customer ordering patterns when compared to the corresponding period in the prior fiscal year, particularly on sales of the StealthStation Navigation, O-Arm Imaging, and Midas Rex MR8 high-speed drill systems. Spine net sales growth was driven by the aforementioned recovery in procedural volumes and continued strength in Biologics.year.

Specialty Therapies (Specialty) net sales for the three months ended July ~~30, 2021~~29, 2022 increased 424 percent, as compared to the corresponding period in the prior fiscal year. ~~Pelvic Health saw continued strength led by sales of the recently launched InterStim Micro neurostimulator and SureScan MRI leads. Neurovascular's growth~~The increase was driven by ~~strong performance~~growth in ~~emerging markets, as well as strength in~~Neurovascular led by hemorrhagic and ischemic stroke, flow diversion and ~~liquid embolic~~access delivery products. ENT growth for the three months ended July 29, 2022, including benefit from the recent May 2022 acquisition of Intersect ENT, partially offset by declines driven by supply chain disruptions in disposables. For the three months ended July 29, 2022, Pelvic Health experienced ~~growth~~net sales declines due to ~~the aforementioned recovery in procedure volumes, particularly outside of the U.S.~~recent competitive launches.

Neuromodulation (NM) net sales for the three months ended July ~~30, 2021 increased 40~~29, 2022 decreased 8 percent, as compared to the corresponding period in the prior fiscal year. ~~Sales grew across all businesses~~For the three months ended July 29, 2022, declines were largely due to ~~the aforementioned~~healthcare staffing challenges impacting spinal cord stimulation implant volumes, continued supply chain challenges in interventional, and difficult year-over-year comparisons in targeted drug delivery due to backlog recovery ~~in procedural volumes when compared to the corresponding period~~ in the prior fiscal year. Net sales growth was driven by continued strong adoption of the DTM (differential target multiplexed) proprietary waveform in Pain Therapies, and the Percept PC deep brain stimulation (DBS) device with BrainSense technology in Brain Modulation.year comparative period.

In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect Neuroscience could be affected by the following:

•Continued growth from ~~Enabling Technologies~~enabling technologies, including StealthStation and ~~O-Arm~~O-arm Imaging Systems, Midas, and ENT Navigation and Power Systems, as well as acceptance of the Stealth Autoguide cranial robotic guidance platform.

•Continued sales of Mazor robotic units and associated market adoption of robot-assisted spine procedures, including the Mazor X Stealth, our integrated robotics and navigation platform.

•Continued growth from spine titanium interbody implants.

•Continued adoption of our integrated solutions through the Surgical Synergy strategy which integrates our spinal implants with enabling technologies such as imaging, navigation, power instruments, nerve monitoring, and Mazor ~~robotics.~~robotics, as well as AI-driven surgical planning, personalized spinal implants, and robot-assisted surgery due to the newly acquired Medicrea technologies.

•Market acceptance and continued global adoption of innovative new spine products and procedural solutions within our CST ~~business~~division, such as our Infinity OCT System and Prestige LP cervical disc system.

•Growth in the broader vertebral compression fracture (VCF) and adjacent markets as we continue to pursue the development of other therapies to treat more patients with VCF, including continued success of both the Kyphon V vertebroplasty system and the Osteocool RF Spinal Tumor ablation system.

•Continued acceptance and growth of our ENT and Pelvic Health therapies within our Specialty Therapies division, including our InterStim therapy with InterStim II, InterStim Micro and InterStim ~~Micro~~X neurostimulators for the treatment of the symptoms of overactive bladder, urinary retention, and bowel incontinence, and capital equipment sales of the Stealth Station ENT surgical navigation system and intraoperative NIM nerve monitoring system.

•Continued acceptance and growth of the Solitaire FR revascularization device for treatment of acute ischemic stroke and the Pipeline Embolization Devices, endovascular treatments for large or giant wide-necked brain aneurysms.

•Continued acceptance of our React Catheter and Riptide aspiration system, along with our next-generation Solitaire revascularization device.

•Market acceptance and continued global adoption of our Intellis spinal cord stimulator, DTM proprietary waveform, Evolve workflow algorithm, and Snapshot reporting to treat chronic pain in major markets around the world.

•Continued acceptance and growth of our Percept PC DBS device with BrainSense technology, including its treatment of Parkinson's Disease, epilepsy, and other movement disorders.

•Market acceptance and growth from SCS therapy for treating Diabetic Peripheral Neuropathy (DPN) on Intellis rechargeable neurostimulator and Vanta recharge-free neurostimulator which received U.S. FDA approval in January 2022.

•Ongoing obligations under the U.S. FDA consent decree entered in April 2015 relating to the SynchroMed drug infusion system and the Neuromodulation quality system. The U.S. FDA lifted its distribution requirements on our implantable drug pump in October 2017 and its warning letter in November 2017.

•Strengthening our position in the ear, nose and throat market as a result of the May 2022 acquisition of Intersect ENT, a global ear, nose and throat (ENT) medical technology leader. The acquisition expands Neuroscience's portfolio of products used during ENT procedures and, combined with the Company's navigation, powered instruments, and existing tissue health products, will offer a broader suite of solutions to assist surgeons treating patients who suffer from chronic rhinosinusitis (CRS).

•Our ability to successfully develop, ~~and~~ obtain regulatory approval of and commercialize the products within our pipeline, which include our closed-loop Percept PC and RC devices with adaptive DBS (aDBS) within Neuromodulation, as well as our hemorrhagic stroke ~~intrasaccular~~intravascular device within Specialty Therapies, and our next-generation spine enabling technologies within CST.

Diabetes

Diabetes' products include insulin pumps, continuous glucose monitoring (CGM) systems, consumables, and smart insulin pen systems. Diabetes' net sales for the three months ended July ~~30, 2021~~29, 2022 were ~~$572~~$541 million, ~~an increase~~a decrease of 25 percent as compared to the corresponding period in the prior fiscal year. Currency had ~~a favorable~~an unfavorable impact of ~~$26~~$33 million on net sales for the three months ended July ~~30, 2021.~~29, 2022. Diabetes' net sales ~~increase was primarily attributable to~~were impacted by international growth in integrated CGM ~~and durable pumps, partially offset by continued competitive pressures~~with offsetting declines in the ~~U.S.~~durable pump business worldwide.

•~~Patient~~Continued patient demand for the MiniMed 770G insulin pump system, which ~~received U.S. FDA approval in August 2020 and launched in November 2020. The system~~ is powered by SmartGuard technology and features the added benefits of smartphone connectivity and an expanded age indication to children as young as age two.

