10-Q 1 mdt-2016q3x10q.htm 10-Q 10-Q


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 29, 2016
Commission File Number 001-36820
MEDTRONIC PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
 
 
Ireland
98-1183488
(State of incorporation)
(I.R.S. Employer
Identification No.)
20 On Hatch, Lower Hatch Street
Dublin 2, Ireland
(Address of principal executive offices) (Zip Code)
+353 1 438-1700
(Registrant’s telephone number, including area code)
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 x No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of March 3, 2016, 1,401,043,252 ordinary shares, par value $0.0001, 40,000 Euro deferred shares, par value €1.00, and 1,872 A preferred shares, par value $1.00, of the registrant were outstanding.
 
 




TABLE OF CONTENTS




PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
MEDTRONIC PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three months ended
 
Nine months ended
 
January 29, 2016
 
January 23, 2015
 
January 29, 2016
 
January 23, 2015
 
(in millions, except per share data)
Net sales
$
6,934

 
$
4,318

 
$
21,266

 
$
12,957

 
 
 
 
 
 
 
 
Costs and expenses:
 

 
 

 
 

 
 

Cost of products sold
2,141

 
1,128

 
6,779

 
3,375

Research and development expense
546

 
373

 
1,649

 
1,112

Selling, general, and administrative expense
2,317

 
1,487

 
7,109

 
4,500

Special charges

 
(138
)
 

 
(38
)
Restructuring charges, net
19

 

 
159

 
30

Certain litigation charges

 

 
26

 

Acquisition-related items
63

 
80

 
183

 
182

Amortization of intangible assets
484

 
89

 
1,448

 
265

Other expense, net
9

 
24

 
127

 
138

Operating profit
1,355

 
1,275

 
3,786

 
3,393

 
 
 
 
 
 
 
 
Interest income
(99
)
 
(95
)
 
(321
)
 
(274
)
Interest expense
275

 
176

 
905

 
368

Interest expense, net
176

 
81

 
584

 
94

Income from operations before income taxes
1,179

 
1,194

 
3,202

 
3,299

 
 
 
 
 
 
 
 
Provision for income taxes
84

 
217

 
767

 
623

 
 
 
 
 
 
 
 
Net income
$
1,095

 
$
977

 
$
2,435

 
$
2,676

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.78

 
$
0.99

 
$
1.72

 
$
2.71

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.77

 
$
0.98

 
$
1.70

 
$
2.68

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
1,406.6

 
983.8

 
1,412.5

 
986.6

 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
1,422.2

 
995.8

 
1,429.2

 
998.5

 
 
 
 
 
 
 
 
Cash dividends declared per ordinary share
$
0.380

 
$
0.305

 
$
1.140

 
$
0.915

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

1



MEDTRONIC PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
 
Three months ended
 
Nine months ended
 
January 29, 2016
 
January 23, 2015
 
January 29, 2016
 
January 23, 2015
 
(in millions)
Net income
$
1,095

 
$
977

 
$
2,435

 
$
2,676

 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 

 
 

 
 
 
 
Unrealized loss on available-for-sale securities, net of tax benefit of $(34), $(20), $(149), and $(7), respectively
(61
)
 
(37
)
 
(268
)
 
(17
)
Translation adjustment
(1,454
)
 
(203
)
 
(1,513
)
 
(332
)
Net change in retirement obligations, net of tax expense of $10, $6, $30, and $18, respectively
27

 
21

 
62

 
63

Unrealized (loss) gain on derivatives, net of tax (benefit) expense of $(3), $36, $(36), and $125, respectively
(6
)
 
64

 
(62
)
 
222

 
 
 
 
 
 
 
 
Other comprehensive loss
(1,494
)
 
(155
)
 
(1,781
)
 
(64
)
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(399
)
 
$
822

 
$
654

 
$
2,612

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

2



MEDTRONIC PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
January 29, 2016
 
April 24, 2015
 
(in millions, except per share data)
ASSETS
 

 
 

 
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
2,721

 
$
4,843

Investments
14,565

 
14,637

Accounts receivable, less allowances of $164 and $144, respectively
4,863

 
5,112

Inventories
3,536

 
3,463

Tax assets
502

 
1,335

Prepaid expenses and other current assets
1,382

 
1,454

Total current assets
27,569

 
30,844

 
 
 
 
Property, plant, and equipment
9,346

 
8,863

Accumulated depreciation
(4,710
)
 
(4,164
)
Property, plant, and equipment, net
4,636

 
4,699

Goodwill
40,376

 
40,530

Other intangible assets, net
27,316

 
28,101

Long-term tax assets
1,060

 
774

Other assets
1,749

 
1,737

Total assets
$
102,706

 
$
106,685

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

 
 
 
 
Current liabilities:
 

 
 

Short-term borrowings
$
2,153

 
$
2,434

Accounts payable
1,437

 
1,610

Accrued compensation
1,481

 
1,611

Accrued income taxes
454

 
935

Deferred tax liabilities

 
119

Other accrued expenses
2,616

 
2,464

Total current liabilities
8,141

 
9,173

 
 
 
 
Long-term debt
33,681

 
33,752

Long-term accrued compensation and retirement benefits
1,585

 
1,535

Long-term accrued income taxes
2,822

 
2,476

Long-term deferred tax liabilities
3,802

 
4,700

Other long-term liabilities
1,859

 
1,819

Total liabilities
51,890

 
53,455

 
 
 
 
Commitments and contingencies (Notes 3 and 16)

 

 
 
 
 
Shareholders’ equity:
 

 
 

Ordinary shares— par value $0.0001

 

Retained earnings
53,781

 
54,414

Accumulated other comprehensive loss
(2,965
)
 
