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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
mdt-20200124_g1.jpg®
MEDTRONIC PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
  
Ireland98-1183488
(State of incorporation)(I.R.S. Employer
Identification No.)
20 On Hatch, Lower Hatch Street
Dublin 2, Ireland
(Address of principal executive offices) (Zip Code)
+353 1 438-1700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Ordinary shares, par value $0.0001 per shareMDTNew York Stock Exchange
Floating Rate Notes due 2021MDT/21New York Stock Exchange
0.000% Senior Notes due 2021MDT/21ANew York Stock Exchange
0.000% Senior Notes due 2022MDT/22BNew York Stock Exchange
0.375% Senior Notes due 2023MDT/23BNew York Stock Exchange
0.25% Senior Notes due 2025MDT/25New York Stock Exchange
1.125% Notes due 2027MDT/27New York Stock Exchange
1.625% Notes due 2031MDT/31New York Stock Exchange
1.00% Senior Notes due 2031MDT/31ANew York Stock Exchange
2.250% Notes due 2039MDT/39ANew York Stock Exchange
1.50% Senior Notes due 2039MDT/39BNew York Stock Exchange
1.75% Senior Notes due 2049MDT/49New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 1(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
As of 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
     
    
1.  
2.  
3.  
4.  
    
1.  
2.  
6.  




PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Medtronic plc
Consolidated Statements of Income
(Unaudited)
 Three months endedNine months ended
(in millions, except per share data)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Net sales$7,717  $7,546  $22,916  $22,411  
Costs and expenses:  
Cost of products sold2,400  2,265  7,160  6,672  
Research and development expense573  561  1,763  1,736  
Selling, general, and administrative expense2,587  2,596  7,750  7,798  
Amortization of intangible assets436  436  1,317  1,327  
Restructuring charges, net13  26  87  112  
Certain litigation charges108  63  276  166  
Other operating (income) expense, net(39) 57  88  278  
Operating profit1,639  1,542  4,475  4,322  
Other non-operating income, net(96) (71) (305) (309) 
Interest expense156  243  930  726  
Income before income taxes1,579  1,370  3,850  3,905  
Income tax provision(340) 99  (317) 437  
Net income1,919  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 outstanding1,340.5  1,342.8  1,340.7  1,348.1  
Diluted weighted average shares outstanding1,351.5  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 endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Net income$1,919  $1,271  $4,167  $3,468  
Other comprehensive income (loss), net of tax:  
Unrealized gain on investment securities20  32  93  23  
Translation adjustment32  128  (116) (1,127) 
Net investment hedge35    187    
Net change in retirement obligations13  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 interests1,984  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, 2020April 26, 2019
ASSETS  
Current assets:  
Cash and cash equivalents$3,709  $4,393  
Investments7,919  5,455  
Accounts receivable, less allowances of $205 and $190, respectively
6,248  6,222  
Inventories, net4,122  3,753  
Other current assets2,045  2,144  
Total current assets24,043  21,967  
Property, plant, and equipment11,507  10,920  
Accumulated depreciation(6,743) (6,245) 
Property, plant, and equipment, net4,764  4,675  
Goodwill40,091  39,959  
Other intangible assets, net19,456  20,560  
Tax assets2,272  1,519  
Other assets2,196  1,014  
Total assets$92,822  $89,694  
LIABILITIES AND EQUITY  
Current liabilities:  
Current debt obligations$844  $838  
Accounts payable1,945  1,953  
Accrued compensation1,909  2,189  
Accrued income taxes457  567  
Other accrued expenses3,580  2,925  
Total current liabilities8,735  8,472  
Long-term debt24,732  24,486  
Accrued compensation and retirement benefits1,598  1,651  
Accrued income taxes2,738  2,838  
Deferred tax liabilities1,282  1,278  
Other liabilities1,784  757  
Total liabilities40,869  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 capital26,144  26,532  
Retained earnings28,210  26,270  
Accumulated other comprehensive loss(2,546) (2,711) 
Total shareholders’ equity51,808  50,091  