•Continued ~~future~~acceptance and growth internationally for the MiniMed 780G insulin pump system. ~~The MiniMed 780G system was approved in the E.U. in June 2020 and launched in over 30 countries on four continents outside the U.S., primarily in Europe, starting in October 2020.~~ The global adoption of sensor-augmented insulin pump systems has resulted in strong sensor attachment rates.

•Continued acceptance and growth of the Guardian Connect CGM system, which displays glucose information directly to a smartphone to help ensure patients have access to their glucose levels seamlessly and discretely. ~~During the first quarter of fiscal year 2021, we introduced the Guardian Connect system for Android devices.~~ The Guardian Connect CGM system is ~~now~~ available on both Apple iOS and Android devices.

•~~Strengthening~~Market acceptance and growth of our ~~position in the diabetes market as a result of the September 10, 2020 acquisition of Companion Medical. Companion Medical offers a U.S. FDA cleared~~ InPen smart pen system, that combines the freedom of a reusable Bluetooth pen with the intelligence of an intuitive mobile application that helps users administer the appropriate insulin dose. During the third quarter of fiscal year 2021, we integrated our CGM data into the Companion Medical InPen Application, which allows users to have their Medtronic CGM readings in real-time alongside insulin dose information, all in one view.

•Continued pump and CGM competition in an expanding global market.

•Changes in medical reimbursement policies and programs, along with additional payor coverage on insulin pumps.

•

Resolution of findings contained in a December 2021 U.S. FDA warning letter relating to the MiniMed 600 series insulin pump and a remote controller device for MiniMed 508 and Paradigm pumps. We are currently working with the U.S. FDA to resolve the findings. The existence of the warning letter may limit our ability to launch certain new Diabetes products in the U.S. prior to resolution of the findings.

•Our ability to successfully develop, ~~and~~ obtain regulatory approval of and commercialize the products within our pipeline, which include, but are not limited to, our MiniMed 780G insulin pump and the Guardian 4 sensor, which have been submitted to the U.S. FDA. ~~These technologies feature our next-generation algorithms by further automating insulin delivery.~~

COSTS AND EXPENSES

The following is a summary of cost of products sold, research and development, and selling, general, and administrative expenses as a percent of net sales for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020:~~30, 2021:

Cost of Products Sold We continue to focus on reducing our costs of production through supplier management, manufacturing improvements, and optimizing our manufacturing network. Cost of products sold for the three months ended July ~~30, 2021~~29, 2022 was ~~$2.6~~$2.5 billion, as compared to ~~$2.5~~$2.6 billion for the corresponding period in the prior fiscal year. The ~~decrease~~increase in cost of products sold as a percentage of net sales was primarily attributable to increased freight, largely due to ~~increased expenses in the prior year comparable period~~higher fuel costs and expedited shipments for backorders as a result of ~~COVID-19. During the three months ended July 31, 2020, the conditions of the pandemic resulted in period expensing some of our fixed overhead~~certain supply chain challenges, as well as increased labor and direct material manufacturing costs, predominantly due to ~~idle capacity at certain manufacturing facilities~~inflationary pressures and ~~included a negative impact from mix, as products in higher demand had lower gross margins.~~supply chain challenges. The three months ended July 30, 2021 included $58 million of inventory write-downs associated with our June 3, 2021 decision to stop the distribution and sale of Medtronic's HVAD System (MCS charges). Looking forward, our cost of products sold likely will be further negatively impacted by inflation, supply chain challenges, and higher labor and direct material costs.

Research and Development Expense We remain committed to ~~accelerating~~deliver the ~~development of meaningful innovations~~best possible experiences for patients, physicians, and caregivers we serve; to create technologies that expand what’s possible across the entire human body to transform lives; to turn data and insights into real action to serve patient needs to improve care; and to expand healthcare access and deliver better patient outcomes at appropriate costs that lead to enhanced quality of life and may be validated by clinical and economic evidence. We are also focused on expanding access to quality healthcare.positive outcomes. Research and development expense for the three months ended July ~~30, 2021~~29, 2022 was ~~$750~~$692 million, as compared to ~~$621~~$750 million for the corresponding period in the prior fiscal year. The three months ended July 30, 2021 included $90 million of ~~asset~~ acquisitions of, and ~~certain~~ license payments for, ~~unapproved~~ technology not yet approved by regulators, primarily in our Diabetes segment.

In fiscal year 2021, we entered into arrangements with third parties to fund the development of certain technologies in our Diabetes segment. As there is a substantive and genuine transfer of risk to the third parties, the development funding provided is recognized as an obligation to perform contractual services, and therefore is recorded as income in ~~other operating expense (income), net~~ in the consolidated statements of income in the period the corresponding research and development expenses are incurred. If the technologies receive regulatory approval and are successfully commercialized, we will pay royalties to the third parties. For the three months ended July 30, 2021, no projects were significant, either individually or in aggregate, to our consolidated results.

Selling, General, and Administrative Expense Our goal is to continue to leverage selling, general, and administrative expense initiatives. Selling, general, and administrative expense primarily consists of salaries and wages, other administrative costs, such as professional fees and marketing expenses, and certain acquisition and restructuring expenses.

Selling, general, and administrative expense for the three months ended July ~~30, 2021~~29, 2022 was ~~$2.5~~$2.6 billion, as compared to ~~$2.4~~$2.5 billion for the corresponding period in the prior fiscal year. The ~~decrease~~increase in selling, general, and administrative expense as a percentage of net sales was primarily driven by net sales ~~growth~~declines and increased employee travel as ~~a result of~~compared to the ~~recovery of elective procedures.~~corresponding period in the prior year when travel was limited.

The following is a summary of other costs and expenses (income):

Three months ended
(in millions) July 30, 2021 July 31, 2020
Amortization of intangible assets $ 436 $ 440
Restructuring charges, net 11 53
Certain litigation charges, net 26 (88)
Other operating expense (income), net 760 (114)
Other non-operating income, net (111) (82)
Interest expense 137 171


	Three months ended
(in millions)	July 29, 2022		July 30, 2021
Amortization of intangible assets	$	423	$	436
Restructuring charges, net	14		11
Certain litigation charges, net	—		26
Other operating expense, net	35		760
Other non-operating income, net	(83)		(111)
Interest expense	164		137

Amortization of Intangible Assets Amortization of intangible assets includes the amortization expense of our definite-lived intangible assets, consisting of purchased patents, trademarks, tradenames, customer relationships, purchased technology, and other intangible assets.

