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	January 24, 2020
☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from __________ to __________

Commission File Number 001-36820

®

MEDTRONIC 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)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Ordinary shares, par value $0.0001 per share	MDT	New York Stock Exchange
Floating Rate Notes due 2021	MDT/21	New York Stock Exchange
0.000% Senior Notes due 2021	MDT/21A	New York Stock Exchange
0.000% Senior Notes due 2022	MDT/22B	New York Stock Exchange
0.375% Senior Notes due 2023	MDT/23B	New York Stock Exchange
0.25% Senior Notes due 2025	MDT/25	New York Stock Exchange
1.125% Notes due 2027	MDT/27	New York Stock Exchange
1.625% Notes due 2031	MDT/31	New York Stock Exchange
1.00% Senior Notes due 2031	MDT/31A	New York Stock Exchange
2.250% Notes due 2039	MDT/39A	New York Stock Exchange
1.50% Senior Notes due 2039	MDT/39B	New York Stock Exchange
1.75% Senior Notes due 2049	MDT/49	New York Stock Exchange

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

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

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

Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller Reporting Company	☐

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

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

Yes ☐ No ☒

As of February 25, 2020, 1,340,166,137 ordinary shares, par value $0.0001, and 1,872 A preferred shares, par value $1.00, of the registrant were outstanding.

TABLE OF CONTENTS

Item	Description	Page
	PART I
1.	Financial Statements (unaudited)	1
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
3.	Quantitative and Qualitative Disclosures About Market Risk	75
4.	Controls and Procedures	76
	PART II
1.	Legal Proceedings	76
2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
6.	Exhibits	77
	Signatures	78

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Medtronic plc

Consolidated Statements of Income

(Unaudited)

	Three months ended				Nine months ended
(in millions, except per share data)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Net sales	$	7,717	$	7,546	$	22,916	$	22,411
Costs and expenses:
Cost of products sold	2,400		2,265		7,160		6,672
Research and development expense	573		561		1,763		1,736
Selling, general, and administrative expense	2,587		2,596		7,750		7,798
Amortization of intangible assets	436		436		1,317		1,327
Restructuring charges, net	13		26		87		112
Certain litigation charges	108		63		276		166
Other operating (income) expense, net	(39)		57		88		278
Operating profit	1,639		1,542		4,475		4,322
Other non-operating income, net	(96)		(71)		(305)		(309)
Interest expense	156		243		930		726
Income before income taxes	1,579		1,370		3,850		3,905
Income tax provision	(340)		99		(317)		437
Net income	1,919		1,271		4,167		3,468
Net income attributable to noncontrolling interests	(4)		(2)		(24)		(9)
Net income attributable to Medtronic	$	1,915	$	1,269	$	4,143	$	3,459
Basic earnings per share	$	1.43	$	0.95	$	3.09	$	2.57
Diluted earnings per share	$	1.42	$	0.94	$	3.07	$	2.54
Basic weighted average shares outstanding	1,340.5		1,342.8		1,340.7		1,348.1
Diluted weighted average shares outstanding	1,351.5		1,352.7		1,351.6		1,359.5

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

1

Medtronic plc

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Net income	$	1,919	$	1,271	$	4,167	$	3,468
Other comprehensive income (loss), net of tax:
Unrealized gain on investment securities	20		32		93		23
Translation adjustment	32		128		(116)		(1,127)
Net investment hedge	35		—		187		—
Net change in retirement obligations	13		17		38		65
Unrealized (loss) gain on cash flow hedges	(35)		(23)		(37)		317
Other comprehensive income (loss)	65		154		165		(722)
Comprehensive income including noncontrolling interests	1,984		1,425		4,332		2,746
Comprehensive income attributable to noncontrolling interests	(4)		(2)		(24)		(6)
Comprehensive income attributable to Medtronic	$	1,980	$	1,423	$	4,308	$	2,740

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

2

Medtronic plc

Consolidated Balance Sheets

(Unaudited)

(in millions)	January 24, 2020		April 26, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	3,709	$	4,393
Investments	7,919		5,455
Accounts receivable, less allowances of $205 and $190, respectively	6,248		6,222
Inventories, net	4,122		3,753
Other current assets	2,045		2,144
Total current assets	24,043		21,967
Property, plant, and equipment	11,507		10,920
Accumulated depreciation	(6,743)		(6,245)
Property, plant, and equipment, net	4,764		4,675
Goodwill	40,091		39,959
Other intangible assets, net	19,456		20,560
Tax assets	2,272		1,519
Other assets	2,196		1,014
Total assets	$	92,822	$	89,694
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	844	$	838
Accounts payable	1,945		1,953
Accrued compensation	1,909		2,189
Accrued income taxes	457		567
Other accrued expenses	3,580		2,925
Total current liabilities	8,735		8,472
Long-term debt	24,732		24,486
Accrued compensation and retirement benefits	1,598		1,651
Accrued income taxes	2,738		2,838
Deferred tax liabilities	1,282		1,278
Other liabilities	1,784		757
Total liabilities	40,869		39,482
Commitments and contingencies (Note 17)
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,340,786,042 and 1,340,697,595 shares issued and outstanding, respectively	—		—
Additional paid-in capital	26,144		26,532
Retained earnings	28,210		26,270
Accumulated other comprehensive loss	(2,546)		(2,711)
Total shareholders’ equity	51,808		50,091
Noncontrolling interests	145		121
Total equity	51,953		50,212
Total liabilities and equity	$	92,822	$	89,694

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

3

Medtronic plc

Consolidated Statements of Equity

(Unaudited)

	Ordinary Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
(in millions)	Number	Par Value
April 26, 2019	1,341	$	—	$	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	3	—		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, 2019	1,341	$	—	$	26,470	$	26,377	$	(2,484)	$	50,363	$	134	$	50,497
Net income	—	—		—		1,364		—		1,364		7		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	4	—		145		—		—		145		—		145
Repurchase of ordinary shares	(5)	—		(552)		—		—		(552)		—		(552)
Stock-based compensation	—	—		108		—		—		108		—		108
October 25, 2019	1,340	$	—	$	26,171	$	27,018	$	(2,611)	$	50,578	$	141	$	50,719
Net income	—	—		—		1,915		—		1,915		4		1,919
Other comprehensive income	—	—		—		—		65		65		—		65
Dividends to shareholders ($0.54 per ordinary share)	—	—		—		(723)		—		(723)		—		(723)
Issuance of shares under stock purchase and award plans	3	—		143		—		—		143		—		143
Repurchase of ordinary shares	(2)	—		(236)		—		—		(236)		—		(236)
Stock-based compensation	—	—		66		—		—		66		—		66
January 24, 2020	1,341	$	—	$	26,144	$	28,210	$	(2,546)	$	51,808	$	145	$	51,953

(1) See Note 2 to the consolidated financial statements for discussion regarding the adoption of accounting standards during the first quarter of fiscal year 2020.