(1,184
)
Total shareholders’ equity
50,816

 
53,230

Total liabilities and shareholders’ equity
$
102,706

 
$
106,685

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

3



MEDTRONIC PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine months ended
 
January 29, 2016
 
January 23, 2015
 
(in millions)
Operating Activities:
 

 
 

Net income
$
2,435

 
$
2,676

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
2,112

 
629

Amortization of debt issuance costs
22

 
69

Acquisition-related items
216

 
2

Provision for doubtful accounts
43

 
25

Deferred income taxes
(291
)
 
(20
)
Stock-based compensation
291

 
115

Other, net
(117
)
 
(96
)
Change in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable, net
86

 
(60
)
Inventories
(388
)
 
(245
)
Accounts payable and accrued liabilities
177

 
702

Other operating assets and liabilities
(399
)
 
(1
)
Certain litigation charges
26

 

Certain litigation payments
(321
)
 
(806
)
Net cash provided by operating activities
3,892

 
2,990

Investing Activities:
 

 
 

Acquisitions, net of cash acquired
(1,132
)
 
(611
)
Additions to property, plant, and equipment
(693
)
 
(316
)
Purchases of marketable securities
(4,509
)
 
(5,327
)
Sales and maturities of marketable securities
4,017

 
4,351

Other investing activities, net
(11
)
 
60

Net cash used in investing activities
(2,328
)
 
(1,843
)
Financing Activities:
 

 
 

Acquisition-related contingent consideration
(21
)
 
(5
)
Change in short-term borrowings, net
1,223

 
7

Repayment of short-term borrowings (maturities greater than 90 days)
(48
)
 
(150
)
Proceeds from short-term borrowings (maturities greater than 90 days)
139

 
150

Issuance of long-term debt

 
16,918

Payments on long-term debt
(1,612
)
 
(13
)
Dividends to shareholders
(1,608
)
 
(902
)
Issuance of ordinary shares
360

 
477

Repurchase of ordinary shares
(2,170
)
 
(1,620
)
Other financing activities, net
60

 
(64
)
Net cash used in financing activities
(3,677
)
 
14,798

Effect of exchange rate changes on cash and cash equivalents
(9
)
 
(117
)
Net change in cash and cash equivalents
(2,122
)
 
15,828

Cash and cash equivalents at beginning of period
4,843

 
1,403

Cash and cash equivalents at end of period
$
2,721

 
$
17,231

Supplemental Cash Flow Information
 

 
 

Cash paid for:
 

 
 

Income taxes
$
1,236

 
$
446

Interest
707

 
221

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

4

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
Note 1Basis of Presentation
The accompanying unaudited condensed consolidated financial statements 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. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, comprehensive income, financial condition, and cash flows in conformity with U.S. GAAP. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results of Medtronic plc and its subsidiaries (Medtronic plc, Medtronic or the Company) for the periods presented. Medtronic plc is the successor registrant to Medtronic, Inc.
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. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended 2015.
The Company’s fiscal years 2016, 2015, and 2014 will end or ended on April 29, 2016, April 24, 2015, and April 25, 2014, respectively. Fiscal year 2016 is a 53-week year, and the extra week occurred during the first quarter.
Note 2New Accounting Pronouncements
Recently Adopted
In April 2014, the Financial Accounting Standards Board (FASB) issued amended guidance for reporting discontinued operations. The amended guidance changes the criteria for determining when the results of operations are to be reported as discontinued operations and expands the related disclosure requirements. The guidance defines a discontinued operation as a component or group of components that is disposed of or classified as held for sale, which is a strategic shift that has, or will have, a major effect on financial position and results of operations. The Company prospectively adopted this accounting guidance in the first quarter of fiscal year 2016. Its adoption did not have a material impact on the Company's condensed consolidated financial statements.
In September 2015, the FASB issued accounting guidance which eliminates the requirement for an acquirer in a business combination to restate prior period financial statements for measurement period adjustments. An acquirer in a business combination is required to report provisional amounts when measurements are incomplete at the end of the reporting period covering the business combination. Prior to the issuance of the new guidance, an acquirer was required to adjust such provisional amounts by restating prior period financial statements. Under the new guidance, the acquirer will recognize the measurement-period adjustment in the period the adjustment is determined. The Company prospectively adopted this accounting guidance in the third quarter of fiscal year 2016. Its adoption did not have a material impact on the Company's condensed consolidated financial statements.

In November 2015, the FASB issued accounting guidance that requires all deferred tax assets and liabilities, along with any related valuation allowance, to be classified as noncurrent on the Condensed Consolidated Balance Sheets. Current guidance requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. As a result of the new guidance, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that only permits offsetting deferred tax assets and liabilities within a single jurisdiction. Entities have the option to apply the new guidance prospectively or retrospectively. This accounting guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, with early adoption permitted. The Company prospectively adopted this accounting guidance in the third quarter of fiscal year 2016. Prior periods have not been retrospectively adjusted for adoption of this statement.
Not Yet Adopted
In May 2014, the FASB issued amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue in an amount that reflects the consideration to which an entity expects to be entitled in exchange for the transfer of goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments

5

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2019 using one of two prescribed retrospective methods. The Company is evaluating the impact of the amended revenue recognition guidance on the Company’s condensed consolidated financial statements.