Restructuring Charges, Net

Enterprise Excellence

In the third quarter of fiscal year 2018, we announced a multi-year global Enterprise Excellence Program designed to drive long-term business growth and sustainable efficiency. ~~The Enterprise Excellence Program was designed~~Further program details are described in Note 4 to ~~further leverage our global size and scale as well as enhance~~ the ~~customer and employee experience.~~

~~The Enterprise Excellence Program focuses~~consolidated financial statements included in the Company's Annual Report on ~~three objectives:~~

•~~Global Operations – integrating and enhancing global manufacturing and supply processes, systems and site presence to improve quality, delivery cost and cash flow~~

•~~Functional Optimization – enhancing and leveraging global operating models and systems across several enabling functions to improve productivity and employee experience~~

•~~Commercial Optimization – optimizing certain processes, systems and models to improve productivity and~~Form 10-K for the ~~customer experience~~

The Enterprise Excellence Program was designed to drive operating margin improvement as well as fund investment in strategic growth initiatives, with expected gross savings of more than $3.0 billion from cost reductions and leverage of our fixed infrastructure by the end of this fiscal year. Approximately $500 million to $700 million of gross annual savings are expected to be achieved through the end of fiscal year ended April 29, 2022.

For the three months ended July 29, 2022, we recognized net charges of ~~the estimated charges are related to employee termination benefits. The remaining charges are costs~~$40 million associated with our Enterprise Excellence Program. Netcharges for the three months ended July 29, 2022 included costs incurred as a direct result of the restructuring program, such as salaries ~~and benefits~~ for employees supporting the program and consulting expenses, including ~~program management and transition teams, and strategic and operational consulting services related to the three objectives of the program discussed above. The charges are~~$19 million recognized within~~restructuring charges, net,~~ cost of products sold, and $28 million recognized within selling, general, and administrative expense in the consolidated statements of ~~income~~income. Charges recognized within .restructuring charges, net for the period were not significant.

For the three months ended July 30, 2021, we recognized net charges of $74 million associated with our Enterprise Excellence Program, including $11 million recognized within restructuring charges, net in the consolidated statements of income primarily comprised of employee termination ~~benefits~~. ~~Charges~~benefits. Net charges for the three months ended July 30, 2021 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $33 million recognized withincost of products sold,and $30 million recognized within selling, general and administrative expense in the consolidated statements of income.

~~For the three months ended July 31, 2020, we recognized net charges of $77 million associated with our Enterprise Excellence Program, including $4 million recognized within~~ ~~restructuring charges, net~~ in the consolidated statements of income primarily comprised of employee termination benefits. Charges also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $27 million recognized within ~~cost of products sold,~~ ~~and $47 million recognized within~~ ~~selling, general and administrative expense~~ ~~in the consolidated statements of income.~~

Simplification

In the first quarter of fiscal year 2021, we initiated our Simplification restructuring program, designed to make the Company a more nimble and competitive ~~organization focused~~organization. Further program details are described in Note 4 to the consolidated financial statements included in the Company's Annual Report on ~~accelerating innovation, enhancing~~Form 10-K for the customer experience, driving revenue growth, and winning market share, while also more efficiently and effectively leveraging our enterprise scale. Under the oversight of the portfolio leaders, this new operating model, which became fully operational the beginning of the fourth quarter of fiscal year 2021, simplifies our organizational structure and accelerates decision-making and execution. Primary activities of the restructuring program included reorganizing our business into a portfolio-level structure, including the creation of highly focused, accountable and empowered Operating Units (OUs), consolidating operations at the enterprise level, establishing Technology Development Centers in areas where we have deep core technology competencies to be leveraged by multiple OUs, and forming dedicated sales organizations that leverage our scale but move with the same agility as our smaller, local competitors.ended April 29, 2022.

The Simplification program was designed to streamline our operating model, improve competitiveness, and enhance the customer and employee experience, will result in substantial reduction in selling, general, and administrative expenses, the majority of which are expected to be achieved through the end of this fiscal year. Annual savings of approximately $450 million to $475 million are expected to be realized by the various components of the Simplification program.

For the three ~~quarters~~months ended July 29, 2022, we recognized net charges of $36 million including $21 million recognized within restructuring charges, net in the ~~estimated charges are related to~~consolidated statements of income primarily comprised of employee termination benefits. ~~The remaining~~Net charges ~~are~~for the three months ended July 29, 2022 also included costs ~~associated with~~incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting ~~expenses. These charges are~~expenses, including $13 million recognized within~~restructuring charges, net~~, ~~cost of products sold, and~~ selling, general and administrative expense in the consolidated statements of income.

For the three months ended July 30, 2021, we recognized net charges of $7 million which included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses. These charges were recognized within selling, general and administrative expense in the consolidated statements of income.

For the three months ended July 31, 2020, we recognized charges of $51 million, which primarily included $50 million recognized within restructuring charges, net in the consolidated statements of income, mostly comprised of employee termination benefits.

For additional information about our restructuring programs, refer to Note 5 to the current period's consolidated financial statements.

Certain Litigation Charges, Net We classify specified certain litigation charges and gains related to significant legal matters as ~~certain litigation charges. Information regarding~~ certain litigation charges ~~net is included~~ in the consolidated statements of income. For additional information, refer to Note 16 toin the current period's consolidated financial statements.

Other Operating Expense, ~~(Income),~~ Net Other operating expense, ~~(income),~~ net primarily includes royalty income and expense, currency remeasurement and derivative gains and losses, Puerto Rico excise taxes, changes in the fair value of contingent consideration, ~~changes in amounts accrued for certain contingent liabilities for a past acquisition,~~ MCS charges, impairment charges, and income from funded research and development arrangements.

For the three months ended July ~~30, 2021,~~29, 2022, the change in other operating expense, ~~(income),~~ net was primarily driven by MCS charges recorded during ~~the period.~~three months ended July 30, 2021. The charges of $668 million primarily included $409 million of intangible asset impairments and $211 million for commitments and obligations, including customer support obligations, restructuring, and other associated costs. ~~The change was also driven by a change in amounts accrued for certain contingent liabilities for a past acquisition resulting in a $132 million gain for the three months ended July 31, 2020.~~ Additionally, the change ~~was~~is driven by the net currency impact of remeasurement expense and our hedging programs, which ~~combined,~~ resulted in a net gain of $81 million combined for the three months ended July 29, 2022 as compared to a net loss of $33 million for the ~~three months ended July 30, 2021, as compared to a net gain of $31 million for~~corresponding period in the prior year. During the three months ended July ~~31, 2020. Additional information regarding~~29, 2022, the ~~MCS charges is included in Note 5 Restructuring and Other Costs.~~Company also recorded non-cash pre-tax impairments of $67 million, primarily related to goodwill, as a result of the anticipated sale of half of the Company's RCS business, related to the May 25, 2022 agreement with DaVita Inc.