Noncontrolling interests145  121  
Total equity51,953  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 SharesAdditional Paid-in CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Noncontrolling InterestsTotal Equity
(in millions)NumberPar Value
April 26, 20191,341  $  $26,532  $26,270  $(2,711) $50,091  $121  $50,212  
Net income—  —  —  864  —  864  13  877  
Other comprehensive income—  —  —  —  227  227  —  227  
Dividends to shareholders ($0.54 per ordinary share)
—  —  —  (724) —  (724) —  (724) 
Issuance of shares under stock purchase and award plans3  —  205  —  —  205  —  205  
Repurchase of ordinary shares(3) —  (328) —  —  (328) —  (328) 
Stock-based compensation—  —  61  —  —  61  —  61  
Cumulative effect of change in accounting principle(1)
—  —  —  (33) —  (33) —  (33) 
July 26, 20191,341  $  $26,470  $26,377  $(2,484) $50,363  $134  $50,497  
Net income—  —  —  1,364  —  1,364  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 plans4  —  145  —  —  145  —  145  
Repurchase of ordinary shares(5) —  (552) —  —  (552) —  (552) 
Stock-based compensation—  —  108  —  —  108  —  108  
October 25, 20191,340  $  $26,171  $27,018  $(2,611) $50,578  $141  $50,719  
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 plans3  —  143  —  —  143  —  143  
Repurchase of ordinary shares(2) —  (236) —  —  (236) —  (236) 
Stock-based compensation—  —  66  —  —  66  —  66  
January 24, 20201,341  $  $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 SharesAdditional Paid-in CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Noncontrolling InterestsTotal Equity
(in millions)NumberPar Value
April 27, 20181,354  $  $28,127  $24,379  $(1,786) $50,720  $102  $50,822  
Net income —  —  —  1,075  —  1,075  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 plans7  —  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, 20181,352  $  $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 plans7  —  298  —  —  298  —  298  
Repurchase of ordinary shares(13) —  (1,171) —  —  (1,171) —  (1,171) 
Stock-based compensation—  —  104  —  —  104  —  104  
October 26, 20181,346  $  $27,048  $25,171  $(2,612) $49,607  $107  $49,714  
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 plans2  —  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, 20191,341  $  $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, 2020January 25, 2019
Operating Activities:  
Net income$4,167  $3,468  
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization1,991  1,992  
Provision for doubtful accounts67  55  
Deferred income taxes(793) (205) 
Stock-based compensation235  228  
Loss on debt extinguishment406    
Other, net140  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 liabilities103  211  
Other operating assets and liabilities(67) (433) 
Net cash provided by operating activities5,784  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 investments5,791  4,159  
Other investing activities(34) (3) 
Net cash used in investing activities(3,568) (245) 
Financing Activities:  
Change in current debt obligations, net17  (696) 
Issuance of long-term debt5,568  3  
Payments on long-term debt(5,606) (29) 
Dividends to shareholders(2,170) (2,022) 
Issuance of ordinary shares585  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 period4,393  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  
Interest348  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, 2020January 25, 2019January 24, 2020January 25, 2019
Cardiac Rhythm & Heart Failure$1,393  $1,397  $4,201  $4,295  
Coronary & Structural Heart948  913  2,844  2,736  
Aortic, Peripheral, & Venous478  476  1,420  1,424  
Cardiac and Vascular Group2,819  2,786  8,464  8,455  
Surgical Innovations1,474  1,434  4,345  4,224  
Respiratory, Gastrointestinal, & Renal702  690  2,073  1,999  
Minimally Invasive Therapies Group2,176  2,124  6,418  6,223  
Brain Therapies795  732  2,307  2,107  
Spine674  655  2,023  1,963  
Specialty Therapies340  325  996  956  
Pain Therapies303  314  910  942  
Restorative Therapies Group2,111  2,026  6,235  5,968  
