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Medtronic plc - Quarter Report: 2019 October (Form 10-Q)



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 October 25, 2019
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
mdt-20191025_g1.jpg®
MEDTRONIC PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
  
Ireland98-1183488
(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 classTrading SymbolName of each exchange on which registered
Ordinary shares, par value $0.0001 per shareMDTNew York Stock Exchange
Floating Rate Notes due 2021MDT/21New York Stock Exchange
0.000% Senior Notes due 2021MDT/21ANew York Stock Exchange
0.000% Senior Notes due 2022MDT/22BNew York Stock Exchange
0.375% Senior Notes due 2023MDT/23BNew York Stock Exchange
0.25% Senior Notes due 2025MDT/25New York Stock Exchange
1.125% Notes due 2027MDT/27New York Stock Exchange
1.625% Notes due 2031MDT/31New York Stock Exchange
1.00% Senior Notes due 2031MDT/31ANew York Stock Exchange
2.250% Notes due 2039MDT/39ANew York Stock Exchange
1.50% Senior Notes due 2039MDT/39BNew York Stock Exchange
1.75% Senior Notes due 2049MDT/49New 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 filerAccelerated filerEmerging growth company
Non-accelerated filerSmaller 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 November 27, 2019, 1,340,377,511 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
     
    
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3.  
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2.  
6.  




PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Medtronic plc
Consolidated Statements of Income
(Unaudited)
 Three months endedSix months ended
(in millions, except per share data)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Net sales$7,706  $7,481  $15,199  $14,865  
Costs and expenses:  
Cost of products sold2,394  2,203  4,760  4,407  
Research and development expense603  590  1,190  1,175  
Selling, general, and administrative expense2,620  2,605  5,163  5,202  
Amortization of intangible assets441  445  881  891  
Restructuring charges, net27  24  74  86  
Certain litigation charges121  —  168  103  
Other operating expense, net149  70  127  221  
Operating profit1,351  1,544  2,836  2,780  
Other non-operating income, net(108) (52) (209) (238) 
Interest expense165  241  774  483  
Income before income taxes1,294  1,355  2,271  2,535  
Income tax provision(77) 235  23  338  
Net income1,371  1,120  2,248  2,197  
Net income attributable to noncontrolling interests(7) (5) (20) (7) 
Net income attributable to Medtronic$1,364  $1,115  $2,228  $2,190  
Basic earnings per share$1.02  $0.83  $1.66  $1.62  
Diluted earnings per share$1.01  $0.82  $1.65  $1.61  
Basic weighted average shares outstanding1,340.8  1,349.2  1,340.8  1,350.9  
Diluted weighted average shares outstanding1,351.4  1,360.9  1,351.6  1,363.0  

The accompanying notes are an integral part of these consolidated financial statements.
1


Medtronic plc
Consolidated Statements of Comprehensive Income
(Unaudited)
 Three months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Net income$1,371  $1,120  $2,248  $2,197  
Other comprehensive income (loss), net of tax:  
Unrealized gain (loss) on investment securities17  (9) 73  (9) 
Translation adjustment(214) (431) (148) (1,255) 
Net investment hedge53  —  152  —  
Net change in retirement obligations12  21  25  48  
Unrealized gain (loss) on cash flow hedges 127  (2) 340  
Other comprehensive (loss) income(127) (292) 100  (876) 
Comprehensive income including noncontrolling interests1,244  828  2,348  1,321  
Comprehensive income attributable to noncontrolling interests(7) (2) (20) (4) 
Comprehensive income attributable to Medtronic$1,237  $826  $2,328  $1,317  

The accompanying notes are an integral part of these consolidated financial statements.
2


Medtronic plc
Consolidated Balance Sheets
(Unaudited)
(in millions)October 25, 2019April 26, 2019
ASSETS  
Current assets:  
Cash and cash equivalents$3,962  $4,393  
Investments6,436  5,455  
Accounts receivable, less allowances of $198 and $190, respectively
6,118  6,222  
Inventories, net4,042  3,753  
Other current assets2,095  2,144  
Total current assets22,653  21,967  
Property, plant, and equipment11,364  10,920  
Accumulated depreciation(6,608) (6,245) 
Property, plant, and equipment, net4,756  4,675  
Goodwill39,952  39,959  
Other intangible assets, net19,775  20,560  
Tax assets1,804  1,519  
Other assets2,113  1,014  
Total assets$91,053  $89,694  
LIABILITIES AND EQUITY  
Current liabilities:  
Current debt obligations$875  $838  
Accounts payable1,965  1,953  
Accrued compensation1,773  2,189  
Accrued income taxes442  567  
Other accrued expenses3,115  2,925  
Total current liabilities8,170  8,472  
Long-term debt24,752  24,486  
Accrued compensation and retirement benefits1,573  1,651  
Accrued income taxes2,705  2,838  
Deferred tax liabilities1,376  1,278  
Other liabilities1,758  757  
Total liabilities40,334  39,482  
Commitments and contingencies (Note 17)
Shareholders’ equity:  
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,340,375,745 and 1,340,697,595 shares issued and outstanding, respectively
—  —  
Additional paid-in capital26,171  26,532  
Retained earnings27,018  26,270  
Accumulated other comprehensive loss(2,611) (2,711) 
Total shareholders’ equity50,578  50,091  
Noncontrolling interests141  121  
Total equity50,719  50,212  
Total liabilities and equity$91,053  $89,694  

The accompanying notes are an integral part of these consolidated financial statements.
3


Medtronic plc
Consolidated Statements of Equity
(Unaudited)
Ordinary SharesAdditional Paid-in CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Noncontrolling InterestsTotal Equity
(in millions)NumberPar Value
April 26, 20191,341  $—  $26,532  $26,270  $(2,711) $50,091  $121  $50,212  
Net income—  —  —  864  —  864  13  877  
Other comprehensive income—  —  —  —  227  227  —  227  
Dividends to shareholders ($0.54 per ordinary share)
—  —  —  (724) —  (724) —  (724) 
Issuance of shares under stock purchase and award plans —  205  —  —  205  —  205  
Repurchase of ordinary shares(3) —  (328) —  —  (328) —  (328) 
Stock-based compensation—  —  61  —  —  61  —  61  
Cumulative effect of change in accounting principle(1)
—  —  —  (33) —  (33) —  (33) 
July 26, 20191,341  $—  $26,470  $26,377  $(2,484) $50,363  $134  $50,497  
Net income—  —  —  1,364  —  1,364   1,371  
Other comprehensive (loss)—  —  —  —  (127) (127) —  (127) 
Dividends to shareholders ($$0.54 per ordinary share)
—  —  —  (723) —  (723) —  (723) 
Issuance of shares under stock purchase and award plans —  145  —  —  145  —  145  
Repurchase of ordinary shares(5) —  (552) —  —  (552) —  (552) 
Stock-based compensation—  108  —  —  108  —  108  
October 25, 20191,340  $—  $26,171  $27,018  $(2,611) $50,578  $141  $50,719  

(1) See Note 2 to the consolidated financial statements for discussion regarding the adoption of accounting standards during the first quarter fiscal year 2020.
The accompanying notes are an integral part of these consolidated financial statements.
















4


Medtronic plc
Consolidated Statements of Equity
(Unaudited)
Ordinary SharesAdditional Paid-in CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Noncontrolling InterestsTotal Equity
(in millions)NumberPar Value
April 27, 20181,354  $—  $28,127  $24,379  $(1,786) $50,720  $102  $50,822  
Net income —  —  —  1,075  —  1,075   1,077  
Other comprehensive (loss)—  —  —  —  (584) (584) —  (584) 
Dividends to shareholders ($0.50 per ordinary share)
—  —  —  (677) —  (677) —  (677) 
Issuance of shares under stock purchase and award plans —  446  —  —  446  —  446  
Repurchase of ordinary shares(9) —  (820) —  —  (820) —  (820) 
Stock-based compensation—  —  64  —  —  64  —  64  
Changes to noncontrolling ownership interests—  —  —  —  —  —    
Cumulative effect of change in accounting principle(1)
—  —  —  (47) 47  —  —  —  
July 27, 20181,352  $—  $27,817  $24,730  $(2,323) $50,224  $105  $50,329  
Net income —  —  —  1,115  —  1,115   1,120  
Other comprehensive (loss)—  —  —  —  (289) (289) (3) (292) 
Dividends to shareholders ($0.50 per ordinary share)
—  —  —  (674) —  (674) —  (674) 
Issuance of shares under stock purchase and award plans —  298  —  —  298  —  298  
Repurchase of ordinary shares(13) —  (1,171) —  —  (1,171) —  (1,171) 
Stock-based compensation—  —  104  —  —  104  —  104  
October 26, 20181,346  $—  $27,048  $25,171  $(2,612) $49,607  $107  $49,714  
(1) The cumulative effect of change in accounting principle during the first quarter of fiscal year 2019 resulted from the adoption of accounting guidance that requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. As a result of the adoption, the Company reclassified $47 million from accumulated other comprehensive loss to the opening balance of retained earnings as of April 28, 2018.
The accompanying notes are an integral part of these consolidated financial statements.
5


Medtronic plc
Consolidated Statements of Cash Flows
(Unaudited)
 Six months ended
(in millions)October 25, 2019October 26, 2018
Operating Activities:  
Net income$2,248  $2,197  
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization1,328  1,317  
Provision for doubtful accounts44  32  
Deferred income taxes(245) (80) 
Stock-based compensation169  168  
Loss on debt extinguishment406  —  
Other, net119  55  
Change in operating assets and liabilities, net of acquisitions and divestitures:      
Accounts receivable, net39  (37) 
Inventories, net(267) (312) 
Accounts payable and accrued liabilities(294) 24  
Other operating assets and liabilities(170) (499) 
Net cash provided by operating activities3,377  2,865  
Investing Activities:  
Acquisitions, net of cash acquired(201) (119) 
Additions to property, plant, and equipment(584) (497) 
Purchases of investments(4,226) (1,444) 
Sales and maturities of investments3,260  2,824  
Other investing activities(16) —  
Net cash (used in) provided by investing activities(1,767) 764  
Financing Activities:  
Change in current debt obligations, net42  (700) 
Issuance of long-term debt5,568   
Payments on long-term debt(5,594) (17) 
Dividends to shareholders(1,447) (1,351) 
Issuance of ordinary shares432  800  
Repurchase of ordinary shares(962) (2,047) 
Other financing activities(54) 11  
Net cash used in financing activities(2,015) (3,303) 
Effect of exchange rate changes on cash and cash equivalents(26) (84) 
Net change in cash and cash equivalents(431) 242  
Cash and cash equivalents at beginning of period4,393  3,669  
Cash and cash equivalents at end of period$3,962  $3,911  
Supplemental Cash Flow Information  
Cash paid for:      
Income taxes$494  $941  
Interest322  482  

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

6

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 of the adjustments necessary for a fair statement in conformity with U.S. GAAP. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.
Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates.
The accompanying unaudited consolidated financial statements include the accounts of Medtronic plc, its wholly-owned subsidiaries, entities for which the Company has a controlling financial interest, and variable interest entities for which the Company is the primary beneficiary. Intercompany transactions and balances have been eliminated in consolidation.
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 26, 2019. The Company’s fiscal years 2020, 2019, and 2018 will end or ended on April 24, 2020, April 26, 2019, and April 27, 2018, respectively.

2. New Accounting Pronouncements
Recently Adopted
Leases
In February 2016, the FASB issued guidance which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet. This guidance also requires additional qualitative and quantitative lease related disclosures in the notes to the consolidated financial statements. The Company adopted this guidance using the modified retrospective method in the first quarter of fiscal year 2020.
During the implementation of this recently adopted accounting standard, the Company elected the package of practical expedients available under the transition guidance that allowed an entity not to reassess whether any expired or existing contracts are or contain leases, the classification for any expired or existing leases or any initial direct costs for existing leases. Further, the Company made accounting policy elections to not apply the recognition requirements to short-term leases and to account for lease and nonlease components as a single lease component.
The adoption of this guidance resulted in the recognition of right-of-use assets and lease liabilities in an amount of approximately $1.0 billion, an immaterial cumulative-effect adjustment to retained earnings as of April 27, 2019, and expansion of lease related disclosures. The adoption of this guidance did not have a material impact on the Company's consolidated statements of income or consolidated statements of cash flows.
Others
In August 2017, the FASB issued guidance to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The Company adopted this guidance in the first quarter of fiscal year 2020. The adoption of this guidance resulted in expanded disclosures and did not have an impact on the Company's consolidated financial statements.
7

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

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 hospitals, clinics, third-party health care providers, distributors, and other institutions, including governmental health care programs and group purchasing organizations.
The table below illustrates net sales by segment and division for the three and six months ended October 25, 2019 and October 26, 2018:
 
Three months ended(1)
Six months ended(1)
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Cardiac Rhythm & Heart Failure$1,426  $1,472  $2,807  $2,898  
Coronary & Structural Heart955  906  1,896  1,823  
Aortic, Peripheral, & Venous474  480  942  948  
Cardiac and Vascular Group2,855  2,858  5,645  5,669  
Surgical Innovations1,454  1,393  2,871  2,790  
Respiratory, Gastrointestinal, & Renal688  654  1,371  1,309  
Minimally Invasive Therapies Group2,142  2,047  4,242  4,099  
Brain Therapies772  701  1,512  1,375  
Spine692  656  1,349  1,308  
Specialty Therapies333  322  656  631  
Pain Therapies315  314  607  628  
Restorative Therapies Group2,112  1,993  4,124  3,942  
Diabetes Group596  583  1,188  1,155  
Total$7,706  $7,481  $15,199  $14,865  
(1) Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.
During the first quarter of fiscal year 2020, the Company realigned its divisions within the Restorative Therapies Group, which included a movement of revenue from Transformative Solutions product lines previously included in Specialty Therapies to a product line under Brain Therapies. As a result, net sales for fiscal year 2019 have been recast to adjust for this realignment.
8

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

The table below illustrates net sales by market geography for each segment for the three and six months ended October 25, 2019 and October 26, 2018:
 
U.S.(1)(4)
Non-U.S. Developed Markets(2)(4)
Emerging Markets(3)(4)
Three months endedThree months endedThree months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Cardiac and Vascular Group$1,455  $1,482  $890  $895  $510  $481  
Minimally Invasive Therapies Group922  872  782  772  438  403  
Restorative Therapies Group1,440  1,357  416  412  256  224  
Diabetes Group311  334  226  203  59  46  
Total$4,129  $4,045  $2,315  $2,282  $1,262  $1,154  
 
U.S.(1)(4)
Non-U.S. Developed Markets(2)(4)
Emerging Markets(3)(4)
Six months endedSix months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Cardiac and Vascular Group $2,816  $2,871  $1,820  $1,842  $1,009  $956  
Minimally Invasive Therapies Group1,835  1,729  1,573  1,600  834  770  
Restorative Therapies Group 2,778  2,651  842  840  504  451  
Diabetes Group618  658  457  406  113  91  
Total$8,046  $7,909  $4,692  $4,688  $2,460  $2,268  
(1)U.S. includes the United States and U.S. territories.
(2)Non-U.S. developed markets include Japan, Australia, New Zealand, Korea, Canada, and the countries within Western Europe.
(3)Emerging markets include the countries of the Middle East, Africa, Latin America, Eastern Europe, and the countries of Asia that are not included in the non-U.S. developed markets, as defined above.
(4)Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.
The amount of revenue recognized is reduced by sales rebates and returns. Adjustments to rebates and returns reserves are recorded as increases or decreases of revenue. At October 25, 2019, $797 million of rebates were classified as other accrued expenses and $439 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheets. At April 26, 2019, $764 million of rebates were classified as other accrued expenses and $432 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheets. The Company includes obligations for returns in other accrued expenses in the consolidated balance sheets and the right-of-return asset in other current assets in the consolidated balance sheets. The right-of-return asset and liability at October 25, 2019 and April 26, 2019 were not material. For the three and six months ended October 25, 2019 and October 26, 2018, 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 before the Company transfers a good or service to the customer. Deferred revenue at October 25, 2019 and April 26, 2019 was $291 million and $315 million, respectively. At October 25, 2019 and April 26, 2019, $189 million and $211 million, respectively, was included in other accrued expenses and $102 million and $104 million, respectively, was included in other liabilities. During the six months ended October 25, 2019, the Company recognized $150 million of revenue that was included in deferred revenue as of April 26, 2019.
Remaining performance obligations include deferred revenue and amounts the Company expects to receive for goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments. At October 25, 2019, the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed contracts with an original duration of one year or more was approximately $1.1 billion. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next four years.
9

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

4. Acquisitions
The Company had acquisitions during the three and six months ended October 25, 2019 and October 26, 2018 that were accounted for as business combinations. The assets and liabilities of the businesses acquired were recorded and consolidated on the acquisition date at their respective fair values. Goodwill resulting from business combinations is largely attributable to future yet to be defined technologies, new customer relationships, existing workforce of the acquired businesses, and synergies expected to arise after the Company's acquisition of these businesses. The pro forma impact of these acquisitions was not significant, either individually or in the aggregate, to the consolidated results of the Company for the three and six months ended October 25, 2019 and October 26, 2018. The results of operations of acquired businesses have been included in the Company's consolidated statements of income since the date each business was acquired.
Fiscal Year 2020
The acquisition date fair value of net assets acquired during the six months ended October 25, 2019 was $272 million, consisting of $324 million of assets acquired and $52 million of liabilities assumed. Based upon preliminary valuations, assets acquired were primarily comprised of $139 million of technology-based intangible assets and $26 million of customer-related intangible assets with estimated useful lives ranging from 8 to 16 years, $92 million of goodwill, and $40 million of inventory. The goodwill is not deductible for tax purposes. The Company recognized $65 million of contingent consideration liabilities in connection with business combinations during the six months ended October 25, 2019, which are comprised of revenue milestone-based payments. For the six months ended October 25, 2019, purchase price allocation adjustments were not significant.
Fiscal Year 2019
The acquisition date fair value of net assets acquired during the six months ended October 26, 2018 was $166 million, consisting of $187 million of assets acquired and $21 million of liabilities assumed. Assets acquired were primarily comprised of $60 million of goodwill and $100 million of technology-based intangible assets with estimated useful lives ranging from 4 to 15 years. The Company recognized $46 million of contingent consideration liabilities in connection with business combinations during the six months ended October 26, 2018. For the six months ended October 26, 2018, purchase price allocation adjustments were not significant.
Acquired In-Process Research & Development
In-process research and development (IPR&D) acquired outside of a business combination is expensed immediately. During the three and six months ended October 25, 2019, the Company acquired no IPR&D in connection with an asset acquisition. During the three and six months ended October 26, 2018, the Company acquired $15 million of IPR&D in connection with an asset acquisition, which was recognized in other operating expense, net in the consolidated statements of income.
Contingent Consideration
Certain of the Company’s business combinations involve potential payment of future consideration that is contingent upon the achievement of certain product development milestones and/or contingent on the acquired business reaching certain performance milestones. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within other operating expense, net in the consolidated statements of income. 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 October 25, 2019 and April 26, 2019 was $260 million and $222 million, respectively. At October 25, 2019, $83 million was recorded in other accrued expenses and $177 million was recorded in other liabilities in the consolidated balance sheets. At April 26, 2019, $73 million was recorded in other accrued expenses and $149 million was recorded in other liabilities in the consolidated balance sheets.
10

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 endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Beginning balance$269  $208  $222  $173  
Purchase price contingent consideration 11  65  46  
Payments(15) (1) (29) (7) 
Change in fair value(1) (15)  (9) 
Ending balance$260  $203  $260  $203  
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 to the fair value measurement. 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)October 25, 2019Valuation TechniqueUnobservable InputRange
   Discount rate
11.5% - 32.5%
Revenue and other performance-based payments$135  Discounted cash flowProbability of payment
40% - 100%
   Projected fiscal year of payment2020 - 2026
   Discount rate5.5%  
Product development and other milestone-based payments$125  Discounted cash flowProbability of payment
75% - 100%
   Projected fiscal year of payment2020 - 2027

5. Restructuring
In the third quarter of fiscal year 2018, the Company announced its Enterprise Excellence restructuring program, which is expected to leverage the Company's global size and scale, as well as enhance the customer and employee experience, with a focus on three objectives: global operations, functional optimization, and commercial optimization. Primary activities of the restructuring program include integrating and enhancing global manufacturing and supply processes, systems and site presence, enhancing and leveraging global operating models across several enabling functions, and optimizing certain commercial processes, systems, and models.
The Company estimates that, in connection with its Enterprise Excellence restructuring program, it will recognize pre-tax exit and disposal costs and other costs across all segments of approximately $1.6 billion to $1.8 billion, the majority of which are expected to be incurred by the end of fiscal year 2022. Approximately half of the estimated charges are related to employee termination benefits. The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program and consulting expenses. These charges are recognized within restructuring charges, net, cost of products sold, and selling, general, and administrative expense in the consolidated statements of income.