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

~~The increase~~For the three months ended July 29, 2022, the decrease in other non-operating income, net is primarily attributable to reduced gains on our equity method and minority investment portfolios partially offset by ~~a decrease~~an increase in interest income. Gains on equity method and minority investments were ~~$43~~$4 million and $7$43 million for the three months ended July ~~30, 2021~~29, 2022 and July ~~31, 2020,~~30, 2021, respectively. Interest income was ~~$43~~$55 million and ~~$52~~$43 million for the three months ended July 29, 2022 and July 30, 2021, ~~and July 31, 2020, respectively, with decreases driven by the decline in global interest rates.~~respectively.

Interest Expense Interest expense includes interest incurred on our outstanding borrowings, amortization of debt issuance costs and debt premiums or discounts, amortization of ~~gains or losses on terminated or de-designated interest rate derivative instruments,~~amounts excluded from the effectiveness assessment of certain net investment hedges, and charges recognized in connection with the ~~tender and~~ early redemption of senior notes. The ~~decrease~~increase in interest expense was primarily due to the $53 million charge incurred as a result of the early redemption of approximately $2.3 billion of senior notes during the three months ended July 30, 2021 was primarily due to a decrease in the weighted-average interest rate of outstanding debt obligations driven by our debt issuance and tender transactions in the second quarter of fiscal year 2021.29, 2022.

INCOME TAXES

Three months ended
(in millions) July 30, 2021 July 31, 2020
Income tax provision $ 64 $ 93
Income before income taxes 833 584
Effective tax rate 7.7 % 15.9 %
Non-GAAP income tax provision $ 290 $ 137
Non-GAAP income before income taxes 2,201 977
Non-GAAP Nominal Tax Rate 13.2 % 14.0 %
Difference between the effective tax rate and Non-GAAP Nominal Tax Rate 5.5 % (1.9) %


	Three months ended
(in millions)	July 29, 2022			July 30, 2021
Income tax provision	$	112		$	64
Income before income taxes	1,044			833
Effective tax rate	10.7		%	7.7		%

Non-GAAP income tax provision	$	230		$	269
Non-GAAP income before income taxes	1,734			2,111
Non-GAAP Nominal Tax Rate	13.3		%	12.7		%

Difference between the effective tax rate and Non-GAAP Nominal Tax Rate	2.6		%	5.0		%

Our effective tax rate for the three months ended July ~~30, 2021~~29, 2022 was ~~7.7 percent,~~10.7%, as compared to ~~15.9 percent for the three months ended July 31, 2020. The decrease in our effective tax rate~~7.7% for the three months ended July 30, ~~2021, as compared to the corresponding period~~2021. The increase in ~~the prior fiscal year,~~our effective tax rate was primarily due to the tax impact of ~~the~~ MCS charges ~~and year-over-year changes~~ in ~~operational results by jurisdiction~~the three months ended July 30, 2021, partially offset by ~~certain tax adjustments, including~~ a $39 million charge in the three months ended July 30, 2021 related to a change in the ~~Company's~~Company’s permanent reinvestment assertion on certain historical earnings. The increase was also partially offset by a $25 million benefit in the three months ended July 29, 2022 related to a valuation allowance release associated with certain carryover attributes due to the anticipated RCS transaction, as discussed in Note 4 to the current period's consolidated financial statements.

Our Non-GAAP Nominal Tax Rate for the three months ended July ~~30, 2021~~29, 2022 was ~~13.2 percent,~~13.3%, as compared to ~~14.0 percent~~12.7% for the three months ended July ~~31, 2020.~~30, 2021. The ~~decrease~~increase in our Non-GAAP Nominal Tax Rate was primarily due to the decrease in the stock-based compensation benefit and the impact of year-over-year changes in operational results by jurisdiction. An increase in our Non-GAAP Nominal Tax Rate of 1 percent would result in an additional income tax provision for the three months ended July ~~30, 2021~~29, 2022 of approximately ~~$22~~$17 million.

LIQUIDITY AND CAPITAL RESOURCES

We are currently in a strong financial position, and we believe our balance sheet and liquidity as of July ~~30, 2021~~29, 2022 provide us with flexibility, and our cash, cash equivalents, and current investments, along with our credit facility and related commercial paper programs will satisfy our foreseeable operating needs.

Our liquidity and capital structure are evaluated regularly within the context of our annual operating and strategic planning processes. We consider the liquidity necessary to fund our operations, which includes working capital needs, investments in research and development, property, plant, and equipment, and other operating costs. We also consider capital allocation alternatives that balance returning value to shareholders through dividends and share repurchases, satisfying maturing debt, and acquiring businesses and technology.

Summary of Cash Flows

The following is a summary of cash provided by (used in) operating, investing, and financing activities, the effect of exchange rate changes on cash and cash equivalents, and the net change in cash and cash equivalents:


		Three months ended					Three months ended
(in millions)	(in millions)	July 30, 2021		July 31, 2020		(in millions)	July 29, 2022		July 30, 2021
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	1,292	$	278	Operating activities	$	1,083	$	1,292
Investing activities	Investing activities	(784)		8		Investing activities	(1,585)		(784)
Financing activities	Financing activities	(1,055)		1,959		Financing activities	(950)		(1,055)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(42)		114		Effect of exchange rate changes on cash and cash equivalents	(122)		(42)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	(589)	$	2,359	Net change in cash and cash equivalents	$	(1,574)	$	(589)

Operating Activities The ~~$1.0 billion increase~~$209 million decrease in net cash provided was primarily driven by ~~an increase~~a decrease in cash collected from customers, partially offset by ~~an increase~~a decrease in ~~cash paid for income taxes and~~ cash paid to employees. The ~~increase~~decrease in cash collected from customers was primarily related to ~~COVID-19 driving decreased~~supply chain challenges, which caused lower net sales as compared to the corresponding period in the ~~fourth quarter of~~prior fiscal year 2020 and first quarter of fiscal year 2021. The increase in cash paid for income taxes in the three months ended July 30, 2021 was primarily due to a tax payment associated with a foreign audit settlement.year. Cash paid to employees ~~increased~~decreased due to ~~higher~~lower annual incentive plan payouts for prior year performance compared to the corresponding period in the prior fiscal year.

Investing ActivitiesThe ~~$792~~$801 million increase in ~~net~~ cash used was primarily attributable to ~~an increase~~cash paid for acquisitions of $1.2 billion, partially offset by a decrease in net purchases of investments of ~~$688~~$332 million, ~~during the three months ended July 30, 2021,~~ as compared to the corresponding period in the prior fiscal year. For more information on the aforementioned acquisitions, refer to Note 4to the current's period's consolidated financial statements.

