0001613103-20-000033.txt : 20200903 0001613103-20-000033.hdr.sgml : 20200903 20200903161445 ACCESSION NUMBER: 0001613103-20-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 103 CONFORMED PERIOD OF REPORT: 20200731 FILED AS OF DATE: 20200903 DATE AS OF CHANGE: 20200903 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Medtronic plc CENTRAL INDEX KEY: 0001613103 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 000000000 FISCAL YEAR END: 0424 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36820 FILM NUMBER: 201159408 BUSINESS ADDRESS: STREET 1: 20 ON HATCH, LOWER HATCH STREET CITY: DUBLIN STATE: L2 ZIP: 2 BUSINESS PHONE: 01135314381700 MAIL ADDRESS: STREET 1: 20 ON HATCH, LOWER HATCH STREET CITY: DUBLIN STATE: L2 ZIP: 2 FORMER COMPANY: FORMER CONFORMED NAME: Medtronic Ltd DATE OF NAME CHANGE: 20150112 FORMER COMPANY: FORMER CONFORMED NAME: Medtronic Holdings Ltd DATE OF NAME CHANGE: 20140711 FORMER COMPANY: FORMER CONFORMED NAME: Kalani I Ltd DATE OF NAME CHANGE: 20140709 10-Q 1 mdt-20200731.htm 10-Q mdt-20200731
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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 July 31, 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-20200731_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 September 2, 2020, 1,344,215,261 ordinary shares, par value $0.0001, and 1,872 A preferred shares, par value $1.00, of the registrant were outstanding.





TABLE OF CONTENTS




PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Medtronic plc
Consolidated Statements of Income
(Unaudited)
 Three months ended
(in millions, except per share data)July 31, 2020July 26, 2019
Net sales$6,507 $7,493 
Costs and expenses:  
Cost of products sold2,505 2,366 
Research and development expense621 587 
Selling, general, and administrative expense2,417 2,543 
Amortization of intangible assets440 440 
Restructuring charges, net53 47 
Certain litigation charges, net(88)47 
Other operating income, net(114)(22)
Operating profit673 1,485 
Other non-operating income, net(82)(101)
Interest expense171 609 
Income before income taxes584 977 
Income tax provision93 100 
Net income491 877 
Net income attributable to noncontrolling interests(4)(13)
Net income attributable to Medtronic$487 $864 
Basic earnings per share$0.36 $0.64 
Diluted earnings per share$0.36 $0.64 
Basic weighted average shares outstanding1,341.9 1,340.8 
Diluted weighted average shares outstanding1,350.0 1,351.9 

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


Medtronic plc
Consolidated Statements of Comprehensive Income
(Unaudited)
 Three months ended
(in millions)July 31, 2020July 26, 2019
Net income$491 $877 
Other comprehensive income (loss), net of tax:  
Unrealized gain on investment securities125 56 
Translation adjustment1,117 66 
Net investment hedge(1,112)99 
Net change in retirement obligations3 13 
Unrealized loss on cash flow hedges(350)(7)
Other comprehensive (loss) income(217)227 
Comprehensive income including noncontrolling interests274 1,104 
Comprehensive income attributable to noncontrolling interests(9)(13)
Comprehensive income attributable to Medtronic$265 $1,091 

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


Medtronic plc
Consolidated Balance Sheets
(Unaudited)
(in millions)July 31, 2020April 24, 2020
ASSETS  
Current assets:  
Cash and cash equivalents$6,499 $4,140 
Investments6,513 6,808 
Accounts receivable, less allowances and credit losses of $276 and $208, respectively
4,876 4,645 
Inventories, net4,551 4,229 
Other current assets2,070 2,209 
Total current assets24,509 22,031 
Property, plant, and equipment11,952 11,644 
Accumulated depreciation(7,070)(6,816)
Property, plant, and equipment, net4,882 4,828 
Goodwill40,714 39,841 
Other intangible assets, net18,670 19,063 
Tax assets2,988 2,832 
Other assets2,143 2,094 
Total assets$93,906 $90,689 
LIABILITIES AND EQUITY  
Current liabilities:  
Current debt obligations$5,823 $2,776 
Accounts payable1,720 1,996 
Accrued compensation1,815 2,099 
Accrued income taxes390 502 
Other accrued expenses3,338 2,993 
Total current liabilities13,086 10,366 
Long-term debt22,867 22,021 
Accrued compensation and retirement benefits1,962 1,910 
Accrued income taxes2,719 2,682 
Deferred tax liabilities1,231 1,174 
Other liabilities1,598 1,664 
Total liabilities43,463 39,817 
Commitments and contingencies (Note 16)
Shareholders’ equity:  
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,343,318,623 and 1,341,074,724 shares issued and outstanding, respectively
  
Additional paid-in capital26,261 26,165 
Retained earnings27,817 28,132 
Accumulated other comprehensive loss(3,782)(3,560)
Total shareholders’ equity50,296 50,737 
Noncontrolling interests147 135 
Total equity50,443 50,872 
Total liabilities and equity$93,906 $90,689 