Note 3Acquisitions and Acquisition-Related Items
The Company had various acquisitions and other acquisition-related activity during the first three quarters of fiscal years 2016 and 2015. Certain acquisitions were accounted for as business combinations as noted below. In accordance with authoritative guidance on business combination accounting, the assets and liabilities of the companies acquired were recorded and consolidated as of the acquisition date at their respective fair values. Unless otherwise disclosed, the pro forma impact of these acquisitions was not significant, either individually or in the aggregate, to the results of the Company for the three and nine months ended January 29, 2016 or January 23, 2015. The results of operations related to each company acquired have been included in the Company's condensed consolidated statements of income since the date each company was acquired.
Acquisition of Covidien public limited company
On January 26, 2015 (Acquisition Date), pursuant to the transaction agreement, dated as of June 15, 2014 (the Transaction Agreement), the Company acquired Covidien plc (Covidien), and Covidien and Medtronic, Inc. became subsidiaries of Medtronic (collectively, the Transactions). In connection with the consummation of the Transactions, Medtronic re-registered as a public limited company organized under the laws of Ireland.
On January 26, 2015, (a) each Covidien ordinary share was converted into the right to receive $35.19 in cash and 0.956 of a newly issued Medtronic plc ordinary share (the Arrangement Consideration) in exchange for each Covidien share held by such shareholders, and (b) each share of Medtronic, Inc. common stock was converted into the right to receive one Medtronic plc ordinary share. Total consideration was approximately $50 billion, consisting of $16 billion cash and $34 billion of non-cash consideration. Based on the number of outstanding shares of Medtronic, Inc. and Covidien as of January 23, 2015 (the last business day prior to the close of the transaction), former Medtronic, Inc. and Covidien shareholders held approximately 69 percent and 31 percent, respectively, of the Company's ordinary shares after giving effect to the acquisition.
Covidien was a global leader in the development, manufacture, and sale of healthcare products for use in clinical and home settings. The operating results for Covidien are included in the Minimally Invasive Therapies Group, Cardiac and Vascular Group, and Restorative Therapies Group segments.
Fair Value of Assets Acquired and Liabilities Assumed
The Company accounted for the acquisition of Covidien as a business combination using the acquisition method of accounting. The assets acquired and liabilities assumed were recorded at their respective fair values as of the Acquisition Date. The fair value of assets acquired and liabilities assumed was finalized during the third quarter of fiscal year 2016. During the measurement period, which ended January 26, 2016, adjustments were made to finalize Covidien's preliminary fair value estimates related primarily to other current assets, intangible assets, goodwill, certain property value, contingent liabilities and the related deferred tax impacts. Based upon the acquisition valuation, the Company acquired $18.3 billion of customer-related intangible assets, $7.1 billion of technology-based intangible assets, $0.4 billion of tradenames, with weighted average estimated useful lives of 18, 16, and 6 years, respectively, $0.4 billion of in-process research and development (IPR&D), and $30.0 billion of goodwill.

6

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The fair values of the assets acquired and liabilities assumed in connection with the Transactions are as follows:
(estimated in millions)
January 26, 2015
(as previously reported)
 
Adjustments
 
January 26, 2015
(as adjusted)
Accounts receivable
$
1,349

 
$

 
$
1,349

Inventories
2,222

 
(3
)
 
2,219

Other current assets
2,949

 
232

 
3,181

Property, plant, and equipment
2,354

 
(61
)
 
2,293

Goodwill
29,586

 
393

 
29,979

Intangible assets
26,265

 
(55
)
 
26,210

Other assets
747

 
14

 
761

Total assets acquired
65,472

 
520

 
65,992

 
 
 
 
 
 
Short-term borrowings
1,011

 

 
1,011

Other current liabilities
2,331

 
103

 
2,434

Long-term debt
4,623

 

 
4,623

Long-term deferred tax liabilities
4,736

 
9

 
4,745

Other long-term liabilities
2,783

 
408

 
3,191

Total liabilities assumed
15,484

 
520

 
16,004

Net assets acquired
$
49,988

 
$

 
$
49,988

Contingent liabilities assumed as part of the Transactions total $2.7 billion and are included within accrued income taxes, other accrued expenses, long-term accrued income taxes, and other long-term liabilities in the condensed consolidated balance sheet. These contingent liabilities include $1.5 billion related to income taxes (including uncertain tax positions and guarantee commitments) and $1.2 billion related to legal claims (including product liability and environmental matters). Contingent liabilities are recorded at their estimated fair values, aside from those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting. See Note 16 to the condensed consolidated financial statements for additional background on contingent liabilities.
For additional information related to the Transactions, see Note 2 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended April 24, 2015.
Fiscal Year 2016
The fair values of the assets acquired and liabilities assumed during the nine months ended January 29, 2016 are as follows:
(in millions)
Twelve, Inc.
 
RF Surgical Systems, Inc.
 
Medina Medical
 
All Other
 
Total
Other current assets
$
60

 
$
43

 
$
11

 
$
40

 
$
154

Property, plant, and equipment

 
3

 

 
5

 
8

IPR&D
192

 

 
122

 
143

 
457

Other intangible assets

 
115

 

 
184

 
299

Goodwill
301

 
132

 
126

 
238

 
797

Other assets

 
2

 

 
15

 
17

Total assets acquired
553

 
295

 
259

 
625

 
1,732

 
 
 
 
 
 
 
 
 
 
Current liabilities
37

 
28

 
6

 
21

 
92

Long-term deferred tax liabilities, net
44

 
27

 
34

 
56

 
161

Other liabilities

 

 