Financing Activities ~~The $3.0 billion increase~~There was a $105 million decrease in net cash used ~~was largely~~during the ~~result of~~three months ended July 29, 2022, as compared to the ~~Mizuho Bank term loan under which the Company borrowed $2.8 billion~~corresponding period in ~~the first quarter of~~ the prior fiscal year. In the current period, the Company issued short-term borrowings of approximately $2.3 billion under the Fiscal 2023 Loan Agreement and used the proceeds to fund the early redemption of senior notes for total consideration of $2.3 billion. Also contributing to the total change was the decrease in share issuances of $68 million and increase in ~~cash used was the increase in net cash used for share repurchases~~dividends paid of ~~$315~~$57 million. For more information on the ~~aforementioned Mizuho Bank term loan,~~issuance of the Term Loan and redemptions of senior notes, refer to the Debt and Capital section.

Debt and Capital

Our capital structure consists of equity and interest-bearing debt. We primarily utilize unsecured senior debt obligations to meet our financing needs and, to a lesser extent, bank borrowings. From time to time, we may repurchase our outstanding debt obligations in the open market or through privately negotiated transactions.

Total debt at July ~~30, 2021~~29, 2022 was ~~$26.0~~$23.2 billion as compared to ~~$26.4~~$24.1 billion at April ~~30, 2021.~~29, 2022. The decrease in total debt was driven by fluctuations in ~~exchanges~~exchange rates as it pertains to our Euro-denominated senior notes.

On May 2, 2022, we entered into a term loan agreement (Fiscal 2023 Loan Agreement) with Mizuho Bank, Ltd. for an aggregate principal amount of up to ¥300 billion with a term of 364 days. In May and June 2022, Medtronic Luxco borrowed an aggregate of ¥297 billion, or approximately $2.3 billion, of the term loan, under the Fiscal 2023 Loan Agreement. The Company used the net proceeds of the borrowings to fund the early redemption of $1.9 billion of Medtronic Inc. Senior Notes for $1.9 billion of total consideration, and $368 million of Medtronic Luxco Senior Notes for $376 million of total consideration. The Company recognized a total loss on debt extinguishment of $53 million in the quarter ended July 29, 2022, which primarily includes cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss was recognized in interest expense in the consolidated statements of income.

We repurchase our ordinary shares ~~from time to time~~on occasion as part of our focus on returning value to our shareholders. In March 2019, the Company's Board of Directors authorized the repurchase of $6.0 billion of the Company's ordinary shares. There is no specific time period associated with these repurchase authorizations. During the three months ended July ~~30, 2021,~~29, 2022, the Company repurchased a total of 23 million shares under this program at an average price of ~~$126.23.~~$96.48. At July ~~30, 2021,~~29, 2022, we had approximately ~~$5.1~~$2.6 billion remaining under the share repurchase program authorized by our Board of Directors.

For more information on credit arrangements, refer to Note 7 to the current period's consolidated financial statements and Note 6 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April ~~30, 2021.~~29, 2022.

Liquidity

Our liquidity sources at July ~~30, 2021~~29, 2022 included ~~$3.0~~$2.1 billion of cash and cash equivalents and ~~$7.6~~$6.7 billion of current investments. Additionally, we maintain a commercial paper ~~program (no commercial paper outstanding at July 30, 2021)~~programs and a Credit Facility.

Our investments primarily include available-for-sale debt securities, including U.S. and non-U.S. government and agency securities, corporate debt securities, mortgage-backed securities, certificates of deposits, and other asset-backed securities. Refer to Note 6 to the current period's consolidated financial statements for additional information regarding fair value measurements.

We maintain multicurrency commercial paper programs for short-term financing, which allow us to issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $3.5 billion. At both July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~29, 2022, we had no commercial paper outstanding. The issuance of commercial paper reduces the amount of credit available under our existing line of credit, as explained below.

We also have a $3.5 billion five-year syndicated credit facility (Credit Facility), which expires in December ~~2025.~~2026. At each anniversary date of the Credit Facility we can request a one-year extension of the maturity date. The Credit Facility provides backup funding for the commercial paper programs and may also be used for general corporate purposes. The Credit Facility provides us with the ability to increase our borrowing capacity by an additional $1.0 billion at any time during the term of the agreement. At ~~each anniversary date of the Credit Facility, but not more than twice prior to the maturity date, we could also request a one-year extension of the maturity date. At~~ July ~~30, 2021~~29, 2022 and April ~~30, 2021,~~29, 2022, no amounts were outstanding under the Credit Facility.

Interest rates on advances of our Credit Facility are determined by a pricing matrix based on our long-term debt ratings assigned by Standard & Poor's Ratings Services (S&P) and Moody's Investors Service (Moody’s). Facility fees are payable on the Credit Facility and are determined in the same manner as the interest rates. We are in compliance with all covenants related to the Credit Facility.

The following table is a summary of our S&P and Moody's long-term debt ratings and short-term debt ratings:

Agency Rating(1)

July ~~30, 2021~~29, 2022

April ~~30, 2021~~29, 2022

Standard & Poor's Ratings Services

Long-term debt

Short-term debt

A-1

Moody's Investors Service

Long-term debt

Short-term debt

P-2

(1) Agency ratings are subject to change, and there may be no assurance that an agency will continue to provide ratings and/or maintain its current ratings. A security rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by the rating agency, and each rating should be evaluated independently of any other rating.

S&P and Moody's long-term debt ratings and short-term debt ratings at July ~~30, 2021~~29, 2022 were unchanged as compared to the ratings at April ~~30, 2021.~~29, 2022. We do not expect the S&P and Moody's ratings to have a significant impact on our liquidity or future flexibility to access additional liquidity given our balance sheet, Credit Facility, and related commercial paper programs.

We have future contractual obligations and other minimum commercial commitments that are entered into in the normal course of business. We believe our off-balance sheet arrangements do not have a material current or anticipated future effect on our consolidated earnings, financial position, and/or cash flows. There have been no material changes to our long-term contractual obligations as reported in our most recent Annual Report filed on Form 10-K for the fiscal year ended April ~~30, 2021.~~29, 2022.

ACQUISITIONS

~~Intersect ENT Pending Acquisition~~

On August 6, 2021, Medtronic and Intersect ENT entered into a definitive agreement in which Medtronic will acquire all outstanding shares of Intersect ENT for $28.25 per share in an all-cash transaction valued at approximately $1.1 billion. The acquisition is expected to close toward the end of fiscal year 2022 pending clearance of anti-trust filings, approval by Intersect ENT’s stockholders, and other closing conditions.

