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

®

MEDTRONIC PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
Ireland	98-1183488
(State of incorporation)	(I.R.S. Employer Identification No.)

20 On Hatch, Lower Hatch Street

Dublin 2, Ireland

(Address of principal executive offices) (Zip Code)

+353 1 438-1700

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

Yes ☐ No ☒

As of 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

Item	Description	Page
	PART I
1.	Financial Statements (unaudited)	1
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
3.	Quantitative and Qualitative Disclosures About Market Risk	55
4.	Controls and Procedures	56
	PART II
1.	Legal Proceedings	56
2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
6.	Exhibits	57
	Signatures	58

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, 2020		July 26, 2019
Net sales	$	6,507	$	7,493
Costs and expenses:
Cost of products sold	2,505		2,366
Research and development expense	621		587
Selling, general, and administrative expense	2,417		2,543
Amortization of intangible assets	440		440
Restructuring charges, net	53		47
Certain litigation charges, net	(88)		47
Other operating income, net	(114)		(22)
Operating profit	673		1,485
Other non-operating income, net	(82)		(101)
Interest expense	171		609
Income before income taxes	584		977
Income tax provision	93		100
Net income	491		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 outstanding	1,341.9		1,340.8
Diluted weighted average shares outstanding	1,350.0		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, 2020		July 26, 2019
Net income	$	491	$	877
Other comprehensive income (loss), net of tax:
Unrealized gain on investment securities	125		56
Translation adjustment	1,117		66
Net investment hedge	(1,112)		99
Net change in retirement obligations	3		13
Unrealized loss on cash flow hedges	(350)		(7)
Other comprehensive (loss) income	(217)		227
Comprehensive income including noncontrolling interests	274		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, 2020		April 24, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	6,499	$	4,140
Investments	6,513		6,808
Accounts receivable, less allowances and credit losses of $276 and $208, respectively	4,876		4,645
Inventories, net	4,551		4,229
Other current assets	2,070		2,209
Total current assets	24,509		22,031
Property, plant, and equipment	11,952		11,644
Accumulated depreciation	(7,070)		(6,816)
Property, plant, and equipment, net	4,882		4,828
Goodwill	40,714		39,841
Other intangible assets, net	18,670		19,063
Tax assets	2,988		2,832
Other assets	2,143		2,094
Total assets	$	93,906	$	90,689
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	5,823	$	2,776
Accounts payable	1,720		1,996
Accrued compensation	1,815		2,099
Accrued income taxes	390		502
Other accrued expenses	3,338		2,993
Total current liabilities	13,086		10,366
Long-term debt	22,867		22,021
Accrued compensation and retirement benefits	1,962		1,910
Accrued income taxes	2,719		2,682
Deferred tax liabilities	1,231		1,174
Other liabilities	1,598		1,664
Total liabilities	43,463		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 capital	26,261		26,165
Retained earnings	27,817		28,132
Accumulated other comprehensive loss	(3,782)		(3,560)
Total shareholders’ equity	50,296		50,737
Noncontrolling interests	147		135
Total equity	50,443		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 Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
(in millions)	Number	Par Value
April 24, 2020	1,341	$	—	$	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 plans	2	—		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, 2020	1,343	$	—	$	26,261	$	27,817	$	(3,782)	$	50,296	$	147	$	50,443

	Ordinary Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
(in millions)	Number	Par Value
April 26, 2019	1,341	$	—	$	26,532	$	26,270	$	(2,711)	$	50,091	$	121	$	50,212
Net income	—	—		—		864		—		864		13		877
Other comprehensive income	—	—		—		—		227		227		—		227
Dividends to shareholders ($0.54 per ordinary share)	—	—		—		(724)		—		(724)		—		(724)
Issuance of shares under stock purchase and award plans	3	—		205		—		—		205		—		205
Repurchase of ordinary shares	(3)	—		(328)		—		—		(328)		—		(328)
Stock-based compensation	—	—		61		—		—		61		—		61
Cumulative effect of change in accounting principle(2)	—	—		—		(33)		—		(33)		—		(33)
July 26, 2019	1,341	$	—	$	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, 2020		July 26, 2019
Operating Activities:
Net income	$	491	$	877
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	669		657
Provision for doubtful accounts	37		25
Deferred income taxes	3		18
Stock-based compensation	70		61
Loss on debt extinguishment	—		406
Other, net	68		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 activities	278		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 investments	2,403		1,569
Other investing activities	(16)		(5)
Net cash provided by (used in) investing activities	8		(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 shares	26		210
Repurchase of ordinary shares	—		(333)
Other financing activities	(51)		(47)
Net cash provided by (used in) financing activities	1,959		(274)
Effect of exchange rate changes on cash and cash equivalents	114		2
Net change in cash and cash equivalents	2,359		687
Cash and cash equivalents at beginning of period	4,140		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
Interest	72		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, 2020		July 26, 2019
Cardiac Rhythm & Heart Failure	$	1,247	$	1,382
Coronary & Structural Heart	780		941
Aortic, Peripheral, & Venous	405		467
Cardiac & Vascular Group	2,433		2,790
Surgical Innovations	1,080		1,417
Respiratory, Gastrointestinal, & Renal	720		683
Minimally Invasive Therapies Group	1,801		2,100
Cranial & Spinal Technologies	944		1,050
Specialty Therapies	453		563
Neuromodulation	314		398
Restorative Therapies Group	1,712		2,012
Diabetes Group	562		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 ended				Three months ended				Three months ended
(in millions)	July 31, 2020		July 26, 2019		July 31, 2020		July 26, 2019		July 31, 2020		July 26, 2019
Cardiac & Vascular Group	$	1,206	$	1,361	$	853	$	930	$	374	$	499
Minimally Invasive Therapies Group	722		913		719		791		359		396
Restorative Therapies Group	1,136		1,338		376		426		199		248
Diabetes Group	287		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, 2020		July 26, 2019
Beginning balance	$	280	$	222
Purchase price contingent consideration	—		58
Payments	(1)		(