Medtronic plc [MDT] Filings

10-Q 1 mdt-20240726.htm 10-Q mdt-20240726

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 26, 2024

☐	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 plc
(Exact name of registrant as specified in its charter)

Ireland			98-1183488
(State of incorporation)			(I.R.S. Employer Identification No.)

Building Two, Parkmore Business Park West

Galway, 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
0.250% Senior Notes due 2025	MDT/25	New York Stock Exchange
0.000% Senior Notes due 2025	MDT/25A	New York Stock Exchange
2.625% Senior Notes due 2025	MDT/25B	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
3.000% Senior Notes due 2028	MDT/28A	New York Stock Exchange
3.650% Senior Notes due 2029	MDT/29	New York Stock Exchange
1.625% Senior Notes due 2031	MDT/31	New York Stock Exchange
1.000% Senior Notes due 2031	MDT/31A	New York Stock Exchange
3.125% Senior Notes due 2031	MDT/31B	New York Stock Exchange
0.750% Senior Notes due 2032	MDT/32	New York Stock Exchange
3.375% Senior Notes due 2034	MDT/34	New York Stock Exchange
3.875% Senior Notes due 2036	MDT/36	New York Stock Exchange
2.250% Senior Notes due 2039	MDT/39A	New York Stock Exchange
1.500% Senior Notes due 2039	MDT/39B	New York Stock Exchange
1.375% Senior Notes due 2040	MDT/40A	New York Stock Exchange
4.150% Senior Notes due 2043	MDT/43A	New York Stock Exchange
1.750% Senior Notes due 2049	MDT/49	New York Stock Exchange
1.625% Senior Notes due 2050	MDT/50	New York Stock Exchange
4.150% Senior Notes due 2053	MDT/53	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 August 22, 2024, 1,282,490,493 ordinary shares, par value $0.0001, 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	27
3.	Quantitative and Qualitative Disclosures About Market Risk	45
4.	Controls and Procedures	46
	PART II
1.	Legal Proceedings	46
2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
5.	Other Information	46
6.	Exhibits	47
	Signature	48

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 26, 2024		July 28, 2023
Net sales	$	7,915	$	7,702
Costs and expenses:
Cost of products sold, excluding amortization of intangible assets	2,761		2,628
Research and development expense	676		668
Selling, general, and administrative expense	2,655		2,613
Amortization of intangible assets	414		429
Restructuring charges, net	47		54
Certain litigation charges, net	81		40
Other operating expense, net	1		1
Operating profit	1,278		1,268
Other non-operating income, net	(157)		(76)
Interest expense, net	167		148
Income before income taxes	1,268		1,196
Income tax provision	220		400
Net income	1,049		797
Net income attributable to noncontrolling interests	(6)		(6)
Net income attributable to Medtronic	$	1,042	$	791
Basic earnings per share	$	0.81	$	0.59
Diluted earnings per share	$	0.80	$	0.59
Basic weighted average shares outstanding	1,293.3		1,330.5
Diluted weighted average shares outstanding	1,296.5		1,333.8

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

Medtronic plc

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended
(in millions)	July 26, 2024		July 28, 2023
Net income	$	1,049	$	797
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investment securities	76		(19)
Translation adjustment	102		14
Net investment hedge	(206)		(143)
Net change in retirement obligations	1		3
Unrealized loss on cash flow hedges	(66)		(30)
Other comprehensive loss	(92)		(175)
Comprehensive income including noncontrolling interests	957		622
Comprehensive income attributable to noncontrolling interests	(6)		(6)
Comprehensive income attributable to Medtronic	$	950	$	616

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

Medtronic plc

Consolidated Balance Sheets

(Unaudited)