~~Additional information~~Information regarding acquisitions is included in Note 4 to the current period's consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

We have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April ~~30, 2021.~~

29, 2022.

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect our best judgment about economic and market conditions and the potential effects on the valuation and/or carrying value of assets and liabilities based upon relevant information available. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

As of July ~~30, 2021,~~29, 2022, there were no material changes to our critical accounting estimates.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 2 to the current period's consolidated financial statements.

4746

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

Medtronic plc and Medtronic Global Holdings S.C.A. (Medtronic Luxco), a wholly-owned subsidiary guarantor, each have provided full and unconditional guarantees of the obligations of Medtronic, Inc., a wholly-owned subsidiary issuer, under the Senior Notes (Medtronic Senior Notes) and full and unconditional guarantees of the obligations of Covidien International Finance S.A. (CIFSA), a wholly-owned subsidiary issuer, under the Senior Notes (CIFSA Senior Notes). The guarantees of the CIFSA Senior Notes are in addition to the guarantees of the CIFSA Senior Notes by Covidien Ltd. and Covidien Group Holdings Ltd., both of which are wholly-owned subsidiary guarantors of the CIFSA Senior Notes. Medtronic plc and Medtronic, Inc. each have provided a full and unconditional guarantee of the obligations of Medtronic Luxco under the Senior Notes (Medtronic Luxco Senior Notes). The following is a summary of these guarantees:

Guarantees of Medtronic Senior Notes

•Parent Company Guarantor – Medtronic plc

•Subsidiary Issuer – Medtronic, Inc.

•Subsidiary Guarantor – Medtronic Luxco

Guarantees of Medtronic Luxco Senior Notes

•Parent Company Guarantor – Medtronic plc

•Subsidiary Issuer – Medtronic Luxco

•Subsidiary Guarantor – Medtronic, Inc.

Guarantees of CIFSA Senior Notes

•Parent Company Guarantor – Medtronic plc

•Subsidiary Issuer – CIFSA

•Subsidiary Guarantors – Medtronic Luxco, Covidien Ltd., and Covidien Group Holdings Ltd. (CIFSA Subsidiary Guarantors)

The following tables present summarized results of operations for the three months ended July ~~30, 2021~~29, 2022 and summarized balance sheet information at July ~~30, 2021~~29, 2022 and April ~~30, 2021~~29, 2022 for the obligor groups of Medtronic and Medtronic Luxco Senior Notes, and CIFSA Senior Notes. The obligor group consists of the parent company guarantor, subsidiary issuer, and subsidiary guarantors for the applicable senior notes. The summarized financial information is presented after elimination of (i) intercompany transactions and balances among the guarantors and issuers and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor or issuer.

The summarized results of operations information for the three months ended July ~~30, 2021~~29, 2022 was as follows:


(in millions)	(in millions)	Medtronic & Medtronic Luxco Senior Notes (1)		CIFSA Senior Notes (2)		(in millions)	Medtronic & Medtronic Luxco Senior Notes (1)		CIFSA Senior Notes (2)
Net sales	Net sales	$	523	$	—	Net sales	$	589	$	—
Operating profit (loss)	Operating profit (loss)	(8)		38		Operating profit (loss)	(141)		(15)
Loss before income taxes	Loss before income taxes	(236)		(187)		Loss before income taxes	(423)		(253)
Net loss attributable to Medtronic	Net loss attributable to Medtronic	(189)		(224)		Net loss attributable to Medtronic	(328)		(251)

The summarized balance sheet information at July ~~30, 2021~~29, 2022 was as follows:


(in millions)	(in millions)	Medtronic & Medtronic Luxco Senior Notes (1)		CIFSA Senior Notes (2)		(in millions)	Medtronic & Medtronic Luxco Senior Notes (1)		CIFSA Senior Notes (2)
Total current assets(3)	Total current assets(3)	$	20,913	$	9,445	Total current assets(3)	$	17,225	$	7,393
Total noncurrent assets(4)	Total noncurrent assets(4)	11,522		8,101		Total noncurrent assets(4)	12,135		8,394
Total current liabilities(5)	Total current liabilities(5)	29,130		19,170		Total current liabilities(5)	35,386		26,478
Total noncurrent liabilities(6)	Total noncurrent liabilities(6)	56,034		62,852		Total noncurrent liabilities(6)	46,315		59,163
Noncontrolling interests	Noncontrolling interests	178		178		Noncontrolling interests	170		170

(1)The Medtronic Senior Notes and Medtronic Luxco Senior Notes obligor group consists of the following entities: Medtronic plc, Medtronic Luxco, and Medtronic, Inc. Refer to the guarantee summary above for further details.

(2)The CIFSA Senior Notes obligor group consists of the following entities: Medtronic plc, Medtronic Luxco, CIFSA, and CIFSA Subsidiary Guarantors. Refer to the guarantee summary above for further details.

(3)Includes receivables due from non-guarantor subsidiaries of ~~$19.8~~$16.4 billion and ~~$8.9~~$7.1 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(4)Includes loans receivable due from non-guarantor subsidiaries of $6.5 billion and ~~$8.1~~$8.4 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(5)Includes payables due to non-guarantor subsidiaries of ~~$27.4~~$27.0 billion and ~~$19.0~~$20.1 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(6)Includes loans payable due to non-guarantor subsidiaries of ~~$28.7~~$27.6 billion and ~~$43.4~~$46.3 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

The summarized balance sheet information at April ~~30, 2021~~29, 2022 was as follows:

(in millions)
Medtronic & Medtronic Luxco Senior Notes (1)
CIFSA Senior Notes (2)
Total current assets(3)
$ 21,901 $ 9,038
Total noncurrent assets(4)
11,597 8,041
Total current liabilities(5)
28,484 17,413
Total noncurrent liabilities(6)
56,772 63,328
Noncontrolling interests 174 174


(in millions)	Medtronic & Medtronic Luxco Senior Notes (1)		CIFSA Senior Notes (2)
Total current assets(3)	$	20,767	$	6,881
Total noncurrent assets(4)	12,099		8,293
Total current liabilities(5)	32,647		24,302
Total noncurrent liabilities(6)	50,542		60,292
Noncontrolling interests	171		171