 
2

 
2

Total liabilities assumed
81

 
55

 
40

 
79

 
255

Net assets acquired
$
472

 
$
240

 
$
219

 
$
546

 
$
1,477


7

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Twelve, Inc.
On October 2, 2015, the Company's Coronary & Structural Heart division acquired Twelve, Inc. (Twelve), a privately-held medical device company focused on the development of a transcatheter mitral valve replacement device. Total consideration for the transaction was approximately $472 million, which included an upfront payment of $428 million and the estimated fair value of product development-based contingent consideration of $44 million. Based upon a preliminary acquisition valuation, the Company acquired $192 million of IPR&D and $301 million of goodwill. The acquired goodwill is not deductible for tax purposes.
RF Surgical Systems, Inc.
On August 11, 2015, the Company's Surgical Solutions division acquired RF Surgical Systems, Inc. (RF Surgical), a medical device company focused on the detection and prevention of retained surgical sponges. Total consideration for the transaction was approximately $240 million. Based upon a preliminary acquisition valuation, the Company acquired $68 million of technology-based intangible assets, $47 million of customer-related intangible assets, with estimated useful lives of 18 and 16 years, respectively, and $132 million of goodwill. The acquired goodwill is not deductible for tax purposes.
Medina Medical
On August 31, 2015, the Company's Neurovascular division acquired Medina Medical (Medina), a privately-held medical device company focused on commercializing treatments for vascular abnormalities of the brain, including cerebral aneurysms. Total consideration for the transaction was approximately $219 million, which includes an upfront payment of $155 million and the estimated fair value of revenue-based and product development-based contingent consideration of $64 million. Medtronic had previously invested in Medina and held an 11 percent ownership position. Net of this ownership position, the transaction value was approximately $195 million. Based upon a preliminary acquisition valuation, the Company acquired $122 million of IPR&D and $126 million of goodwill. The acquired goodwill is not deductible for tax purposes.
The Company accounted for the acquisitions of Twelve, RF Surgical, and Medina and all other acquisitions as business combinations using the acquisition method of accounting.
Acquisition-Related Items
During the three and nine months ended January 29, 2016, the Company recorded acquisition-related items of $63 million and $183 million, respectively, primarily due to integration related costs incurred in connection with the Covidien acquisition, partially offset by income related to the change in fair value of contingent consideration associated with acquisitions subsequent to April 29, 2009.
Fiscal Year 2015
The fair values of the assets acquired and liabilities assumed from acquisitions during fiscal year 2015, other than the Covidien acquisition, are as follows:
(in millions)
NGC Medical S.p.A.
 
Sapiens Steering Brain Stimulation
 
All Other
 
Total
Other current assets
$
55

 
$
3

 
$
12

 
$
70

Property, plant, and equipment
15

 
1

 
2

 
18

IPR&D

 
30

 
39

 
69

Other intangible assets
159

 

 
157

 
316

Goodwill
197

 
170

 
108

 
475

Other assets
3

 
3

 
49

 
55

Total assets acquired
429

 
207

 
367

 
1,003

 
 
 
 
 
 
 
 
Current liabilities
34

 
4

 
6

 
44

Long-term deferred tax liabilities, net
51

 

 
66

 
117

Other liabilities
4

 

 

 
4

Total liabilities assumed
89

 
4

 
72

 
165

Net assets acquired
$
340

 
$
203

 
$
295

 
$
838

The Company accounted for the acquisitions above as business combinations using the acquisition method of accounting.

8

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Other Acquisitions and Acquisition-Related Items
During the three and nine months ended January 23, 2015, the Company recorded acquisition-related items of $80 million and $182 million, respectively, primarily due to costs incurred in connection with the Covidien acquisition.
Contingent Consideration
Certain of the Company’s business combinations involve the potential for the payment of future contingent consideration upon the achievement of certain product development milestones and/or various other favorable operating conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels or achieving product development targets. For business combinations subsequent to April 24, 2009, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. For business combinations or purchases of intellectual property prior to April 24, 2009, the estimated maximum amount of undiscounted future contingent consideration payments that the Company expected to make was approximately $177 million at January 29, 2016. The Company estimates the milestones or other conditions associated with the contingent consideration will be reached in fiscal year 2016 and thereafter.
The fair value of the contingent consideration is remeasured at each reporting period and the change in fair value recognized as income or expense within acquisition-related items in the condensed consolidated statements of income. The Company measures the liability on a recurring basis using Level 3 inputs. The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based considerations). Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model. Projected revenues are based on the Company’s most recent internal operational budgets and long-range strategic plans. Increases (decreases) in projected revenues, probabilities of payment, discount rates, or projected payment dates may result in a higher (lower) fair value measurement.
The recurring Level 3 fair value measurements of contingent consideration include the following significant unobservable inputs:
 
 
Fair Value at
 
 
 
 
 
 
($ in millions)
 
January 29, 2016
 
Valuation Technique
 
Unobservable Input
 
Range
 
 
 
 
 
 
Discount rate
 
11% - 27.2%
Revenue-based payments
 
$191
 
Discounted cash flow
 
Probability of payment
 
30% - 100%
 
 
 
 
 
 
Projected fiscal year of payment
 
2016 - 2025
 
 
 
 
 
 
Discount rate
 
0.3% - 5.5%
Product development-based payments
 
$180
 
Discounted cash flow
 
Probability of payment
 
75% - 100%
 
 
 
 
 
 
Projected fiscal year of payment
 
2016 - 2025
The fair value of contingent consideration associated with acquisitions subsequent to April 24, 2009, as of January 29, 2016 and April 24, 2015, was $371 million and $264 million, respectively. As of January 29, 2016, $311 million was reflected in other long-term liabilities and $60 million was reflected in other accrued expenses in the condensed consolidated balance sheets. As of April 24, 2015, $242 million was reflected in other long-term liabilities and $22 million was reflected in other accrued expenses in the condensed consolidated balance sheets. The portion of the contingent consideration paid related to the acquisition date fair value is reported as financing activities in the condensed consolidated statements of cash flows. Amounts paid in excess of the original acquisition date fair value are reported as operating activities in the condensed consolidated statements of cash flows. The following table provides a reconciliation of the beginning and ending balances of contingent consideration associated with acquisitions subsequent to April 24, 2009:
 