Diabetes Group610  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 endedThree months endedThree months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Cardiac and Vascular Group$1,366  $1,369  $915  $924  $538  $493  
Minimally Invasive Therapies Group934  930  791  796  451  398  
Restorative Therapies Group1,409  1,354  436  435  266  237  
Diabetes Group312  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 endedNine months endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Cardiac and Vascular Group $4,182  $4,240  $2,735  $2,766  $1,547  $1,449  
Minimally Invasive Therapies Group2,769  2,659  2,364  2,396  1,285  1,168  
Restorative Therapies Group 4,187  4,005  1,278  1,275  770  688  
Diabetes Group930  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  
Investments52  
Accounts receivable9  
Inventory5  
Other current assets1  
Property, plant, and equipment3  
Goodwill1,318  
Other intangible assets399  
Tax assets9  
Total assets acquired1,905  
Current liabilities210  
Deferred tax liabilities21  
Total liabilities assumed231  
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 endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Beginning balance$260  $203  $222  $173  
Purchase price contingent consideration45  5  110  51  
Payments(3) (1) (32) (8) 
Change in fair value2  (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, 2020Valuation TechniqueUnobservable InputRange
   Discount rate
11.5% - 32.5%
Revenue and other performance-based payments$123  Discounted cash flowProbability of payment
30% - 100%
   Projected fiscal year of payment2020 - 2026
   Discount rate5.5 
Product development and other milestone-based payments$181  Discounted cash flowProbability of payment
75% - 100%
   Projected fiscal year of payment2020 - 2027

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

For the three and 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 CostsTotal
April 26, 2019$101  $9  $  $12  $122  
Charges91  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
ValuationBalance Sheet Classification
(in millions)CostUnrealized
Gains
Unrealized
Losses
Fair ValueInvestmentsOther Assets
Level 1:
U.S. government and agency securities$623  $17  $  $640  $640  $  
Level 2:
Corporate debt securities5,155  52  (8) 5,199  5,199    
U.S. government and agency securities900      900  900    
Mortgage-backed securities655  13  (13) 655  655    
Non-U.S. government and agency securities13      13  13    
Other asset-backed securities511  3  (2) 512  512    
Total Level 27,234  68  (23) 7,279  7,279    
Level 3:
Auction rate securities36    (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
ValuationBalance Sheet Classification
(in millions)CostUnrealized
Gains
Unrealized
Losses
Fair ValueInvestmentsOther Assets
Level 1:
U.S. government and agency securities$529  $1  $(7) $523  $523  $  
Level 2:
Corporate debt securities3,500  14  (21) 3,493  3,493    
U.S. government and agency securities387  1  (7) 381  381    
Mortgage-backed securities537  3  (20) 520  520    
Non-U.S. government and agency securities11      11  11    
Other asset-backed securities529  1  (3) 527  527    
Total Level 24,964  19  (51) 4,932  4,932    
Level 3:
Auction rate securities47    (3) 44    44  
Total available-for-sale debt securities$5,540  $20  $(61) $5,499  $5,455  $44  
The following tables present the gross unrealized losses and fair values of the Company’s available-for-sale debt securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category at January 24, 2020 and April 26, 2019:
 January 24, 2020
 Less than 12 monthsMore than 12 months
(in millions)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
U.S. government and agency securities$96  $  $40  $  
Corporate debt securities371  (3) 65  (5) 
Mortgage-backed securities82  (1) 63  (12) 
Other asset-backed securities23    165  (2) 
Auction rate securities    33  (3) 
Total$572  $(4) $366  $(22) 

 April 26, 2019
 Less than 12 monthsMore than 12 months
(in millions)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
U.S. government and agency securities$130  $(1) $649  $(13) 
Corporate debt securities582  (5) 1,153  (16) 
Mortgage-backed securities73  (1) 250  (19) 
Other asset-backed securities290  (2) 85  (1) 
Auction rate securities    44  (3) 