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

4

Medtronic plc

Consolidated Statements of Equity

(Unaudited)

	Ordinary Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
(in millions)	Number	Par Value
April 27, 2018	1,354	$	—	$	28,127	$	24,379	$	(1,786)	$	50,720	$	102	$	50,822
Net income	—	—		—		1,075		—		1,075		2		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	7	—		446		—		—		446		—		446
Repurchase of ordinary shares	(9)	—		(820)		—		—		(820)		—		(820)
Stock-based compensation	—	—		64		—		—		64		—		64
Changes to noncontrolling ownership interests	—	—		—		—		—		—		1		1
Cumulative effect of change in accounting principle(1)	—	—		—		(47)		47		—		—		—
July 27, 2018	1,352	$	—	$	27,817	$	24,730	$	(2,323)	$	50,224	$	105	$	50,329
Net income	—	—		—		1,115		—		1,115		5		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	7	—		298		—		—		298		—		298
Repurchase of ordinary shares	(13)	—		(1,171)		—		—		(1,171)		—		(1,171)
Stock-based compensation	—	—		104		—		—		104		—		104
October 26, 2018	1,346	$	—	$	27,048	$	25,171	$	(2,612)	$	49,607	$	107	$	49,714
Net income	—	—		—		1,269		—		1,269		2		1,271
Other comprehensive income	—	—		—		—		154		154		—		154
Dividends to shareholders ($0.50 per ordinary share)	—	—		—		(671)		—		(671)		—		(671)
Issuance of shares under stock purchase and award plans	2	—		82		—		—		82		—		82
Repurchase of ordinary shares	(7)	—		(672)		—		—		(672)		—		(672)
Stock-based compensation	—	—		60		—		—		60		—		60
Changes to noncontrolling ownership interests	—	—		—		—		—		—		3		3
January 25, 2019	1,341	$	—	$	26,518	$	25,769	$	(2,458)	$	49,829	$	112	$	49,941

(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)

	Nine months ended
(in millions)	January 24, 2020		January 25, 2019
Operating Activities:
Net income	$	4,167	$	3,468
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,991		1,992
Provision for doubtful accounts	67		55
Deferred income taxes	(793)		(205)
Stock-based compensation	235		228
Loss on debt extinguishment	406		—
Other, net	140		111
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net	(119)		(140)
Inventories, net	(346)		(367)
Accounts payable and accrued liabilities	103		211
Other operating assets and liabilities	(67)		(433)
Net cash provided by operating activities	5,784		4,920
Investing Activities:
Acquisitions, net of cash acquired	(199)		(1,615)
Additions to property, plant, and equipment	(877)		(799)
Purchases of investments	(8,249)		(1,987)
Sales and maturities of investments	5,791		4,159
Other investing activities	(34)		(3)
Net cash used in investing activities	(3,568)		(245)
Financing Activities:
Change in current debt obligations, net	17		(696)
Issuance of long-term debt	5,568		3
Payments on long-term debt	(5,606)		(29)
Dividends to shareholders	(2,170)		(2,022)
Issuance of ordinary shares	585		891
Repurchase of ordinary shares	(1,208)		(2,728)
Other financing activities	(74)		10
Net cash used in financing activities	(2,888)		(4,571)
Effect of exchange rate changes on cash and cash equivalents	(12)		(70)
Net change in cash and cash equivalents	(684)		34
Cash and cash equivalents at beginning of period	4,393		3,669
Cash and cash equivalents at end of period	$	3,709	$	3,703
Supplemental Cash Flow Information
Cash paid for:
Income taxes	$	639	$	1,206
Interest	348		540

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. The Company's fiscal year 2021 is a 53-week year, with the extra week occurring during the first quarter, and will end on April 30, 2021.

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.

Not Yet Adopted

In June 2016, the FASB issued guidance which changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including trade receivables. The new methodology requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset. The new standard will be effective for the Company in the first quarter of fiscal year 2021. The Company does not expect the adoption of the guidance to have a material 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 nine months ended January 24, 2020 and January 25, 2019:

	Three months ended(1)				Nine months ended(1)
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Cardiac Rhythm & Heart Failure	$	1,393	$	1,397	$	4,201	$	4,295
Coronary & Structural Heart	948		913		2,844		2,736
Aortic, Peripheral, & Venous	478		476		1,420		1,424
Cardiac and Vascular Group	2,819		2,786		8,464		8,455
Surgical Innovations	1,474		1,434		4,345		4,224
Respiratory, Gastrointestinal, & Renal	702		690		2,073		1,999
Minimally Invasive Therapies Group	2,176		2,124		6,418		6,223
Brain Therapies	795		732		2,307		2,107
Spine	674		655		2,023		1,963
Specialty Therapies	340		325		996		956
Pain Therapies	303		314		910		942
Restorative Therapies Group	2,111		2,026		6,235		5,968
Diabetes Group	610		610		1,798		1,765
Total	$	7,717	$	7,546	$	22,916	$	22,411

(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 nine months ended January 24, 2020 and January 25, 2019:

	U.S.(1)(4)				Non-U.S. Developed Markets(2)(4)				Emerging Markets(3)(4)
	Three months ended				Three months ended				Three months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Cardiac and Vascular Group	$	1,366	$	1,369	$	915	$	924	$	538	$	493
Minimally Invasive Therapies Group	934		930		791		796		451		398
Restorative Therapies Group	1,409		1,354		436		435		266		237
Diabetes Group	312		348		236		213		63		49
Total	$	4,021	$	4,001	$	2,377	$	2,368	$	1,318	$	1,177
	U.S.(1)(4)				Non-U.S. Developed Markets(2)(4)				Emerging Markets(3)(4)
	Nine months ended				Nine months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Cardiac and Vascular Group	$	4,182	$	4,240	$	2,735	$	2,766	$	1,547	$	1,449
Minimally Invasive Therapies Group	2,769		2,659		2,364		2,396		1,285		1,168
Restorative Therapies Group	4,187		4,005		1,278		1,275		770		688
Diabetes Group	930		1,006		693		619		176		140
Total	$	12,068	$	11,910	$	7,069	$	7,056	$	3,778	$	3,445

(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 January 24, 2020, $862 million of rebates were classified as other accrued expenses and $447 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 January 24, 2020 and April 26, 2019 were not material. For the three and nine months ended January 24, 2020 and January 25, 2019, 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 January 24, 2020 and April 26, 2019 was $303 million and $315 million, respectively. At January 24, 2020 and April 26, 2019, $212 million and $211 million, respectively, was included in other accrued expenses and $91 million and $104 million, respectively, was included in other liabilities. During the nine months ended January 24, 2020, the Company recognized $192 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 January 24, 2020, the estimated revenue expected to be recognized in future periods related to unsatisfied performance obligations for executed contracts with an original duration of one year or more was approximately $1.2 billion. 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 nine months ended January 24, 2020 and January 25, 2019 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 nine months ended January 24, 2020 and January 25, 2019. 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 nine months ended January 24, 2020 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 nine months ended January 24, 2020, which are comprised of revenue milestone-based payments. For the nine months ended January 24, 2020, purchase price allocation adjustments for fiscal year 2020 business combinations were not significant.

Fiscal Year 2019

Mazor Robotics

On December 18, 2018, the Company's Restorative Therapies Group acquired Mazor Robotics (Mazor), a pioneer in the field of robotic guidance systems. The acquisition of Mazor strengthened the Company's position as a global leader in enabling technologies for spine surgery. The Company offers a fully-integrated procedural solution for surgical planning, execution and confirmation by combining the Company's spine implants, navigation, and intra-operative imaging technology with Mazor's robotic-assisted surgery systems. Total consideration for the transaction, net of cash acquired, was $1.6 billion, consisting of $1.3 billion of cash and $246 million of a previously-held equity investment in Mazor. Net assets acquired includes $383 million of technology-based intangible assets and $16 million of tradenames with estimated useful lives of 10 years. Goodwill was primarily attributable to pull-through revenue, future yet to be defined technologies, and an assembled workforce and was not deductible for tax purposes.

During the three and nine months ended January 25, 2019, the Company recognized $51 million of costs incurred in connection with the acquisition of Mazor, including payouts for unvested stock options and investment banker and other transaction fees, which were recognized in selling, general, and administrative expense in the consolidated statements of income.

The Company made certain adjustments to the allocation of purchase price for the Mazor acquisition during the fourth quarter of fiscal year 2019 and nine months ended January 24, 2020, primarily related to estimates for certain contingent liabilities and deferred taxes, which resulted in a net increase to goodwill of $105 million. The measurement period for the Mazor acquisition closed during the quarter ended January 24, 2020.