Three months ended
 
Nine months ended
(in millions)
January 29, 2016
 
January 23, 2015
 
January 29, 2016
 
January 23, 2015
Beginning Balance
$
368

 
$
91

 
$
264

 
$
68

Purchase price contingent consideration
14

 
6

 
149

 
29

Contingent consideration payments
(2
)
 

 
(22
)
 
(5
)
Change in fair value of contingent consideration
(9
)
 
(4
)
 
(20
)
 
1

Ending Balance
$
371

 
$
93

 
$
371

 
$
93


9

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 4Special Charges and Certain Litigation Charges
Special Charges
During the three and nine months ended January 29, 2016, there were no special charges.
During the three months ended January 23, 2015, the Company recognized a $138 million gain, which consisted of a $41 million gain on the sale of a product line in the Surgical Technologies division, and a $97 million gain on the sale of an equity method investment. In addition, during the nine months ended January 23, 2015, continuing the Company's commitment to improving the health of people and communities throughout the world, the Company made a $100 million charitable cash contribution to meet the multi-year funding needs of the Medtronic Foundation, a related party non-profit organization.
Certain Litigation Charges
The Company classifies material litigation reserves and gains recognized as certain litigation charges. During the three months ended January 29, 2016, there were no certain litigation charges. During the nine months ended January 29, 2016, the Company recorded certain litigation charges of $26 million, which relates to probable and reasonably estimable INFUSE product liability litigation.
During the three and nine months ended January 23, 2015, there were no certain litigation charges.
Note 5Restructuring Charges, Net
Cost Synergies Initiative
The cost synergies initiative, initially referred to as the fiscal year 2015 initiative, was the beginning of the Company's restructuring program primarily related to the acquisition of Covidien. This initiative is expected to contribute to the approximately $850 million in cost synergies expected to be achieved as a result of the Covidien acquisition through fiscal year 2018, including administrative office optimization, manufacturing and supply chain infrastructure, certain program cancellations, and certain general and administrative savings. Restructuring charges are expected to be incurred on a quarterly basis throughout fiscal year 2017 and in future fiscal years as cost synergy strategies are finalized. Restructuring accruals resulting from quarterly restructuring charges are scheduled to be substantially complete within one year from the quarter the restructuring charge was initially incurred.
A summary of the activity related to the cost synergies initiative is presented below:
(in millions)
Employee
Termination
Costs
 
Asset Write-downs
 
Other Costs
 
Total
Balance as of April 24, 2015
$
136

 
$

 
$
7

 
$
143

Restructuring charges
52

 

 
15

 
67

Payments/write-downs
(76
)
 

 
(7
)
 
(83
)
Balance as of July 31, 2015
$
112

 
$

 
$
15

 
$
127

Restructuring charges
64

 
10

 
12

 
86

Payments/write-downs
(28
)
 
(10
)
 
(6
)
 
(44
)
Reversal of excess accrual
(13
)
 

 

 
(13
)
Balance as of October 30, 2015
$
135

 
$

 
$
21

 
$
156

Restructuring charges
36

 
12

 
7

 
55

Payments/write-downs
(30
)
 
(12
)
 
(8
)
 
(50
)
Reversal of excess accrual
(17
)
 

 
(2
)
 
(19
)
Balance as of January 29, 2016
$
124

 
$

 
$
18

 
$
142

As a result of certain employees identified for elimination finding other positions within the Company and revisions to severance provisions, the Company recorded a $19 million and a $32 million reversal of excess restructuring reserves for the three and nine months ended January 29, 2016, respectively.
As part of the cost synergies initiative, the company recorded $12 million and $22 million of asset write-downs for the three and nine months ended January 29, 2016, respectively. For the three and nine months ended January 29, 2016, asset write-downs included $9 million related to inventory write-offs of discontinued product lines, and therefore, was recorded within cost of products sold in the consolidated statements of income. For the three and nine months ended January 29, 2016, asset write-downs included $3 million and $13 million related to property, plant, and equipment impairments, respectively. The Company

10

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


did not record any significant impairments during the three months ended January 23, 2015. The Company recorded $10 million related to inventory write-offs of discontinued product lines and production-related asset impairments for the nine months ended January 23, 2015, and therefore, was recorded within cost of products sold in the condensed consolidated statements of earnings.
Covidien Initiative
Covidien's pre-acquisition restructuring program is designed to improve legacy Covidien's cost structure. The program consists of reducing corporate expenses, expanding shared services, consolidating manufacturing locations, and optimizing distribution centers. The Covidien restructuring initiative is scheduled to be substantially complete by the end of fiscal year 2018.
At the Acquisition Date, the Company reserved $103 million in connection with the Covidien initiative, which consisted of employee termination costs of $76 million and other costs of $27 million. In the fourth quarter of fiscal year 2015, the Company recorded a reversal of excess restructuring reserves related to the Covidien initiative of $5 million. In addition, in the third quarter of fiscal year 2016, the Company recorded a reversal of excess restructuring reserves related to the Covidien initiative of $2 million. The reversals were primarily the result of certain employees identified for elimination finding other positions within the Company and revisions to particular strategies.
A summary of the activity related to the Covidien initiative is presented below:
(in millions)
Employee
Termination
Costs
 
Other Costs
 
Total
Balance as of April 24, 2015
$
61

 
$
17

 
$
78

Payments
(13
)
 
(5
)
 
(18
)
Balance as of July 31, 2015
$
48

 
$
12

 
$
60

Payments
(8
)
 
(6
)
 
(14
)
Balance as of October 30, 2015
$
40

 
$
6

 
$
46

Payments
(12
)
 
(2
)
 
(14
)
Reversal of excess accrual
(2
)
 

 
(2
)
Balance as of January 29, 2016
$
26

 
$
4

 
$
30

Note 6Financial Instruments
The Company holds investments consisting primarily of marketable debt and equity securities. The authoritative guidance is principally applied to financial assets and liabilities such as marketable equity securities and debt and equity securities that are classified and accounted for as trading and available-for-sale and are measured on a recurring basis. Further, we also hold cost or equity method investments which are measured at fair value on a nonrecurring basis.