(in millions)	July 26, 2024		April 26, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	1,311	$	1,284
Investments	6,532		6,721
Accounts receivable, less allowances and credit losses of $170 and $173, respectively	6,011		6,128
Inventories	5,414		5,217
Other current assets	2,679		2,584
Total current assets	21,947		21,935
Property, plant, and equipment, net	6,282		6,131
Goodwill	41,084		40,986
Other intangible assets, net	12,819		13,225
Tax assets	3,554		3,657
Other assets	4,062		4,047
Total assets	$	89,749	$	89,981
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	1,553	$	1,092
Accounts payable	2,291		2,410
Accrued compensation	1,776		2,375
Accrued income taxes	1,063		1,330
Other accrued expenses	3,604		3,582
Total current liabilities	10,287		10,789
Long-term debt	26,312		23,932
Accrued compensation and retirement benefits	1,107		1,101
Accrued income taxes	1,917		1,859
Deferred tax liabilities	496		515
Other liabilities	1,470		1,365
Total liabilities	41,589		39,561
Commitments and contingencies (Note 16)
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,282,494,588 and 1,311,337,531 shares issued and outstanding, respectively	—		—
Additional paid-in capital	20,810		23,129
Retained earnings	30,547		30,403
Accumulated other comprehensive loss	(3,410)		(3,318)
Total shareholders’ equity	47,947		50,214
Noncontrolling interests	213		206
Total equity	48,160		50,420
Total liabilities and equity	$	89,749	$	89,981

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 26, 2024	1,311	$	—	$	23,129	$	30,403	$	(3,318)	$	50,214	$	206	$	50,420
Net income	—	—		—		1,042		—		1,042		6		1,049
Other comprehensive loss	—	—		—		—		(92)		(92)		—		(92)
Dividends to shareholders ($0.70 per ordinary share)	—	—		—		(898)		—		(898)		—		(898)
Issuance of shares under stock purchase and award plans	1	—		87		—		—		87		—		87
Repurchase of ordinary shares	(30)	—		(2,489)		—		—		(2,489)		—		(2,489)
Stock-based compensation	—	—		83		—		—		83		—		83


July 26, 2024	1,282	$	—	$	20,810	$	30,547	$	(3,410)	$	47,947	$	213	$	48,160


	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 28, 2023	1,331	$	—	$	24,590	$	30,392	$	(3,499)	$	51,483	$	182	$	51,665
Net income	—	—		—		791		—		791		6		797
Other comprehensive loss	—	—		—		—		(175)		(175)		—		(175)
Dividends to shareholders ($0.69 per ordinary share)	—	—		—		(918)		—		(918)		—		(918)
Issuance of shares under stock purchase and award plans	1	—		73		—		—		73		—		73
Repurchase of ordinary shares	(2)	—		(148)		—		—		(148)		—		(148)
Stock-based compensation	—	—		73		—		—		73		—		73


July 28, 2023	1,330	$	—	$	24,587	$	30,265	$	(3,674)	$	51,178	$	188	$	51,366

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

Medtronic plc

Consolidated Statements of Cash Flows

(Unaudited)


	Three months ended
(in millions)	July 26, 2024		July 28, 2023
Operating Activities:
Net income	$	1,049	$	797
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	662		672
Provision for credit losses	18		21
Deferred income taxes	88		—
Stock-based compensation	83		73




Other, net	(9)		135
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net	110		164
Inventories	(217)		(410)
Accounts payable and accrued liabilities	(604)		(673)
Other operating assets and liabilities	(194)		96


Net cash provided by operating activities	986		875
Investing Activities:


Additions to property, plant, and equipment	(520)		(354)
Purchases of investments	(1,879)		(1,916)
Sales and maturities of investments	2,157		1,748
Other investing activities, net	(17)		(17)
Net cash used in investing activities	(259)		(539)
Financing Activities:
Change in current debt obligations, net	(624)		500


Issuance of long-term debt	3,209		—

Dividends to shareholders	(898)		(918)
Issuance of ordinary shares	89		77
Repurchase of ordinary shares	(2,492)		(152)
Other financing activities	(15)		(8)
Net cash used in financing activities	(731)		(501)
Effect of exchange rate changes on cash and cash equivalents	31		(39)
Net change in cash and cash equivalents	27		(204)
Cash and cash equivalents at beginning of period	1,284		1,543
Cash and cash equivalents at end of period	$	1,311	$	1,339

Supplemental Cash Flow Information
Cash paid for:
Income taxes	$	394	$	117
Interest	119		84

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 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. Amounts reported in millions within this quarterly report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in millions due to rounding. Additionally, certain columns and rows within tables may not sum due to rounding.