For the three and six months ended October 25, 2019, the Company recognized charges of $95 million and $231 million, respectively. Additionally, the Company incurred accrual adjustments of $1 million and $13 million for the three and six months ended October 25, 2019, respectively, related to certain employees identified for termination finding other positions within Medtronic. For the three and six months ended October 25, 2019, charges included $32 million and $67 million, respectively, recognized within cost of products sold and $35 million and $77 million, respectively, recognized within selling, general, and administrative expense in the consolidated statements of income.

For the three and six months ended October 26, 2018, the Company recognized charges of $75 million and $195 million, respectively. Additionally, the Company incurred accrual adjustments of $4 million and $2 million for the three and six months ended October 26, 2018, respectively, related to employee termination benefits being more than initially estimated. For the three and six months ended October 26, 2018, charges included $22 million and $37 million, respectively, recognized within
11

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

cost of products sold and $31 million and $54 million, respectively, recognized within selling, general, and administrative expense in the consolidated statements of income.

The following table summarizes the activity related to the Enterprise Excellence restructuring program for the six months ended October 25, 2019:
(in millions)Employee Termination Benefits
Associated Costs(1)
Asset Write-Downs(2)
Other CostsTotal
April 26, 2019$101  $ $—  $12  $122  
Charges79  139    231  
Cash payments(118) (136) —  (8) (262) 
Settled non-cash—  —  (6) —  (6) 
Accrual adjustments(6) —  —  (7) (13) 
October 25, 2019$56  $12  $—  $ $72  
(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)Recognized within cost of products sold in the consolidated statements of income.
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. For information regarding the valuation techniques and inputs used in the fair value measurements, refer to Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 26, 2019.
The following tables summarize the Company's investments in available-for-sale debt securities by significant investment category and the related consolidated balance sheet classification at October 25, 2019 and April 26, 2019: 
October 25, 2019
ValuationBalance Sheet Classification
(in millions)CostUnrealized
Gains
Unrealized
Losses
Fair ValueInvestmentsOther Assets
Level 1:
U.S. government and agency securities$565  $15  $—  $580  $580  $—  
Level 2:
Corporate debt securities3,814  43  (16) 3,841  3,841  —  
U.S. government and agency securities858  —  (1) 857  857  —  
Mortgage-backed securities634  11  (13) 632  632  —  
Non-U.S. government and agency securities13  —  —  13  13  —  
Other asset-backed securities514   (3) 513  513  —  
Total Level 25,833  56  (33) 5,856  5,856  —  
Level 3:
Auction rate securities47  —  (3) 44  —  44  
Total available-for-sale debt securities$6,445  $71  $(36) $6,480  $6,436  $44  

12

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

April 26, 2019
ValuationBalance Sheet Classification
(in millions)CostUnrealized
Gains
Unrealized
Losses
Fair ValueInvestmentsOther Assets
Level 1:
U.S. government and agency securities$529  $ $(7) $523  $523  $—  
Level 2:
Corporate debt securities3,500  14  (21) 3,493  3,493  —  
U.S. government and agency securities387   (7) 381  381  —  
Mortgage-backed securities537   (20) 520  520  —  
Non-U.S. government and agency securities11  —  —  11  11  —  
Other asset-backed securities529   (3) 527  527  —  
Total Level 24,964  19  (51) 4,932  4,932  —  
Level 3:
Auction rate securities47  —  (3) 44  —  44  
Total available-for-sale debt securities$5,540  $20  $(61) $5,499  $5,455  $44  
The following tables present the gross unrealized losses and fair values of the Company’s available-for-sale debt securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category at October 25, 2019 and April 26, 2019:
 October 25, 2019
 Less than 12 monthsMore than 12 months
(in millions)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
U.S. government and agency securities$140  $—  $180  $(1) 
Corporate debt securities484  (9) 129  (7) 
Mortgage-backed securities91  (1) 89  (12) 
Non-U.S. government and agency securities —  —  —  
Other asset-backed securities167  (1) 156  (2) 
Auction rate securities—  —  44  (3) 
Total$884  $(11) $598  $(25) 

 April 26, 2019
 Less than 12 monthsMore than 12 months
(in millions)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
U.S. government and agency securities$130  $(1) $649  $(13) 
Corporate debt securities582  (5) 1,153  (16) 
Mortgage-backed securities73  (1) 250  (19) 
Other asset-backed securities290  (2) 85  (1) 
Auction rate securities—  —  44  (3) 
Total$1,075  $(9) $2,181  $(52) 
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. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended October 25, 2019 and October 26, 2018. When a determination is made to classify an asset or
13

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.
There were no purchases, sales, settlements, or gains or losses recognized in earnings or other comprehensive income for available-for-sale securities classified as Level 3 during the three and six months ended October 25, 2019 and October 26, 2018.
Activity related to the Company’s debt securities portfolio is as follows:
 Three months endedSix months Ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Proceeds from sales$1,691  $804  $3,258  $1,916  
Gross realized gains    
Gross realized losses(4) (12) (12) (19) 
Credit losses represent the difference between the present value of cash flows expected to be collected on certain mortgage-backed securities and auction rate securities and the amortized cost of these securities. Based on the Company’s assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which the Company is invested, the Company believes it has recognized all necessary other-than-temporary impairments, as the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, before recovery of the amortized cost.
At October 25, 2019 and April 26, 2019, the credit loss portion of other-than-temporary impairments on debt securities was not significant. No available-for-sale securities were sold for significantly less than carrying value during the three and six months ended October 25, 2019 and October 26, 2018.
The October 25, 2019 balance of available-for-sale debt securities by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
(in millions)October 25, 2019
Due in one year or less$1,975  
Due after one year through five years2,578  
Due after five years through ten years1,881  
Due after ten years46  
Total$6,480  
Equity Securities, Equity Method Investments, and Other Investments
The Company holds investments in equity securities without readily determinable fair values, investments accounted for under the equity method, and other investments. 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 October 25, 2019 and April 26, 2019, which are classified as other assets in the consolidated balance sheets:
(in millions)October 25, 2019April 26, 2019
Investments without readily determinable fair values$366  $308  
Equity method and other investments66  64  
Total equity and other investments$432  $372  
14

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

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 endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Proceeds from sales$—  $—  $ $908  
Gross gains14   14  123  
Gross losses—  (13) —  (29) 
Impairment losses recognized(2) (12) (3) (12) 
Net gains recognized for the three and six months ended October 25, 2019 were $14 million comprised of net unrealized gains on equity and other investments still held at October 25, 2019. Net losses recognized during the three months ended October 26, 2018 were $4 million comprised of net unrealized losses on equity and other investments still held at October 26, 2018. Net gains recognized during the six months ended October 26, 2018 were $94 million, comprised of $45 million of net realized gains on equity and other investments sold during the period and $49 million of net unrealized gains on equity and other investments still held at October 26, 2018.
7. Financing Arrangements
Commercial Paper
The Company maintains a commercial paper program that allows the Company to have a maximum of $3.5 billion in commercial paper outstanding. No commercial paper was outstanding at both October 25, 2019 and April 26, 2019. 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 program described above. At October 25, 2019 and April 26, 2019, 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 agreement also contains customary covenants, all of which the Company was in compliance with at October 25, 2019.
15

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
October 25, 2019April 26, 2019
Current debt obligations2020$875  $838  
Long-term debt
0.000 percent two-year 2019 senior notes
20211,666  1,681  
Floating rate two-year 2019 senior notes
2021833  560  
4.125 percent ten-year 2011 senior notes
2021—  500  
3.150 percent seven-year 2015 senior notes
20221,534  2,500  
3.125 percent ten-year 2012 senior notes
2022—  675  
3.200 percent ten-year 2012 CIFSA senior notes
2023650  650  
0.375 percent four-year 2019 senior notes
20231,666  1,681  
2.750 percent ten-year 2013 senior notes
2023530  530  
0.000 percent four-year 2019 senior notes
2023833  —  
2.950 percent ten-year 2013 CIFSA senior notes
2024310  310  
3.625 percent ten-year 2014 senior notes
2024432  850  
3.500 percent ten-year 2015 senior notes
20252,700  4,000  
0.250 percent seven-year 2019 senior notes
20261,111  —  
1.125 percent eight-year 2019 senior notes
20271,666  1,681  
3.350 percent ten-year 2017 senior notes
2027368  850  
1.625 percent twelve-year 2019 senior notes
20311,111  1,121  
1.000 percent thirteen-year 2019 senior notes
20321,111  —  
4.375 percent twenty-year 2015 senior notes
20351,932  2,382  
6.550 percent thirty-year 2007 CIFSA senior notes
2038253  284  
2.250 percent twenty-year 2019 senior notes
20391,111  1,121  
6.500 percent thirty-year 2009 senior notes
2039158  183  
5.550 percent thirty-year 2010 senior notes
2040224  306  
1.500 percent twenty-year 2019 senior notes
20401,111  —  
4.500 percent thirty-year 2012 senior notes
2042105  129  
4.000 percent thirty-year 2013 senior notes
2043305  325  
4.625 percent thirty-year 2014 senior notes
2044127  177  
4.625 percent thirty-year 2015 senior notes
20451,813  1,963  
1.750 percent thirty-year 2019 senior notes
20501,111  —  
Bank borrowings2021 - 202280  83  
Debt (discount) premium, net2020 - 2050(15) 29  
Finance lease obligations2021 - 203327  10  
Interest rate swapsN/A—   
Deferred financing costs2020 - 2050(111) (104) 
Long-term debt$24,752  $24,486  
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 indentures under which the Senior Notes were issued contain customary covenants, all of which the Company remained in compliance with at October 25, 2019. 
16

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

In June 2019, Medtronic Luxco issued six tranches of Euro-denominated Senior Notes with an aggregate principal of €5.0 billion, with maturities ranging from fiscal year 2021 to fiscal year 2050, resulting in cash proceeds of approximately $5.6 billion, net of discounts and issuance costs. The issuance included €250 million of floating rate Senior Notes due in fiscal year 2021, €750 million of 0.000 percent Senior Notes due in fiscal year 2023, €1.0 billion of 0.250 percent Senior Notes due in fiscal year 2026, €1.0 billion of 1.000 percent Senior Notes due in fiscal year 2032, €1.0 billion of 1.500 percent Senior Notes due in fiscal year 2040, and €1.0 billion of 1.750 percent Senior Notes due in fiscal year 2050. The Company used the net proceeds of the offering to fund the cash tender offer and early redemption, described below. The Euro-denominated debt 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.
The Company completed the cash tender offer of $4.6 billion of Medtronic Inc., CIFSA, and Medtronic Luxco Senior Notes for $5.0 billion of total consideration in July 2019. The Company recognized a loss on debt extinguishment of $413 million during the first quarter of fiscal year 2020, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss on debt extinguishment also included a $16 million charge for the estimated early redemption premium for $533 million of senior notes which were redeemed in August 2019. The loss on debt extinguishment was recognized in interest expense in the consolidated statements of income.
Financial Instruments Not Measured at Fair Value
At October 25, 2019, the estimated fair value of the Company’s Senior Notes was $27.3 billion compared to a principal value of $25.3 billion. At April 26, 2019, the estimated fair value was $26.2 billion compared to a principal value of $25.0 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. The primary currencies of the derivative instruments are the Euro, Japanese Yen, and British Pound. 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 $10.9 billion and $11.1 billion at October 25, 2019 and April 26, 2019, 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 currency exchange rate contracts outstanding at October 25, 2019 and April 26, 2019 was $4.3 billion. The Company's freestanding currency exchange rate contracts are not designated as hedges, and therefore, changes in the value of these contracts are recognized in earnings, thereby offsetting the current earnings effect of the related change in value of foreign-currency-denominated assets, liabilities, and cash flows.
The Company also uses total return swaps to hedge the liability of a non-qualified, deferred compensation plan. The gross notional amount of the Company's total return swaps outstanding at October 25, 2019 and April 26, 2019 was $191 million. The Company's total return swaps are not designated as hedges, and therefore, changes in the value of these instruments are recognized in earnings. The cash flows related to the Company's freestanding derivative contracts are reported as operating activities in the consolidated statements of cash flows.
17

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

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 and six months ended October 25, 2019 and October 26, 2018 were as follows:
 Three months endedSix months ended
(in millions)ClassificationOctober 25, 2019October 26, 2018October 25, 2019October 26, 2018
Currency exchange rate contractsOther operating expense, net$12  $71  $ $201  
Total return swapsOther operating expense, net(1) (11)  —  
Total$11  $60  $10  $201  
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 October 25, 2019 and April 26, 2019 was $6.5 billion and $6.8 billion, respectively, and will mature within the subsequent two-year period. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss. The gain or loss on the derivative instrument is reclassified into earnings and is included in other operating expense, net 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 and six months ended October 25, 2019 and October 26, 2018.
The amount of the gains (losses) recognized in AOCI related to the currency exchange rate contract derivative instruments designated as cash flow hedges for the three and six months ended October 25, 2019 and October 26, 2018 were as follows:
Three months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Currency exchange rate contracts$76  $174  $103  $444  
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 and six months ended October 25, 2019 and October 26, 2018 were as follows:
Three months endedSix months ended
October 25, 2019October 26, 2018October 25, 2019October 26, 2018
(in millions)Other operating expense, netOther operating expense, netOther operating expense, netOther operating expense, 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$149  $70  $127  $221  
Currency exchange rate contracts designated as cash flow hedges:
Amount of gain (loss) reclassified from AOCI into income68  11  125   
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 and six months ended October 25, 2019 and October 26, 2018, the reclassifications of net gains (losses) on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense were not significant.
18

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

At October 25, 2019 and April 26, 2019 the Company had $192 million and $194 million, respectively, in after-tax net unrealized gains associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that $165 million of after-tax net unrealized gains at October 25, 2019 will be recognized in the consolidated statements of income over the next 12 months.
Fair Value Hedges
Interest rate derivative instruments designated as fair value hedges are designed to manage the exposure to interest rate movements and to reduce borrowing costs by converting fixed-rate debt into floating-rate debt. Under these agreements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
Changes in the fair value of the derivative instrument are recognized in interest expense and are offset by changes in the fair value of the underlying debt instrument. The gains (losses) from terminated interest rate swap agreements are recognized in long-term debt, increasing (decreasing) the outstanding balances of the debt, and amortized as a reduction of (addition to) interest expense over the remaining life of the related debt. The cash flows related to the Company's interest rate derivative instruments designated as fair value hedges are reported as operating activities in the consolidated statements of cash flows.
At October 25, 2019 the Company had no interest rate swaps outstanding designated as fair value hedges, as the Company terminated previously held swaps in connection with the tender and early redemption of the underlying senior notes during the first quarter of fiscal year 2020. At April 26, 2019, the Company had interest rate swaps in gross notional amounts of $1.2 billion, designated as fair value hedges of underlying fixed-rate senior note obligations, including the Company's $500 million 4.125 percent 2011 Senior Notes due fiscal year 2021 and the $675 million 3.125 percent 2012 Senior Notes due fiscal year 2022.
The gain recognized upon termination of interest rate swaps was not significant for the three and six months ended October 25, 2019. At April 26, 2019, the market value of outstanding interest rate swap agreements was an unrealized gain of $9 million which was recorded in other assets, with the offset recorded in long-term debt on the consolidated balance sheets. The Company did not recognize any gains or losses during the three or six months ended October 25, 2019 and October 26, 2018 on firm commitments that no longer qualify as fair value hedges.
The following amounts were recorded on the consolidated balance sheet related to the cumulative basis adjustments for fair value hedges:
(in millions)Carrying Amount of Hedged Assets/(Liabilities)Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
Location on the Consolidated Balance SheetOctober 25, 2019April 26, 2019October 25, 2019April 26, 2019
Long-term debt$—  $(1,175) $—  $ 
Net Investment Hedges
The Company has designated Euro-denominated debt as a net investment hedge of certain of its European operations to manage the exposure to currency and exchange rate movements for foreign currency-denominated net investments in foreign operations. At October 25, 2019, the Company had €12.0 billion, or $13.3 billion, of outstanding Euro-denominated debt designated as a hedge of its net investment in certain of its European operations, which will mature in fiscal years 2021 through 2050.
Additionally, during the first quarter of fiscal year 2020, the Company entered into and settled forward currency exchange rate contracts to manage the exposure to exchange rate movements in anticipation of the issuance of Euro-denominated senior notes. Certain of these forward currency exchange rate contracts were designated as a net investment hedge of certain of the Company's European operations. These contracts matured in conjunction with the issuance of Euro-denominated debt in the first quarter of fiscal year 2020.
For instruments that are designated and qualify as net investment hedges, the gains or losses are reported as a component of accumulated other comprehensive loss. The gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary. Amounts excluded from the assessment of effectiveness are recognized in other operating expense, net. The cash flows related to the Company's derivative instruments designated as net investment hedges are reported as investing activities in the consolidated statements of cash flows.
19

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

At October 25, 2019 and April 26, 2019 the Company had $17 million and $169 million, respectively, in after-tax unrealized losses associated with net investment hedges recorded in accumulated other comprehensive loss. The Company does not expect any of the after-tax unrealized losses at October 25, 2019 to be recognized in the consolidated statements of income over the next 12 months.
The Company did not recognize any gains or losses during the three or six months ended October 25, 2019 or October 26, 2018 on instruments that no longer qualify as net investment hedges.
The amount and classifications of the gains recognized in the consolidated statements of income for the portion of the net investment hedges excluded from the measurement of hedge effectiveness were as follows:
Three months endedSix months ended
(in millions)ClassificationOctober 25, 2019October 26, 2018October 25, 2019October 26, 2018
Net investment hedgesOther operating expense, net$—  $—  $(7) $—  
The amount of the gains recognized in AOCI related to instruments designated as net investment hedges for the three and six months ended October 25, 2019 and October 26, 2018 were as follows:
Three months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Net investment hedges$53  $—  $152  $—  
Balance Sheet Presentation
The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at October 25, 2019 and April 26, 2019. 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.
October 25, 2019
 Derivative AssetsDerivative Liabilities
(in millions)Balance Sheet ClassificationFair ValueBalance Sheet ClassificationFair Value
Derivatives designated as hedging instruments    
Currency exchange rate contractsOther current assets$204  Other accrued expenses$ 
Currency exchange rate contractsOther assets86  Other liabilities 
Total derivatives designated as hedging instruments 290    
Derivatives not designated as hedging instruments    
Currency exchange rate contractsOther current assets21  Other accrued expenses24  
Total return swapOther current assets Other accrued expenses—  
Cross currency interest rate contractsOther current assets Other accrued expenses—  
Total derivatives not designated as hedging instruments29   24  
Total derivatives $319   $31  