11

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table summarizes the Company's investments by significant investment categories and the related condensed consolidated balance sheets presentation at January 29, 2016:
 
Valuation
 
Balance Sheet Classification
(in millions)
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
Investments
 
Other Assets
Available-for-sale securities
 

 
 

 
 

 
 

 
 
 
 
Level 1:
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
$
1,517

 
$
14

 
$
(1
)
 
$
1,530

 
$
1,530

 
$

Marketable equity securities
77

 
24

 
(5
)
 
96

 

 
96

Total Level 1
1,594

 
38

 
(6
)
 
1,626

 
1,530

 
96

Level 2:
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
6,568

 
56

 
(95
)
 
6,529

 
6,526

 
3

U.S. government and agency securities
1,683

 
4

 
(1
)
 
1,686

 
1,686

 

Mortgage-backed securities
1,407

 
12

 
(16
)
 
1,403

 
1,403

 

Foreign government and agency securities
27

 

 

 
27

 
27

 

Certificates of deposit
28

 

 

 
28

 
28

 

Other asset-backed securities
517

 
3

 

 
520

 
520

 

Debt funds
3,148

 
1

 
(379
)
 
2,770

 
2,770

 

Total Level 2
13,378

 
76

 
(491
)
 
12,963

 
12,960

 
3

Level 3:
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
1

 

 

 
1

 

 
1

Auction rate securities
109

 

 
(7
)
 
102

 

 
102

Total Level 3
110

 

 
(7
)
 
103

 

 
103

Total available-for-sale securities
15,082

 
114

 
(504
)
 
14,692

 
14,490

 
202

Trading securities:
 

 
 

 
 

 
 

 
 
 
 
Level 1:
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
65

 
12

 
(2
)
 
75

 
75

 

Total Level 1:
65

 
12

 
(2
)
 
75

 
75

 

Total trading securities
65

 
12

 
(2
)
 
75

 
75

 

Cost method, equity method, and other investments:
 
 
 
 
 
 
 
 
 
 
 
Level 3:
 
 
 
 
 
 
 
 
 
 
 
Cost method, equity method, and other investments
524

 

 

 
N/A

 

 
524

Total Level 3:
524

 

 

 
N/A

 

 
524

Total cost method, equity method, and other investments
524

 

 

 
N/A

 

 
524

Total investments
$
15,671

 
$
126

 
$
(506
)
 
$
14,767

 
$
14,565

 
$
726


12

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table summarizes the Company's investments by significant investment categories and the related condensed consolidated balance sheets presentation at April 24, 2015:
 
Valuation
 
Balance Sheet Classification
(in millions)
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
Investments
 
Other Assets
Available-for-sale securities:
 

 
 

 
 

 
 

 
 
 
 
Level 1:
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
$
1,525

 
$
17

 
$
(1
)
 
$
1,541

 
$
1,541

 
$

Marketable equity securities
64

 
35

 
(19
)
 
80

 

 
80

Total Level 1
1,589

 
52

 
(20
)
 
1,621

 
1,541

 
80

Level 2:
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
6,282

 
105

 
(10
)
 
6,377

 
6,377

 

U.S. government and agency securities
1,597

 
4

 
(3
)
 
1,598

 
1,598

 

Mortgage-backed securities
1,462

 
22

 
(6
)
 
1,478

 
1,478

 

Foreign government and agency securities
85

 

 

 
85

 
85

 

Certificates of deposit
44

 

 

 
44

 
44

 

Other asset-backed securities
504

 
3

 

 
507

 
507

 

Debt funds
3,061

 
19

 
(150
)
 
2,930

 
2,930

 

Total Level 2
13,035

 
153

 
(169
)
 
13,019

 
13,019

 

Level 3:
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
1

 

 

 
1

 

 
1

Auction rate securities
109

 

 
(4
)
 
105

 

 
105

Total Level 3
110

 

 
(4
)
 
106

 

 
106

Total available-for-sale securities
14,734

 
205

 
(193
)
 
14,746

 
14,560

 
186

Trading securities:
 

 
 

 
 

 
 

 
 
 
 
Level 1:
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
58

 
19

 

 
77

 
77

 

Total Level 1
58

 
19

 

 
77

 
77

 

Total trading securities
58

 
19

 

 
77

 
77

 

Cost method, equity method, and other investments:
 
 
 
 
 
 
 
 
 
 
 
Level 3:
 
 
 
 
 
 
 
 
 
 
 
Cost method, equity method, and other investments
520

 

 

 
N/A

 

 
520

Total Level 3
520

 

 

 
N/A

 

 
520

Total cost method, equity method, and other investments
520

 

 

 
N/A

 

 
520

Total investments
$
15,312

 
$
224

 
$
(193
)
 
$
14,823

 
$
14,637

 
$
706


13

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Marketable Debt and Equity Securities:
The following tables show the gross unrealized losses and fair values of the Company’s available-for-sale securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category as of January 29, 2016 and April 24, 2015:
 
January 29, 2016
 
Less than 12 months
 
More than 12 months
(in millions)
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
Corporate debt securities
$
2,817

 
$
(80
)
 
$
186

 
$
(16
)
Auction rate securities

 

