mdt-20201030

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	October 30, 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
0.00% Senior Notes due 2022	MDT/22B	New York Stock Exchange
0.375% Senior Notes due 2023	MDT/23B	New York Stock Exchange
0.000% Senior Notes due 2023	MDT/23C	New York Stock Exchange
0.25% Senior Notes due 2025	MDT/25	New York Stock Exchange
0.000% Senior Notes due 2025	MDT/25A	New York Stock Exchange
1.125% Senior Notes due 2027	MDT/27	New York Stock Exchange
0.375% Senior Notes due 2028	MDT/28	New York Stock Exchange
1.625% Senior Notes due 2031	MDT/31	New York Stock Exchange
1.00% Senior Notes due 2031	MDT/31A	New York Stock Exchange
0.750% Senior Notes due 2032	MDT/32	New York Stock Exchange
2.250% Senior Notes due 2039	MDT/39A	New York Stock Exchange
1.50% Senior Notes due 2039	MDT/39B	New York Stock Exchange
1.375% Senior Notes due 2040	MDT/40A	New York Stock Exchange
1.75% Senior Notes due 2049	MDT/49	New York Stock Exchange
1.625% Senior Notes due 2050	MDT/50	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 December 1, 2020, 1,346,019,949 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	34
3.	Quantitative and Qualitative Disclosures About Market Risk	59
4.	Controls and Procedures	60
	PART II
1.	Legal Proceedings	60

2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
6.	Exhibits	61
	Signatures	62

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Medtronic plc

Consolidated Statements of Income

(Unaudited)


	Three months ended				Six months ended
(in millions, except per share data)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019
Net sales	$	7,647	$	7,706	$	14,154	$	15,199
Costs and expenses:
Cost of products sold	2,705		2,394		5,209		4,760
Research and development expense	639		603		1,260		1,190
Selling, general, and administrative expense	2,600		2,620		5,017		5,163
Amortization of intangible assets	443		441		884		881
Restructuring charges, net	97		27		150		74
Certain litigation charges, net	84		121		(4)		168

Other operating expense, net	149		149		35		127
Operating profit	930		1,351		1,603		2,836
Other non-operating income, net	(65)		(108)		(147)		(209)
Interest expense	470		165		641		774
Income before income taxes	525		1,294		1,109		2,271
Income tax provision (benefit)	31		(77)		124		23
Net income	494		1,371		985		2,248
Net income attributable to noncontrolling interests	(5)		(7)		(9)		(20)
Net income attributable to Medtronic	$	489	$	1,364	$	976	$	2,228
Basic earnings per share	$	0.36	$	1.02	$	0.73	$	1.66
Diluted earnings per share	$	0.36	$	1.01	$	0.72	$	1.65
Basic weighted average shares outstanding	1,344.4		1,340.8		1,343.1		1,340.8
Diluted weighted average shares outstanding	1,352.1		1,351.4		1,351.1		1,351.6

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

Medtronic plc

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended				Six months ended
(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019
Net income	$	494	$	1,371	$	985	$	2,248

Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on investment securities	(12)		17		113		73
Translation adjustment	144		(214)		1,261		(148)
Net investment hedge	(164)		53		(1,276)		152
Net change in retirement obligations	17		12		20		25
Unrealized loss on cash flow hedges	(45)		5		(395)		(2)
Other comprehensive (loss) income	(60)		(127)		(277)		100
Comprehensive income including noncontrolling interests	434		1,244		708		2,348
Comprehensive income attributable to noncontrolling interests	(6)		(7)		(15)		(20)
Comprehensive income attributable to Medtronic	$	428	$	1,237	$	693	$	2,328

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

Medtronic plc

Consolidated Balance Sheets

(Unaudited)


(in millions)	October 30, 2020		April 24, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	6,420	$	4,140
Investments	7,857		6,808
Accounts receivable, less allowances and credit losses of $312 and $208, respectively	5,348		4,645
Inventories, net	4,484		4,229
Other current assets	1,927		2,209
Total current assets	26,036		22,031
Property, plant, and equipment	12,198		11,644
Accumulated depreciation	(7,260)		(6,816)
Property, plant, and equipment, net	4,938		4,828
Goodwill	41,212		39,841
Other intangible assets, net	18,412		19,063
Tax assets	3,176		2,832
Other assets	2,112		2,094
Total assets	$	95,886	$	90,689
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	4,041	$	2,776
Accounts payable	1,902		1,996
Accrued compensation	2,133		2,099
Accrued income taxes	406		502
Other accrued expenses	3,589		2,993
Total current liabilities	12,071		10,366
Long-term debt	25,967		22,021
Accrued compensation and retirement benefits	2,024		1,910
Accrued income taxes	2,569		2,682
Deferred tax liabilities	1,251		1,174
Other liabilities	1,688		1,664
Total liabilities	45,570		39,817
Commitments and contingencies (Note 16)
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,345,547,814 and 1,341,074,724 shares issued and outstanding, respectively	—		—
Additional paid-in capital	26,481		26,165
Retained earnings	27,526		28,132
Accumulated other comprehensive loss	(3,843)		(3,560)
Total shareholders’ equity	50,164		50,737
Noncontrolling interests	152		135
Total equity	50,316		50,872
Total liabilities and equity	$	95,886	$	90,689