(3)Includes receivables due from non-guarantor subsidiaries of ~~$21.4~~$20.2 billion and ~~$9.0~~$6.9 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(4)Includes loans receivable due from non-guarantor subsidiaries of $6.5 billion and ~~$8.0~~$8.3 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(5)Includes payables due to non-guarantor subsidiaries of $26.4 billion and ~~$17.3~~$20.2 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(6)Includes loans payable due to non-guarantor subsidiaries of $29.0 billion and ~~$43.5~~$46.4 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, and other written reports and oral statements made by or with the approval of one of the Company’s executive officers from time to time, may include “forward-looking” statements. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, objectives of management for future operations and current expectations or forecasts of future results, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Our forward-looking statements may include statements related to our growth and growth strategies, developments in the markets for our products, therapies and services, financial results, product development launches and effectiveness, research and development strategy, regulatory approvals, competitive strengths, the potential or anticipated direct or indirect impact of COVID-19 on our business, results of operations, and/or financial condition, restructuring and cost-saving initiatives, intellectual property rights, litigation and tax matters, governmental proceedings and investigations, mergers and acquisitions, divestitures, market acceptance of our products, therapies and services, accounting estimates, financing activities, ongoing contractual obligations, working capital adequacy, value of our investments, our effective tax rate, our expected returns to shareholders, and sales efforts. In some cases, such statements may be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “looking ahead,” “may,” “plan,” “possible,” “potential,” “project,” “should,” “will,” and similar words or expressions. Forward-looking statements in this Quarterly Report include, but are not limited to, statements regarding our ability to drive long-term shareholder value, development and future launches of products and continued or future acceptance of products, therapies and services in our segments; expected timing for completion of research studies relating to our products; market positioning and performance of our products, including stabilization of certain product markets; divestitures and the potential benefits thereof; the costs and benefits of integrating previous acquisitions; anticipated timing for United States (U.S.) Food and Drug Administration (U.S. FDA) and non-U.S. regulatory approval of new products; increased presence in new markets, including markets outside the U.S.; changes in the market and our market share; acquisitions and investment initiatives, including the timing of regulatory approvals as well as integration of acquired companies into our operations; the resolution of tax matters; the effectiveness of our development activities in reducing patient care costs and hospital stay lengths; our approach towards cost containment; our expectations regarding healthcare costs, including potential changes to reimbursement policies and pricing pressures; our expectations regarding changes to patient standards of care; our ability to identify and maintain successful business partnerships; the elimination of certain positions or costs related to restructuring initiatives; outcomes in our litigation matters and governmental proceedings and investigations; general economic conditions; the adequacy of available working capital and our working capital needs; our payment of dividends and redemption of shares; the continued strength of our balance sheet and liquidity; our accounts receivable exposure; and the potential impact of our compliance with governmental regulations and accounting guidance.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, ~~financial condition,~~ results of operations, financial condition, and/or cash flows. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking

statements as predictions of future events. One must carefully consider forward-looking statements and understand that such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, and involve a variety of risks and uncertainties, known and unknown, including, among others, those discussed in the sections entitled “Government Regulation” within “Item 1. Business” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as well as those related to:

•~~the COVID-19 pandemic;~~

•competition in the medical device industry;

•delays in regulatory approvals;

•the global COVID-19 pandemic, including new COVID-19 variants that may emerge, as well as impacts of the pandemic on healthcare staffing levels;

•reduction or interruption in our supply;

•failure to complete or achieve the intended benefits of acquisitions or divestitures;

•adverse regulatory action;

•laws and governmental regulations;

•litigation results;

•quality problems;

•~~liquidity shortfalls;~~healthcare policy changes;

•~~decreasing prices and pricing pressure;~~cybersecurity incidents;

•international operations, including the impact of armed conflicts;

•~~fluctuations in currency exchange rates;~~self-insurance;

•commercial insurance;

•changes in applicable tax rates;

•positions taken by taxing authorities;

•~~adverse regulatory action;~~decreasing selling prices and pricing pressure;

•~~delays in regulatory approvals;~~liquidity shortfalls;

•~~litigation results;~~fluctuations in currency exchange rates;

•~~self-insurance;~~

•~~commercial insurance;~~

•~~healthcare policy changes;~~

•~~international operations;~~

•~~cybersecurity incidents;~~

•~~failure to complete or achieve the intended benefits of acquisitions or divestitures;~~inflation; or

•disruption of our current plans and operations.

Consequently, no forward-looking statement may be guaranteed, and actual results may vary materially from those projected in the forward-looking statements. We intend to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding our forward-looking statements and are including this sentence for the express purpose of enabling us to use the protections of the safe harbor with respect to all forward-looking statements. While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

CURRENCY EXCHANGE RATE RISK

Due to the global nature of our operations, we are exposed to currency exchange rate changes, which may cause fluctuations in earnings and cash flows. We use operational and economic hedges, including currency exchange rate derivative instruments to manage the impact of currency exchange rate fluctuations. In order to minimize earnings and cash flow volatility resulting from currency exchange rate fluctuations, we enter into derivative instruments, principally forward currency exchange rate contracts. These contracts are designed to hedge anticipated transactions in other currencies and changes in the value of specific assets and liabilities. At inception of the contract, the derivative instrument is designated as either a freestanding derivative or a cash flow hedge. Currencies of our derivative instruments include the Euro, Japanese Yen, Chinese Yuan, and others. Fluctuations in the currency exchange rates of currency exposures that are unhedged, such as in certain emerging markets, may result in future earnings and cash flow volatility. ~~We do not enter into currency exchange rate derivative instruments for speculative purposes.~~

The gross notional amount of all currency exchange rate derivative instruments outstanding at July ~~30, 2021~~29, 2022 and April ~~30, 2021~~29, 2022 was ~~$15.0~~$17.7 billion and ~~$14.7~~$13.8 billion, respectively. At July ~~30, 2021,~~29, 2022, these contracts were in a net unrealized ~~loss~~gain position of ~~$35~~$854 million. Additional information regarding our currency exchange rate derivative instruments is included in Note 8 to the current period's consolidated financial statements.

A sensitivity analysis of changes in the fair value of all currency exchange rate derivative contracts at July ~~30, 2021~~29, 2022 indicates that, if the U.S. dollar

uniformly strengthened/weakened by 10 percent against all currencies, it would have the following impact on the fair value of these contracts:


	Increase (decrease)
(in millions)	July ~~30, 2021~~29, 2022
10% appreciation in the U.S. dollar	$	~~1,095~~391
10% depreciation in the U.S. dollar	~~(1,095)~~(391)

Any gains and losses on the fair value of derivative contracts would generally be offset by gains and losses on the underlying transactions. These offsetting gains and losses are not reflected in the above analysis.

In the second quarter of fiscal year 2019, we began accounting for our operations in Argentina as highly inflationary, as the prior three-year cumulative inflation rate exceeded 100 percent. The change did not have a material impact on our results for the three months ended July 30, 2021.