Total$1,075  $(9) $2,181  $(52) 
The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and 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 endedNine months Ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Proceeds from sales$2,531  $1,301  $5,789  $3,217  
Gross realized gains9  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 years2,727  
Due after five years through ten years1,577  
Due after ten years53  
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, 2020April 26, 2019
Investments with readily determinable fair value (marketable equity securities)$39  $  
Investments without readily determinable fair values373  308  
Equity method and other investments68  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 endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Proceeds from sales$  $33  $2  $941  
Gross gains1  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, 2020April 26, 2019
Current debt obligations2020 - 2021$844  $838  
Long-term debt
0.000 percent two-year 2019 senior notes
20211,662  1,681  
Floating rate two-year 2019 senior notes
2021831  560  
4.125 percent ten-year 2011 senior notes
2021  500  
3.150 percent seven-year 2015 senior notes
20221,534  2,500  
3.125 percent ten-year 2012 senior notes
2022  675  
3.200 percent ten-year 2012 CIFSA senior notes
2023650  650  
0.375 percent four-year 2019 senior notes
20231,662  1,681  
2.750 percent ten-year 2013 senior notes
2023530  530  
0.000 percent four-year 2019 senior notes
2023831    
2.950 percent ten-year 2013 CIFSA senior notes
2024310  310  
3.625 percent ten-year 2014 senior notes
2024432  850  
3.500 percent ten-year 2015 senior notes
20252,700  4,000  
0.250 percent seven-year 2019 senior notes
20261,108    
1.125 percent eight-year 2019 senior notes
20271,662  1,681  
3.350 percent ten-year 2017 senior notes
2027368  850  
1.625 percent twelve-year 2019 senior notes
20311,108  1,121  
1.000 percent thirteen-year 2019 senior notes
20321,108    
4.375 percent twenty-year 2015 senior notes
20351,931  2,382  
6.550 percent thirty-year 2007 CIFSA senior notes
2038253  284  
2.250 percent twenty-year 2019 senior notes
20391,108  1,121  
6.500 percent thirty-year 2009 senior notes
2039158  183  
5.550 percent thirty-year 2010 senior notes
2040224  306  
1.500 percent twenty-year 2019 senior notes
20401,108    
4.500 percent thirty-year 2012 senior notes
2042105  129  
4.000 percent thirty-year 2013 senior notes
2043305  325  
4.625 percent thirty-year 2014 senior notes
2044127  177  
4.625 percent thirty-year 2015 senior notes
20451,813  1,963  
1.750 percent thirty-year 2019 senior notes
20501,108    
Bank borrowings2021 - 202270  83  
Debt (discount) premium, net2020 - 2050(15) 29  
Finance lease obligations2021 - 203347  10  
Interest rate swapsN/A  9  
Deferred financing costs2020 - 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 endedNine months ended
(in millions)ClassificationJanuary 24, 2020January 25, 2019January 24, 2020January 25, 2019
Currency exchange rate contractsOther operating (income) expense, net$2  $30  $(4) $(171) 
Total return swapsOther operating (income) expense, net(17)   (22)   
Total$(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 $6.8 billion, respectively, and will mature within the subsequent two-year period. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss. The gain or loss on the derivative instrument is reclassified into earnings and is included in other operating (income) expense, net in the consolidated statements of income in the same period or periods during which the hedged transaction affects earnings. Amounts excluded from the measurement of hedge effectiveness are recognized in earnings in the current period. The cash flows related to all of the Company's derivative instruments designated as cash flow hedges are reported as operating activities in the consolidated statements of cash flows. No components of the hedge contracts were excluded in the measurement of hedge effectiveness, and no forward contracts designated as cash flow hedges were derecognized or discontinued during the three and nine months ended January 24, 2020 and January 25, 2019.