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

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
Net income	—	—		—		489		—		489		5		494
Other comprehensive (loss) income	—	—		—		—		(61)		(61)		1		(60)
Dividends to shareholders ($0.58 per ordinary share)	—	—		—		(780)		—		(780)		—		(780)
Issuance of shares under stock purchase and award plans	2	—		93		—		—		93		—		93

Stock-based compensation	—	—		140		—		—		140		—		140
Changes to noncontrolling ownership interests	—	—		(13)		—		—		(13)		(1)		(14)

October 30, 2020	1,345	$	—	$	26,481	$	27,526	$	(3,843)	$	50,164	$	152	$	50,316

(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.

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


	Ordinary Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
(in millions)	Number	Par Value
April 26, 2019	1,341	$	—	$	26,532	$	26,270	$	(2,711)	$	50,091	$	121	$	50,212
Net income	—	—		—		864		—		864		13		877
Other comprehensive income	—	—		—		—		227		227		—		227
Dividends to shareholders ($0.54 per ordinary share)	—	—		—		(724)		—		(724)		—		(724)
Issuance of shares under stock purchase and award plans	3	—		205		—		—		205		—		205
Repurchase of ordinary shares	(3)	—		(328)		—		—		(328)		—		(328)
Stock-based compensation	—	—		61		—		—		61		—		61

Cumulative effect of change in accounting principle(1)	—	—		—		(33)		—		(33)		—		(33)
July 26, 2019	1,341	$	—	$	26,470	$	26,377	$	(2,484)	$	50,363	$	134	$	50,497
Net income	—	—		—		1,364		—		1,364		7		1,371
Other comprehensive (loss)	—	—		—		—		(127)		(127)		—		(127)
Dividends to shareholders ($0.54 per ordinary share)	—	—		—		(723)		—		(723)		—		(723)
Issuance of shares under stock purchase and award plans	4	—		145		—		—		145		—		145
Repurchase of ordinary shares	(5)	—		(552)		—		—		(552)		—		(552)
Stock-based compensation	—	—		108		—		—		108		—		108


October 25, 2019	1,340	$	—	$	26,171	$	27,018	$	(2,611)	$	50,578	$	141	$	50,719

(1) 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.

Medtronic plc

Consolidated Statements of Cash Flows

(Unaudited)


	Six months ended
(in millions)	October 30, 2020		October 25, 2019
Operating Activities:
Net income	$	985	$	2,248
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,340		1,328


Provision for doubtful accounts	86		44
Deferred income taxes	(69)		(245)
Stock-based compensation	210		169
Loss on debt extinguishment	308		406


Other, net	112		119
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net	(669)		39
Inventories, net	(145)		(267)
Accounts payable and accrued liabilities	108		(294)
Other operating assets and liabilities	(127)		(170)


Net cash provided by operating activities	2,139		3,377
Investing Activities:
Acquisitions, net of cash acquired	(370)		(201)

Additions to property, plant, and equipment	(615)		(584)
Purchases of investments	(5,360)		(4,226)
Sales and maturities of investments	4,337		3,260
Other investing activities	(4)		(16)
Net cash used in investing activities	(2,012)		(1,767)
Financing Activities:

Change in current debt obligations, net	(57)		42

Proceeds from short-term borrowings (maturities greater than 90 days)	2,789		—
Issuance of long-term debt	7,172		5,568
Payments on long-term debt	(6,336)		(5,594)
Dividends to shareholders	(1,558)		(1,447)
Issuance of ordinary shares	119		432
Repurchase of ordinary shares	(68)		(962)
Other financing activities	(70)		(54)
Net cash provided by (used in) financing activities	1,991		(2,015)
Effect of exchange rate changes on cash and cash equivalents	162		(26)
Net change in cash and cash equivalents	2,280		(431)
Cash and cash equivalents at beginning of period	4,140		4,393
Cash and cash equivalents at end of period	$	6,420	$	3,962

Supplemental Cash Flow Information
Cash paid for:
Income taxes	$	384	$	494
Interest	321		322

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

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") has had, and may 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 sales and customer demand than the prior year in many businesses and macroeconomic factors, and has assessed the potential impact on certain accounting estimates 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 October 30, 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 three and six months ended October 30, 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 having occurred 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.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The table below illustrates net sales by segment and division for the three and six months ended October 30, 2020 and October 25, 2019:


	Three months ended(1)				Six months ended(1)
(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019
Cardiac Rhythm & Heart Failure	$	1,426	$	1,426	$	2,673	$	2,807
Coronary & Structural Heart	831