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 24, 20201,341 $ $26,165 $28,132 $(3,560)$50,737 $135 $50,872 
Net income   487  487 4 491 
Other comprehensive (loss) income    (222)(222)5 (217)
Dividends to shareholders ($0.58 per ordinary share)
   (778) (778) (778)
Issuance of shares under stock purchase and award plans2  26   26  26 
Stock-based compensation  70   70  70 
Changes to noncontrolling ownership interests      3 3 
Cumulative effect of change in accounting principle(1)
   (24) (24) (24)
July 31, 20201,343 $ $26,261 $27,817 $(3,782)$50,296 $147 $50,443 

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(2)
   (33) (33) (33)
July 26, 20191,341 $ $26,470 $26,377 $(2,484)$50,363 $134 $50,497 
(1) See Note 2 to the consolidated financial statements for discussion regarding the adoption of accounting standards during the first quarter of fiscal year 2021.
(2) The cumulative effect of change in accounting principle during the first quarter of fiscal year 2020 resulted from the adoption of accounting guidance that requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet. As a result of the adoption, the Company adjusted the opening balance of retained earnings for $33 million as of April 27, 2019.

The accompanying notes are an integral part of these consolidated financial statements.
4


Medtronic plc
Consolidated Statements of Cash Flows
(Unaudited)
 Three months ended
(in millions)July 31, 2020July 26, 2019
Operating Activities:  
Net income$491 $877 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization669 657 
Provision for doubtful accounts37 25 
Deferred income taxes3 18 
Stock-based compensation70 61 
Loss on debt extinguishment 406 
Other, net68 58 
Change in operating assets and liabilities, net of acquisitions and divestitures:  
Accounts receivable, net(142)319 
Inventories, net(235)(122)
Accounts payable and accrued liabilities(541)(629)
Other operating assets and liabilities(142)(160)
Net cash provided by operating activities278 1,510 
Investing Activities:  
Acquisitions, net of cash acquired (145)
Additions to property, plant, and equipment(334)(301)
Purchases of investments(2,045)(1,669)
Sales and maturities of investments2,403 1,569 
Other investing activities(16)(5)
Net cash provided by (used in) investing activities8 (551)
Financing Activities:  
Change in current debt obligations, net(16)88 
Proceeds from short-term borrowings (maturities greater than 90 days)2,789  
Issuance of long-term debt 5,567 
Payments on long-term debt(11)(5,035)
Dividends to shareholders(778)(724)
Issuance of ordinary shares26 210 
Repurchase of ordinary shares (333)
Other financing activities(51)(47)
Net cash provided by (used in) financing activities1,959 (274)
Effect of exchange rate changes on cash and cash equivalents114 2 
Net change in cash and cash equivalents2,359 687 
Cash and cash equivalents at beginning of period4,140 4,393 
Cash and cash equivalents at end of period$6,499 $5,080 
Supplemental Cash Flow Information  
Cash paid for:  
Income taxes$72 $198 
Interest72 86 
The accompanying notes are an integral part of these consolidated financial statements.
5

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 Covid-19 pandemic ("COVID-19" or the "pandemic") is having, and will likely continue to have, an adverse effect on our business, results of operations, financial condition, and cash flows, and its future impacts remain highly uncertain and unpredictable. The Company has considered the disruptions caused by COVID-19, including lower than forecasted sales and customer demand and macroeconomic factors, that may impact its estimates. The Company has assessed the potential impact of the pandemic on certain accounting matters including, but not limited to, the allowance for doubtful accounts, inventory reserves, return reserves, the valuation of goodwill, intangible assets, other long-lived assets, investments and contingent consideration, as of July 31, 2020 and through the date of this report. While there was not a material impact to the Company’s consolidated financial statements as of and for the quarter ended July 31, 2020, changes in the Company’s assessment about the length and severity of the pandemic, as well as other factors, could result in actual results differing from estimates.
The accompanying unaudited consolidated financial statements include the accounts of Medtronic plc, its wholly-owned subsidiaries, entities for which the Company has a controlling financial interest, and variable interest entities for which the Company is the primary beneficiary. Intercompany transactions and balances have been eliminated in consolidation.
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 24, 2020. The Company’s fiscal years 2021, 2020, and 2019 will end or ended on April 30, 2021, April 24, 2020, and April 26, 2019, respectively. Fiscal year 2021 is a 53-week year, with the extra week occurring in the first fiscal month of the first quarter.
2. New Accounting Pronouncements
Recently Adopted
Current Expected Credit Losses
In June 2016, the Financial Accounting Standards Board (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 Company adopted this guidance using the modified retrospective method in the first quarter of fiscal year 2021. The adoption of this guidance did not have a material impact to the Company’s consolidated financial statements.
3. Revenue
The Company's revenues are principally derived from device-based medical therapies and services related to cardiac rhythm disorders, cardiovascular disease, renal disease, neurological disorders and diseases, spinal conditions and musculoskeletal trauma, chronic pain, urological and digestive disorders, ear, nose, and throat conditions, and diabetes conditions as well as advanced and general surgical care products, respiratory and monitoring solutions, and neurological surgery technologies. The Company's primary customers include hospitals, clinics, third-party health care providers, distributors, and other institutions, including governmental health care programs and group purchasing organizations.
6