10

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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

(in millions)	Mazor Robotics
Cash and cash equivalents	$	109
Investments	52
Accounts receivable	9
Inventory	5
Other current assets	1
Property, plant, and equipment	3
Goodwill	1,318
Other intangible assets	399
Tax assets	9
Total assets acquired	1,905
Current liabilities	210
Deferred tax liabilities	21
Total liabilities assumed	231
Net assets acquired	$	1,674

Other Fiscal Year 2019 Acquisitions

The remaining acquisition date fair value of net assets acquired during the nine months ended January 25, 2019 was $377 million, consisting of $427 million of assets acquired and $50 million of liabilities assumed. Assets acquired were primarily comprised of $146 million of goodwill, $161 million of technology-based intangible assets with estimated useful lives ranging from 4 to 15 years, and $40 million of customer-related intangible assets with estimated useful lives ranging from 10 to 13 years. The Company recognized $51 million of contingent consideration liabilities in connection with business combinations during the nine months ended January 25, 2019. For the nine months ended January 25, 2019, 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 nine months ended January 25, 2019, the Company acquired $15 million of IPR&D in connection with an asset acquisition, which was recognized in other operating (income) expense, net in the consolidated statements of income. The Company did not acquire any IPR&D in connection with an asset acquisition during the three and nine months ended January 24, 2020.

Contingent Consideration

Certain of the Company’s business combinations and intangible asset acquisitions 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 (income) 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 January 24, 2020 and April 26, 2019 was $304 million and $222 million, respectively. At January 24, 2020, $147 million was recorded in other accrued expenses and $157 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.

11

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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

	Three months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Beginning balance	$	260	$	203	$	222	$	173
Purchase price contingent consideration	45		5		110		51
Payments	(3)		(1)		(32)		(8)
Change in fair value	2		(59)		4		(68)
Ending balance	$	304	$	148	$	304	$	148

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)	January 24, 2020	Valuation Technique	Unobservable Input	Range
			Discount rate	11.5% - 32.5%
Revenue and other performance-based payments	$123	Discounted cash flow	Probability of payment	30% - 100%
			Projected fiscal year of payment	2020 - 2026
			Discount rate	5.5%
Product development and other milestone-based payments	$181	Discounted cash flow	Probability of payment	75% - 100%
			Projected fiscal year of payment	2020 - 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 nine months ended January 24, 2020, the Company recognized charges of $97 million and $328 million, respectively. Additionally, the Company incurred accrual adjustments of $13 million for the nine months ended January 24, 2020, related to certain employees identified for termination finding other positions within Medtronic. For the three and nine months ended January 24, 2020, charges included $50 million and $117 million, respectively, recognized within cost of products sold and $34 million and $111 million, respectively, recognized within selling, general, and administrative expense in the consolidated statements of income.

For the three and nine months ended January 25, 2019, the Company recognized charges of $69 million and $264 million, respectively. Additionally, the Company incurred accrual adjustments of $3 million and $8 million for the three and nine months ended January 25, 2019, respectively, related to certain employees identified for termination finding other positions within Medtronic. For the three and nine months ended January 25, 2019, charges included $21 million and $58 million,

12

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

respectively, recognized within cost of products sold and $19 million and $86 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 nine months ended January 24, 2020:

(in millions)	Employee Termination Benefits		Associated Costs(1)		Asset Write-Downs(2)		Other Costs		Total
April 26, 2019	$	101	$	9	$	—	$	12	$	122
Charges	91		223		6		8		328
Cash payments	(118)		(223)		—		(8)		(349)
Settled non-cash	—		—		(6)		—		(6)
Accrual adjustments	(5)		—		—		(8)		(13)
January 24, 2020	$	69	$	9	$	—	$	4	$	82

(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. The following tables summarize the Company's investments in available-for-sale debt securities by significant investment category and the related consolidated balance sheet classification at January 24, 2020 and April 26, 2019: 

	January 24, 2020
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	623	$	17	$	—	$	640	$	640	$	—
Level 2:
Corporate debt securities	5,155		52		(8)		5,199		5,199		—
U.S. government and agency securities	900		—		—		900		900		—
Mortgage-backed securities	655		13		(13)		655		655		—
Non-U.S. government and agency securities	13		—		—		13		13		—
Other asset-backed securities	511		3		(2)		512		512		—
Total Level 2	7,234		68		(23)		7,279		7,279		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	7,893	$	85	$	(26)	$	7,952	$	7,919	$	33

13

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

	April 26, 2019
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	529	$	1	$	(7)	$	523	$	523	$	—
Level 2:
Corporate debt securities	3,500		14		(21)		3,493		3,493		—
U.S. government and agency securities	387		1		(7)		381		381		—
Mortgage-backed securities	537		3		(20)		520		520		—
Non-U.S. government and agency securities	11		—		—		11		11		—
Other asset-backed securities	529		1		(3)		527		527		—
Total Level 2	4,964		19		(51)		4,932		4,932		—
Level 3:
Auction rate securities	47		—		(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 January 24, 2020 and April 26, 2019:

	January 24, 2020
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government and agency securities	$	96	$	—	$	40	$	—
Corporate debt securities	371		(3)		65		(5)
Mortgage-backed securities	82		(1)		63		(12)
Other asset-backed securities	23		—		165		(2)
Auction rate securities	—		—		33		(3)
Total	$	572	$	(4)	$	366	$	(22)

	April 26, 2019
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government and agency securities	$	130	$	(1)	$	649	$	(13)
Corporate debt securities	582		(5)		1,153		(16)
Mortgage-backed securities	73		(1)		250		(19)
Other asset-backed securities	290		(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 nine months ended January 24, 2020 and January 25, 2019. 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 Consolidated Financial Statements

(Unaudited)

During the three and nine months ended January 24, 2020, the Company redeemed $11 million worth of level 3 investments at par value. No gain or loss was recognized on the redemption. 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 nine months ended January 25, 2019.

Activity related to the Company’s debt securities portfolio is as follows:

	Three months ended				Nine months Ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Proceeds from sales	$	2,531	$	1,301	$	5,789	$	3,217
Gross realized gains	9		9		17		17
Gross realized losses	(2)		(36)		(13)		(55)

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 January 24, 2020 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 nine months ended January 24, 2020 and January 25, 2019.

The January 24, 2020 balance of available-for-sale debt securities by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

(in millions)	January 24, 2020
Due in one year or less	$	3,595
Due after one year through five years	2,727
Due after five years through ten years	1,577
Due after ten years	53
Total	$	7,952

Equity Securities, Equity Method Investments, and Other Investments

The Company holds investments in equity securities with and without readily determinable fair values, investments accounted for under the equity method, and other investments. Equity securities with readily determinable fair values are included in Level 1 of the fair value hierarchy, as they are measured using quoted market prices. Equity method investments and investments without readily determinable fair values are included within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. To determine the fair value of these investments, the Company uses all pertinent financial information available related to the investees, including financial statements, market participant valuations from recent and proposed equity offerings, and other third-party data.

The following table summarizes the Company's equity and other investments at January 24, 2020 and April 26, 2019, which are classified as other assets in the consolidated balance sheets:

(in millions)	January 24, 2020		April 26, 2019
Investments with readily determinable fair value (marketable equity securities)	$	39	$	—
Investments without readily determinable fair values	373		308
Equity method and other investments	68		64
Total equity and other investments	$	480	$	372

15

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 ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Proceeds from sales	$	—	$	33	$	2	$	941
Gross gains	1		8		16		131
Gross losses	—		(1)		—		(30)
Impairment losses recognized	(1)		—		(5)		(12)

Net gains recognized for the three and nine months ended January 24, 2020 were $1 million and $16 million, respectively, comprised of unrealized gains on equity and other investments still held at January 24, 2020. Net gains recognized during the three months ended January 25, 2019 were $7 million, comprised of $1 million net realized gains on equity and other investments sold during the period and $6 million of net unrealized gains on equity and other investments still held at January 25, 2019. Net gains recognized during the nine months ended January 25, 2019 were $101 million, comprised of $71 million of net realized gains on equity and other investments sold during the period and $30 million of net unrealized gains on equity and other investments still held at January 25, 2019.