20

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

April 26, 2019
 Derivative AssetsDerivative Liabilities
(in millions)Balance Sheet ClassificationFair ValueBalance Sheet ClassificationFair Value
Derivatives designated as hedging instruments    
Currency exchange rate contractsOther current assets$234  Other accrued expenses$ 
Interest rate contractsOther assets Other liabilities—  
Currency exchange rate contractsOther assets78  Other liabilities 
Total derivatives designated as hedging instruments 321    
Derivatives not designated as hedging instruments    
Currency exchange rate contractsOther current assets23  Other accrued expenses17  
Total return swapsOther current assets15  Other accrued expenses—  
Cross currency interest rate contractsOther current assets Other accrued expenses—  
Total derivatives not designated as hedging instruments 44   17  
Total derivatives $365   $19  
The following table provides information by level for the derivative assets and liabilities that are measured at fair value on a recurring basis.
October 25, 2019April 26, 2019
(in millions)Level 1Level 2Level 1Level 2
Derivative assets$311  $ $335  $30  
Derivative liabilities31  —  19  —  
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.
October 25, 2019
Gross Amount Not Offset on the Balance Sheet
(in millions)Gross Amount of Recorded Assets (Liabilities)Financial InstrumentsCash Collateral Posted (Received)Net Amount
Derivative assets:
Currency exchange rate contracts$311  $(29) $(10) $272  
Total return swaps —  —   
Cross currency interest rate contracts —  —   
319  (29) (10) 280  
Derivative liabilities:
Currency exchange rate contracts(31) 29  —  (2) 
Total return swaps—  —  —  —  
Total$288  $—  $(10) $278  

21

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

April 26, 2019
Gross Amount Not Offset on the Balance Sheet
(in millions)Gross Amount of Recorded Assets (Liabilities)Financial InstrumentsCash Collateral Posted (Received)Net Amount
Derivative assets:
Currency exchange rate contracts$335  $(9) $(43) $283  
Interest rate contracts —  (1)  
Total return swaps15  —  —  15  
Cross currency interest rate contracts —  —   
365  (9) (44) 312  
Derivative liabilities:
Currency exchange rate contracts(19)  —  (10) 
(19)  —  (10) 
Total$346  $—  $(44) $302  

9. Inventories
Inventory balances, net of reserves, were as follows:
(in millions)October 25, 2019April 26, 2019
Finished goods$2,686  $2,476  
Work in-process594  572  
Raw materials762  705  
Total$4,042  $3,753  

10. Goodwill and Other Intangible Assets
Goodwill
The following table presents the changes in the carrying amount of goodwill by segment:
(in millions)Cardiac and Vascular GroupMinimally Invasive Therapies GroupRestorative Therapies GroupDiabetes GroupTotal
April 26, 2019$6,854  $20,381  $10,821  $1,903  $39,959  
Goodwill as a result of acquisitions—  11  65  16  92  
Purchase accounting adjustments  (5) —   
Currency translation and other(1) (62) (42) —  (105) 
October 25, 2019$6,862  $20,332  $10,839  $1,919  $39,952  
The Company assesses goodwill for impairment annually in the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Impairment testing for goodwill is performed at the reporting unit level. The test for impairment of goodwill requires the Company to make several estimates about fair value, most of which are based on projected future cash flows. The Company calculates the excess of each reporting unit's fair value over its carrying amount, including goodwill, utilizing a discounted cash flow analysis. The Company did not recognize any goodwill impairment during the three and six months ended October 25, 2019 or October 26, 2018.
22

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

Intangible Assets
The following table presents the gross carrying amount and accumulated amortization of intangible assets:
October 25, 2019April 26, 2019
(in millions)Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Definite-lived:
Customer-related$16,967  $(4,581) $16,944  $(4,095) 
Purchased technology and patents10,528  (3,990) 11,405  (4,570) 
Trademarks and tradenames464  (224) 570  (324) 
Other83  (53) 85  (59) 
Total$28,042  $(8,848) $29,004  $(9,048) 
Indefinite-lived:
IPR&D$581  $—  $604  $—  
The Company assesses definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that 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. The inputs used in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. The Company recognized $33 million of definite-lived intangible asset charges during the three and six months ended October 25, 2019 in connection with the exit of businesses within the Restorative Therapies Group segment. During the six months ended October 26, 2018, the Company recognized $61 million of definite-lived intangible asset charges in connection with the exit of a business within the Cardiac and Vascular Group segment. The Company did not recognize any definite-lived intangibles asset charges during the three months ended October 26, 2018. Intangible asset impairment charges are recognized in other operating expense, net in the consolidated statements of income.
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 and six months ended October 25, 2019 or October 26, 2018. 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 a certain projects, and as a result, may recognize impairment losses in the future.
Amortization Expense
Intangible asset amortization expense for the three and six months ended October 25, 2019 was $441 million and $881 million, respectively, as compared to $445 million and $891 million for the three and six months ended October 26, 2018, respectively. Estimated aggregate amortization expense by fiscal year based on the carrying value of definite-lived intangible assets at October 25, 2019, excluding any possible future amortization associated with acquired IPR&D which has not yet met technological feasibility, is as follows:
(in millions)Amortization Expense
Remaining 2020$868  
20211,725  
20221,684  
20231,621  
20241,592  
20251,565  

23

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

11. Income Taxes
The Company's effective tax rate for the three and six months ended October 25, 2019 was (6.0) percent and 1.0 percent, respectively, as compared to 17.3 percent and 13.3 percent for the three and six months ended October 26, 2018, respectively. The decrease in the effective tax rate for the three and six months ended October 25, 2019, as compared to the corresponding periods in the prior fiscal year, was primarily due to the impact of certain tax adjustments.
Certain Tax Adjustments
During the three months ended October 25, 2019, the net benefit from certain tax adjustments of $251 million, recognized in income tax provision in the consolidated statements of income, included the following:
A benefit of $251 million related to tax legislative changes in Switzerland which abolished certain preferential tax regimes the Company benefited from and replaced them with a new set of internationally accepted measures. The legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.
During the six months ended October 25, 2019, the net benefit from certain tax adjustments of $281 million, recognized in income tax provision in the consolidated statements of income, included the following:
A net benefit of $30 million related to U.S. Treasury’s issuance of certain Final Regulations associated with U.S. Tax Reform. The primary impact of these regulations resulted in the Company re-establishing its permanently reinvested assertion on certain foreign earnings and reversing the previously accrued tax liability. This benefit was partially offset by additional tax associated with a previously executed internal reorganization of certain foreign subsidiaries.
A benefit of $251 million related to tax legislative changes in Switzerland which abolished certain preferential tax regimes the Company benefited from and replaced them with a new set of internationally accepted measures. The legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.
During the three months ended October 26, 2018, the charge from certain tax adjustments of $58 million, recognized in income tax provision in the consolidated statements of income, included the following:
A charge of $37 million associated with the transition tax liability recorded in connection with U.S. Tax Reform.
A charge of $21 million related to the recognition of a prepaid tax expense resulting from the reduction in the U.S. statutory tax rate due to U.S. Tax Reform and the sale of U.S. manufactured inventory held as of April 27, 2018.
During the six months ended October 26, 2018, the net charge from certain tax adjustments of $29 million, recognized in income tax provision in the consolidated statements of income, included the following:
A benefit of $13 million associated with the transition tax liability recorded in connection with U.S. Tax Reform.
A charge of $42 million related to the recognition of a prepaid tax expense resulting from the reduction in the U.S. statutory tax rate due to U.S. Tax Reform and the sale of U.S. manufactured inventory held as of April 27, 2018.
At October 25, 2019 and April 26, 2019, the Company's gross unrecognized tax benefits were $1.8 billion. In addition, the Company had accrued gross interest and penalties of $196 million at October 25, 2019. If all of the Company’s unrecognized tax benefits were recognized, approximately $1.8 billion would impact the Company’s effective tax rate. At both October 25, 2019 and April 26, 2019, the total balance of the Company's gross unrecognized tax benefits was recorded as a noncurrent liability within accrued income taxes on the consolidated balance sheets. The Company recognizes interest and penalties related to income tax matters within income tax provision in the consolidated statements of income and records the liability within either current or noncurrent accrued income taxes on the consolidated balance sheets.
Refer to Note 17 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 ordinary earnings per share; therefore, it is not presented below. Basic earnings per share is computed based on the weighted average number of
24

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

ordinary shares outstanding. Diluted earnings per share is computed based on the weighted average 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 endedSix months ended
(in millions, except per share data)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Numerator:    
Net income attributable to ordinary shareholders$1,364  $1,115  $2,228  $2,190  
Denominator:    
Basic – weighted average shares outstanding1,340.8  1,349.2  1,340.8  1,350.9  
Effect of dilutive securities:    
Employee stock options8.0  8.5  7.4  8.4  
Employee restricted stock units2.6  3.1  3.1  3.3  
Other—  0.1  0.3  0.4  
Diluted – weighted average shares outstanding1,351.4  1,360.9  1,351.6  1,363.0  
    
Basic earnings per share$1.02  $0.83  $1.66  $1.62  
Diluted earnings per share$1.01  $0.82  $1.65  $1.61  
The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 4 million ordinary shares for both the three and six months ended October 25, 2019, and 7 million and 6 million ordinary shares for the three and six months ended October 26, 2018, respectively, because their effect would have been anti-dilutive on the Company’s earnings per share.
13. Stock-Based Compensation
The following table presents the components and classification of stock-based compensation expense for stock options, restricted stock, and employee stock purchase plan shares recognized for the three and six months ended October 25, 2019 and October 26, 2018:
 Three months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Stock options$31  $33  $40  $51  
Restricted stock71  65  113  101  
Employee stock purchase plan  16  16  
Total stock-based compensation expense$108  $104  $169  $168  
Cost of products sold$10  $12  $16  $18  
Research and development expense13  13  20  21  
Selling, general, and administrative expense85  79  133  129  
Total stock-based compensation expense108  104  169  168  
Income tax benefits(19) (21) (29) (32) 
Total stock-based compensation expense, net of tax$89  $83  $140  $136  

25

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

14. Retirement Benefit Plans
The Company sponsors various retirement benefit plans, including defined benefit pension plans, post-retirement medical plans, defined contribution savings plans, and termination indemnity plans, covering substantially all U.S. employees and many employees outside the U.S. The net periodic benefit cost of the defined benefit pension plans included the following components for the three months and six months ended October 25, 2019 and October 26, 2018:
 U.S.Non-U.S.
 Three months endedThree months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Service cost$26  $27  $15  $15  
Interest cost32  33    
Expected return on plan assets(56) (54) (15) (14) 
Amortization of net actuarial loss14  19    
Net periodic benefit cost$16  $25  $11  $11  
U.S.Non-U.S.
Six months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Service cost$52  $54  $30  $30  
Interest cost64  66  14  14  
Expected return on plan assets(112) (108) (30) (28) 
Amortization of net actuarial loss28  38    
Net periodic benefit cost$32  $50  $21  $22  
Components of net periodic benefit cost other than the service component are recognized in other non-operating income, net in the consolidated statements of income.
15. Leases
The Company leases office, manufacturing, and research facilities and warehouses, as well as transportation, data processing, and other equipment. The Company determines whether a contract is a lease or contains a lease at inception date. Upon commencement, the Company recognizes a right-of-use asset and lease liability. Right-of-use assets represent the Company's right to use the underlying asset for the lease term. Lease liabilities are the Company's obligation to make the lease payments arising from a lease. As the Company’s leases typically do not provide an implicit rate, the Company’s lease liabilities are measured on a discounted basis using the Company's incremental borrowing rate. Lease terms used in the recognition of right-of-use assets and lease liabilities include only options to extend the lease that are reasonably certain to be exercised. Additionally, lease terms underlying the right-of-use assets and lease liabilities consider terminations that are reasonably certain to be executed.
The Company's lease agreements include leases that have both lease and associated nonlease components. The Company has elected to account for lease components and the associated nonlease components as a single lease component. The consolidated balance sheets do not include recognized assets or liabilities for leases that, at the commencement date, have a term of twelve months or less and do not include an option to purchase the underlying asset that is reasonably certain to be exercised. The Company recognizes such leases in the consolidated statements of income on a straight-line basis over the lease term. Additionally, the Company recognizes variable lease payments not included in its lease liabilities in the period in which the obligation for those payments is incurred. Variable lease payments for the three and six months ended October 25, 2019 were not material.
The Company's lease agreements include leases accounted for as operating leases and those accounted for as finance leases. The right-of-use assets, lease liabilities, lease costs, cash flows, and lease maturities associated with the Company's finance leases are not material to the consolidated financial statements at or for the three and six months ended October 25, 2019. Finance lease right-of-use assets are included in property, plant, and equipment, net, and finance lease liabilities are included in current debt obligations and long-term debt on the consolidated balance sheets.
26

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

Additionally, from time to time, the Company subleases portions of its real-estate property, resulting in sublease income. Sublease income and the related assets and cash flows were not material to the consolidated financial statements at or for the three and six months ended October 25, 2019.
The following table summarizes the balance sheet classification of the Company's operating leases and amounts of the right-of-use assets and lease liabilities at October 25, 2019:
(in millions)Balance Sheet ClassificationOctober 25, 2019
Right-of-use assetsOther assets$989  
Current liabilityOther accrued expenses176  
Non-current liabilityOther liabilities834  
The following table summarizes the weighted-average remaining lease term and weighted-average discount rate for the Company's operating leases at October 25, 2019:
October 25, 2019
Weighted-average remaining lease term7.7 years
Weighted-average discount rate3.0%  
The following table summarizes the components of total operating lease cost for the three and six months ended October 25, 2019:
Three months endedSix Months Ended
(in millions)October 25, 2019October 25, 2019
Operating lease cost$56  $111  
Short-term lease cost11  22  
Total operating lease cost$67  $133  
The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right-of-use assets obtained in exchange for operating lease liabilities for the six months ended October 25, 2019:
Six months ended
(in millions)October 25, 2019
Cash paid for amounts included in the measurement of operating lease liabilities$110  
Right-of-use assets obtained in exchange for operating lease liabilities105  
The following table summarizes the maturities of the Company's operating leases at October 25, 2019:
(in millions)
Fiscal Year
Operating Leases
Remaining 2020$105  
2021193  
2022161  
2023140  
2024117  
Thereafter  451  
Total expected lease payments  1,167  
Less: Imputed interest  (157) 
Total lease liability  $1,010  
The Company makes certain products available to customers under lease arrangements, including arrangements whereby equipment is placed with customers who then purchase consumable products to accompany the use of the equipment. Income arising from arrangements where the Company is the lessor is recognized within net sales in the consolidated statements of
27

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

income and the Company's net investments in sales-type leases are included in other current assets and other assets in the consolidated balance sheets. Lessor income and the related assets and lease maturities were not material to the consolidated financial statements at or for the three and six months ended October 25, 2019.
As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended April 26, 2019, minimum payments under non-cancelable operating leases at April 26, 2019 were:
(in millions)
Fiscal Year
Operating Leases
2020$216  
2021157  
2022103  
202361  
202434  
Thereafter81  
Total minimum lease payments$652  

16. Accumulated Other Comprehensive Loss
The following table provides changes in AOCI, net of tax, and by component:
(in millions)Unrealized (Loss) Gain on Investment SecuritiesCumulative Translation AdjustmentsNet Investment HedgesNet Change in Retirement ObligationsUnrealized Gain (Loss) on Cash Flow HedgesTotal Accumulated Other Comprehensive (Loss) Income
April 26, 2019$(45) $(1,383) $(169) $(1,308) $194  $(2,711) 
Other comprehensive income (loss) before reclassifications68  (148) 152  (1) 82  153  
Reclassifications —  —  26  (84) (53) 
Other comprehensive income (loss)73  (148) 152  25  (2) 100  
October 25, 2019$28  $(1,531) $(17) $(1,283) $192  $(2,611) 
(in millions)Unrealized (Loss) Gain on Investment SecuritiesCumulative Translation AdjustmentNet Investment HedgesNet Change in Retirement ObligationsUnrealized (Loss) Gain on Cash Flow HedgesTotal Accumulated Other Comprehensive (Loss) Income
April 27, 2018$(194) $(11) $(257) $(1,117) $(207) $(1,786) 
Other comprehensive (loss) income before reclassifications(19) (1,252) —  —  343  (928) 
Reclassifications10  —  —  48  (3) 55  
Other comprehensive (loss) income(9) (1,252) —  48  340  (873) 
Cumulative effect of change in accounting principle(1)
47  —  —  —  —  47  
October 26, 2018$(156) $(1,263) $(257) $(1,069) $133  $(2,612) 
(1) The cumulative effect of change in accounting principle during the first quarter of fiscal year 2019 resulted from the adoption of accounting guidance that requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. As a result of the adoption, the Company reclassified $47 million from accumulated other comprehensive loss to the opening balance of retained earnings as of April 28, 2018.
The income tax on gains and losses on investment securities in other comprehensive income before reclassifications during the six months ended October 25, 2019 and October 26, 2018 was an expense of $1 million and a benefit of $1 million, respectively. During the six months ended October 25, 2019, realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $2 million. There was no income tax on realized gains and losses on investment securities reclassified from AOCI for the six months ended October 26, 2018. When realized, gains and losses on investment
28

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

securities reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 6 to the consolidated financial statements for additional information.
For the six months ended October 25, 2019, there was no income tax on cumulative translation adjustments. For the six months ended October 26, 2018, the income tax benefit on cumulative translation adjustments was $5 million.
During the six months ended October 25, 2019 and October 26, 2018, there were no tax impacts on net investment hedges. Refer to Note 8 to the consolidated financial statements for additional information.
The net change in retirement obligations in other comprehensive income includes amortization of net actuarial losses included in net periodic benefit cost. During the six months ended October 25, 2019 and October 26, 2018, there were no income tax impacts on the net change in retirement obligations in other comprehensive income before reclassifications. During the six months ended October 25, 2019 and October 26, 2018, the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $6 million and $10 million, respectively. When realized, net gains and losses on defined benefit and pension items reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 14 to the consolidated financial statements for additional information.
The income tax on unrealized gains and losses on cash flow hedges in other comprehensive income before reclassifications during the six months ended October 25, 2019 and October 26, 2018 was an expense of $21 million and $100 million, respectively. During the six months ended October 25, 2019 and October 26, 2018, gains and losses on cash flow hedges reclassified from AOCI were reduced by income taxes of $26 million and $3 million, respectively. When realized, gains and losses on currency exchange rate contracts reclassified from AOCI are recognized within other operating expense, net, and gains and losses on forward starting interest rate derivatives reclassified from AOCI are recognized within interest expense. Refer to Note 8 to the consolidated financial statements for additional information.
17. Commitments and Contingencies
Legal Matters
The Company and its affiliates are involved in a number of legal actions involving product liability, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, income tax disputes, and governmental proceedings and investigations, including those described below. With respect to governmental proceedings and investigations, like other companies in our industry, the Company is subject to extensive regulation by national, state and local governmental agencies in the United States and in other jurisdictions in which the Company and its affiliates operate. As a result, interaction with governmental agencies is ongoing. The Company’s standard practice is to cooperate with regulators and investigators in responding to inquiries. The outcomes of legal actions are not within the Company’s complete control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies (including injunctions barring the sale of products that are the subject of the proceeding), that could require significant expenditures, result in lost revenues, or limit the Company's ability to conduct business in the applicable jurisdictions.
The Company records a liability in the consolidated financial statements on an undiscounted basis for loss contingencies related to legal actions when a loss is known or considered probable and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. When determining the estimated loss or range of loss, significant judgment is required. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery, involve unsubstantiated or indeterminate claims for damages, potentially involve penalties, fines or punitive damages, or could result in a change in business practice. The Company classifies litigation charges and gains related to significant legal matters as certain litigation charges. During the three and six months ended October 25, 2019, the Company recognized $121 million and $168 million, respectively, of certain litigation charges related to probable and estimable damages for significant legal matters. During the six months ended October 26, 2018, the Company recognized $103 million of certain litigation charges. There were 0 certain litigation charges recognized during the three months ended October 26, 2018. At October 25, 2019 and April 26, 2019, accrued litigation was approximately $0.6 billion and $0.5 billion, respectively. The ultimate cost to the Company with respect to accrued litigation could be materially different than the amount of the current estimates and accruals and could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows. The Company includes accrued litigation in other accrued expenses and other liabilities on the consolidated balance sheets. While it is not possible to predict the outcome for most of the legal matters discussed below, the Company believes it is possible that the costs associated
29