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, 2024. The Company’s fiscal years 2025, 2024, and 2023 will end or ended on April 25, 2025, April 26, 2024, and April 28, 2023, respectively.

2. New Accounting Pronouncements

Recently Adopted Accounting Standards

For the three months ended July 26, 2024, there have been no newly adopted accounting pronouncements that materially impact our consolidated financial statements. Refer to the Company's Annual Report on Form 10-K for the fiscal year ended April 26, 2024 for pronouncements recently adopted.

Not Yet Adopted Accounting Standards

Segment Reporting

In November 2023, the FASB issued ASU 2023-07, Improvements to Segment Reporting (Topic 280), which requires incremental disclosures on reportable segments, primarily through enhanced disclosures on significant segment expenses. The Company will adopt this guidance beginning in the fourth quarter of fiscal year 2025 for our annual report and for interim periods starting in fiscal year 2026. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

Income Taxes

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740), which requires incremental annual disclosures on income taxes, including rate reconciliations, income taxes paid, and other disclosures. The Company will adopt this guidance beginning in the fourth quarter of fiscal year 2026 for our annual report. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

3. Revenue

The Company's revenues are principally derived from device-based medical therapies and services related to cardiac rhythm disorders, cardiovascular 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 healthcare systems, clinics, third-party healthcare providers, distributors, and other institutions, including governmental healthcare programs and group purchasing organizations. Certain prior period revenue has been recast to conform to the new operating segment structure in the fourth quarter of fiscal year 2024. Refer to Note 17 to the consolidated financial statements for additional information regarding the Company's reporting structure. In addition, starting in the first quarter of fiscal year 2025, the Company combined the non-U.S. developed markets and the emerging markets into an international market geography. Prior period revenue has been recast to conform to the new presentation.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The table below illustrates net sales by segment and division and by market geography for the three months ended July 26, 2024 and July 28, 2023. The U.S. revenue includes United States and U.S. territories, and the international revenue includes all other non-U.S. countries.


	Three months ended
(in millions)	July 26, 2024		July 28, 2023
Cardiac Rhythm & Heart Failure	$	1,535	$	1,446
Structural Heart & Aortic	856		814
Coronary & Peripheral Vascular	616		589
Cardiovascular	3,007		2,850
Cranial & Spinal Technologies	1,147		1,103
Specialty Therapies	713		695
Neuromodulation	457		420
Neuroscience	2,317		2,219
Surgical & Endoscopy	1,544		1,546
Acute Care & Monitoring	452		459
Medical Surgical	1,996		2,005
Diabetes	647		578
Total reportable segment net sales	7,967		7,652
Other operating segment(1)	38		50
Other adjustments(2)	(90)		—

Total net sales	$	7,915	$	7,702


	U.S.				International
	Three months ended				Three months ended
(in millions)	July 26, 2024		July 28, 2023			July 26, 2024		July 28, 2023
Cardiovascular	$	1,403	$	1,350		$	1,604	$	1,500
Neuroscience	1,565		1,497			752		721
Medical Surgical	881		867			1,115		1,137
Diabetes	215		188			432		390
Reportable segment net sales	4,064		3,903			3,903		3,749
Other operating segment(1)	18		22			19		28
Other adjustments(2)	—		—			(90)		—
Total	$	4,082	$	3,924		$	3,832	$	3,777

(1)Includes the historical operations and ongoing transition agreements from businesses the Company has exited or divested.

(2)Incremental Italian payback accruals resulting from the two July 22, 2024 rulings by the Constitutional Court of Italy relating to certain prior years since 2015.