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 January 24, 2020 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 January 24, 2020 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 January 24, 2020.

16

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	January 24, 2020		April 26, 2019
Current debt obligations	2020 - 2021	$	844	$	838
Long-term debt
0.000 percent two-year 2019 senior notes	2021	1,662		1,681
Floating rate two-year 2019 senior notes	2021	831		560
4.125 percent ten-year 2011 senior notes	2021	—		500
3.150 percent seven-year 2015 senior notes	2022	1,534		2,500
3.125 percent ten-year 2012 senior notes	2022	—		675
3.200 percent ten-year 2012 CIFSA senior notes	2023	650		650
0.375 percent four-year 2019 senior notes	2023	1,662		1,681
2.750 percent ten-year 2013 senior notes	2023	530		530
0.000 percent four-year 2019 senior notes	2023	831		—
2.950 percent ten-year 2013 CIFSA senior notes	2024	310		310
3.625 percent ten-year 2014 senior notes	2024	432		850
3.500 percent ten-year 2015 senior notes	2025	2,700		4,000
0.250 percent seven-year 2019 senior notes	2026	1,108		—
1.125 percent eight-year 2019 senior notes	2027	1,662		1,681
3.350 percent ten-year 2017 senior notes	2027	368		850
1.625 percent twelve-year 2019 senior notes	2031	1,108		1,121
1.000 percent thirteen-year 2019 senior notes	2032	1,108		—
4.375 percent twenty-year 2015 senior notes	2035	1,931		2,382
6.550 percent thirty-year 2007 CIFSA senior notes	2038	253		284
2.250 percent twenty-year 2019 senior notes	2039	1,108		1,121
6.500 percent thirty-year 2009 senior notes	2039	158		183
5.550 percent thirty-year 2010 senior notes	2040	224		306
1.500 percent twenty-year 2019 senior notes	2040	1,108		—
4.500 percent thirty-year 2012 senior notes	2042	105		129
4.000 percent thirty-year 2013 senior notes	2043	305		325
4.625 percent thirty-year 2014 senior notes	2044	127		177
4.625 percent thirty-year 2015 senior notes	2045	1,813		1,963
1.750 percent thirty-year 2019 senior notes	2050	1,108		—
Bank borrowings	2021 - 2022	70		83
Debt (discount) premium, net	2020 - 2050	(15)		29
Finance lease obligations	2021 - 2033	47		10
Interest rate swaps	N/A	—		9
Deferred financing costs	2020 - 2050	(106)		(104)
Long-term debt		$	24,732	$	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 January 24, 2020. 

17

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 January 24, 2020, the estimated fair value of the Company’s Senior Notes was $27.5 billion compared to a principal value of $25.2 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 $12.1 billion and $11.1 billion at January 24, 2020 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 freestanding currency exchange rate contracts outstanding at January 24, 2020 and April 26, 2019 was $5.2 billion and $4.3 billion, respectively. The Company's freestanding currency exchange rate contracts are not designated as hedges, and therefore, changes in the value of these contracts are recognized in earnings, thereby offsetting the current earnings effect of the related change in value of foreign-currency-denominated assets, liabilities, and cash flows.

The Company also uses total return swaps to hedge the liability of a non-qualified, deferred compensation plan. The gross notional amount of the Company's total return swaps outstanding at January 24, 2020 and April 26, 2019 was $215 million and $191 million, respectively. The Company's total return swaps are not designated as hedges, and therefore, changes in the value of these instruments are recognized in earnings. The cash flows related to the Company's freestanding derivative contracts are reported as operating activities in the consolidated statements of cash flows.

18

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 nine months ended January 24, 2020 and January 25, 2019 were as follows:

		Three months ended				Nine months ended
(in millions)	Classification	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Currency exchange rate contracts	Other operating (income) expense, net	$	2	$	30	$	(4)	$	(171)
Total return swaps	Other operating (income) expense, net	(17)		—		(22)		—
Total		$	(15)	$	30	$	(26)	$	(171)

Cash Flow Hedges

Forward contracts designated as cash flow hedges are designed to hedge the variability of cash flows associated with forecasted transactions denominated in a foreign currency that will take place in the future. The gross notional amount of these contracts, designated as cash flow hedges, outstanding at January 24, 2020 and April 26, 2019 was $6.9 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 (income) 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 nine months ended January 24, 2020 and January 25, 2019.

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 nine months ended January 24, 2020 and January 25, 2019 were as follows:

	Three months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Currency exchange rate contracts	$	(41)	$	(25)	$	(144)	$	(469)

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 nine months ended January 24, 2020 and January 25, 2019 were as follows:

	Three months ended				Nine months ended
	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
(in millions)	Other operating (income) expense, net		Other operating (income) expense, net		Other operating (income) expense, net		Other operating (income) 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	$	(39)	$	57	$	88	$	278
Currency exchange rate contracts designated as cash flow hedges:
Amount of (gain) loss reclassified from AOCI into income	(82)		(48)		(206)		(56)

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

19

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

nine months ended January 24, 2020 and January 25, 2019, the reclassifications of net (gains) losses on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense were not significant.

At January 24, 2020 and April 26, 2019 the Company had $157 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 $145 million of after-tax net unrealized gains at January 24, 2020 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 from terminated interest rate swap agreements are recognized in long-term debt, increasing the outstanding balances of the debt, and amortized as a reduction of 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 January 24, 2020 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 nine months ended January 24, 2020. 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 nine months ended January 24, 2020 and January 25, 2019 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 Sheet	January 24, 2020		April 26, 2019		January 24, 2020		April 26, 2019
Long-term debt	$	—	$	(1,175)	$	—	$	9

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 January 24, 2020, 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

20

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

operating (income) 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.

At January 24, 2020 and April 26, 2019 the Company had $18 million in after-tax unrealized gains, and $169 million in after-tax unrealized losses, respectively, associated with net investment hedges recorded in accumulated other comprehensive loss. The Company does not expect any of the after-tax unrealized gains at January 24, 2020 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 nine months ended January 24, 2020 or January 25, 2019 on instruments that no longer qualify as net investment hedges.

The amount and classifications of the (gains) losses 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 ended				Nine months ended
(in millions)	Classification	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Net investment hedges	Other operating (income) expense, net	$	—	$	—	$	(7)	$	—

The amount of the (gains) losses recognized in AOCI related to instruments designated as net investment hedges for the three and nine months ended January 24, 2020 and January 25, 2019 were as follows:

	Three months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Net investment hedges	$	(35)	$	—	$	(187)	$	—

Balance Sheet Presentation

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at January 24, 2020 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.

	January 24, 2020
	Derivative Assets			Derivative Liabilities
(in millions)	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts	Other current assets	$	183	Other accrued expenses	$	11
Currency exchange rate contracts	Other assets	75		Other liabilities	12
Total derivatives designated as hedging instruments		258			23
Derivatives not designated as hedging instruments
Currency exchange rate contracts	Other current assets	9		Other accrued expenses	10
Total return swap	Other current assets	16		Other accrued expenses	—
Cross currency interest rate contracts	Other current assets	1		Other accrued expenses	—
Total derivatives not designated as hedging instruments		26			10
Total derivatives		$	284		$	33

21

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

	April 26, 2019
	Derivative Assets			Derivative Liabilities
(in millions)	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts	Other current assets	$	234	Other accrued expenses	$	1
Interest rate contracts	Other assets	9		Other liabilities	—
Currency exchange rate contracts	Other assets	78		Other liabilities	1
Total derivatives designated as hedging instruments		321			2
Derivatives not designated as hedging instruments
Currency exchange rate contracts	Other current assets	23		Other accrued expenses	17
Total return swaps	Other current assets	15		Other accrued expenses	—
Cross currency interest rate contracts	Other current assets	6		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.

	January 24, 2020				April 26, 2019
(in millions)	Level 1		Level 2		Level 1		Level 2
Derivative assets	$	267	$	17	$	335	$	30
Derivative liabilities	33		—		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.