The amount of the (gains) losses recognized in AOCI related to the currency exchange rate contract derivative instruments designated as cash flow hedges for the three and nine months ended January 24, 2020 and January 25, 2019 were as follows:
Three months endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Currency exchange rate contracts$(41) $(25) $(144) $(469) 
The amount of the (gains) losses recognized in the consolidated statements of income related to derivative instruments designated as cash flow hedges for the three and nine months ended January 24, 2020 and January 25, 2019 were as follows:
Three months endedNine months ended
January 24, 2020January 25, 2019January 24, 2020January 25, 2019
(in millions)Other operating (income) expense, netOther operating (income) expense, netOther operating (income) expense, netOther operating (income) expense, net
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of cash flow hedges are recorded$(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 $9 million which was recorded in other assets, with the offset recorded in long-term debt on the consolidated balance sheets. The Company did not recognize any gains or losses during the three or nine months ended January 24, 2020 and January 25, 2019 on firm commitments that no longer qualify as fair value hedges.
The following amounts were recorded on the consolidated balance sheet related to the cumulative basis adjustments for fair value hedges:
(in millions)Carrying Amount of Hedged Assets/(Liabilities)Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
Location on the Consolidated Balance SheetJanuary 24, 2020April 26, 2019January 24, 2020April 26, 2019
Long-term debt$  $(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 $169 million in after-tax unrealized losses, respectively, associated with net investment hedges recorded in accumulated other comprehensive loss. The Company does not expect any of the after-tax unrealized gains at January 24, 2020 to be recognized in the consolidated statements of income over the next 12 months.
The Company did not recognize any gains or losses during the three or nine months ended January 24, 2020 or January 25, 2019 on instruments that no longer qualify as net investment hedges.
The amount and classifications of the (gains) losses recognized in the consolidated statements of income for the portion of the net investment hedges excluded from the measurement of hedge effectiveness were as follows:
Three months endedNine months ended
(in millions)ClassificationJanuary 24, 2020January 25, 2019January 24, 2020January 25, 2019
Net investment hedgesOther operating (income) expense, net$  $  $(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 endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 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 AssetsDerivative Liabilities
(in millions)Balance Sheet ClassificationFair ValueBalance Sheet ClassificationFair Value
Derivatives designated as hedging instruments    
Currency exchange rate contractsOther current assets$183  Other accrued expenses$11  
Currency exchange rate contractsOther assets75  Other liabilities12  
Total derivatives designated as hedging instruments 258   23  
Derivatives not designated as hedging instruments    
Currency exchange rate contractsOther current assets9  Other accrued expenses10  
Total return swapOther current assets16  Other accrued expenses  
Cross currency interest rate contractsOther current assets1  Other accrued expenses  
Total derivatives not designated as hedging instruments26   10  
Total derivatives $284   $33  

21

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

April 26, 2019
 Derivative AssetsDerivative Liabilities
(in millions)Balance Sheet ClassificationFair ValueBalance Sheet ClassificationFair Value
Derivatives designated as hedging instruments    
Currency exchange rate contractsOther current assets$234  Other accrued expenses$1  
Interest rate contractsOther assets9  Other liabilities  
Currency exchange rate contractsOther assets78  Other liabilities1  
Total derivatives designated as hedging instruments 321   2  
Derivatives not designated as hedging instruments    
Currency exchange rate contractsOther current assets23  Other accrued expenses17  
Total return swapsOther current assets15  Other accrued expenses  
Cross currency interest rate contractsOther current assets6  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, 2020April 26, 2019
(in millions)Level 1Level 2Level 1Level 2
Derivative assets$267  $17  $335  $30  
Derivative liabilities33    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 InstrumentsCash Collateral Posted (Received)Net Amount
Derivative assets:
Currency exchange rate contracts$267  $(33) $(5) $229  
Total return swaps16      16  
Cross currency interest rate contracts1      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 InstrumentsCash Collateral Posted (Received)Net Amount
Derivative assets:
Currency exchange rate contracts$335  $(9) $(43) $283  