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 26, 2024, $1.0 billion of rebates were classified as other accrued expenses, and $591 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. At April 26, 2024, $1.0 billion of rebates were classified as other accrued expenses, and $574 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Deferred Revenue and Remaining Performance Obligations

Deferred revenue at July 26, 2024 and April 26, 2024 was $461 million and $453 million, respectively. At July 26, 2024 and April 26, 2024, $362 million and $352 million was included in other accrued expenses, respectively, and $99 million and $101 million was included in other liabilities, respectively. During the three months ended July 26, 2024, the Company recognized $108 million of revenue that was included in deferred revenue as of April 26, 2024. During the three months ended July 28, 2023, the Company recognized $124 million of revenue that was included in deferred revenue as of April 28, 2023.

Remaining performance obligations include goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments. At July 26, 2024, 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 $0.4 billion. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next two years.

4. Acquisitions and Dispositions

Acquisition Activity

During the three months ended July 26, 2024, the Company had no acquisitions that were accounted for as business combinations. During the fiscal year ended April 26, 2024, the Company had acquisitions that were accounted for as business combinations. For the three months ended July 26, 2024 and the fiscal year ended April 26, 2024, purchase price allocation adjustments were not significant.

Fiscal year 2024

The acquisition date fair value of net assets acquired during the fiscal year ended April 26, 2024 was $335 million. Based on preliminary valuations, assets acquired were primarily comprised of $131 million of goodwill, $150 million of IPR&D, and $29 million of technology-based intangible assets with estimated useful lives of 10 years. For tax purposes, $51 million of goodwill is deductible while $80 million is not deductible. The Company recognized $30 million of non-cash contingent consideration liabilities in connection with these business combinations during the fiscal year ended April 26, 2024, which are comprised of revenue and product development milestone-based payments.

Contingent Consideration

Certain of the Company’s business combinations 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 expense, net in the consolidated statements of income.

The fair value of contingent consideration liabilities at July 26, 2024 and April 26, 2024 was $128 million and $149 million, respectively. At July 26, 2024, $85 million was recorded in other accrued expenses, and $43 million was recorded in other liabilities in the consolidated balance sheet. At April 26, 2024, $96 million was recorded in other accrued expenses, and $53 million was recorded in other liabilities in the consolidated balance sheet.

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


	Three months ended
(in millions)	July 26, 2024		July 28, 2023
Beginning balance	$	149	$	206


Payments	(6)		(3)
Change in fair value	(15)		3
Ending balance	$	128	$	206

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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)	July 26, 2024	Unobservable Input	Range	Weighted Average (1)
Revenue and other performance-based payments	$61	Discount rate	16.5% - 28.2%	21.8%
		Projected fiscal year of payment	2025 - 2029	2027
Product development and other milestone-based payments	$67	Discount rate	5.5%	5.5%
		Projected fiscal year of payment	2025 - 2027	2025

(1) Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected fiscal year of payment, the amount represents the median of the inputs and is not a weighted average.

On April 1, 2023, the Company and DaVita Inc. (“DaVita”) completed the transaction for the Company to sell half of its Renal Care Solutions (RCS) business. In connection with the sale, the Company may be entitled to receive additional consideration based on the achievement of certain revenue, regulatory, and profitability milestones, with potential payouts starting in fiscal year 2026 through 2029. The fair value of the contingent consideration receivable at July 26, 2024 and April 26, 2024 was $58 million, and was recorded in other assets in the consolidated balance sheet.

The following table provides a reconciliation of the beginning and ending balances of the Level 3 measurement of contingent consideration receivable:


	Three months ended
(in millions)	July 26, 2024		July 28, 2023
Beginning balance	$	58	$	195
Change in fair value	—		(43)
Ending balance	$	58	$	152

5. Restructuring and Other Costs

For the three months ended July 26, 2024 and July 28, 2023, the Company incurred $62 million and $91 million, respectively, of restructuring and associated costs primarily related to employee termination benefits and facility consolidations to support cost reduction initiatives.

Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated. Associated and other costs primarily include salaries and wages of employees that are fully-dedicated to restructuring activities, consulting expenses, and asset write-offs.