	January 24, 2020
			Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recorded Assets (Liabilities)		Financial Instruments		Cash Collateral Posted (Received)		Net Amount
Derivative assets:
Currency exchange rate contracts	$	267	$	(33)	$	(5)	$	229
Total return swaps	16		—		—		16
Cross currency interest rate contracts	1		—		—		1
	284		(33)		(5)		246
Derivative liabilities:
Currency exchange rate contracts	(33)		33		—		—
	(33)		33		—		—
Total	$	251	$	—	$	(5)	$	246

22

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 Instruments		Cash Collateral Posted (Received)		Net Amount
Derivative assets:
Currency exchange rate contracts	$	335	$	(9)	$	(43)	$	283
Interest rate contracts	9		—		(1)		8
Total return swaps	15		—		—		15
Cross currency interest rate contracts	6		—		—		6
	365		(9)		(44)		312
Derivative liabilities:
Currency exchange rate contracts	(19)		9		—		(10)
	(19)		9		—		(10)
Total	$	346	$	—	$	(44)	$	302

9. Inventories

Inventory balances, net of reserves, were as follows:

(in millions)	January 24, 2020		April 26, 2019
Finished goods	$	2,693	$	2,476
Work in-process	643		572
Raw materials	786		705
Total	$	4,122	$	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 Group		Minimally Invasive Therapies Group		Restorative Therapies Group		Diabetes Group		Total
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	7		2		119		(5)		123
Currency translation and other	5		(59)		(29)		—		(83)
January 24, 2020	$	6,866	$	20,335	$	10,976	$	1,914	$	40,091

The Company assesses goodwill for impairment annually as of the first day of the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Impairment testing for goodwill is performed at the reporting unit level. The test for impairment of goodwill requires the Company to make several estimates 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 nine months ended January 24, 2020 or January 25, 2019.

23

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Intangible Assets

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

	January 24, 2020				April 26, 2019
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Definite-lived:
Customer-related	$	16,971	$	(4,824)	$	16,944	$	(4,095)
Purchased technology and patents	10,640		(4,178)		11,405		(4,570)
Trademarks and tradenames	464		(228)		570		(324)
Other	83		(54)		85		(59)
Total	$	28,158	$	(9,284)	$	29,004	$	(9,048)
Indefinite-lived:
IPR&D	$	582	$	—	$	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 did not recognize any definite-lived intangible asset charges during the three months ended January 24, 2020. During the nine months ended January 24, 2020, the Company recognized $33 million of definite-lived intangible asset charges in connection with the exit of businesses within the Restorative Therapies Group segment. During the three months ended January 25, 2019, the Company recognized $26 million of definite-lived intangible asset charges in connection with business exits within the Restorative Therapies Group segment. During the nine months ended January 25, 2019, the Company recognized $87 million of definite-lived intangible asset charges, including $26 million and $61 million of charges in connection with business exits within the Restorative Therapies Group and Cardiac and Vascular Group segments, respectively. Definite-lived intangible asset impairment charges are recognized in other operating (income) 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 nine months ended January 24, 2020. During the three and nine months ended January 25, 2019, the Company recognized $21 million of indefinite-lived intangible asset charges, including $11 million in connection with a business exit within the Restorative Therapies Group segment. Indefinite-lived intangible asset charges are recognized in other operating (income) expense, net in the consolidated statements of income. Due to the nature of IPR&D projects, the Company may experience future delays or failures to obtain regulatory approvals to conduct clinical trials, failures of clinical trials, delays or failures to obtain required market clearances, other failures to achieve a commercially viable product, or the discontinuation of certain projects, and as a result, may recognize impairment losses in the future.

Amortization Expense

Intangible asset amortization expense for the three and nine months ended January 24, 2020 and January 25, 2019 was $436 million and $1.3 billion, respectively. Estimated aggregate amortization expense by fiscal year based on the carrying value of definite-lived intangible assets at January 24, 2020, 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	$	437
2021	1,741
2022	1,699
2023	1,634
2024	1,605
2025	1,576

24

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

11. Income Taxes

The Company's effective tax rate for the three and nine months ended January 24, 2020 was (21.5) percent and (8.2) percent, respectively, as compared to 7.2 percent and 11.2 percent for the three and nine months ended January 25, 2019, respectively. The decrease in the effective tax rate for the three and nine months ended January 24, 2020, as compared to the corresponding periods in the prior fiscal year, was primarily due to the impact of certain tax adjustments described below.

Certain Tax Adjustments

During the three months ended January 24, 2020, the benefit from certain tax adjustments of $558 million, recognized in income tax provision in the consolidated statements of income, included the following:

•A benefit of $558 million related to the release of a valuation allowance previously recorded against certain net operating losses. Luxembourg enacted tax legislation during the quarter which required the Company to reassess the realizability of certain net operating losses. The Company evaluated both the positive and negative evidence and released valuation allowance equal to the expected benefit from the utilization of certain net operating losses in connection with a planned intercompany sale of intellectual property.

During the nine months ended January 24, 2020, the net benefit from certain tax adjustments of $839 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.

•A benefit of $558 million related to the release of a valuation allowance previously recorded against certain net operating losses. Luxembourg enacted tax legislation during the quarter which required the Company to reassess the realizability of certain net operating losses. The Company evaluated both the positive and negative evidence and released valuation allowance equal to the expected benefit from the utilization of certain net operating losses in connection with a planned intercompany sale of intellectual property.

During the three months ended January 25, 2019, the net benefit from certain tax adjustments of $64 million, recognized in income tax provision in the consolidated statements of income, included the following:

•A net benefit of $12 million associated with the transition tax liability and the impacts of U.S. Tax Reform on deferred tax assets, liabilities, and valuation allowances.

•A benefit of $32 million related to intercompany legal entity restructuring.

•A net benefit of $20 million associated with the finalization of certain income tax aspects of the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.

During the nine months ended January 25, 2019, the net benefit from certain tax adjustments of $35 million, recognized in income tax provision in the consolidated statements of income, included the following:

•A net benefit of $25 million associated with the transition tax liability and the impacts of U.S. Tax Reform on deferred tax assets, liabilities, and valuation allowances

•A benefit of $32 million related to intercompany legal entity restructuring.

•A net benefit of $20 million associated with the finalization of certain income tax aspects of the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.

25

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

•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 January 24, 2020 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 $207 million at January 24, 2020. 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 January 24, 2020 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 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 ended				Nine months ended
(in millions, except per share data)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Numerator:
Net income attributable to ordinary shareholders	$	1,915	$	1,269	$	4,143	$	3,459
Denominator:
Basic – weighted average shares outstanding	1,340.5		1,342.8		1,340.7		1,348.1
Effect of dilutive securities:
Employee stock options	8.4		6.9		7.8		7.9
Employee restricted stock units	2.6		3.0		2.9		3.2
Other	—		—		0.2		0.3
Diluted – weighted average shares outstanding	1,351.5		1,352.7		1,351.6		1,359.5
Basic earnings per share	$	1.43	$	0.95	$	3.09	$	2.57
Diluted earnings per share	$	1.42	$	0.94	$	3.07	$	2.54

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 3 million ordinary shares for both the three and nine months ended January 24, 2020, and 7 million ordinary shares for both the three and nine months ended January 25, 2019, because their effect would have been anti-dilutive on the Company’s earnings per share.