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.
Product Liability Matters
Pelvic Mesh Litigation
The Company is currently involved in litigation in various state and federal courts against manufacturers of pelvic mesh products alleging personal injuries resulting from the implantation of those products. Two subsidiaries of Covidien supplied pelvic mesh products to one of the manufacturers, C.R. Bard (Bard), named in the litigation. The litigation includes a federal multi-district litigation in the U.S. District Court for the Northern District of West Virginia and cases in various state courts and jurisdictions outside the U.S. Generally, complaints allege design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. In fiscal year 2016, Bard paid the Company $121 million towards the settlement of 11,000 of these claims. In May 2017, the agreement with Bard was amended to extend the terms to apply to up to an additional 5,000 claims. That agreement does not resolve the dispute between the Company and Bard with respect to claims that do not settle, if any. As part of the agreement, the Company and Bard agreed to dismiss without prejudice their pending litigation with respect to Bard’s obligation to defend and indemnify the Company. The Company estimates law firms representing approximately 15,800 claimants have asserted or may assert claims involving products manufactured by Covidien’s subsidiaries. As of November 6, 2019, the Company had reached agreements to settle approximately 15,400 of these claims. The Company's accrued expenses for this matter are included within accrued litigation as discussed above.
Patent Litigation
Ethicon
On December 14, 2011, Ethicon filed an action against Covidien in the U.S. District Court for the Southern District of Ohio, alleging patent infringement and seeking monetary damages and injunctive relief. On January 22, 2014, the district court entered summary judgment in Covidien's favor, and the majority of this ruling was affirmed by the Federal Circuit on August 7, 2015. Following appeal, the case was remanded back to the District Court with respect to one patent. On January 21, 2016, Covidien filed a second action in the U.S. District Court for the Southern District of Ohio, seeking a declaration of non-infringement with respect to a second set of patents held by Ethicon. The court consolidated this second action with the remaining patent issues from the first action. Following consolidation of the cases, Ethicon dismissed six of the asserted patents, leaving a single asserted patent. In addition to claims of non-infringement, the Company asserts an affirmative defense of invalidity. The Company has not recognized an expense related to damages in connection with this matter, because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from this matter.
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. The Company has strong arguments to appeal the verdict and has filed post-trial motions and appeals with the appropriate appellate courts. The Company's accrued expenses for this matter are included within accrued litigation as discussed above.
Shareholder Related Matters
Covidien Acquisition
On July 2, 2014, Lewis Merenstein filed a putative shareholder class action in Hennepin County, Minnesota, District Court seeking to enjoin the then-potential acquisition of Covidien. The lawsuit named Medtronic, Inc., Covidien, and each member of the Medtronic, Inc. Board of Directors at the time as defendants, and alleged that the directors breached their fiduciary duties to shareholders with regard to the then-potential acquisition. On August 21, 2014, Kenneth Steiner filed a putative shareholder class action in Hennepin County, Minnesota, District Court, also seeking an injunction to prevent the potential Covidien acquisition. In September 2014, the Merenstein and Steiner matters were consolidated and in December 2014, the plaintiffs filed a preliminary injunction motion seeking to enjoin the Covidien transaction. On March 20, 2015, the District Court issued an order and opinion granting Medtronic’s motion to dismiss the case. In May of 2015, the plaintiffs filed an appeal, and, in January of 2016, the Minnesota State Court of Appeals affirmed in part, and reversed in part. On April 19, 2016 the Minnesota Supreme Court granted the Company’s petition to review the issue of whether most of the original claims are properly characterized as direct or derivative under Minnesota law. In August of 2017, the Minnesota Supreme Court affirmed the
30

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

decision of the Minnesota State Court of Appeals, sending the matter back to the trial court for further proceedings, which are ongoing. The Company has not recognized an expense related to damages in connection with this matter, because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from these matters.
Environmental Proceedings
The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. These projects relate to a variety of activities, including removal of solvents, metals and other hazardous substances from soil and groundwater. The ultimate cost of site cleanup and timing of future cash flows is difficult to predict given uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods.
The Company is a successor to a company which owned and operated a chemical manufacturing facility in Orrington, Maine from 1967 until 1982, and is responsible for the costs of completing an environmental site investigation as required by the Maine Department of Environmental Protection (MDEP). MDEP served a compliance order on Mallinckrodt LLC and U.S. Surgical Corporation, subsidiaries of Covidien, in December 2008, which included a directive to remove a significant volume of soils at the site. After a hearing on the compliance order before the Maine Board of Environmental Protection (Maine Board) to challenge the terms of the compliance order, the Maine Board modified the MDEP order and issued a final order requiring removal of two landfills, capping of the remaining three landfills, installation of a groundwater extraction system and long-term monitoring of the site and the three remaining landfills.
The Company has proceeded with implementation of the investigation and remediation at the site in accordance with the MDEP order as modified by the Maine Board order.
Since the early 2000s, the Company or its predecessors have also been involved in a lawsuit filed in the U.S. District Court for the District of Maine by the Natural Resources Defense Council and the Maine People’s Alliance. Plaintiffs sought an injunction requiring the Company's predecessor to conduct extensive studies of mercury contamination of the Penobscot River and Bay and options for remediating such contamination, and to perform appropriate remedial activities, if necessary.
Following a trial in March 2002, the Court held that conditions in the Penobscot River and Bay may pose an imminent and substantial endangerment and that the Company’s predecessor was liable for the cost of performing a study of the River and Bay. Following a second trial in June 2014, the Court ordered that further engineering study and engineering design work was needed to determine the nature and extent of remediation in the Penobscot River and Bay. The Court also appointed an engineering firm to conduct such studies and issue a report on potential remediation alternatives. In connection with these proceedings, reports have been produced including a variety of cost estimates for a variety of potential remedial options. A third trial to determine the course of remediation to be pursued is scheduled to occur in fiscal year 2021.
The Company's accrued expenses for environmental proceedings are included within accrued litigation as discussed above.
Government Matters
Since 2017, the Company has been responding to requests from the Department of Justice and U.S. Department of Health and Human Services for information about business practices relating to a neurovascular product developed and first marketed by ev3 and Covidien. The Company has provided information in response to these requests and is cooperating with the inquiry. The Company has not recognized an expense in connection with any ongoing investigation, because any such potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from the ongoing information requests.
Income Taxes
In March 2009, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2005 and 2006. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2005 and 2006 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of the Company's key manufacturing sites. The U.S. Tax Court reviewed this dispute, and on June 9, 2016, issued its opinion with respect to the allocation of income between the parties for fiscal years 2005 and 2006. The U.S. Tax Court generally rejected the IRS’s position, but also made certain modifications to the Medtronic, Inc. tax returns as filed. On April 21, 2017, the IRS filed their Notice of Appeal to the U.S. Court of Appeals for the 8th Circuit regarding the Tax Court Opinion. Oral argument for the Appeal occurred on March 14, 2018. The 8th Circuit Court of Appeals issued their opinion on August 16, 2018, and remanded the case back to the U.S. Tax Court for additional factual findings. U.S. Tax Court trial is scheduled to occur in April of 2020.
31

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

In October 2011, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2007 and 2008. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2007 and 2008 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006.
In April 2014, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2009, 2010, and 2011. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2009, 2010, and 2011 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006.
In May 2017, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2012, 2013, and 2014. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The significant issues that remain unresolved relate to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, and proposed adjustments associated with the utilization of certain net operating losses. The Company disagrees with the IRS and will attempt to resolve these matters at the IRS Appellate level.
Medtronic, Inc.’s fiscal years 2015 and 2016 U.S. federal income tax returns are currently being audited by the IRS.
Covidien and the IRS have concluded and reached agreement on its audit of Covidien’s U.S. federal income tax returns for all tax years through 2012. The statute of limitations for Covidien’s 2013 and 2014 U.S. federal income tax returns lapsed during the first quarter of fiscal years 2018 and 2019, respectively. Covidien's fiscal year 2015 U.S. federal income tax returns are currently being audited by the IRS.
While it is not possible to predict the outcome for most of the income tax matters discussed above, the Company believes it is possible that charges associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.
Refer to Note 11 for additional discussion of income taxes.
Guarantees
As a result of the acquisition of Covidien, the Company has a guarantee commitment related to certain contingent tax liabilities as a party to the Tax Sharing Agreement that was entered into on June 29, 2007, between Covidien, Tyco International (now Johnson Controls), and Tyco Electronics (now TE Connectivity), associated with the spin-off from Tyco. The Tax Sharing Agreement covers certain income tax liabilities for periods prior to and including the spin-off. Medtronic’s share of the income tax liabilities for these periods is 42 percent, with Johnson Controls and TE Connectivity share being 27 percent, and 31 percent, respectively. If Johnson Controls and TE Connectivity default on their obligations to the Company under the Tax Sharing Agreement, the Company would be liable for the entire amount of these liabilities. All costs and expenses associated with the management of these tax liabilities are being shared equally among the parties. The most significant amounts at risk under this Tax Sharing Agreement were resolved with the U.S. Tax Court and IRS Appeals resolutions reached in May 2016. However, the Tax Sharing Agreement remains in place with respect to income tax liabilities that are not the subject of such resolution, including certain state and international tax matters that remain open.
The Company has used available information to develop its best estimates for certain assets and liabilities related to periods prior to the 2007 separation, including amounts subject to or impacted by the provisions of the Tax Sharing Agreement. The actual amounts that the Company may be required to ultimately accrue or pay under the Tax Sharing Agreement, however, could vary depending upon the outcome of the unresolved tax matters. Final determination of the balances will be made in subsequent periods, primarily related to tax years that remain open for examination. These balances will also be impacted by the filing of final or amended income tax returns in certain jurisdictions where those returns include a combination of Tyco International, Covidien and/or Tyco Electronics legal entities for periods prior to the 2007 separation.
Refer to Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 26, 2019 for additional information.
As part of the Company’s sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses to Cardinal on July 29, 2017, the Company has indemnified Cardinal for certain contingent tax liabilities related to the divested businesses that existed prior to the date of divestiture. The actual amounts that the Company may be required to ultimately accrue or pay could vary depending upon the outcome of the unresolved tax matters.
32

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

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, or cash flows.
18. 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 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 financial information that is regularly reviewed by the Company's chief operating decision maker to assess performance and allocate resources changed during the first quarter of fiscal year 2020 to remove the impact of non-service pension and post-retirement benefit costs from segment results. This change did not have a material impact on the segment results reviewed. As a result of the change, the Company has revised the disclosure for the prior period to align with the current presentation.
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 26, 2019. 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.
The following tables present reconciliations of financial information from the segments to the applicable line items in the Company's consolidated financial statements:
Net Sales
 
Three months ended (1)
Six months ended (1)
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Cardiac and Vascular Group$2,855  $2,858  $5,645  $5,669  
Minimally Invasive Therapies Group2,142  2,047  4,242  4,099  
Restorative Therapies Group2,112  1,993  4,124  3,942  
Diabetes Group596  583  1,188  1,155  
Total$7,706  $7,481  $15,199  $14,865  
(1) The data in this schedule has been intentionally rounded to the nearest million and, therefore, may not sum.
33

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

Segment Operating Profit
 Three months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Cardiac and Vascular Group$1,128  $1,137  $2,183  $2,186  
Minimally Invasive Therapies Group823  792  1,593  1,568  
Restorative Therapies Group840  804  1,633  1,570  
Diabetes Group148  176  297  348  
Segment operating profit2,939  2,909  5,706  5,672  
Interest expense(165) (241) (774) (483) 
Other non-operating income, net108  52  209  238  
Amortization of intangible assets(441) (445) (881) (891) 
Corporate(350) (342) (657) (645) 
Centralized distribution costs(424) (482) (768) (928) 
Restructuring and associated costs(94) (77) (218) (190) 
Acquisition-related items(27) (4) (46) (40) 
Certain litigation charges(121) —  (168) (103) 
IPR&D charges—  (15) —  (15) 
Exit of businesses(41) —  (41) (80) 
Debt tender premium and other charges—  —   —  
Medical device regulations(10) —  (18) —  
Contribution to Medtronic Foundation(80) —  (80) —  
Income before income taxes$1,294  $1,355  $2,271  $2,535  
Geographic Information
Net sales are attributed to the country based on the location of the customer taking possession of the products or in which the services are rendered. The following table presents net sales for the three and six months ended October 25, 2019 and October 26, 2018 for the Company's country of domicile, countries with significant concentrations, and all other countries: 
 Three months ended Six months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Ireland$23  $22  $43  $44  
United States 4,129  4,045  8,046  7,909  
Rest of world3,554  3,414  7,110  6,912  
Total other countries, excluding Ireland7,683  7,459  15,156  14,821  
Total$7,706  $7,481  $15,199  $14,865  

34

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

19. 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. Additionally, Medtronic plc and Medtronic, Inc. each have provided a full and unconditional guarantee of the obligations of Medtronic Luxco under the 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 presents the Company’s consolidating statements of comprehensive income for the three and six months ended October 25, 2019 and October 26, 2018, condensed consolidating balance sheets at October 25, 2019 and April 26, 2019, and condensed consolidating statements of cash flows for the six months ended October 25, 2019 and October 26, 2018. The guarantees provided by the parent company guarantor and subsidiary guarantors are joint and several. Condensed consolidating financial information for Medtronic plc, Medtronic Luxco, Medtronic, Inc., CIFSA, and CIFSA Subsidiary Guarantors, on a stand-alone basis, is presented using the equity method of accounting for subsidiaries. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.
During the six months ended October 25, 2019, the Company undertook certain steps to reorganize ownership of various subsidiaries. The transactions were entirely among subsidiaries under the common control of Medtronic. This reorganization has been reflected as of the beginning of the earliest period presented.
35

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

Consolidating Statement of Comprehensive Income
Three Months Ended October 25, 2019
Medtronic Senior Notes and Medtronic Luxco Senior Notes
(in millions)Medtronic plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Net sales$—  $385  $—  $7,706  $(385) $7,706  
Costs and expenses:
Cost of products sold—  350  —  2,354  (310) 2,394  
Research and development expense—  178  —  425  —  603  
Selling, general, and administrative expense 431  —  2,185  —  2,620  
Amortization of intangible assets—   —  438  —  441  
Restructuring charges, net—   —  20  —  27  
Certain litigation charges—  —  —  121  —  121  
Other operating expense (income), net13  (629) —  852  (87) 149  
Operating profit (loss)(17) 45  —  1,311  12  1,351  
Other non-operating (income) expense, net—  (73) (241) (425) 631  (108) 
Interest expense139  345  119  193  (631) 165  
Equity in net (income) loss of subsidiaries(1,518) (581) (1,396) —  3,495  —  
Income (loss) before income taxes1,362  354  1,518  1,543  (3,483) 1,294  
Income tax provision(2) (30) —  (45) —  (77) 
Net income (loss)1,364  384  1,518  1,588  (3,483) 1,371  
Net income attributable to noncontrolling interests—  —  —  (7) —  (7) 
Net income (loss) attributable to Medtronic
1,364  384  1,518  1,581  (3,483) 1,364  
Other comprehensive income (loss), net of tax(127) (76) (127) (192) 395  (127) 
Comprehensive income attributable to
noncontrolling interests
—  —  —  (7) —  (7) 
Total comprehensive income (loss)
$1,237  $308  $1,391  $1,389  $(3,088) $1,237  


36

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

Consolidating Statement of Comprehensive Income
Six Months Ended October 25, 2019
Medtronic Senior Notes and Medtronic Luxco Senior Notes
(in millions)Medtronic plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Net sales$—  $811  $—  $15,199  $(811) $15,199  
Costs and expenses:
Cost of products sold—  676  —  4,705  (621) 4,760  
Research and development expense—  346  —  844  —  1,190  
Selling, general, and administrative expense 809  —  4,347  —  5,163  
Amortization of intangible assets—   —  875  —  881  
Restructuring charges, net—   —  65  —  74  
Certain litigation charges—   —  163  —  168  
Other operating expense (income), net26  (1,067) (7) 1,352  (177) 127  
Operating profit (loss)(33) 27   2,848  (13) 2,836  
Other non-operating (income) expense, net—  (134) (486) (829) 1,240  (209) 
Interest expense283  1,056  284  391  (1,240) 774  
Equity in net (income) loss of subsidiaries(2,540) (1,192) (2,331) —  6,063  —  
Income (loss) before income taxes2,224  297  2,540  3,286  (6,076) 2,271  
Income tax provision(4) (159) —  186  —  23  
Net income (loss)2,228  456  2,540  3,100  (6,076) 2,248  
Net income attributable to noncontrolling interests—  —  —  (20) —  (20) 
Net income (loss) attributable to Medtronic
2,228  456  2,540  3,080  (6,076) 2,228  
Other comprehensive income (loss), net of tax100  (29) 100  (83) 12  100  
Comprehensive income attributable to
noncontrolling interests
—  —  —  (20) —  (20) 
Total comprehensive income (loss)
$2,328  $427  $2,640  $2,997  $(6,064) $2,328  



Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

Consolidating Statement of Comprehensive Income
Three Months Ended October 26, 2018
Medtronic Senior Notes and Medtronic Luxco Senior Notes
(in millions)Medtronic plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Net sales$—  $364  $—  $7,481  $(364) $7,481  
Costs and expenses:
Cost of products sold—  280  —  2,162  (239) 2,203  
Research and development expense—  176  —  414  —  590  
Selling, general, and administrative expense 413  —  2,188  —  2,605  
Amortization of intangible assets—   —  443  —  445  
Restructuring charges, net —   —  23  —  24  
Other operating expense (income), net24  (672) —  834  (116) 70  
Operating profit (loss)(28) 164  —  1,417  (9) 1,544  
Other non-operating (income) expense, net—  (138) (175) (429) 690  (52) 
Interest expense108  482  113  228  (690) 241  
Equity in net (income) loss of subsidiaries(1,249) (762) (1,187) —  3,198  —  
Income (loss) before income taxes1,113  582  1,249  1,618  (3,207) 1,355  
Income tax provision(2) (15) —  252  —  235  
Net income (loss)1,115  597  1,249  1,366  (3,207) 1,120  
Net income attributable to noncontrolling interests—  —  —  (5) —  (5) 
Net income (loss) attributable to Medtronic1,115  597  1,249  1,361  (3,207) 1,115  
Other comprehensive income (loss), net of tax(289) (194) (289) (310) 790  (292) 
Comprehensive income attributable to
noncontrolling interests
—  —  —  (2) —  (2) 
Total comprehensive income (loss)
$826  $403  $960  $1,054  $(2,417) $826  