 
102

 
(7
)
Mortgage-backed securities
626

 
(11
)
 
223

 
(6
)
U.S. government and agency securities
716

 
(1
)
 
103

 

Debt funds
1,231

 
(62
)
 
1,538

 
(317
)
Marketable equity securities
51

 
(6
)
 

 

Total
$
5,441

 
$
(160
)
 
$
2,152

 
$
(346
)
 
April 24, 2015
 
Less than 12 months
 
More than 12 months
(in millions)
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
Corporate debt securities
$
944

 
$
(9
)
 
$
34

 
$
(1
)
Auction rate securities

 

 
105

 
(4
)
Mortgage-backed securities
346

 
(3
)
 
206

 
(3
)
U.S. government and agency securities
356

 
(1
)
 
267

 
(3
)
Debt funds
1,291

 
(109
)
 
559

 
(41
)
Marketable equity securities
4

 
(19
)
 

 

Total
$
2,941

 
$
(141
)
 
$
1,171

 
$
(52
)

The following table represents the range of the unobservable inputs utilized in the fair value measurement of the auction rate securities classified as Level 3 as of January 29, 2016:

 
Valuation Technique
Unobservable Input
Range (Weighted Average)
Auction rate securities
Discounted cash flow
Years to principal recovery
2 yrs. - 12 yrs. (3 yrs.)
Illiquidity premium
6%
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 nine months ended January 29, 2016 or January 23, 2015. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

14

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following tables provide a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3):
Three months ended January 29, 2016
 

 
 

 
 

(in millions)
Total Level 3
Investments
 
Corporate debt
securities
 
Auction rate
securities
Balance as of October 30, 2015
$
103

 
$
1

 
$
102

Total unrealized gains included in other comprehensive income

 

 

Balance as of January 29, 2016
$
103

 
$
1

 
$
102

 
 
 
 
 
 
Three months ended January 23, 2015
 

 
 

 
 

(in millions)
Total Level 3
Investments
 
Corporate debt
securities
 
Auction rate
securities
Balance as of October 24, 2014
$
108

 
$
9

 
$
99

Total unrealized gains included in other comprehensive income

 

 

Balance as of January 23, 2015
$
108

 
$
9

 
$
99

 
 
 
 
 
 
Nine months ended January 29, 2016
 

 
 

 
 

(in millions)
Total Level 3
Investments
 
Corporate debt
securities
 
Auction rate
securities
Balance as of April 24, 2015
$
106

 
$
1

 
$
105

Total unrealized losses included in other comprehensive income
(3
)
 

 
(3
)
Balance as of January 29, 2016
$
103

 
$
1

 
$
102

 
 
 
 
 
 
Nine months ended January 23, 2015
 

 
 

 
 

(in millions)
Total Level 3
Investments
 
Corporate debt
securities
 
Auction rate
securities
Balance as of April 24, 2014
$
106

 
$
9

 
$
97

Total unrealized gains included in other comprehensive income
2

 

 
2

Balance as of January 23, 2015
$
108

 
$
9

 
$
99

Activity related to the Company’s investment portfolio is as follows:
 
Three months ended
 
January 29, 2016
 
January 23, 2015
(in millions)
Debt (a)
 
Equity (b)
 
Debt (a)
 
Equity (b)
Proceeds from sales
$
1,261

 
$
4

 
$
1,478

 
$
208

Gross realized gains
2

 
4

 
10

 
99

Gross realized losses
(9
)
 

 
(4
)
 

Impairment losses recognized

 
(2
)
 

 
(1
)
 
 
 
 
 
 
 
 
 
Nine months ended
 
January 29, 2016
 
January 23, 2015
(in millions)
Debt (a)
 
Equity (b) (c)
 
Debt (a)
 
Equity (b) (d)
Proceeds from sales
$
3,979

 
$
38

 
$
4,114

 
$
237

Gross realized gains
11

 
36

 
26

 
157

Gross realized losses
(21
)
 

 
(9
)
 

Impairment losses recognized

 
(43
)
 

 
(22
)
(a)
Includes available-for-sale debt securities.
(b)
Includes marketable equity securities, cost method, equity method, exchange-traded funds, and other investments.
(c)
As a result of certain acquisitions that occurred during the nine months ended January 29, 2016, the Company recognized a non-cash realized gain of $9 million on its previously-held minority investment included in other expense, net on the condensed consolidated statement of income.

15

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(d)
As a result of certain acquisitions that occurred during the nine months ended January 23, 2015, the Company recognized a non-cash realized gain of $41 million on its previously-held minority investments included in other expense, net on the condensed consolidated statement of income.
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 invested, the Company believes it has recorded 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.
As of January 29, 2016 and April 24, 2015, the credit loss portion of other-than temporary impairments on debt securities were not significant. The total reductions for available-for-sale debt securities sold during the three and nine months ended January 29, 2016 and January 23, 2015 were not significant. The total other-than-temporary impairment losses on available-for-sale debt securities for the three and nine months ended January 29, 2016 and January 23, 2015 were not significant.
The January 29, 2016 balance of available-for-sale debt securities, excluding debt funds which have no single maturity date, by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
(in millions)
January 29, 2016
Due in one year or less
$
2,197