26

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

13. Stock-Based Compensation

The following table presents the components and classification of stock-based compensation expense for stock options, restricted stock, and employee stock purchase plan shares recognized for the three and nine months ended January 24, 2020 and January 25, 2019:

	Three months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Stock options	$	12	$	11	$	52	$	62
Restricted stock	46		43		159		144
Employee stock purchase plan	8		6		24		22
Total stock-based compensation expense	$	66	$	60	$	235	$	228
Cost of products sold	$	6	$	5	$	22	$	23
Research and development expense	9		8		29		29
Selling, general, and administrative expense	51		47		184		176
Total stock-based compensation expense	66		60		235		228
Income tax benefits	(11)		(8)		(40)		(40)
Total stock-based compensation expense, net of tax	$	55	$	52	$	195	$	188

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 nine months ended January 24, 2020 and January 25, 2019:

	U.S.				Non-U.S.
	Three months ended				Three months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Service cost	$	26	$	27	$	15	$	15
Interest cost	32		33		7		7
Expected return on plan assets	(56)		(54)		(15)		(14)
Amortization of net actuarial loss	14		19		4		3
Net periodic benefit cost	$	16	$	25	$	11	$	11
	U.S.				Non-U.S.
	Nine months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Service cost	$	78	$	81	$	45	$	45
Interest cost	96		99		21		21
Expected return on plan assets	(168)		(162)		(45)		(42)
Amortization of net actuarial loss	42		57		11		9
Net periodic benefit cost	$	48	$	75	$	32	$	33

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.

27

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 nine months ended January 24, 2020 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 nine months ended January 24, 2020. 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.

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 nine months ended January 24, 2020.

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 January 24, 2020:

(in millions)	Balance Sheet Classification	January 24, 2020
Right-of-use assets	Other assets	$	995
Current liability	Other accrued expenses	169
Non-current liability	Other liabilities	851

The following table summarizes the weighted-average remaining lease term and weighted-average discount rate for the Company's operating leases at January 24, 2020:

	January 24, 2020
Weighted-average remaining lease term	7.5 years
Weighted-average discount rate	3.0%

The following table summarizes the components of total operating lease cost for the three and nine months ended January 24, 2020:

	Three months ended		Nine months ended
(in millions)	January 24, 2020		January 24, 2020
Operating lease cost	$	59	$	170
Short-term lease cost	10		32
Total operating lease cost	$	69	$	202

28

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 nine months ended January 24, 2020:

	Nine months ended
(in millions)	January 24, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	167
Right-of-use assets obtained in exchange for operating lease liabilities	178

The following table summarizes the maturities of the Company's operating leases at January 24, 2020:

(in millions) Fiscal Year	Operating Leases
Remaining 2020	$	81
2021	203
2022	171
2023	147
2024	125
Thereafter	448
Total expected lease payments	1,175
Less: Imputed interest	(155)
Total lease liability	$	1,020

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 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 nine months ended January 24, 2020.

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
2021	157
2022	103
2023	61
2024	34
Thereafter	81
Total minimum lease payments	$	652

29

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 Securities		Cumulative Translation Adjustments		Net Investment Hedges		Net Change in Retirement Obligations		Unrealized Gain (Loss) on Cash Flow Hedges		Total Accumulated Other Comprehensive (Loss) Income
April 26, 2019	$	(45)	$	(1,383)	$	(169)	$	(1,308)	$	194	$	(2,711)
Other comprehensive income (loss) before reclassifications	94		(116)		187		(1)		106		270
Reclassifications	(1)		—		—		39		(143)		(105)
Other comprehensive income (loss)	93		(116)		187		38		(37)		165
January 24, 2020	$	48	$	(1,499)	$	18	$	(1,270)	$	157	$	(2,546)
(in millions)	Unrealized (Loss) Gain on Investment Securities		Cumulative Translation Adjustment		Net Investment Hedges		Net Change in Retirement Obligations		Unrealized (Loss) Gain on Cash Flow Hedges		Total Accumulated Other Comprehensive (Loss) Income
April 27, 2018	$	(194)	$	(11)	$	(257)	$	(1,117)	$	(207)	$	(1,786)
Other comprehensive (loss) income before reclassifications	(7)		(1,124)		—		—		353		(778)
Reclassifications	30		—		—		65		(36)		59
Other comprehensive income (loss)	23		(1,124)		—		65		317		(719)
Cumulative effect of change in accounting principle(1)	47		—		—		—		—		47
January 25, 2019	$	(124)	$	(1,135)	$	(257)	$	(1,052)	$	110	$	(2,458)

(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 nine months ended January 24, 2020 and January 25, 2019 was an expense of $7 million and a benefit of $2 million, respectively. During the nine months ended January 24, 2020 and January 25, 2019, realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $1 million and $2 million, respectively. When realized, gains and losses on investment securities reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 6 to the consolidated financial statements for additional information.

For the nine months ended January 24, 2020, there was no income tax on cumulative translation adjustments. For the nine months ended January 25, 2019, there was a $8 million income tax benefit on cumulative translation adjustments.

During the nine months ended January 24, 2020 and January 25, 2019, there were no tax impacts on net investment hedges. Refer to Note 8 to the consolidated financial statements for additional information.

The net change in retirement obligations in other comprehensive income includes amortization of net actuarial losses included in net periodic benefit cost. During the nine months ended January 24, 2020 and January 25, 2019, there were no income tax impacts on the net change in retirement obligations in other comprehensive income before reclassifications. During the nine months ended January 24, 2020 and January 25, 2019, the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $9 million and $15 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.

30

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The income tax on unrealized gains and losses on cash flow hedges in other comprehensive income before reclassifications during the nine months ended January 24, 2020 and January 25, 2019 was an expense of $38 million and $116 million, respectively. During the nine months ended January 24, 2020 and January 25, 2019, gains and losses on cash flow hedges reclassified from AOCI were reduced by income taxes of $47 million and $16 million, respectively. When realized, gains and losses on currency exchange rate contracts reclassified from AOCI are recognized within other operating (income) 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, 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 nine months ended January 24, 2020, the Company recognized $108 million and $276 million, respectively, of certain litigation charges related to probable and estimable damages for significant legal matters. During the three and nine months ended January 25, 2019, the Company recognized $63 million and $166 million, respectively, of certain litigation charges. At January 24, 2020 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 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 16,000 claimants have asserted or may assert claims involving products manufactured by Covidien’s subsidiaries. As of February 5, 2020, the Company had reached agreements to settle

31

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 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

32

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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.

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.

33

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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. The statute of limitations for Covidien's 2016 U.S. federal income tax return lapsed during the third quarter of fiscal year 2020.

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.

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

34

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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)				Nine months ended (1)
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Cardiac and Vascular Group	$	2,819	$	2,786	$	8,464	$	8,455
Minimally Invasive Therapies Group	2,176		2,124		6,418		6,223
Restorative Therapies Group	2,111		2,026		6,235		5,968
Diabetes Group	610		610		1,798		1,765
Total	$	7,717	$	7,546	$	22,916	$	22,411

(1) The data in this schedule has been intentionally rounded to the nearest million and, therefore, may not sum.

35

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Segment Operating Profit

	Three months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Cardiac and Vascular Group	$	1,101	$	1,076	$	3,284	$	3,262
Minimally Invasive Therapies Group	860		828		2,453		2,396
Restorative Therapies Group	898		824		2,531		2,394
Diabetes Group	158		190		456		538
Segment operating profit	3,017		2,918		8,724		8,590
Interest expense	(156)		(243)		(930)		(726)
Other non-operating income, net	96		71		305		309
Amortization of intangible assets	(436)		(436)		(1,317)		(1,327)
Corporate	(348)		(331)		(1,005)		(974)
Centralized distribution costs	(348)		(383)		(1,117)		(1,313)
Restructuring and associated costs	(97)		(66)		(315)		(256)
Acquisition-related items	(28)		(17)		(74)		(57)
Certain litigation charges	(108)		(63)		(276)		(166)
IPR&D charges	—		(11)		—		(26)
Exit of businesses	—		(69)		(41)		(149)
Debt tender premium and other charges	—		—		7		—
Medical device regulations	(13)		—		(31)		—
Contribution to Medtronic Foundation	—		—		(80)		—
Income before income taxes	$	1,579	$	1,370	$	3,850	$	3,905

Geographic Information

Net sales are attributed to the country based on the location of the customer taking possession of the products or in which the services are rendered. The following table presents net sales for the three and nine months ended January 24, 2020 and January 25, 2019 for the Company's country of domicile, countries with significant concentrations, and all other countries: 

	Three months ended				Nine months ended
(in millions)	January 24, 2020		January 25, 2019		January 24, 2020		January 25, 2019
Ireland	$	22	$	24	$	66	$	68
United States	4,021		4,001		12,068		11,910
Rest of world	3,674		3,521		10,782		10,433
Total other countries, excluding Ireland	7,695		7,522		22,850		22,343
Total	$	7,717	$	7,546	$	22,916	$	22,411

36

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 nine months ended January 24, 2020 and January 25, 2019, condensed consolidating balance sheets at January 24, 2020 and April 26, 2019, and condensed consolidating statements of cash flows for the nine months ended January 24, 2020 and January 25, 2019. 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 nine months ended January 24, 2020, 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.