38

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Six Months Ended October 26, 2018
Medtronic Senior Notes and Medtronic Luxco Senior Notes
(in millions)Medtronic plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Net sales$—  $726  $—  $14,865  $(726) $14,865  
Costs and expenses:   
Cost of products sold—  553  —  4,330  (476) 4,407  
Research and development expense—  344  —  831  —  1,175  
Selling, general, and administrative expense 781  —  4,415  —  5,202  
Amortization of intangible assets—   —  887  —  891  
Restructuring charges, net—  11  —  75  —  86  
Certain litigation charges—  78  —  25  —  103  
Other operating expense (income), net25  (931) —  1,349  (222) 221  
Operating profit (loss)(31) (114) —  2,953  (28) 2,780  
Other non-operating (income) expense, net—  (297) (339) (934) 1,332  (238) 
Interest expense208  946  216  445  (1,332) 483  
Equity in net (income) loss of subsidiaries(2,425) (1,568) (2,302) —  6,295  —  
Income (loss) before income taxes2,186  805  2,425  3,442  (6,323) 2,535  
Income tax provision(4) (119) —  461  —  338  
Net income (loss)2,190  924  2,425  2,981  (6,323) 2,197  
Net income attributable to noncontrolling interests—  —  —  (7) —  (7) 
Net income (loss) attributable to Medtronic
2,190  924  2,425  2,974  (6,323) 2,190  
Other comprehensive income (loss), net of tax
(873) (702) (873) (914) 2,486  (876) 
Comprehensive income attributable to
noncontrolling interests
—  —  —  (4) —  (4) 
Total comprehensive income (loss)
$1,317  $222  $1,552  $2,063  $(3,837) $1,317  



Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
October 25, 2019
Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)Medtronic plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
Adjustments
Total
ASSETS
Current assets:
Cash and cash equivalents$—  $20  $204  $3,738  $—  $3,962  
Investments—  —  —  6,436  —  6,436  
Accounts receivable, net—  —  —  6,118  —  6,118  
Inventories, net—  200  —  4,079  (237) 4,042  
Intercompany receivable109  9,352   32,385  (41,851) —  
Other current assets
 183   1,903  —  2,095  
Total current assets
116  9,755  211  54,659  (42,088) 22,653  
Property, plant, and equipment, net
—  1,527  —  3,229  —  4,756  
Goodwill—  2,009  —  37,943  —  39,952  
Other intangible assets, net—  93  —  19,682  —  19,775  
Tax assets—  520  —  1,284  —  1,804  
Investment in subsidiaries66,705  73,122  67,007  —  (206,834) —  
Intercompany loans receivable3,000  21  30,240  25,120  (58,381) —  
Other assets—  350  —  1,763  —  2,113  
Total assets
$69,821  $87,397  $97,458  $143,680  $(307,303) $91,053  
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations$—  $500  $—  $375  $—  $875  
Accounts payable—  494  —  1,471  —  1,965  
Intercompany payable—  21,687  10,697  9,467  (41,851) —  
Accrued compensation 728  —  1,039  —  1,773  
Accrued income taxes—  —  —  442  —  442  
Other accrued expenses21  337  70  2,687  —  3,115  
Total current liabilities
27  23,746  10,767  15,481  (41,851) 8,170  
Long-term debt—  9,783  13,552  1,417  —  24,752  
Accrued compensation and retirement benefits
—  1,001  —  572  —  1,573  
Accrued income taxes10  722  —  1,973  —  2,705  
Intercompany loans payable19,206  9,011  13,459  16,705  (58,381) —  
Deferred tax liabilities—  —  —  1,376  —  1,376  
Other liabilities—  265  —  1,493  —  1,758  
Total liabilities19,243  44,528  37,778  39,017  (100,232) 40,334  
Shareholders’ equity50,578  42,869  59,680  104,522  (207,071) 50,578  
Noncontrolling interests—  —  —  141  —  141  
Total equity50,578  42,869  59,680  104,663  (207,071) 50,719  
Total liabilities and equity$69,821  $87,397  $97,458  $143,680  $(307,303) $91,053  

40

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
April 26, 2019
Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)Medtronic plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
Adjustments
Total
ASSETS
Current assets:
Cash and cash equivalents$—  $18  $ $4,374  $—  $4,393  
Investments—  —  —  5,455  —  5,455  
Accounts receivable, net—  —  —  6,222  —  6,222  
Inventories, net—  188  —  3,792  (227) 3,753  
Intercompany receivable40  9,407   19,170  (28,623) —  
Other current assets10  190   1,941  —  2,144  
Total current assets
50  9,803  10  40,954  (28,850) 21,967  
Property, plant, and equipment, net
—  1,480  —  3,195  —  4,675  
Goodwill—  2,009  —  37,950  —  39,959  
Other intangible assets, net—  99  —  20,461  —  20,560  
Tax assets
—  568  —  951  —  1,519  
Investment in subsidiaries64,352  71,129  65,012  —  (200,493) —  
Intercompany loans receivable3,000  21  27,858  35,398  (66,277) —  
Other assets—  216  —  798  —  1,014  
Total assets
$67,402  $85,325  $92,880  $139,707  $(295,620) $89,694  
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations$—  $500  $—  $338  $—  $838  
Accounts payable—  481  —  1,472  —  1,953  
Intercompany payable—  11,971  7,200  9,452  (28,623) —  
Accrued compensation 913  —  1,273  —  2,189  
Accrued income taxes—  —  —  567  —  567  
Other accrued expenses20  331  53  2,521  —  2,925  
Total current liabilities
23  14,196  7,253  15,623  (28,623) 8,472  
Long-term debt—  14,418  8,621  1,447  —  24,486  
Accrued compensation and retirement benefits—  1,069  —  582  —  1,651  
Accrued income taxes10  692  —  2,136  —  2,838  
Intercompany loans payable17,278  12,613  19,682  16,704  (66,277) —  
Deferred tax liabilities—  —  —  1,278  —  1,278  
Other liabilities—  133  —  624  —  757  
Total liabilities17,311  43,121  35,556  38,394  (94,900) 39,482  
Shareholders' equity50,091  42,204  57,324  101,192  (200,720) 50,091  
Noncontrolling interests—  —  —  121  —  121  
Total equity50,091  42,204  57,324  101,313  (200,720) 50,212  
Total liabilities and equity$67,402  $85,325  $92,880  $139,707  $(295,620) $89,694  

41

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended October 25, 2019
Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)Medtronic plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Operating Activities:
Net cash provided by (used in) operating activities
$49  $(967) $295  $4,000  $—  $3,377  
Investing Activities:
Acquisitions, net of cash acquired
—  —  —  (201) —  (201) 
Additions to property, plant, and equipment
—  (158) —  (426) —  (584) 
Purchases of investments—  —  —  (4,226) —  (4,226) 
Sales and maturities of investments
—  —  —  3,260  —  3,260  
Other investing activities
—  —  (5) (11) —  (16) 
Net cash provided by (used in) investing activities
—  (158) (5) (1,604) —  (1,767) 
Financing Activities:
Change in current debt obligations, net—  —  —  42  —  42  
Issuance of long-term debt—  —  5,567   —  5,568  
Payments on long-term debt—  (5,016) (515) (63) —  (5,594) 
Dividends to shareholders(1,447) —  —  —  —  (1,447) 
Issuance of ordinary shares432  —  —  —  —  432  
Repurchase of ordinary shares
(962) —  —  —  —  (962) 
Net intercompany loan borrowings (repayments)
1,928  6,143  (5,105) (2,966) —  —  
Other financing activities—  —  (34) (20) —  (54) 
Net cash provided by (used in) financing activities
(49) 1,127  (87) (3,006) —  (2,015) 
Effect of exchange rate changes on cash and cash equivalents
—  —  —  (26) —  (26) 
Net change in cash and cash equivalents
—   203  (636) —  (431) 
Cash and cash equivalents at beginning of period
—  18   4,374  —  4,393  
Cash and cash equivalents at end of period
$—  $20  $204  $3,738  $—  $3,962  

42

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended October 26, 2018
Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)Medtronic plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Operating Activities:
Net cash provided by (used in) operating activities
$147  $(1,335) $123  $3,930  $—  $2,865  
Investing Activities:
Acquisitions, net of cash acquired
—  —  —  (119) —  (119) 
Additions to property, plant, and equipment
—  (133) —  (364) —  (497) 
Purchases of investments—  —  —  (1,444) —  (1,444) 
Sales and maturities of investments
—  76  —  2,748  —  2,824  
Capital contribution paid
(18) (32) —  —  50  —  
Net cash provided by (used in) investing activities
(18) (89) —  821  50  764  
Financing Activities:
Change in current debt obligations, net—  —  (696) (4) —  (700) 
Issuance of long-term debt—  —  —   —   
Payments on long-term debt—  —  —  (17) —  (17) 
Dividends to shareholders(1,351) —  —  —  —  (1,351) 
Issuance of ordinary shares800  —  —  —  —  800  
Repurchase of ordinary shares
(2,047) —  —  —  —  (2,047) 
Net intercompany loan borrowings (repayments)
2,469  1,428  1,067  (4,964) —  —  
Capital contribution received—  —  —  50  (50) —  
Other financing activities—  —  —  11  —  11  
Net cash provided by (used in) financing activities
(129) 1,428  371  (4,923) (50) (3,303) 
Effect of exchange rate changes on cash and cash equivalents
—  —  —  (84) —  (84) 
Net change in cash and cash equivalents
—   494  (256) —  242  
Cash and cash equivalents at beginning of period
—  20   3,648  —  3,669  
Cash and cash equivalents at end of period
$—  $24  $495  $3,392  $—  $3,911  

43

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Three Months Ended October 25, 2019
CIFSA Senior Notes
(in millions)Medtronic plcCIFSACIFSA Subsidiary GuarantorsSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Net sales$—  $—  $—  $7,706  $—  $7,706  
Costs and expenses:
Cost of products sold—  —  —  2,394  —  2,394  
Research and development expense—  —  —  603  —  603  
Selling, general, and administrative expense —   2,615  —  2,620  
Amortization of intangible assets—  —  —  441  —  441  
Restructuring charges, net—  —  —  27  —  27  
Certain litigation charges—  —  —  121  —  121  
Other operating expense (income), net13  —  —  136  —  149  
Operating profit (loss)(17) —  (1) 1,369  —  1,351  
Other non-operating (income) expense, net—  (32) (248) (362) 534  (108) 
Interest expense139  191  119  250  (534) 165  
Equity in net (income) loss of subsidiaries(1,518) (1,220) (1,390) —  4,128  —  
Income (loss) before income taxes1,362  1,061  1,518  1,481  (4,128) 1,294  
Income tax provision(2) —  —  (75) —  (77) 
Net income (loss)1,364  1,061  1,518  1,556  (4,128) 1,371  
Net income attributable to noncontrolling interests—  —  —  (7) —  (7) 
Net income (loss) attributable to Medtronic
1,364  1,061  1,518  1,549  (4,128) 1,364  
Other comprehensive income (loss), net of tax(127) (95) (127) (180) 402  (127) 
Comprehensive income attributable to
noncontrolling interests
—  —  —  (7) —  (7) 
Total comprehensive income (loss)
$1,237  $966  $1,391  $1,369  $(3,726) $1,237  

44

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Six Months Ended October 25, 2019
CIFSA Senior Notes
(in millions)Medtronic plcCIFSACIFSA Subsidiary GuarantorsSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Net sales$—  $—  $—  $15,199  $—  $15,199  
Costs and expenses:
Cost of products sold—  —  —  4,760  —  4,760  
Research and development expense—  —  —  1,190  —  1,190  
Selling, general, and administrative expense —   5,155  —  5,163  
Amortization of intangible assets—  —  —  881  —  881  
Restructuring charges, net—  —  —  74  —  74  
Certain litigation charges—  —  —  168  —  168  
Other operating expense (income), net26  —  (7) 108  —  127  
Operating profit (loss)(33) —   2,863  —  2,836  
Other non-operating (income) expense, net—  (95) (501) (760) 1,147  (209) 
Interest expense283  412  284  942  (1,147) 774  
Equity in net (income) loss of subsidiaries(2,540) (2,188) (2,317) —  7,045  —  
Income (loss) before income taxes2,224  1,871  2,540  2,681  (7,045) 2,271  
Income tax provision(4) —  —  27  —  23  
Net income (loss)2,228  1,871  2,540  2,654  (7,045) 2,248  
Net income attributable to noncontrolling interests—  —  —  (20) —  (20) 
Net income (loss) attributable to Medtronic
2,228  1,871  2,540  2,634  (7,045) 2,228  
Other comprehensive income (loss), net of tax100  (11) 100  (53) (36) 100  
Comprehensive income attributable to
noncontrolling interests
—  —  —  (20) —  (20) 
Total comprehensive income (loss)
$2,328  $1,860  $2,640  $2,581  $(7,081) $2,328  



Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Three Months Ended October 26, 2018
CIFSA Senior Notes
(in millions)Medtronic plcCIFSACIFSA Subsidiary GuarantorsSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Net sales$—  $—  $—  $7,481  $—  $7,481  
Costs and expenses:
Cost of products sold—  —  —  2,203  —  2,203  
Research and development expense—  —  —  590  —  590  
Selling, general, and administrative expense —   2,600  —  2,605  
Amortization of intangible assets—  —  —  445  —  445  
Restructuring charges, net—  —  —  24  —  24  
Other operating expense, net24  —  —  46  —  70  
Operating profit (loss)(28) —  (1) 1,573  —  1,544  
Other non-operating (income) expense, net—  (9) (183) (150) 290  (52) 
Interest expense108  22  113  288  (290) 241  
Equity in net (income) loss of subsidiaries(1,249) (629) (1,180) —  3,058  —  
Income (loss) before income taxes1,113  616  1,249  1,435  (3,058) 1,355  
Income tax provision(2) —  —  237  —  235  
Net income (loss)1,115  616  1,249  1,198  (3,058) 1,120  
Net income attributable to noncontrolling interests—  —  —  (5) —  (5) 
Net income (loss) attributable to Medtronic1,115  616  1,249  1,193  (3,058) 1,115  
Other comprehensive income (loss), net of tax(289) (91) (289) (295) 672  (292) 
Comprehensive income attributable to
noncontrolling interests
—  —  —  (2) —  (2) 
Total comprehensive income (loss)$826  $525  $960  $901  $(2,386) $826  

46

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Six Months Ended October 26, 2018
CIFSA Senior Notes
(in millions)Medtronic plcCIFSACIFSA Subsidiary GuarantorsSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Net sales$—  $—  $—  $14,865  $—  $14,865  
Costs and expenses:
Cost of products sold—  —  —  4,407  —  4,407  
Research and development expense—  —  —  1,175  —  1,175  
Selling, general, and administrative expense —   5,195  —  5,202  
Amortization of intangible assets—  —  —  891  —  891  
Restructuring charges, net—  —  —  86  —  86  
Certain litigation charges—  —  —  103  —  103  
Other operating expense, net25  —  —  196  —  221  
Operating profit (loss)(31) —  (1) 2,812  —  2,780  
Other non-operating (income) expense, net—  (19) (352) (424) 557  (238) 
Interest expense208  43  216  573  (557) 483  
Equity in net (income) loss of subsidiaries(2,425) (1,602) (2,290) —  6,317  —  
Income (loss) before income taxes2,186  1,578  2,425  2,663  (6,317) 2,535  
Income tax provision(4) —  —  342  —  338  
Net income (loss)2,190  1,578  2,425  2,321  (6,317) 2,197  
Net income attributable to noncontrolling interests—  —  —  (7) —  (7) 
Net income (loss) attributable to Medtronic2,190  1,578  2,425  2,314  (6,317) 2,190  
Other comprehensive income (loss), net of tax(873) (132) (873) (879) 1,881  (876) 
Comprehensive loss attributable to
non-controlling interests
—  —  —  (4) —  (4) 
Total comprehensive income (loss)$1,317  $1,446  $1,552  $1,438  $(4,436) $1,317  




Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
October 25, 2019
CIFSA Senior Notes
(in millions)Medtronic plcCIFSACIFSA Subsidiary GuarantorsSubsidiary Non-guarantorsConsolidating
Adjustments
Total
ASSETS
Current assets:
Cash and cash equivalents$—  $—  $204  $3,758  $—  $3,962  
Investments—  —  —  6,436  —  6,436  
Accounts receivable, net—  —  —  6,118  —  6,118  
Inventories, net—  —  —  4,042  —  4,042  
Intercompany receivable109  —  1,387  10,725  (12,221) —  
Other current assets
 —   2,086  —  2,095  
Total current assets
116  —  1,593  33,165  (12,221) 22,653  
Property, plant, and equipment, net
—  —  —  4,756  —  4,756  
Goodwill—  —  —  39,952  —  39,952  
Other intangible assets, net—  —  —  19,775  —  19,775  
Tax assets
—  —  —  1,804  —  1,804  
Investment in subsidiaries66,705  58,863  65,631  —  (191,199) —  
Intercompany loans receivable3,000  3,798  30,240  40,585  (77,623) —  
Other assets—  —  —  2,113  —  2,113  
Total assets
$69,821  $62,661  $97,464  $142,150  $(281,043) $91,053  
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations$—  $—  $—  $875  $—  $875  
Accounts payable—  —  —  1,965  —  1,965  
Intercompany payable—  1,322  10,698  201  (12,221) —  
Accrued compensation —  —  1,767  —  1,773  
Accrued income taxes—  —  —  442  —  442  
Other accrued expenses21  11  75  3,008  —  3,115  
Total current liabilities
27  1,333  10,773  8,258  (12,221) 8,170  
Long-term debt—  1,309  13,552  9,891  —  24,752  
Accrued compensation and retirement benefits—  —  —  1,573  —  1,573  
Accrued income taxes10  —  —  2,695  —  2,705  
Intercompany loans payable19,206  27,126  13,458  17,833  (77,623) —  
Deferred tax liabilities—  —  —  1,376  —  1,376  
Other liabilities—  —   1,757  —  1,758  
Total liabilities19,243  29,768  37,784  43,383  (89,844) 40,334  
Shareholders’ equity50,578  32,893  59,680  98,626  (191,199) 50,578  
Noncontrolling interests—  —  —  141  —  141  
Total equity50,578  32,893  59,680  98,767  (191,199) 50,719  
Total liabilities and equity$69,821  $62,661  $97,464  $142,150  $(281,043) $91,053  