Due after one year through five years
6,294

Due after five years through ten years
3,050

Due after ten years
285

Total
$
11,826

The Company holds investments in marketable equity securities, which are classified as other assets in the condensed consolidated balance sheets. The aggregate carrying amount of these investments was $96 million and $80 million as of January 29, 2016 and April 24, 2015, respectively. The Company did not record any significant impairment charges related to marketable equity securities during the three months ended January 29, 2016. During the nine months ended January 29, 2016, the Company determined that the fair value of certain marketable equity securities were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized $20 million in impairment charges for the nine months ended January 29, 2016, which were recorded within other expense, net in the condensed consolidated statements of income. During the nine months ended January 23, 2015, the Company determined that the fair value of certain marketable equity securities were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized $7 million in impairment charges for the nine months ended January 23, 2015, which were recorded in other expense, net in the condensed consolidated statements of income. 
Cost method, equity method, and other investments
The Company holds investments in equity and other securities that are accounted for using the cost or equity method, which are classified as other assets in the condensed consolidated balance sheets. As of January 29, 2016 and April 24, 2015, the aggregate carrying amount of equity and other securities without a quoted market price and accounted for using the cost or equity method was $524 million and $520 million, respectively. These cost or equity method investments are measured at fair value on a nonrecurring basis. The total carrying value of these investments is reviewed quarterly for changes in circumstance or the occurrence of events that suggest the Company’s investment may not be recoverable. The value of cost or equity method investments is not adjusted if there are no identified events or changes in circumstances that may have a material adverse effect on the fair value of the investment.
During the three and nine months ended January 29, 2016, the Company determined that the fair values of certain cost method investments were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized $2 million and $23 million in impairment charges during the three and nine months ended January 29, 2016, respectively, which were recorded in other expense, net in the condensed consolidated statements of income. During the three and nine months ended January 23, 2015, the Company determined that the fair values of certain cost method investments were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company

16

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


recognized $1 million and $14 million in impairment charges during the three and nine months ended January 23, 2015, which were recorded in other expense, net in the condensed consolidated statements of income. These investments fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value, as the investments are privately-held entities without quoted market prices. To determine the fair value of these investments, the Company used all pertinent financial information available related to the entities, including financial statements and market participant valuations from recent and proposed equity offerings.
Note 7Financing Arrangements
Commercial Paper
The Company maintains a commercial paper program that allows the Company to have a maximum of $3.500 billion in commercial paper outstanding, with maturities up to 364 days from the date of issuance. Commercial paper amounts outstanding as of January 29, 2016 totaled $1.293 billion. No amounts were outstanding as of April 24, 2015. During the three and nine months ended January 29, 2016, the weighted average original maturity of the commercial paper outstanding was approximately 53 days and 48 days, respectively, and the weighted average interest rate was 0.56 percent and 0.48 percent, respectively. The issuance of commercial paper proportionately reduced the amount of credit available under the Company’s existing Credit Facility, as defined below.
Line of Credit
The Company has a $3.500 billion five year credit facility (Credit Facility) which provides back up funding for the commercial paper program described above. As of January 29, 2016 and April 24, 2015, no amounts were outstanding.
Interest rates 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 remained in compliance with as of January 29, 2016.

17

MEDTRONIC PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Long-Term Debt
Long-term debt consisted of the following:
(in millions, except interest rates)
 
Maturity by
Fiscal Year
 
Payable as of January 29, 2016
 
Payable as of April 24, 2015
Floating rate three-year 2014 senior notes
 
2017
 
$
250

 
$
250

0.875 percent three-year 2014 senior notes
 
2017
 
250

 
250

6.000 percent ten-year 2008 CIFSA senior notes
 
2018
 
1,150

 
1,150

1.500 percent three-year 2015 senior notes
 
2018
 
1,000

 
1,000

1.375 percent five-year 2013 senior notes
 
2018
 
1,000

 
1,000

5.600 percent ten-year 2009 senior notes
 
2019
 
400

 
400

4.450 percent ten-year 2010 senior notes
 
2020
 
1,250

 
1,250

2.500 percent five-year 2015 senior notes
 
2020
 
2,500

 
2,500

Floating rate five-year 2015 senior notes
 
2020
 
500

 
500

4.200 percent ten-year 2010 CIFSA senior notes
 
2021
 
600

 
600

4.125 percent ten-year 2011 senior notes
 
2021
 
500

 
500

3.125 percent ten-year 2012 senior notes
 
2022
 
675

 
675

3.150 percent seven-year 2015 senior notes
 
2022
 
2,500

 
2,500

3.200 percent ten-year 2012 CIFSA senior notes
 
2023
 
650

 
650

2.750 percent ten-year 2013 senior notes
 
2023
 
1,250

 
1,250

2.950 percent ten-year 2013 CIFSA senior notes
 
2024
 
750

 
750

3.625 percent ten-year 2014 senior notes
 
2024
 
850

 
850

3.500 percent ten-year 2015 senior notes
 
2025
 
4,000

 
4,000

4.375 percent twenty-year 2015 senior notes
 
2035
 
2,500

 
2,500

6.550 percent thirty-year 2008 CIFSA senior notes
 
2038
 
850

 
850

6.500 percent thirty-year 2009 senior notes
 
2039
 
300

 
300

5.550 percent thirty-year 2010 senior notes
 
2040
 
500

 
500

4.500 percent thirty-year 2012 senior notes
 
2042
 
400

 
400

4.000 percent thirty-year 2013 senior notes
 
2043
 
750

 
750

4.625 percent thirty-year 2014 senior notes
 
2044
 
650

 
650

4.625 percent thirty-year 2015 senior notes
 
2045
 
4,000

 
4,000

Three-year term loan
 
2018
 
3,000

 
3,000

Interest rate swaps (Note 8)
 
2017 - 2022
 
87

 
79

Deferred gains from interest rate swap terminations, net
 
-
 

 
3

Capital lease obligations
 
2017 - 2025
 
117

 
129

Bank borrowings
 
2021
 
31

 
17

Debt premium
 
2017 - 2045
 
421

 
499

Total Long-Term Debt
 
 
 
$
33,681

 
$
33,752