37

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Consolidating Statement of Comprehensive Income

Three Months Ended January 24, 2020

Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)	Medtronic plc		Medtronic, Inc.		Medtronic Luxco		Subsidiary Non-guarantors		Consolidating Adjustments		Total
Net sales	$	—	$	344	$	—	$	7,717	$	(344)	$	7,717
Costs and expenses:
Cost of products sold	—		337		—		2,294		(231)		2,400
Research and development expense	—		154		—		419		—		573
Selling, general, and administrative expense	3		432		—		2,152		—		2,587
Amortization of intangible assets	—		6		—		430		—		436
Restructuring charges, net	—		3		—		10		—		13
Certain litigation charges	—		—		—		108		—		108
Other operating expense (income), net	12		(569)		—		624		(106)		(39)
Operating profit (loss)	(15)		(19)		—		1,680		(7)		1,639
Other non-operating (income) expense, net	—		(50)		(174)		(415)		543		(96)
Interest expense	66		316		141		176		(543)		156
Equity in net (income) loss of subsidiaries	(1,994)		(1,707)		(1,961)		—		5,662		—
Income (loss) before income taxes	1,913		1,422		1,994		1,919		(5,669)		1,579
Income tax provision	(2)		(40)		—		(298)		—		(340)
Net income (loss)	1,915		1,462		1,994		2,217		(5,669)		1,919
Net income attributable to noncontrolling interests	—		—		—		(4)		—		(4)
Net income (loss) attributable to Medtronic	1,915		1,462		1,994		2,213		(5,669)		1,915
Other comprehensive income (loss), net of tax	65		58		65		18		(141)		65
Comprehensive income attributable to noncontrolling interests	—		—		—		(4)		—		(4)
Total comprehensive income (loss)	$	1,980	$	1,520	$	2,059	$	2,231	$	(5,810)	$	1,980

38

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Consolidating Statement of Comprehensive Income

Nine Months Ended January 24, 2020

Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)	Medtronic plc		Medtronic, Inc.		Medtronic Luxco		Subsidiary Non-guarantors		Consolidating Adjustments		Total
Net sales	$	—	$	1,155	$	—	$	22,916	$	(1,155)	$	22,916
Costs and expenses:
Cost of products sold	—		1,013		—		6,999		(852)		7,160
Research and development expense	—		500		—		1,263		—		1,763
Selling, general, and administrative expense	9		1,241		1		6,499		—		7,750
Amortization of intangible assets	—		12		—		1,305		—		1,317
Restructuring charges, net	—		13		—		74		—		87
Certain litigation charges	—		5		—		271		—		276
Other operating expense (income), net	39		(1,637)		(7)		1,977		(284)		88
Operating profit (loss)	(48)		8		6		4,528		(19)		4,475
Other non-operating (income) expense, net	—		(184)		(660)		(1,245)		1,784		(305)
Interest expense	350		1,372		424		568		(1,784)		930
Equity in net (income) loss of subsidiaries	(4,535)		(2,899)		(4,293)		—		11,727		—
Income (loss) before income taxes	4,137		1,719		4,535		5,205		(11,746)		3,850
Income tax provision	(6)		(199)		—		(112)		—		(317)
Net income (loss)	4,143		1,918		4,535		5,317		(11,746)		4,167
Net income attributable to noncontrolling interests	—		—		—		(24)		—		(24)
Net income (loss) attributable to Medtronic	4,143		1,918		4,535		5,293		(11,746)		4,143
Other comprehensive income (loss), net of tax	165		29		165		(65)		(129)		165
Comprehensive income attributable to noncontrolling interests	—		—		—		(24)		—		(24)
Total comprehensive income (loss)	$	4,308	$	1,947	$	4,700	$	5,228	$	(11,875)	$	4,308

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Consolidating Statement of Comprehensive Income

Three Months Ended January 25, 2019

Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)	Medtronic plc		Medtronic, Inc.		Medtronic Luxco		Subsidiary Non-guarantors		Consolidating Adjustments		Total
Net sales	$	—	$	281	$	—	$	7,546	$	(281)	$	7,546
Costs and expenses:
Cost of products sold	—		223		—		2,206		(164)		2,265
Research and development expense	—		152		—		409		—		561
Selling, general, and administrative expense	2		362		—		2,232		—		2,596
Amortization of intangible assets	—		2		—		434		—		436
Restructuring charges, net	—		3		—		23		—		26
Certain litigation charges	—		12		—		51		—		63
Other operating expense (income), net	15		(827)		—		987		(118)		57
Operating profit (loss)	(17)		354		—		1,204		1		1,542
Other non-operating (income) expense, net	—		(151)		(200)		(480)		760		(71)
Interest expense	125		501		133		244		(760)		243
Equity in net (income) loss of subsidiaries	(1,410)		(678)		(1,343)		—		3,431		—
Income (loss) before income taxes	1,268		682		1,410		1,440		(3,430)		1,370
Income tax provision	(1)		40		—		60		—		99
Net income (loss)	1,269		642		1,410		1,380		(3,430)		1,271
Net income attributable to noncontrolling interests	—		—		—		(2)		—		(2)
Net income (loss) attributable to Medtronic	1,269		642		1,410		1,378		(3,430)		1,269
Other comprehensive income (loss), net of tax	154		45		154		132		(331)		154
Comprehensive income attributable to noncontrolling interests	—		—		—		(2)		—		(2)
Total comprehensive income (loss)	$	1,423	$	687	$	1,564	$	1,510	$	(3,761)	$	1,423

40

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Consolidating Statement of Comprehensive Income

Nine Months Ended January 25, 2019

Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)	Medtronic plc		Medtronic, Inc.		Medtronic Luxco		Subsidiary Non-guarantors		Consolidating Adjustments		Total
Net sales	$	—	$	1,007	$	—	$	22,411	$	(1,007)	$	22,411
Costs and expenses:
Cost of products sold	—		776		—		6,538		(642)		6,672
Research and development expense	—		496		—		1,240		—		1,736
Selling, general, and administrative expense	8		1,142		—		6,648		—		7,798
Amortization of intangible assets	—		6		—		1,321		—		1,327
Restructuring charges, net	—		14		—		98		—		112
Certain litigation charges	—		90		—		76		—		166
Other operating expense (income), net	40		(1,759)		—		2,336		(339)		278
Operating profit (loss)	(48)		242		—		4,154		(26)		4,322
Other non-operating (income) expense, net	—		(445)		(539)		(1,411)		2,086		(309)
Interest expense	333		1,444		349		686		(2,086)		726
Equity in net (income) loss of subsidiaries	(3,835)		(2,176)		(3,645)		—		9,656		—
Income (loss) before income taxes	3,454		1,419		3,835		4,879		(9,682)		3,905
Income tax provision	(5)		(79)		—		521		—		437
Net income (loss)	3,459		1,498		3,835		4,358		(9,682)		3,468
Net income attributable to noncontrolling interests	—		—		—		(9)		—		(9)
Net income (loss) attributable to Medtronic	3,459		1,498		3,835		4,349		(9,682)		3,459
Other comprehensive income (loss), net of tax	(719)		(965)		(719)		(779)		2,460		(722)
Comprehensive income attributable to noncontrolling interests	—		—		—		(6)		—		(6)
Total comprehensive income (loss)	$	2,740	$	533	$	3,116	$	3,573	$	(7,222)	$	2,740