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

The table below illustrates net sales by segment and division for the three months ended July 31, 2020 and July 26, 2019:
 
Three months ended(1)
(in millions)July 31, 2020July 26, 2019
Cardiac Rhythm & Heart Failure$1,247 $1,382 
Coronary & Structural Heart780 941 
Aortic, Peripheral, & Venous 405 467 
Cardiac & Vascular Group2,433 2,790 
Surgical Innovations1,080 1,417 
Respiratory, Gastrointestinal, & Renal720 683 
Minimally Invasive Therapies Group1,801 2,100 
Cranial & Spinal Technologies944 1,050 
Specialty Therapies453 563 
Neuromodulation314 398 
Restorative Therapies Group 1,712 2,012 
Diabetes Group562 592 
Total$6,507 $7,493 
(1) Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.
During the first quarter of fiscal year 2021, the Company realigned the divisions within the Restorative Therapies Group to the following: Cranial & Spinal Technologies (includes Core Spine and Biologics, Enabling Technologies, and China Orthopedics), Specialty Therapies (includes ENT, Pelvic Health, and Neurovascular), and Neuromodulation (includes Pain Therapies, Brain Modulation, and Interventional). As a result, net sales for fiscal year 2020 have been recast to adjust for this realignment.
The table below illustrates net sales by market geography for each segment for the three months ended July 31, 2020 and July 26, 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)July 31, 2020July 26, 2019July 31, 2020July 26, 2019July 31, 2020July 26, 2019
Cardiac & Vascular Group$1,206 $1,361 $853 $930 $374 $499 
Minimally Invasive Therapies Group722 913 719 791 359 396 
Restorative Therapies Group 1,136 1,338 376 426 199 248 
Diabetes Group287 306 226 231 48 55 
Total$3,351 $3,918 $2,175 $2,377 $981 $1,198 
(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 to revenue. At July 31, 2020, $798 million of rebates were classified as other accrued expenses and $415 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. At April 24, 2020, $706 million of rebates were classified as other accrued expenses and $321 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. For the three months ended July 31, 2020 and July 26, 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.
7

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

Deferred Revenue and Remaining Performance Obligations
The Company records a deferred revenue liability if a customer pays consideration, or the Company has the right to invoice, before the Company transfers a good or service to the customer. Deferred revenue at July 31, 2020 and April 24, 2020 was $317 million and $303 million, respectively. At July 31, 2020 and April 24, 2020, $227 million and $213 million, respectively, was included in other accrued expenses and $90 million was included in other liabilities. During the three months ended July 31, 2020, the Company recognized $103 million of revenue that was included in deferred revenue as of April 24, 2020. During the three months ended July 26, 2019, the Company recognized $98 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 July 31, 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 $1.0 billion. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next four years.
4. Acquisitions
Fiscal Year 2021
The Company had no acquisitions that were accounted for as business combinations during the three months ended July 31, 2020. During the three months ended July 31, 2020, the Company recognized a gain of $132 million related to a change in amounts accrued for certain contingent liabilities for a recent acquisition. The benefit was recognized in other operating income, net in the consolidated statements of income as the purchase accounting was finalized in fiscal year 2020. Purchase price allocation adjustments during the first quarter of fiscal year 2021 were not significant.
Fiscal Year 2020
The Company had acquisitions during the three months ended July 26, 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 months ended July 26, 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.
The acquisition date fair value of net assets acquired in the first quarter of fiscal year 2020 was $206 million, consisting of $247 million of assets acquired and $41 million of liabilities assumed. Assets acquired were primarily comprised of $91 million of technology-based intangible assets and $26 million of customer-related intangible assets with estimated useful lives of 8 years, $40 million of inventory, and $65 million of goodwill. The goodwill is not deductible for tax purposes. The Company recognized $58 million of contingent consideration liabilities in connection with business combinations during the first quarter of fiscal year 2020, which are comprised of revenue milestone-based payments.
Acquired In-Process Research & Development (IPR&D)
IPR&D acquired outside of a business combination is expensed immediately. During the three months ended July 31, 2020, the Company acquired $10 million of IPR&D in connection with asset acquisitions, which was recognized in other operating income, net in the consolidated statements of income. During the three months ended July 26, 2019, the Company did not acquire any IPR&D in connection with asset acquisitions.
8

Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)

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, net in the consolidated statements of income. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows.
The fair value of contingent consideration at July 31, 2020 and April 24, 2020 was $297 million and $280 million, respectively. At July 31, 2020, $225 million was recorded in other accrued expenses and $72 million was recorded in other liabilities in the consolidated balance sheets. At April 24, 2020, $112 million was recorded in other accrued expenses and $168 million was recorded in other liabilities in the consolidated balance sheets.
The following table provides a reconciliation of the beginning and ending balances of contingent consideration:
 Three months ended
(in millions)July 31, 2020July 26, 2019
Beginning balance$280 $222 
Purchase price contingent consideration 58 
Payments