Interest rate contracts9    (1) 8  
Total return swaps15      15  
Cross currency interest rate contracts6      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, 2020April 26, 2019
Finished goods$2,693  $2,476  
Work in-process643  572  
Raw materials786  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 GroupMinimally Invasive Therapies GroupRestorative Therapies GroupDiabetes GroupTotal
April 26, 2019$6,854  $20,381  $10,821  $1,903  $39,959  
Goodwill as a result of acquisitions  11  65  16  92  
Purchase accounting adjustments7  2  119  (5) 123  
Currency translation and other5  (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, 2020April 26, 2019
(in millions)Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Definite-lived:
Customer-related$16,971  $(4,824) $16,944  $(4,095) 
Purchased technology and patents10,640  (4,178) 11,405  (4,570) 
Trademarks and tradenames464  (228) 570  (324) 
Other83  (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  
20211,741  
20221,699  
20231,634  
20241,605  
20251,576  

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 endedNine months ended
(in millions, except per share data)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Numerator:    
Net income attributable to ordinary shareholders$1,915  $1,269  $4,143  $3,459  
Denominator:    
Basic – weighted average shares outstanding1,340.5  1,342.8  1,340.7  1,348.1  
Effect of dilutive securities:    
Employee stock options8.4  6.9  7.8  7.9  
Employee restricted stock units2.6  3.0  2.9  3.2  
Other    0.2  0.3  
Diluted – weighted average shares outstanding1,351.5  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 endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Stock options$12  $11  $52  $62  
Restricted stock46  43  159  144  
Employee stock purchase plan8  6  24  22  
Total stock-based compensation expense$66  $60  $235  $228  
Cost of products sold$6  $5  $22  $23  
Research and development expense9  8  29  29  
Selling, general, and administrative expense51  47  184  176  
Total stock-based compensation expense66  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 endedThree months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Service cost$26  $27  $15  $15  
Interest cost32  33  7  7  
Expected return on plan assets(56) (54) (15) (14) 
Amortization of net actuarial loss14  19  4  3  
Net periodic benefit cost$16  $25  $11  $11  
U.S.Non-U.S.
Nine months endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Service cost$78  $81  $45  $45  
Interest cost96  99  21  21  
Expected return on plan assets(168) (162) (45) (42) 
Amortization of net actuarial loss42  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 ClassificationJanuary 24, 2020
Right-of-use assetsOther assets$995  
Current liabilityOther accrued expenses169  
Non-current liabilityOther liabilities851  
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 term7.5 years
Weighted-average discount rate3.0 
The following table summarizes the components of total operating lease cost for the three and nine months ended January 24, 2020:
Three months endedNine months ended
(in millions)January 24, 2020January 24, 2020
Operating lease cost$59  $170  
Short-term lease cost10  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 liabilities178  
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  
2021203  
2022171  
2023147  
2024125  
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  
2021157  
2022103  
202361  
202434  
Thereafter81  
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 SecuritiesCumulative Translation AdjustmentsNet Investment HedgesNet Change in Retirement ObligationsUnrealized Gain (Loss) on Cash Flow HedgesTotal Accumulated Other Comprehensive (Loss) Income
April 26, 2019$(45) $(1,383) $(169) $(1,308) $194  $(2,711) 
Other comprehensive income (loss) before reclassifications94  (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  $(2,546) 
(in millions)Unrealized (Loss) Gain on Investment SecuritiesCumulative Translation AdjustmentNet Investment HedgesNet Change in Retirement ObligationsUnrealized (Loss) Gain on Cash Flow HedgesTotal Accumulated Other Comprehensive (Loss) Income
April 27, 2018$(194) $(11) $(257) $(1,117) $(207) $(1,786) 
Other comprehensive (loss) income before reclassifications(7) (1,124)     353  (778) 
Reclassifications30      65  (36) 59  
Other comprehensive income (loss)23  (1,124)   65  317  (719) 
Cumulative effect of change in accounting principle(1)
47          47  
January 25, 2019$(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, 2020January 25, 2019January 24, 2020January 25, 2019
Cardiac and Vascular Group$2,819  $2,786  $8,464  $8,455  
Minimally Invasive Therapies Group2,176  2,124  6,418  6,223  
Restorative Therapies Group2,111  2,026  6,235  5,968  
Diabetes Group610  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 endedNine months ended
(in millions)January 24, 2020January 25, 2019January 24, 2020January 25, 2019