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Balance Sheet

January 24, 2020

Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)	Medtronic plc		Medtronic, Inc.		Medtronic Luxco		Subsidiary Non-guarantors		Consolidating Adjustments		Total
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	—	$	185	$	3,524	$	—	$	3,709
Investments	—		—		—		7,919		—		7,919
Accounts receivable, net	—		—		—		6,248		—		6,248
Inventories, net	—		211		—		4,159		(248)		4,122
Intercompany receivable	42		8,807		5		34,982		(43,836)		—
Other current assets	10		195		2		1,838		—		2,045
Total current assets	52		9,213		192		58,670		(44,084)		24,043
Property, plant, and equipment, net	—		1,536		—		3,228		—		4,764
Goodwill	—		2,009		—		38,082		—		40,091
Other intangible assets, net	—		197		—		19,259		—		19,456
Tax assets	—		508		—		1,764		—		2,272
Investment in subsidiaries	58,753		75,008		77,989		—		(211,750)		—
Intercompany loans receivable	—		22		18,296		21,072		(39,390)		—
Other assets	—		377		—		1,819		—		2,196
Total assets	$	58,805	$	88,870	$	96,477	$	143,894	$	(295,224)	$	92,822
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	—	$	500	$	—	$	344	$	—	$	844
Accounts payable	—		507		—		1,438		—		1,945
Intercompany payable	—		21,383		13,599		8,854		(43,836)		—
Accrued compensation	20		785		—		1,104		—		1,909
Accrued income taxes	—		—		—		457		—		457
Other accrued expenses	25		287		98		3,170		—		3,580
Total current liabilities	45		23,462		13,697		15,367		(43,836)		8,735
Long-term debt	—		9,786		13,522		1,424		—		24,732
Accrued compensation and retirement benefits	—		1,025		—		573		—		1,598
Accrued income taxes	10		760		—		1,968		—		2,738
Intercompany loans payable	6,942		9,012		9,729		13,707		(39,390)		—
Deferred tax liabilities	—		—		—		1,282		—		1,282
Other liabilities	—		262		—		1,522		—		1,784
Total liabilities	6,997		44,307		36,948		35,843		(83,226)		40,869
Shareholders’ equity	51,808		44,563		59,529		107,906		(211,998)		51,808
Noncontrolling interests	—		—		—		145		—		145
Total equity	51,808		44,563		59,529		108,051		(211,998)		51,953
Total liabilities and equity	$	58,805	$	88,870	$	96,477	$	143,894	$	(295,224)	$	92,822

42

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 plc		Medtronic, Inc.		Medtronic Luxco		Subsidiary Non-guarantors		Consolidating Adjustments		Total
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	18	$	1	$	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 receivable	40		9,407		6		19,170		(28,623)		—
Other current assets	10		190		3		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 subsidiaries	64,352		71,123		65,012		—		(200,487)		—
Intercompany loans receivable	3,000		21		27,858		35,398		(66,277)		—
Other assets	—		216		—		798		—		1,014
Total assets	$	67,402	$	85,319	$	92,880	$	139,707	$	(295,614)	$	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	3		913		—		1,273		—		2,189
Accrued income taxes	—		—		—		567		—		567
Other accrued expenses	20		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 taxes	10		692		—		2,136		—		2,838
Intercompany loans payable	17,278		12,613		19,682		16,704		(66,277)		—
Deferred tax liabilities	—		—		—		1,278		—		1,278
Other liabilities	—		133		—		624		—		757
Total liabilities	17,311		43,121		35,556		38,394		(94,900)		39,482
Shareholders' equity	50,091		42,198		57,324		101,192		(200,714)		50,091
Noncontrolling interests	—		—		—		121		—		121
Total equity	50,091		42,198		57,324		101,313		(200,714)		50,212
Total liabilities and equity	$	67,402	$	85,319	$	92,880	$	139,707	$	(295,614)	$	89,694

43

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statement of Cash Flows

Nine Months Ended January 24, 2020

Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)	Medtronic plc		Medtronic, Inc.		Medtronic Luxco		Subsidiary Non-guarantors		Consolidating Adjustments		Total
Operating Activities:
Net cash provided by (used in) operating activities	$	130	$	(1,315)	$	365	$	6,604	$	—	$	5,784
Investing Activities:
Acquisitions, net of cash acquired	—		2		—		(201)		—		(199)
Additions to property, plant, and equipment	—		(236)		—		(641)		—		(877)
Purchases of investments	—		—		—		(8,249)		—		(8,249)
Sales and maturities of investments	—		12		—		5,779		—		5,791
Capital contribution paid	—		—		(9,000)		(800)		9,800		—
Return of capital	10,000		—		(3,000)		(7,000)		—		—
Other investing activities	—		(56)		(5)		27		—		(34)
Net cash provided by (used in) investing activities	10,000		(278)		(12,005)		(11,085)		9,800		(3,568)
Financing Activities:
Change in current debt obligations, net	—		—		—		17		—		17
Issuance of long-term debt	—		—		5,567		1		—		5,568
Payments on long-term debt	—		(5,016)		(515)		(75)		—		(5,606)
Dividends to shareholders	(2,170)		—		—		—		—		(2,170)
Issuance of ordinary shares	585		—		—		—		—		585
Repurchase of ordinary shares	(1,208)		—		—		—		—		(1,208)
Net intercompany loan borrowings (repayments)	(7,337)		6,591		6,010		(5,264)		—		—
Capital contribution received	—		—		800		9,000		(9,800)		—
Other financing activities	—		—		(38)		(36)		—		(74)
Net cash provided by (used in) financing activities	(10,130)		1,575		11,824		3,643		(9,800)		(2,888)
Effect of exchange rate changes on cash and cash equivalents	—		—		—		(12)		—		(12)
Net change in cash and cash equivalents	—		(18)		184		(850)		—		(684)
Cash and cash equivalents at beginning of period	—		18		1		4,374		—		4,393
Cash and cash equivalents at end of period	$	—	$	—	$	185	$	3,524	$	—	$	3,709

44

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statement of Cash Flows

Nine Months Ended January 25, 2019

Medtronic Senior Notes and Medtronic Luxco Senior Notes

(in millions)	Medtronic plc		Medtronic, Inc.		Medtronic Luxco		Subsidiary Non-guarantors		Consolidating Adjustments		Total
Operating Activities:
Net cash provided by (used in) operating activities	$	100	$	(619)	$	200	$	5,239	$	—	$	4,920
Investing Activities:
Acquisitions, net of cash acquired	—		—		—		(1,615)		—		(1,615)
Additions to property, plant, and equipment	—		(207)		—		(592)		—		(799)
Purchases of investments	—		—		—		(1,987)		—		(1,987)
Sales and maturities of investments	—		76		—		4,083		—		4,159
Capital contribution paid	(18)		(47)		—		—		65		—
Other investing activities	—		—		—		(3)		—		(3)
Net cash provided by (used in) investing activities	(18)		(178)		—		(114)		65		(245)
Financing Activities:
Change in current debt obligations, net	—		—		(696)		—		—		(696)
Issuance of long-term debt	—		—		—		3		—		3
Payments on long-term debt	—		—		—		(29)		—		(29)
Dividends to shareholders	(2,022)		—		—		—		—		(2,022)
Issuance of ordinary shares	891		—		—		—		—		891
Repurchase of ordinary shares	(2,728)		—		—		—		—		(2,728)
Net intercompany loan borrowings (repayments)	3,777		793		814		(5,384)		—		—
Capital contribution received	—		—		—		65		(65)		—
Other financing activities	—		—		17		(7)