48

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
April 26, 2019
CIFSA Senior Notes
(in millions)Medtronic plcCIFSACIFSA Subsidiary GuarantorsSubsidiary Non-guarantorsConsolidating
Adjustments
Total
ASSETS
Current assets:
Cash and cash equivalents$—  $—  $ $4,392  $—  $4,393  
Investments—  —  —  5,455  —  5,455  
Accounts receivable, net—  —  —  6,222  —  6,222  
Inventories, net—  —  —  3,753  —  3,753  
Intercompany receivable40  —  1,374  7,212  (8,626) —  
Other current assets
10  —   2,131  —  2,144  
Total current assets
50  —  1,378  29,165  (8,626) 21,967  
Property, plant, and equipment, net
—  —  —  4,675  —  4,675  
Goodwill—  —  —  39,959  —  39,959  
Other intangible assets, net—  —  —  20,560  —  20,560  
Tax assets—  —  —  1,519  —  1,519  
Investment in subsidiaries64,352  39,557  63,651  —  (167,560) —  
Intercompany loans receivable3,000  4,119  27,858  29,002  (63,979) —  
Other assets—  —  —  1,014  —  1,014  
Total assets
$67,402  $43,676  $92,887  $125,894  $(240,165) $89,694  
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations$—  $—  $—  $838  $—  $838  
Accounts payable—  —  —  1,953  —  1,953  
Intercompany payable—  1,308  7,199  119  (8,626) —  
Accrued compensation —  —  2,186  —  2,189  
Accrued income taxes—  —  —  567  —  567  
Other accrued expenses20  11  60  2,834  —  2,925  
Total current liabilities
23  1,319  7,259  8,497  (8,626) 8,472  
Long-term debt—  1,354  8,621  14,511  —  24,486  
Accrued compensation and retirement benefits—  —  —  1,651  —  1,651  
Accrued income taxes10  —  —  2,828  —  2,838  
Intercompany loans payable17,278  9,320  19,682  17,699  (63,979) —  
Deferred tax liabilities—  —  —  1,278  —  1,278  
Other liabilities—  —   756  —  757  
Total liabilities17,311  11,993  35,563  47,220  (72,605) 39,482  
Shareholders' equity50,091  31,683  57,324  78,553  (167,560) 50,091  
Noncontrolling interests—  —  —  121  —  121  
Total Equity50,091  31,683  57,324  78,674  (167,560) 50,212  
Total liabilities and equity$67,402  $43,676  $92,887  $125,894  $(240,165) $89,694  

49

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended October 25, 2019
CIFSA Senior Notes
(in millions)Medtronic plcCIFSACIFSA Subsidiary GuarantorsSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Operating Activities:
Net cash provided by (used in) operating activities
$49  $(319) $309  $3,338  $—  $3,377  
Investing Activities:
Acquisitions, net of cash acquired
—  —  —  (201) —  (201) 
Additions to property, plant, and equipment
—  —  —  (584) —  (584) 
Purchases of investments—  —  —  (4,226) —  (4,226) 
Sales and maturities of investments
—  —  —  3,260  —  3,260  
Capital contribution paid—  (43) —  —  43  —  
Other investing activities
—  —  (5) (11) —  (16) 
Net cash provided by (used in) investing activities
—  (43) (5) (1,762) 43  (1,767) 
Financing Activities:
Change in current debt obligations, net—  —  —  42  —  42  
Issuance of long-term debt—  —  5,567   —  5,568  
Payments on long-term debt—  (44) (515) (5,035) —  (5,594) 
Dividends to shareholders(1,447) —  —  —  —  (1,447) 
Issuance of ordinary shares432  —  —  —  —  432  
Repurchase of ordinary shares
(962) —  —  —  —  (962) 
Net intercompany loan borrowings (repayments)
1,928  406  (5,119) 2,785  —  —  
Capital contribution received—  —  —  43  (43) —  
Other financing activities—  —  (34) (20) —  (54) 
Net cash provided by (used in) financing activities
(49) 362  (101) (2,184) (43) (2,015) 
Effect of exchange rate changes on cash and cash equivalents
—  —  —  (26) —  (26) 
Net change in cash and cash equivalents
—  —  203  (634) —  (431) 
Cash and cash equivalents at beginning of period
—  —   4,392  —  4,393  
Cash and cash equivalents at end of period
$—  $—  $204  $3,758  $—  $3,962  

50

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended October 26, 2018
CIFSA Senior Notes
(in millions)Medtronic plcCIFSACIFSA Subsidiary GuarantorsSubsidiary Non-guarantorsConsolidating
Adjustments
Total
Operating Activities:
Net cash provided by (used in) operating activities
$147  $(35) $136  $2,617  $—  $2,865  
Investing Activities:
Acquisitions, net of cash acquired
—  —  —  (119) —  (119) 
Additions to property, plant, and equipment
—  —  —  (497) —  (497) 
Purchases of investments—  —  —  (1,444) —  (1,444) 
Sales and maturities of investments
—  —  —  2,824  —  2,824  
Capital contributions paid(18) (187) —  —  205  —  
Net cash provided by (used in) investing activities
(18) (187) —  764  205  764  
Financing Activities:
Change in current debt obligations, net—  —  (697) (3) —  (700) 
Issuance of long-term debt—  —  —   —   
Payments on long-term debt—  —  —  (17) —  (17) 
Dividends to shareholders(1,351) —  —  —  —  (1,351) 
Issuance of ordinary shares800  —  —  —  —  800  
Repurchase of ordinary shares
(2,047) —  —  —  —  (2,047) 
Net intercompany loan borrowings (repayments)
2,469  222  1,056  (3,747) —  —  
Capital contributions received—  —  —  205  (205) —  
Other financing activities—  —  —  11  —  11  
Net cash provided by (used in) financing activities
(129) 222  359  (3,550) (205) (3,303) 
Effect of exchange rate changes on cash and cash equivalents
—  —  —  (84) —  (84) 
Net change in cash and cash equivalents
—  —  495  (253) —  242  
Cash and cash equivalents at beginning of period
—  —   3,668  —  3,669  
Cash and cash equivalents at end of period
$—  $—  $496  $3,415  $—  $3,911  

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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 26, 2019. In addition, you should read this discussion along with our consolidated financial statements and related notes thereto at and for the three and six months ended October 25, 2019.
Financial Trends
Throughout this Management’s Discussion and Analysis, we present certain financial measures that we use to evaluate 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 gains 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 technology, services, and solutions companies - 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 table below presents net income attributable to Medtronic and our diluted earnings per share for the three and six months ended October 25, 2019 and October 26, 2018:
 Three months endedSix months ended
(in millions, except per share data)October 25, 2019October 26, 2018% ChangeOctober 25, 2019October 26, 2018% Change
Net income attributable to Medtronic$1,364  $1,115  22 %$2,228  $2,190  %
Diluted earnings per share$1.01  $0.82  23 %$1.65  $1.61  %
The increase in net income attributable to Medtronic and diluted earnings per share (EPS) for the three months ended October 25, 2019, as compared to the corresponding period in the prior fiscal year, was primarily attributable to a $251 million tax benefit related to tax reform in Switzerland and a decrease in interest expense, partially offset by increases in certain litigation charges and other operating expense, net, which included an $80 million charge for our commitment to the Medtronic Foundation.
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The increase in net income attributable to Medtronic and diluted EPS for the six months ended October 25, 2019, as compared to the corresponding period in the prior fiscal years, was primarily attributable to a $251 million tax benefit related to tax reform in Switzerland and a decrease in other operating expense, net, offset by the increase in interest expense due to the tender and early redemption of senior notes during the period. Refer to the "Costs and Expenses" section of this Management's Discussion and Analysis for more information on the items impacting net income attributable to Medtronic and diluted EPS during the three and six months ended October 25, 2019.
GAAP to Non-GAAP Reconciliations The tables below present our GAAP to Non-GAAP reconciliations for the three and six months ended October 25, 2019 and October 26, 2018:
 Three months ended October 25, 2019
(in millions, except per share data)Income Before Income TaxesIncome
Tax Provision
Net Income Attributable to Medtronic
Diluted EPS(1)
Effective
Tax Rate
GAAP$1,294  $(77) $1,364  $1.01  (6.0)%
Non-GAAP Adjustments:
Restructuring and associated costs (2)
94  16  78  0.06  17.0  
Acquisition-related items (3)
27   23  0.02  14.8  
Certain litigation charges121  28  93  0.07  23.1  
(Gain)/loss on minority investments (4)
(12) (2) (10) (0.01) 16.7  
Medical device regulations (5)
10    0.01  10.0  
Exit of businesses (6)
41   35  0.03  14.6  
Contribution to the Medtronic Foundation80  18  62  0.05  22.5  
Amortization of intangible assets441  67  374  0.28  15.2  
Certain tax adjustments, net (7)
—  251  (251) (0.19) —  
Non-GAAP$2,096  $312  $1,777  $1.31  14.9 %
 Three months ended October 26, 2018
(in millions, except per share data)Income Before Income TaxesIncome
Tax Provision
Net Income Attributable to Medtronic
Diluted EPS(1)
Effective
Tax Rate
GAAP$1,355  $235  $1,115  $0.82  17.3 %
Non-GAAP Adjustments:
Restructuring and associated costs (2)
77  12  65  0.05  15.6  
Acquisition-related items   —  25.0  
(Gain)/loss on minority investments (4)
25  (1) 26  0.02  (4.0) 
IPR&D charges (8)
15  —  15  0.01  —  
Amortization of intangible assets445  67  378  0.28  15.1  
Certain tax adjustments, net (9)
—  (58) 58  0.04  —  
Non-GAAP$1,921  $256  $1,660  $1.22  13.3 %
(1)Amounts in this column have been intentionally rounded to the nearest $0.01 and, therefore, may not sum.
(2)Associated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses.
(3)The charges primarily include costs incurred in connection with legacy-Covidien enterprise resource planning deployment activities, business combination related costs, and changes in the fair value of contingent consideration.
(4)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.
(5)The charges represent incremental costs of complying with the new European Union medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses.
(6)The net charge relates to the exit of businesses and is primarily comprised of intangible asset impairments.
(7)The net benefit primarily relates to the impact of tax reform in Switzerland.
(8)The charge represents acquired IPR&D in connection with an asset acquisition.
(9)The charges relate to the impact of tax reform in the United States.
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 Six months ended October 25, 2019
(in millions, except per share data)Income Before Income TaxesIncome
Tax Provision
Net Income Attributable to Medtronic
Diluted EPS(1)
Effective
Tax Rate
GAAP$2,271  $23  $2,228  $1.65  1.0 %
Non-GAAP Adjustments:
Restructuring and associated costs (2)
218  31  187  0.14  14.2  
Acquisition-related items (3)
46   40  0.03  13.0  
Certain litigation charges168  32  136  0.10  19.0  
(Gain)/loss on minority investments (4)
(11) (2) (9) (0.01) 18.2  
Debt tender premium and other charges (5)
406  86  320  0.24  21.2  
Medical device regulations (6)
18   16  0.01  11.1  
Exit of businesses (7)
41   35  0.03  14.6  
Contribution to the Medtronic Foundation80  18  62  0.05  22.5  
Amortization of intangible assets881  135  746  0.55  15.3  
Certain tax adjustments, net (8)
—  281  (281) (0.21) —  
Non-GAAP$4,118  $618  $3,480  $2.57  15.0 %
 Six months ended October 26, 2018
(in millions, except per share data)Income Before Income TaxesIncome
Tax Provision
Net Income Attributable to Medtronic
Diluted EPS(1)
Effective
Tax Rate
GAAP$2,535  $338  $2,190  $1.61  13.3 %
Non-GAAP Adjustments:
Restructuring and associated costs (2)
190  28  162  0.12  14.7  
Acquisition-related items40   32  0.02  20.0  
Certain litigation charges103  12  91  0.07  11.7  
(Gain)/loss on minority investments (4)
(85) (8) (77) (0.06) 9.4  
IPR&D charges (9)
15  —  15  0.01  —  
Exit of businesses (7)
80  18  62  0.05  22.5  
Amortization of intangible assets891  134  757  0.56  15.0  
Certain tax adjustments, net (10)
—  (29) 29  0.02  —  
Non-GAAP$3,769  $501  $3,261  $2.39  13.3 %
(1)Amounts in this column have been intentionally rounded to the nearest $0.01 and, therefore, may not sum.
(2)Associated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses.
(3)The charges primarily include costs incurred in connection with legacy-Covidien enterprise resource planning deployment activities, business combination related costs, and changes in the fair value of contingent consideration.
(4)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.
(5)The charges, which include $413 million recognized in interest expense and ($7 million) recognized in other operating expense, net, primarily relate to the early redemption of approximately $5.2 billion of senior notes.
(6)The charges represent incremental costs of complying with the new European Union medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses.
(7)The net charges relate to the exit of businesses and are primarily comprised of intangible asset impairments.
(8)The net benefit primarily relates to the impact of tax reform in Switzerland and the United States.
(9)The charges represent acquired IPR&D in connection with an asset acquisition.
(10)The net charge relates to the impact of tax reform in the United States.

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NET SALES
Segment and Division
The table below illustrates net sales by segment and division for the three and six months ended October 25, 2019 and October 26, 2018:
 
Three months ended(1)
 
Six months ended(1)
 
(in millions)October 25, 2019October 26, 2018% ChangeOctober 25, 2019October 26, 2018% Change
Cardiac Rhythm & Heart Failure$1,426  $1,472  (3)%$2,807  $2,898  (3)%
Coronary & Structural Heart955  906   1,896  1,823   
Aortic, Peripheral, & Venous 474  480  (1) 942  948  (1) 
Cardiac and Vascular Group2,855  2,858  —  5,645  5,669  —  
Surgical Innovations1,454  1,393   2,871  2,790   
Respiratory, Gastrointestinal, & Renal688  654   1,371  1,309   
Minimally Invasive Therapies Group2,142  2,047   4,242  4,099   
Brain Therapies772  701  10  1,512  1,375  10  
Spine692  656   1,349  1,308   
Specialty Therapies333  322   656  631   
Pain Therapies315  314  —  607  628  (3) 
Restorative Therapies Group 2,112  1,993   4,124  3,942   
Diabetes Group596  583   1,188  1,155   
Total$7,706  $7,481  %$15,199  $14,865  %
(1) Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.
Our performance displays our continued execution against our three growth strategies: therapy innovation, globalization, and economic value. We continue to allocate our capital to higher growth markets and new opportunities that create competitive advantages and capitalize on the long-term trends in healthcare: namely, the desire to improve clinical outcomes; the growing demand for expanded access to care; and the optimization of cost and efficiency within healthcare systems.
We continue to see an acceleration in our innovation cycle within our therapy innovation growth strategy. Our segments invest in a pipeline of groundbreaking medical technology, with several recent product launches and adoption of new therapies contributing to net sales growth. We remain focused on our globalization strategy, as net sales in emerging markets grew 9 percent and 8 percent during the three and six months ended October 25, 2019, respectively, as compared to the corresponding periods in the prior fiscal year. Our emerging market performance continues to benefit from geographic diversification, with strong, balanced results in these markets around the world. Finally, in our third growth strategy, economic value, we continue to execute our value-based healthcare signature programs and aggressively develop unique, value-based healthcare solutions that directly link our therapies to improving outcomes and deliver improved economic value to the payers and providers. We remain focused on leading the shift to healthcare payment systems that reward value and improved patient outcomes over volume.
During the first quarter of fiscal year 2020, we realigned our divisions within the Restorative Therapies Group, which included a movement of revenue from Transformative Solutions product lines previously included in Specialty Therapies to a product line under Brain Therapies. As a result, the fiscal year 2019 results have been recast to adjust for this realignment.
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Segment and Market Geography
The table below includes net sales by market geography for each of our segments for the three and six months ended October 25, 2019 and October 26, 2018:
 
U.S.(1)(4)
Non-U.S. Developed Markets(2)(4)
Emerging Markets(3)(4)
Three months endedThree months endedThree months ended
(in millions)October 25, 2019October 26, 2018% ChangeOctober 25, 2019October 26, 2018% ChangeOctober 25, 2019October 26, 2018% Change
Cardiac and Vascular Group $1,455  $1,482  (2)%$890  $895  (1)%$510  $481  %
Minimally Invasive Therapies Group922  872   782  772   438  403   
Restorative Therapies Group 1,440  1,357   416  412   256  224  14  
Diabetes Group311  334  (7) 226  203  11  59  46  28  
Total$4,129  $4,045  %$2,315  $2,282  %$1,262  $1,154  %
 
U.S.(1)(4)
Non-U.S. Developed Markets(2)(4)
Emerging Markets(3)(4)
Six months ended  Six months ended  Six months ended  
(in millions)October 25, 2019October 26, 2018% ChangeOctober 25, 2019October 26, 2018% ChangeOctober 25, 2019October 26, 2018% Change
Cardiac and Vascular Group $2,816  $2,871  (2)%$1,820  $1,842  (1)%$1,009  $956  %
Minimally Invasive Therapies Group1,835  1,729   1,573  1,600  (2) 834  770   
Restorative Therapies Group 2,778  2,651   842  840  —  504  451  12  
Diabetes Group618  658  (6) 457  406  13  113  91  24  
Total$8,046  $7,909  %$4,692  $4,688  — %$2,460  $2,268  %
(1)U.S. includes the United States and U.S. territories.
(2)Non-U.S. developed markets include Japan, Australia, New Zealand, Korea, Canada, and the countries within Western Europe.
(3)Emerging markets include the countries of the Middle East, Africa, Latin America, Eastern Europe, and the countries of Asia that are not included in the non-U.S. developed markets, as defined above.
(4)Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.
Net sales increases in the U.S. for the three and six months ended October 25, 2019 were primarily attributable to strong growth in our Minimally Invasive Therapies Group and Restorative Therapies Group, partially offset by declines in our Cardiac and Vascular Group and Diabetes Group. Currency had an unfavorable effect on net sales in non-U.S. developed markets and emerging markets of $97 million and $243 million for the three and six months ended October 25, 2019, respectively. Net sales remained nearly flat in non-U.S. developed markets for the three and six months ended October 25, 2019, attributable to sales declines in Western Europe, offset by net sales growth in Japan. Net sales growth in emerging markets continues to reflect our broad diversification as we experienced strong performance across the market geography in each of our segments.
Looking ahead, our segments are likely to face competitive product launches and pricing pressure, geographic macro-economic risks, reimbursement challenges, impacts from changes in the mix of our product offerings and timing of product registration approvals, replacement cycle challenges, and fluctuations in currency exchange rates. Additionally, changes in procedural volumes could affect our Cardiac and Vascular, Minimally Invasive Therapies, and Restorative Therapies Groups.
Cardiac and Vascular Group
The Cardiac and Vascular Group’s products include pacemakers, insertable and external cardiac monitors, cardiac resynchronization therapy devices (CRT-D), implantable cardioverter defibrillators (ICD), leads and delivery systems, ventricular assist 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. The Cardiac and Vascular Group also includes Care Management Services and Cath Lab Managed Services (CLMS) within the Cardiac Rhythm & Heart Failure division. The Cardiac and Vascular Group’s net sales for the three and six months ended October 25, 2019 were $2.9 billion and $5.6 billion, respectively, which is comparable
56


to the corresponding periods in the prior fiscal year. Currency had an unfavorable impact on net sales for the three and six months ended October 25, 2019 of $39 million and $98 million, respectively. The Cardiac and Vascular Group's net sales for the three and six months ended October 25, 2019, as compared to the corresponding periods in the prior fiscal year, were primarily driven by higher sales in Coronary & Structural Heart offset by decreases in Cardiac Rhythm & Heart Failure and Aortic, Peripheral, & Venous.
Cardiac Rhythm & Heart Failure net sales for the three and six months ended October 25, 2019 were $1.4 billion and $2.8 billion, respectively, a decrease of 3 percent in each period. Cardiac Rhythm & Heart Failure net sales decline for the three and six months ended October 25, 2019 was driven by Heart Failure and CLMS. The decline in Heart Failure was driven by the CRT-D and Tachy replacement cycles and LVAD headwinds primarily due to competitive pressures in the U.S. For the three months ended October 25, 2019, we also experienced temporary manufacturing challenges related to our TYRX product. These declines were partially offset by growth in Pacing and AF Solutions within Arrhythmia Management. The growth in Pacing was due to the continued strong adoption of the Micra transcatheter pacing system. The growth in AF Solutions was driven by Artic Front cryoblation products.
Coronary & Structural Heart net sales for the three and six months ended October 25, 2019 were $955 million and $1.9 billion, respectively, an increase of 5 percent and 4 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Coronary & Structural Heart net sales growth for the three and six months ended October 25, 2019 was driven by transcathether aortic valves, reflecting expansion into the low risk patient population, as well as growth of our guide catheters, partially offset by declines in coronary stents sales.
Aortic, Peripheral, & Venous net sales for the three and six months ended October 25, 2019 were $474 million and $942 million, respectively, a decrease of 1 percent when compared to the corresponding periods in the prior fiscal year, with growth in Aortic and Venous offsetting declines in Peripheral. Aortic net sales growth for the three and six months ended October 25, 2019 was driven by the continued momentum from the launch of the Valiant Navion thoracic stent graft system. Venous net sales growth for the three and six months ended October 25, 2019 was driven by ongoing adoption of the VenaSeal vein closure system. Peripheral net sales decline for the three and six months ended October 25, 2019 was due to drug-coated balloons, as uncertainty around Paclitaxel continues to impact the market.
Looking ahead, we expect our Cardiac and Vascular Group could be affected by the following:
Continued acceptance and growth from penetration of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform into intermediate risk indication globally.