INTEREST RATE RISK

We are subject to interest rate risk on our short-term investments and our borrowings. We manage interest rate risk in the aggregate, while focusing on our immediate and intermediate liquidity needs. Our debt portfolio at July ~~30, 2021~~29, 2022 was comprised of debt ~~predominately~~predominantly denominated in U.S. dollars, Euros, and ~~Euros,~~Yen, of which substantially all is fixed rate debt. We are also exposed to interest rate changes affecting our investments in interest rate sensitive instruments, which include our marketable debt securities.

A sensitivity analysis of the impact on our interest rate-sensitive financial instruments of a hypothetical 10 basis point change in interest rates, as compared to interest rates at July ~~30, 2021,~~29, 2022, would have the following impact on the fair value of these instruments:


	Increase (decrease)
(in millions)	July ~~30, 2021~~29, 2022
10 basis point increase in interest rates	$	1955
10 basis point decrease in interest rates	~~(19)~~(55)

For a discussion of current market conditions and the impact on our financial condition and results of operations, please see the “Liquidity” section of the current period's Management's Discussion and Analysis. For additional discussion of market risk, refer to Notes 6 and 8 to the current period's consolidated financial statements.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) and changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) are effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ~~The Company has not experienced any material impacts to its internal controls over financial reporting despite the fact that most of its employees are working remotely due to the COVID-19 pandemic.~~

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In ~~August 2020, the Securities and Exchange Commission issued an updated ruling regarding the~~accordance with Item 103 of Regulation S-K, we have adopted a $1 million disclosure threshold for ~~disclosure of~~ proceedings under environmental laws to which a governmental authority is a ~~party. In accordance with this updated ruling, we have adopted a disclosure threshold of $1 million in such circumstances,~~party, as we believe matters under this threshold are not material to the Company. A discussion of the Company’s ~~policies with respect to legal proceedings is included in the management’s discussion and analysis, and our~~ legal proceedings and other loss contingencies are described in Note 16 to the current period's consolidated financial statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information about the shares repurchased by the Company during the first quarter of fiscal year ~~2022:~~

Fiscal Period Total Number of
Shares Purchased Average Price
Paid per Share Total Number of Shares
Purchased as a Part of
Publicly Announced
Program Maximum Approximate Dollar Value of Shares that may yet be Purchased Under the Program
5/1/2021-5/28/2021 1,297,191 $ 126.83 1,297,191 $ 5,277,134,958
5/29/2021-7/2/2021 644,294 124.22 644,294 5,147,101,211
7/3/2021-7/30/2021 522,484 127.20 522,484 5,080,638,969
Total 2,463,969 $ 126.23 2,463,969 5,080,638,969
2023:


Fiscal Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Program	Maximum Approximate Dollar Value of Shares that may yet be Purchased Under the Program
4/30/2022-5/27/2022	1,617,917	$	102.71	1,617,917	$	2,784,039,915
5/28/2022-7/1/2022	1,055,222	92.00		1,055,222	2,686,962,132
7/2/2022-7/29/2022	781,989	89.64		781,989	2,616,862,313
Total	3,455,128	$	96.48	3,455,128	$	2,616,862,313

In March 2019, the Company's Board of Directors authorized the repurchase of $6.0 billion of the Company's ordinary shares. There is no specific time-period associated with these repurchase authorizations.

Item 5. Other Information

Medtronic has engaged in certain activities that it is required to disclose pursuant to Section 13(r)(1)(D)(ii) of the Securities Exchange Act of 1934, as amended. The activities described herein are expressly authorized by the U.S. Government under applicable economic sanctions regulations.Not applicable.

Specifically, Medtronic’s affiliate in Russia, Medtronic Russia LLC (“Medtronic Russia”), is required under Russian law to complete certain notification and filing requirements to Russia’s Federal Security Service (“FSB”) regarding certain Medtronic medical devices that make use of encryption functionality that are imported into Russia. While the FSB has been included on the Specially Designated Nationals (“SDN”) List administered by the Office of Foreign Assets Control (“OFAC”), these activities are and remain authorized. In particular, Cyber General License No. 1B (“Cyber GL 1B”), issued by OFAC, authorizes all transactions ordinarily incident to obtaining such permits from the FSB, provided that certain conditions are met.

Historically, Medtronic has not been required to disclose these lawful dealings with the FSB. However, on March 2, 2021, OFAC designated the FSB pursuant to an additional sanctions authority. While OFAC amended the applicable general license to confirm that all previously authorized dealings with the FSB remain authorized (notwithstanding the additional designation), the designation of the FSB with a [NPWMD] tag pursuant to Executive Order 13382 means that Medtronic is required under Section 13(r)(1)(D)(ii) of the Securities Exchange Act to disclose certain information as a result of this additional designation, as Section 13(r)(1)(D)(ii) does not contain an exception from its reporting requirements for activities that are authorized by the U.S. Government.

During the first quarter of fiscal year 2022, in the normal course of business and consistent with the authorization of Cyber GL 1B, Medtronic Russia filed four notifications with the FSB, as required under local Russian law for the import of medical devices that make use of encryption functionality. These activities did not directly result in any revenues or profits for Medtronic. Medtronic intends to continue engaging in activities for which it is authorized by Cyber GL 1B (or any successor GL), to the extent necessary to comply with local law requirements in Russia.

Item 6. Exhibits

(a)

Exhibits

10.1

Letter Agreement by and between Medtronic, Inc. and Ivan K. Fong dated November 19, 2021

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.SCH

Inline XBRL Schema Document.

101.CAL

Inline XBRL Calculation Linkbase Document.

101.DEF

Inline XBRL Definition Linkbase Document.

101.LAB

Inline XBRL Label Linkbase Document.

101.PRE

Inline XBRL Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned authorized officer.


		Medtronic plc
		(Registrant)

Date:	September ~~2, 2021~~1, 2022	/s/ Jennifer M. Kirk
		Jennifer M. Kirk
		Senior Vice President, Global Controller and Chief Accounting Officer (Principal Accounting Officer)
		~~(Principal Accounting Officer)~~


Item	Description	Page

	PART I
1.	Financial Statements (unaudited)	1
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
3.	Quantitative and Qualitative Disclosures About Market Risk	50
4.	Controls and Procedures	51
	PART II
1.	Legal Proceedings	51
2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
5.	Other Information	52
6.	Exhibits	52
	Signature	53


		Three months ended
(in millions)	Classification	July 30, 2021		July 31, 2020
Currency exchange rate contracts	Other operating expense (income), net	$	(17)	$	127
Total return swaps	Other operating expense (income), net	(13)		(27)
Total		$	(30)	$	100