Cardiac and Vascular Group$1,101  $1,076  $3,284  $3,262  
Minimally Invasive Therapies Group860  828  2,453  2,396  
Restorative Therapies Group898  824  2,531  2,394  
Diabetes Group158  190  456  538  
Segment operating profit3,017  2,918  8,724  8,590  
Interest expense(156) (243) (930) (726) 
Other non-operating income, net96  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, 2020January 25, 2019January 24, 2020January 25, 2019
Ireland$22  $24  $66  $68  
United States 4,021  4,001  12,068  11,910  
Rest of world3,674  3,521  10,782  10,433  
Total other countries, excluding Ireland7,695  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 plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
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 expense3  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), net12  (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 expense66  316  141  176  (543) 156  
Equity in net (income) loss of subsidiaries(1,994) (1,707) (1,961)   5,662    
Income (loss) before income taxes1,913  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 tax65  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 plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
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 expense9  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), net39  (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 expense350  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 taxes4,137  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 tax165  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 plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
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 expense2  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), net15  (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 expense125  501  133  244  (760) 243  
Equity in net (income) loss of subsidiaries(1,410) (678) (1,343)   3,431    
Income (loss) before income taxes1,268  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 Medtronic1,269  642  1,410  1,378  (3,430) 1,269  
Other comprehensive income (loss), net of tax154  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 plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
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 expense8  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), net40  (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 expense333  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 taxes3,454  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 plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
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 receivable42  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 subsidiaries58,753  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 compensation20  785    1,104    1,909  
Accrued income taxes      457    457  
Other accrued expenses25  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 taxes10  760    1,968    2,738  
Intercompany loans payable6,942  9,012  9,729  13,707  (39,390)   
Deferred tax liabilities      1,282    1,282  
Other liabilities  262    1,522    1,784  
Total liabilities6,997  44,307  36,948  35,843  (83,226) 40,869  
Shareholders’ equity51,808  44,563  59,529  107,906  (211,998) 51,808  
Noncontrolling interests      145    145  
Total equity51,808  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 plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
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 receivable40  9,407  6  19,170  (28,623)   
Other current assets10  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 subsidiaries64,352  71,123  65,012    (200,487)   
Intercompany loans receivable3,000  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 compensation3  913    1,273    2,189  
Accrued income taxes      567    567  
Other accrued expenses20  331  53  2,521    2,925  
Total current liabilities
23  14,196  7,253  15,623  (28,623) 8,472  
Long-term debt  14,418  8,621  1,447    24,486  
Accrued compensation and retirement benefits  1,069    582    1,651  
Accrued income taxes10  692    2,136    2,838  
Intercompany loans payable17,278  12,613  19,682  16,704  (66,277)   
Deferred tax liabilities      1,278    1,278  
Other liabilities  133    624    757  
Total liabilities17,311  43,121  35,556  38,394  (94,900) 39,482  
Shareholders' equity50,091  42,198  57,324  101,192  (200,714) 50,091  
Noncontrolling interests      121    121  
Total equity50,091  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 plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
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 capital10,000    (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 shares585          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 plcMedtronic, Inc.Medtronic LuxcoSubsidiary Non-guarantorsConsolidating
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 shares891          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)