Acceptance and growth of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform for the treatment of patients determined to be at low risk with surgery.

Changes to the U.S. Medicare national coverage determination for transcatheter aortic valve replacement that will allow approximately 30% more U.S. centers to offer the therapy to patients.

Continued acceptance and growth from Evolut PRO, which provides industry-leading hemodynamics, reliable delivery, and advanced sealing with an excellent safety profile, as well as acceptance of our next generation Evout Pro Plus TAVR valve which launched late in the current quarter.

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

Continued acceptance and growth of the Claria MRI CRT-D system with EffectivCRT Diagnostic and Effective CRT during AF algorithm.

Continued growth of our Micra transcatheter pacing system.

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.

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Continued acceptance of the HVAD System as a Destination Therapy for patients with advanced heart failure who are not candidates for heart transplants. The HVAD System, a left ventricular assist device or LVAD, helps the heart pump and increases the amount of blood that flows through the body. In the U.S., we received FDA approval for the Destination Therapy indication in September 2017 and the thoracotomy indication in July 2018, which allows for a less-invasive implant via a small surgical incision between the patient's ribs on the left side of the chest. We expect that future LVAD net sales will continue to be impacted by a competitor's product launch and the impact of changes in the U.S. heart transplant guidelines.

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

Continued acceptance of Care Management Services as post-acute care services become even more critical in bundled payment models for different interventions or therapies.

Continued acceptance and growth from the VenaSeal vein closure system in the United States, for which reimbursement payment was established in January 2018 and payer coverage has been gradually increasing. The VenaSeal 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.

Continued acceptance and growth from the Valiant family of thoracic stent grafts, including the Valiant Navion which received U.S. FDA approval in October 2018 and CE Mark approval in November 2018.

Ongoing impact of Paclitaxel safety concerns affecting our drug coated balloons.
Minimally Invasive Therapies Group
The Minimally Invasive Therapies Group’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 including surgical stapling devices, vessel sealing instruments, wound closure, electrosurgery products, hernia mechanical devices, mesh implants, advanced ablation, interventional lung, ventilators, capnography, airway products, sensors, dialysis, and monitors. The Minimally Invasive Therapies Group’s net sales for the three and six months ended October 25, 2019 were $2.1 billion and $4.2 billion, respectively, an increase of 5 percent and 4 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had an unfavorable impact on net sales for the three and six months ended October 25, 2019 of $30 million and $80 million, respectively.
Surgical Innovations net sales for the three and six months ended October 25, 2019 were $1.5 billion and $2.9 billion, respectively, an increase of 4 percent and 3 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Surgical Innovations net sales growth was driven by strong sales in Advanced Stapling and Advanced Energy, led by the LigaSure vessel sealing instruments with nano-coating, LigaSure Exact Dissector and L-Hook Laparoscopic Sealer/Divider, Valleylab FT10 energy platform, Tri-Staple 2.0 endo stapling specialty reloads, and the EEA circular stapler.

Respiratory, Gastrointestinal, & Renal net sales for the three and six months ended October 25, 2019 were $688 million and $1.4 billion, respectively, increases of 5 percent as compared to the corresponding periods in the prior fiscal year. Respiratory, Gastrointestinal, & Renal net sales growth was driven by strength in Patient Monitoring, including the continued adoption of MicroStream capnography monitoring products, Nellcor pulse oximetry and BIS brain monitoring consumables, along with growth in Respiratory Interventions, including the continued adoption of ventilators and video laryngoscopy products. Also driving growth for fiscal year 2020 was growth in GI & Hepatology, including PillCam capsule endoscopy systems, Bravo calibration-free reflux testing systems, and EndoFLIP imaging systems, and strength in renal access products.

Looking ahead, we expect our Minimally Invasive Therapies Group could be affected by the following:
Continued acceptance and future growth of Open-to-MIS techniques and tools supported by our efforts to transition open surgery to MIS. The 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, or advanced technologies including robotics.
Continued 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.
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The July 29, 2017 divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. We have entered into Transition Manufacturing Agreements (TMAs) with Cardinal Health, Inc. (Cardinal). The TMAs will contribute to net sales and are designed to ensure and facilitate an orderly transfer of business operations for a transition period of two to five years, with the ability to extend upon mutual agreement of the parties.
Our ability to execute ongoing strategies in order to address the competitive pressure of reprocessing of our vessel sealing disposables in the U.S.
Our ability to create markets and drive product and procedures into emerging markets. We have high quality and cost-effective surgical products designed for customers in emerging markets such as the 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. We plan to grow our therapy innovation with scalable and affordable dialysis delivery while investing in vascular creation and maintenance technologies. In addition, the HD multi-pass system reduces infrastructure by requiring less water, less start-up costs, and offers high quality ultrapure dialysate treatment. We are expecting regulatory filing in early fiscal year 2021, with launch following regulatory clearance in targeted countries.
Continued elevation of the standard of care for respiratory compromise, a progressive condition impacting a patient’s ability to breathe effectively which leverages 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, and McGRATH MAC video laryngoscopes.
Continued and future 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 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.
Continued and future acceptance of Interventional Lung Solutions. Products include the superDimension GenCut core biopsy system and the Triple Needle Cytology Brush, a lung tissue biopsy tool for use with the superDimension navigation system. The superDimension system enables 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.
Restorative Therapies Group
The Restorative Therapies Group's products focus on various areas of the spine, bone graft substitutes, biologic products, trauma, implantable neurostimulation therapies and drug delivery systems for the treatment of chronic pain, movement disorders, epilepsy, overactive bladder, urinary retention, fecal incontinence and gastroparesis, as well as products to treat conditions of the ear, nose, and throat (ENT), and systems that incorporate advanced energy surgical instruments. The Restorative Therapies Group also manufactures and sells image-guided surgery and intra-operative imaging systems, robotic guidance systems used in robot assisted spine procedures, and therapies to treat diseases of the vasculature in and around the brain, including coils, neurovascular stents and flow diversion products. The Restorative Therapies Group’s net sales for the three and six months ended October 25, 2019 were $2.1 billion and $4.1 billion, respectively, an increase of 6 percent and 5 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had an unfavorable impact on net sales for the three and six months ended October 25, 2019 of $17 million and $43 million, respectively. Net sales growth for the three and six months ended October 25, 2019 was driven by the Brain Therapies, Spine, and Specialty Therapies divisions. Net sales growth for the six months ended October 25, 2019 was partially offset by modest declines in Pain Therapies.
Brain Therapies net sales for the three and six months ended October 25, 2019 were $772 million and $1.5 billion, an increase of 10 percent as compared to the corresponding periods in the prior fiscal year. Brain Therapies net sales growth was driven by strong growth in both Neurovascular and Neurosurgery. Neurovascular net sales growth was driven by continued strength in both the Hemorrhagic and Ischemic stroke businesses. The Hemorrhagic stroke business saw growth in flow diversion products,
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particularly with our Pipeline Flex flow diversion system. The Ischemic stroke business saw continued strong adoption of the recently launched Solitaire X stent retriever products as well as our Riptide aspiration system and React catheters. Neurosurgery net sales growth was driven by continued strong demand for the StealthStation S8 surgical navigation systems, O-Arm Imaging Systems, and Mazor X robotic guidance systems. Specifically, for the three months ended October 25, 2019, Neurosurgery also saw growth due to the strong uptake of the recently launched Midas Rex MR8 high-speed drill system which was fully launched in the U.S. during the quarter.
Spine net sales for the three and six months ended October 25, 2019 were $692 million and $1.3 billion, respectively, an increase of 5 percent and 3 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Net sales growth for the three and six months ended October 25, 2019 was driven by continued success of our Surgical Synergy strategy, which integrates our spinal implants with enabling technologies such as imaging, navigation, power instruments, nerve monitoring and Mazor robotics sold by our Neurosurgery business. These enabling technologies also contributed to the strong performance in Neurosurgery within our Brain Therapies division. For the three months ended October 25, 2019, Core Spine grew primarily through new product penetration from recently launched products, including the Infinity OCT System, T2 Stratosphere, and Prestige LP cervical disc system.
Specialty Therapies net sales for the three and six months ended October 25, 2019 were $333 million and $656 million, respectively, an increase of 3 percent and 4 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Net sales growth was driven by capital equipment sales of the StealthStation ENT surgical navigation system, intraoperative NIM nerve monitoring system, and powered ENT instruments in ENT, along with sales of the InterStim II neurostimulator in Pelvic Health.
Pain Therapies net sales for the three and six months ended October 25, 2019 were $315 million and $607 million, respectively, which was flat and a decrease of 3 percent, respectively, as compared to the corresponding periods in the prior fiscal year. For the six months ended October 25, 2019, the decrease in net sales was driven by the continued overall slowdown in the U.S. spinal cord stimulation market. For the three months ended October 25, 2019, Interventional Pain growth partially offset the decline in Pain Stimulation based on continued success of both the Kyphon V vertebroplasty and Osteocool RF Spinal Tumor ablation systems.
Looking ahead, we expect our Restorative Therapies Group could be affected by the following:
Continued acceptance and growth of the Solitare 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.
Continued growth from Neurosurgery StealthStation and O-Arm Imaging Systems, Midas, and ENT Navigation and Power Systems.
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, which received FDA approval in November 2018.
Strengthening of our position as a global leader in enabling technologies for spine surgery as a result of the December 2018 acquisition of Mazor Robotics.
Strengthening of our position in the spine titanium interbody implant marketplace as a result of the June 2019 acquisition of Titan Spine.
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.
Market acceptance and continued global adoption of innovative new Spine products and procedural solutions, 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.
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Continued global adoption of our Intellis spinal cord stimulator, Evolve workflow algorithm, and Snapshot reporting to treat chronic pain in major markets around the world.
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.
Continued acceptance of our devices for the treatment of Parkinson's Disease, epilepsy and other movement disorders. We launched our medically refractory epilepsy device in the U.S. in November 2018.
Continued acceptance and growth of our Specialty Therapies, including InterStim therapy 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.
Diabetes Group
The Diabetes Group's products include insulin pumps, continuous glucose monitoring (CGM) systems, and insulin pump consumables. The Diabetes Group’s net sales for the three and six months ended October 25, 2019 were $596 million and $1.2 billion, respectively, an increase of 2 percent and 3 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had an unfavorable impact on net sales for the three and six months ended October 25, 2019 of $12 million and $23 million, respectively. The Diabetes Group's net sales growth for the three and six months ended October 25, 2019 was primarily attributable to growth in international markets resulting from strong consumer demand of the MiniMed 670G. In addition, continued adoption of the Guardian Connect Smart CGM System contributed to the revenue growth in the period. Our strong international growth was partially offset by declines in our U.S. business as a result of competitive challenges.
Looking ahead, we expect our Diabetes Group could be affected by the following:
Increasing pump competition in an expanding U.S. market.
Continued patient demand for the MiniMed 670G system, the first hybrid closed loop system in the world. The system is powered by SmartGuard technology, which mimics some of the functions of a healthy pancreas by providing two levels of automated insulin delivery, maximizing Time in Range with reduced user input. Approximately 224,000 trained, active users are benefiting from SmartGuard technology.
Continued acceptance and future growth internationally for the MiniMed 670G system. This system received CE mark in June 2018 and is now commercialized in Canada, Australia, Chile and in select European and Central American countries. The global adoption of sensor-augmented insulin pump systems has resulted in strong sensor attachment rates. Reimbursement in Germany was received in September 2019 and we expect additional launches outside the U.S. in the remainder of fiscal year 2020, including France during the fourth quarter.
Changes in medical reimbursement policies and programs, along with additional payor coverage of the MiniMed 670G system.
Acceptance of the upcoming launch of our advanced hybrid closed loop system, MiniMed 780G, along with the advancement of our Personalized Closed Loop system which was just granted "Breakthrough Device" designation by the FDA within the United States. These technologies feature our next-generation algorithms designed to improve Time in Range by further automating insulin delivery.
Continued acceptance and growth of the Guardian Connect CGM system which displays glucose information directly to a smartphone.
Continued partnership with UnitedHealthcare as the preferred in-network provider of insulin pumps, giving their members, including pediatric patients 7 years and above, access to our advanced diabetes technology and comprehensive support services.

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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 26, 2019.
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.
Our critical accounting estimates include the following:
Litigation Contingencies We are involved in a number of legal actions involving product liability, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, income tax disputes, and governmental proceedings and investigations. The outcomes of these legal actions are not completely within our 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 or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions. Estimating probable losses from our litigation and governmental proceedings is inherently difficult, 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. Our significant legal proceedings are discussed in Note 17 to the current period's consolidated financial statements.
Income Tax Reserves We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may or may not prevail. Under U.S. GAAP, if we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by determining the amount that is greater than 50 percent likely of being realized upon settlement. We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We regularly monitor our tax positions and tax liabilities. We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) a completion of a tax audit, (ii) effective settlement of an issue, (iii) a change in applicable tax law including a tax case or legislative guidance, or (iv) the expiration of the applicable statute of limitations. Significant judgment is required in accounting for tax reserves. Although we believe that we have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our effective tax rate, consolidated earnings, financial position and/or cash flows.
Valuation of Intangible Assets and Goodwill When we acquire a business, the assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill is the excess of the purchase price over the estimated fair value of net assets of acquired businesses. Intangible assets primarily include patents, trademarks, tradenames, customer relationships, purchased technology, and IPR&D. Determining the fair value of intangible assets acquired as part of a business combination requires us to make significant estimates. These estimates include the amount and timing of projected future cash flows of each project or technology, the discount rate used to discount those cash flows to present value, the assessment of the asset’s life cycle, and the consideration of legal, technical, regulatory, economic, and competitive risks.
The test for goodwill impairment requires us to make several estimates to determine fair value, most of which are based on projected future cash flows. Our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value. We assess the impairment of goodwill at the reporting unit level annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired.
We test definite-lived intangible assets for impairment when an event occurs or circumstances change that would indicate the carrying amount of the assets or asset group may be impaired. Our tests are based on future cash flows that require significant judgment with respect to future revenue and expense growth rates, appropriate discount rates, asset groupings, and other assumptions and estimates. We use estimates that are consistent with our business plans and a market participant's view of the assets being evaluated. Actual results may differ from our estimates due to a number of factors including, among others,
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changes in competitive conditions, timing of regulatory approval, results of clinical trials, changes in worldwide economic conditions, and fluctuations in currency exchange rates.
We assess the impairment of indefinite-lived intangible assets annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Our impairment tests of indefinite-lived intangible assets require us to make several estimates to determine fair value, including projected future cash flows and discount rates.
NEW ACCOUNTING PRONOUNCEMENTS
Information regarding new accounting pronouncements is included in Note 2 to the current period's consolidated financial statements.
ACQUISITIONS
Information regarding acquisitions is included in Note 4 to the current period's consolidated financial statements.
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:
 Three months endedSix months ended
 October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Cost of products sold31.1 %29.4 %31.3 %29.6 %
Research and development expense7.8 %7.9 %7.8 %7.9 %
Selling, general, and administrative expense34.0 %34.8 %34.0 %35.0 %
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 and six months ended October 25, 2019 was $2.4 billion and $4.8 billion, respectively. The increase in cost of products sold as a percentage of net sales for the three and six months ended October 25, 2019 as compared to the corresponding periods in the prior fiscal year was driven by increased restructuring and associated costs and increased duty, driven in part by increased China tariffs on inbound products. Additionally, for the six months ended October 25, 2019, we incurred increased expenses to overcome the sterilization shortage in our Minimally Invasive Therapies Group. Cost of products sold for the three and six months ended October 25, 2019 included $32 million and $67 million, respectively, of restructuring and associated costs, as compared to $22 million and $37 million, respectively, for corresponding periods in the prior fiscal year.
Research and Development Expense We remain committed to accelerating the development of meaningful innovations to 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. Research and development expense for the three and six months ended October 25, 2019 was $603 million and $1.2 billion, respectively.
Selling, General, and Administrative Expense Our goal is to continue to leverage selling, general, and administrative expense initiatives and to continue to realize cost synergies expected from our acquisitions. 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 and six months ended October 25, 2019 was $2.6 billion and $5.2 billion, respectively. The decrease in selling, general, and administrative expense as a percentage of net sales for the three and six months ended October 25, 2019 benefited from our Enterprise Excellence program and continued net sales growth. Selling, general, and administrative expense for the three and six months ended October 26, 2018 also included expenses incurred to fulfill our Transition Service Agreements (TSAs) that we entered into with Cardinal Health in conjunction with the Divestiture.
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The following is a summary of other costs and expenses:
Three months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Amortization of intangible assets$441  $445  $881  $891  
Restructuring charges, net27  24  74  86  
Certain litigation charges121  —  168  103  
Other operating expense, net149  70  127  221  
Other non-operating income, net(108) (52) (209) (238) 
Interest expense165  241  774  483  

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. Amortization expense was $441 million and $881 million for the three and six months ended October 25, 2019, respectively, as compared to $445 million and $891 million for the three and six months ended October 26, 2018, respectively.
Restructuring Charges, Net
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 is expected to further leverage our global size and scale as well as enhance the customer and employee experience.
The Enterprise Excellence Program is focused 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 the customer experience

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

The Enterprise Excellence Program is expected to result in pre-tax restructuring charges of approximately $1.6 billion to $1.8 billion, the vast majority of which are expected to be incurred by the end of fiscal year 2022 and result in cash outlays to be substantially complete by the end of fiscal year 2023. Approximately half of the estimated charges are related to employee termination benefits. The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program and consulting expenses. We expect these costs to be recognized within restructuring charges, net, cost of products sold, and selling, general, and administrative expense in the consolidated statements of income.

For the three and six months ended October 25, 2019, we recognized charges of $95 million and $231 million, respectively. Additionally, we incurred accrual adjustments of $1 million and $13 million for the three and six months ended October 25, 2019, respectively, related to certain employees identified for termination finding other positions within Medtronic. For the three and six months ended October 25, 2019, charges included $28 million and $81 million, respectively, recognized within restructuring charges, net in the consolidated statements of income, primarily comprised of employee termination benefits. For the three and six months ended October 25, 2019, 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 $32 million and $61 million, respectively, recognized within cost of products sold and $35 million and $77 million, respectively, recognized within selling, general, and administrative expense in the consolidated statements of income. For the six months ended October 25, 2019, cost of products sold also included $6 million of fixed asset write-downs.

For the three and six months ended October 26, 2018, we recognized charges of $75 million and $195 million, respectively. Additionally, we incurred accrual adjustments of $4 million and $2 million for the three and six months ended October 26,
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2018, respectively, primarily related to employee termination benefits being more than initially estimated. For the three and six months ended October 26, 2018, charges included $22 million and $91 million, respectively, recognized within restructuring charges, net in the consolidated statements of income, primarily comprised of employee termination benefits. For the three and six months ended October 26, 2018, 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 $22 million and $37 million, respectively, recognized within cost of products sold and $31 million and $54 million, respectively, recognized within selling, general and administrative expense in consolidated statements of income. For the six months ended October 26, 2018, selling, general and administrative expense also included $13 million of fixed asset write-downs.
For additional information about our restructuring programs, refer to Note 5 to the current period's consolidated financial statements.
Certain Litigation Charges We classify litigation charges and gains related to significant legal matters as certain litigation charges. During the three and six months ended October 25, 2019 we recognized $121 million and $168 million, respectively, of certain litigation charges related to probable and estimable damages for significant legal matters. During the six months ended October 26, 2018, we recognized $103 million of certain litigation charges. There were no certain litigation charges recognized during the three months ended October 26, 2018.
Other Operating Expense, Net Other operating expense, net primarily includes royalty income and expense, currency remeasurement and derivative gains and losses, Puerto Rico excise taxes, changes in the fair value of contingent consideration, TSA income, a commitment to the Medtronic Foundation, and charges associated with business exits. For the three and six months ended October 25, 2019, other operating expense, net was $149 million and $127 million, respectively, as compared to $70 million and $221 million for the three and six months ended October 26, 2018, respectively. The changes in other operating expense, net are primarily attributable to our remeasurement and hedging programs as well as an $80 million charge associated with our commitment to the Medtronic Foundation during the three and six months ended October 25, 2019. Combined, our remeasurement and hedging programs resulted in a $47 million gain and $121 million gain for the three and six months ended October 25, 2019, respectively, as compared to a $10 million loss and $26 million loss for the three and six months ended October 26, 2018, respectively. Additionally, for the three and six months ended October 25, 2019, other operating expense, net includes a $41 million charge associated with the exit of businesses, as compared to an $80 million charge associated with the exit of a business during the six months ended October 26, 2018. There were no charges associated with the exit of a business during the three months ended October 26, 2018.
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. For the three and six months ended October 25, 2019, other non-operating income, net was $108 million and $209 million, respectively, as compared to $52 million and $238 million for the three and six months ended October 26, 2018, respectively. The change in other non-operating income, net is primarily attributable to gains and losses on our minority investment portfolio. Gains (losses) on minority investments were $12 million and $11 million for the three and six months ended October 25, 2019, respectively, as compared to ($25) million and $85 million for the three and six months ended October 26, 2018, 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, and charges recognized in connection with the tender and early redemption of senior notes. For the three and six months ended October 25, 2019, interest expense was $165 million and $774 million, respectively, as compared to $241 million and $483 million for the three and six months ended October 26, 2018, respectively. The decrease in interest expense during the three months ended October 25, 2019 was primarily due to a decrease in the weighted-average interest rate of outstanding debt obligations, as compared to the corresponding period in the prior fiscal year, driven by our debt issuance and tender transactions in the fourth quarter of fiscal year 2019 and first quarter of fiscal year 2020. The increase in interest expense during the six months ended October 25, 2019 was primarily driven by $413 million of charges recognized in connection with the tender and early redemption of $5.2 billion of senior notes, partially offset by a decrease in the weighted-average interest rate of outstanding debt obligations due to the aforementioned debt issuance and tender transactions.
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INCOME TAXES
Three months endedSix months ended
(in millions)October 25, 2019October 26, 2018October 25, 2019October 26, 2018
Income tax provision$(77) $235  $23  $338  
Income before income taxes1,294  1,355  2,271  2,535  
Effective tax rate(6.0)%17.3 %1.0 %13.3 %
Non-GAAP income tax provision$312  $256  $618  $501  
Non-GAAP income before income taxes2,096  1,921  4,118  3,769  
Non-GAAP Nominal Tax Rate14.9 %13.3 %15.0 %13.3 %
Difference between the effective tax rate and Non-GAAP Nominal Tax Rate20.9 %(4.0)%14.0 %— %
Many of the countries we operate in have statutory tax rates lower than our U.S. statutory rate, thereby resulting in an overall effective tax rate less than the U.S. statutory rate of 21 percent. A significant portion of our earnings are generated from operations in Puerto Rico, Switzerland, and Ireland. The statutory tax rates for these jurisdictions range from 12.5 percent to 45.1 percent. Our earnings in Puerto Rico and Switzerland are subject to certain tax incentive grants which provide for tax rates lower than the country statutory tax rates. Unless our tax incentive grants are extended, they will expire between fiscal years 2020 and 2034. The tax incentive grants scheduled to expire during fiscal year 2020 are not expected to have a material impact on our financial results. Refer to Note 14 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 26, 2019 for additional information.
Our effective tax rate for the three and six months ended October 25, 2019 was (6.0) percent and 1.0 percent, respectively, as compared to 17.3 percent and 13.3 percent for the three and six months ended October 26, 2018, respectively. The decrease in the effective tax rate for the three and six months ended October 25, 2019, as compared to the corresponding period in the prior fiscal year, was primarily due to the impact of certain tax adjustments.
Our Non-GAAP Nominal Tax Rate for the three and six months ended October 25, 2019 was 14.9 percent and 15.0 percent, respectively, as compared to 13.3 percent for the three and six months ended October 26, 2018. The change in our Non-GAAP Nominal Tax Rate was primarily due to the impact of a lapse of federal statutes of limitations in the prior year and 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 and six months ended October 25, 2019 of approximately $21 million and $41 million, respectively.
Certain Tax Adjustments
During the three months ended October 25, 2019, the net benefit from certain tax adjustments of $251 million, recognized in income tax provision in the consolidated statements of income, included the following:
A benefit of $251 million related to tax legislative changes in Switzerland which abolished certain preferential tax regimes the Company benefited from and replaced them with a new set of internationally accepted measures. The legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.
During the six months ended October 25, 2019, the net benefit from certain tax adjustments of $281 million, recognized in income tax provision in the consolidated statements of income, included the following:
A net benefit of $30 million related to U.S. Treasury’s issuance of certain Final Regulations associated with U.S. Tax Reform. The primary impact of these regulations resulted in the re-establishment of our permanently reinvested assertion on certain foreign earnings and reversing the previously accrued tax liability. This benefit was partially offset by additional tax associated with a previously executed internal reorganization of certain foreign subsidiaries.
A benefit of $251 million related to tax legislative changes in Switzerland which abolished certain preferential tax regimes the Company benefited from and replaced them with a new set of internationally accepted measures. The legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.
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During the three months ended October 26, 2018, the charge from certain tax adjustments of $58 million, recognized in income tax provision in the consolidated statements of income, included the following:
A charge of $37 million associated with the transition tax liability recorded in connection with U.S. Tax Reform.
A charge of $21 million related to the recognition of a prepaid tax expense resulting from the reduction in the U.S. statutory tax rate due to U.S. Tax Reform and the sale of U.S. manufactured inventory held as of April 27, 2018.
During the six months ended October 26, 2018, the net charge from certain tax adjustments of $29 million, recognized in income tax provision in the consolidated statements of income, included the following:
A benefit of $13 million associated with the transition tax liability recorded in connection with U.S. Tax Reform.
A charge of $42 million related to the recognition of a prepaid tax expense resulting from the reduction in the U.S. statutory tax rate due to U.S. Tax Reform and the sale of U.S. manufactured inventory held as of April 27, 2018.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital structure is evaluated regularly within the context of our annual operating and strategic planning process. 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:
 Six months ended
(in millions)October 25, 2019October 26, 2018
Cash provided by (used in):  
Operating activities$3,377  $2,865  
Investing activities(1,767) 764  
Financing activities(2,015) (3,303) 
Effect of exchange rate changes on cash and cash equivalents(26) (84) 
Net change in cash and cash equivalents$(431) $242  
Operating Activities The $512 million increase in net cash provided was primarily driven by a decrease in cash paid for income taxes and interest, partially offset by an increase in cash paid for Enterprise Excellence restructuring activities, and an increase in cash paid to employees. The decrease in cash paid for income taxes was primarily due to a tax payment associated with the intercompany sale of intellectual property in the first quarter of fiscal year 2019, a lower transition tax payment made in the second quarter of fiscal year 2020 as compared to the corresponding period in the prior year, as well as the timing of estimated tax payments. Cash paid for interest decreased due to a decrease in interest expense and change in timing of interest payments resulting from the debt tenders and issuances in the first quarter of fiscal year 2020 and the fourth quarter of fiscal year 2019. Refer to the "Restructuring Charges, Net" section of this Management's Discussion and Analysis and Note 5 to the current period's consolidated financial statements for information on the Enterprise Excellence program. Cash paid to employees increased due to higher annual incentive plan payouts compared the corresponding period in the prior fiscal year.
Investing Activities The $2.5 billion increase in net cash used was primarily attributable to a decrease in net proceeds from purchases and sales of investments of $2.3 billion, an increase in cash paid for acquisitions of $82 million, and an increase in cash paid for additions of property, plant, and equipment of $87 million during the six months ended October 25, 2019, as compared to the corresponding period in the prior fiscal year.
Financing Activities The $1.3 billion decrease in net cash used was primarily attributable to a decrease in net cash used for share repurchases of $1.1 billion, and a net increase in short-term borrowings during the six months ended October 25, 2019, partially offset by a decrease in the issuance of ordinary shares of $368 million, as compared to the corresponding period in the prior fiscal year. Financing cash flows were also impacted by the issuance of $5.6 billion of Euro-denominated senior notes offset by the tender of $5.2 billion of senior notes for $5.6 billion of total consideration.
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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:
Six months ended
(in millions)October 25, 2019October 26, 2018
Net cash provided by operating activities$3,377  $2,865  
Additions to property, plant, and equipment(584) (497) 
Free cash flow$2,793  $2,368  

Debt and Capital
Our capital structure consists of equity and interest-bearing debt. We use a combination of bank borrowings and commercial paper issuances to fund our short-term financing needs. Current debt, including the current portion of our long-term debt and capital lease obligations, at October 25, 2019 was $875 million as compared to $838 million at April 26, 2019. Long-term debt at October 25, 2019 was $24.8 billion as compared to $24.5 billion at April 26, 2019. We utilize unsecured senior debt obligations to meet our long-term financing needs. From time to time, we may repurchase our outstanding debt obligations in the open market or through privately negotiated transactions.
Total debt at October 25, 2019 was $25.6 billion, as compared to $25.3 billion at April 26, 2019. The increase in total debt was primarily driven by the net impact of the issuance and cash tender offers described below.
In June 2019, we issued six tranches of Euro-denominated senior notes with an aggregate principal of €5.0 billion, with maturities ranging from fiscal year 2021 to fiscal year 2050, resulting in cash proceeds of approximately $5.6 billion, net of discounts and issuance costs. We used the net proceeds of the offering to fund the cash tender offer and early redemption described below. The Euro-denominated debt is designated as a net investment hedge of certain of our European operations.
We completed the cash tender offer of $4.6 billion of senior notes for $5.0 billion of total consideration in July 2019. We recognized a loss on debt extinguishment of $413 million in the first quarter of fiscal year 2020, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss on debt extinguishment also included a $16 million charge for the estimated early redemption premium for $533 million of senior notes which were redeemed in August 2019. The loss on debt extinguishment was recognized in interest expense in the consolidated statements of income.
For additional information on the issuance of these senior notes and the subsequent cash tender offer and redemption, refer to Note 7 to the current period's consolidated financial statements. For additional information on the Euro-denominated debt designated as a net investment hedge, refer Note 8 to the current period's consolidated financial statements.
We maintain a commercial paper program for short-term financing, which allows 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 October 25, 2019 and April 26, 2019, 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 2023. The Credit Facility provides backup funding for the commercial paper program 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 October 25, 2019 and April 26, 2019, 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). For additional information on our credit ratings status by S&P and Moody's, refer to the "Liquidity" section of this Management's Discussion and Analysis. Facility fees are payable on the Credit Facility and are determined in the same manner as the interest rates. The agreements also contain customary covenants, all of which we were in compliance with at October 25, 2019.
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We repurchase our ordinary shares from time to time as part of our focus on returning value to our shareholders. In June 2017, our Board of Directors authorized the expenditure of up to $5.0 billion for new share repurchases. In March 2019, our Board of Directors authorized an incremental $6.0 billion for repurchase of our ordinary shares. There is no specific time period associated with these repurchase authorizations. During the three and six months ended October 25, 2019, we repurchased a total of 5.2 million and 8.5 million shares, respectively, at an average price per share of $106.12 and $102.99, respectively. At October 25, 2019, we had approximately $6.3 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 7 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 26, 2019.
Liquidity
Our liquidity sources at October 25, 2019 include $4.0 billion of cash and cash equivalents and $6.4 billion of current investments. Additionally, we maintain a commercial paper program (no commercial paper outstanding at October 25, 2019) and Credit Facility. See discussion above regarding changes in our cash and cash equivalents and commercial paper program and Credit Facility.
Our investments include available-for-sale debt securities, including U.S. and non-U.S. government and agency securities, corporate debt securities, mortgage-backed securities, other asset-backed securities, and auction rate securities. Some of our investments may experience reduced liquidity due to changes in market conditions and investor demand. For the three and six months ended October 25, 2019, the total other-than-temporary impairment losses on available-for-sale debt securities were not significant. Based on our assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which we are invested, we believe we have recognized all necessary other-than-temporary impairments as we do not have the intent to sell, nor is it more likely than not that we will be required to sell, before recovery of the amortized cost. At October 25, 2019, we have $36 million of gross unrealized losses on our aggregate available-for-sale debt securities of $6.5 billion. If market conditions deteriorate, some of these holdings may experience other-than-temporary impairment in the future, which could adversely affect our financial results. We are required to use estimates and assumptions in our valuation of investments, which requires a high degree of judgment, and therefore, actual results could differ materially from estimates. Refer to Note 6 to the current period's consolidated financial statements for additional information regarding fair value measurements.
The table below includes our short-term and long-term debt ratings from S&P and Moody's at both October 25, 2019 and April 26, 2019:
Agency Rating(1)
October 25, 2019April 26, 2019
Standard & Poor's Ratings Services
   Long-term debtAA
   Short-term debtA-1A-1
Moody's Investors Service
   Long-term debtA3A3
   Short-term debtP-2P-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 October 25, 2019 were unchanged as compared to the ratings at April 26, 2019. 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 and Credit Facility and related commercial paper program.
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. Refer to the "Off-Balance Sheet Arrangements and Long-Term Contractual Obligations" section of this Management's Discussion and Analysis for more information on these obligations and commitments.
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Note 17 to the to the current period's consolidated financial statements provides information regarding amounts we have accrued related to legal matters. In accordance with U.S. GAAP, we record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Actual settlements may be different than estimated and could have a material effect on our consolidated earnings, financial position, and/or cash flows.
We record tax liabilities in our consolidated financial statements for amounts that we expect to repatriate from subsidiaries (to the extent the repatriation would be subject to tax); however, no tax liabilities are recorded for amounts that we consider to be permanently reinvested. We removed our permanently reinvested assertion on the undistributed earnings of certain foreign subsidiaries with a U.S. parent which were subject to the transition tax and all earnings of these subsidiaries through April 27, 2018. We have reasserted for certain earnings of such subsidiaries through April 27, 2018 which were not subject to the transition tax. We expect to have access to the majority of our cash flows in the future. In addition, we continue to evaluate our legal entity structure supporting our business operations, and to the extent such evaluation results in a change to our overall business structure, we may be required to accrue for additional tax obligations.
We believe our balance sheet and liquidity provide us with flexibility, and that our cash, cash equivalents, and current investments, as well as our Credit Facility and related commercial paper program, will satisfy our foreseeable operating needs for at least the next 12 months. We regularly review our capital needs and consider various investing and financing alternatives to support our requirements. 
Off-Balance Sheet Arrangements and Long-Term Contractual Obligations
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 26, 2019.
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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, restructuring and cost-saving initiatives, intellectual property rights, litigation and tax matters, government 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 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, 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 health care 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 government 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 and results of operations. 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 and Other Considerations” within “Item 1. Business” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as well as those related to:

competition in the medical device industry;
reduction or interruption in our supply;
laws and government regulations;
quality problems;
liquidity shortfalls;
decreasing prices and pricing pressure;
fluctuations in currency exchange rates;
changes in applicable tax rates;
changes in tax laws and regulations as well as positions taken by taxing authorities;
adverse regulatory action;
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delays in regulatory approvals;
litigation results;
self-insurance;
commercial insurance;
health care policy changes;
international operations;
cybersecurity incidents;
failure to complete or achieve the intended benefits of acquisitions or divestitures; 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. The primary currencies of our derivative instruments are the Euro, Japanese Yen, and British Pound. 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 October 25, 2019 and April 26, 2019 was $10.9 billion and $11.1 billion, respectively. At October 25, 2019, these contracts were in a net unrealized gain position of $284 million. A sensitivity analysis of changes in the fair value of all currency exchange rate derivative contracts at October 25, 2019 indicates that, if the U.S. dollar uniformly strengthened/weakened by 10 percent against all currencies, the fair value of these contracts would increase/decrease by approximately $942 million. 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 or six months ended October 25, 2019.
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 October 25, 2019 was comprised of debt predominately denominated in U.S. dollars and Euros, 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, compared to interest rates at October 25, 2019, indicates that the fair value of these instruments would correspondingly change by $33 million.
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.
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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
The Company is deploying an enterprise resource planning (ERP) software program, SAP, to the Minimally Invasive Therapies Group. Although no specific implementation activity or related changes in internal controls occurred during the period covered by this Quarterly Report on Form 10-Q, the system deployment will continue with projected completion in fiscal year 2020. 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.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
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 17 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 second quarter of fiscal year 2020:
Fiscal PeriodTotal Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as a Part of
Publicly Announced
Program (1)
Maximum Approximate Dollar Value of Shares that may yet be Purchased
Under the Program (1)
7/27/2019 - 8/23/20192,227,358  $103.35  2,227,358  $6,620,476,770  
8/24/2019 - 9/27/20192,049,917  108.74  2,049,917  6,397,579,042  
9/28/2019 - 10/25/2019925,840  107.03  925,840  6,298,488,003  
Total5,203,115  $106.12  5,203,115  $6,298,488,003  
(1)In June 2017, the Company's Board of Directors authorized the repurchase of $5.0 billion of the Company’s ordinary shares. In March 2019, the Company's Board of Directors authorized an incremental $6.0 billion for repurchase of the Company's ordinary shares. There is no specific time-period associated with these repurchase authorizations.
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Item 6. Exhibits
(a)Exhibits 
 
 
 
 
 101.SCHInline XBRL Schema Document.
 101.CALInline XBRL Calculation Linkbase Document.
 101.DEFInline XBRL Definition Linkbase Document.
 101.LABInline XBRL Label Linkbase Document.
 101.PREInline XBRL Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES
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 thereunto duly authorized.
  MEDTRONIC PUBLIC LIMITED COMPANY
  (Registrant)
   
Date:December 3, 2019/s/ Omar Ishrak
  Omar Ishrak
  Chairman and Chief Executive Officer
   
Date:December 3, 2019/s/ Karen L. Parkhill
  Karen L. Parkhill
  Executive Vice President and
  Chief Financial Officer

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