The following table presents the classification of restructuring and associated costs in the consolidated statements of income:


	Three months ended
(in millions)	July 26, 2024		July 28, 2023
Cost of products sold	$	9	$	16
Selling, general, and administrative expenses	5		21
Restructuring charges, net	47		54
Total restructuring and associated costs	$	62	$	91

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the activity for the three months ended July 26, 2024:


(in millions)	Employee Termination Benefits		Associated and Other Costs		Total
April 26, 2024	$	136	$	11	$	147
Charges	56		15		71
Cash payments	(71)		(17)		(87)
Settled non-cash	—		(3)		(3)
Accrual adjustments(1)	(9)		—		(9)
July 26, 2024	$	113	$	6	$	119

(1)Accrual adjustments primarily relate to certain employees identified for termination, finding other positions within the Company.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 July 26, 2024 and April 26, 2024:


	July 26, 2024
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	462	$	—	$	(14)	$	448	$	448	$	—
Level 2:
Corporate debt securities	3,597		10		(83)		3,524		3,524		—
U.S. government and agency securities	852		—		(33)		818		818		—
Mortgage-backed securities	729		3		(37)		695		695		—
Non-U.S. government and agency securities	5		—		—		5		5		—

Other asset-backed securities	1,006		5		(3)		1,007		1,007		—
Total Level 2	6,189		18		(158)		6,050		6,050		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	6,687	$	18	$	(174)	$	6,531	$	6,498	$	33


	April 26, 2024
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	494	$	—	$	(22)	$	472	$	472	$	—
Level 2:
Corporate debt securities	3,953		4		(125)		3,832		3,832		—
U.S. government and agency securities	847		—		(43)		804		804		—
Mortgage-backed securities	692		1		(50)		643		643		—
Non-U.S. government and agency securities	5		—		—		5		5		—

Other asset-backed securities	941		2		(9)		934		934		—
Total Level 2	6,438		7		(227)		6,218		6,218		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	6,968	$	7	$	(252)	$	6,723	$	6,690	$	33

The amortized cost of debt securities excludes accrued interest, which is reported in other current assets in the consolidated balance sheets.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 July 26, 2024 and April 26, 2024:


	July 26, 2024
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate debt securities	$	658	$	(10)	$	1,780	$	(74)
U.S. government and agency securities	144		(2)		700		(45)
Mortgage-backed securities	—		—		510		(37)
Other asset-backed securities	—		—		248		(3)
Auction rate securities	—		—		33		(3)
Total	$	803	$	(12)	$	3,272	$	(162)


	April 26, 2024
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate debt securities	$	661	$	(10)	$	2,448	$	(116)
U.S. government and agency securities	177		(4)		730		(61)
Mortgage-backed securities	—		—		582		(50)
Other asset-backed securities	—		—		502		(9)
Auction rate securities	—		—		33		(3)
Total	$	838	$	(14)	$	4,296	$	(238)

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. There were no transfers into or out of Level 3 during the three months ended July 26, 2024 and July 28, 2023. 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.

Activity related to the Company’s available-for-sale debt securities portfolio is as follows:


	Three months ended
(in millions)	July 26, 2024		July 28, 2023
Proceeds from sales	$	2,157	$	1,747
Gross realized gains	7		5
Gross realized losses	(7)		(12)

The contractual maturities of available-for-sale debt securities at July 26, 2024 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)	Amortized Cost		Fair Value
Due in one year or less	$	1,462	$	1,450
Due after one year through five years	3,431		3,326
Due after five years through ten years	685		681
Due after ten years	1,109		1,074
Total	$	6,687	$	6,531

Interest income is recognized in other non-operating income, net, in the consolidated statements of income. During the three months ended July 26, 2024 and July 28, 2023, there was $112 million and $111 million of interest income, respectively.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Equity Securities, Equity Method Investments, and Other Investments

The Company holds investments in equity securities with readily determinable fair values, equity method investments for which the Company has elected the fair value option, equity investments 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 for which the Company has elected the fair value option 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 a discounted cash flow methodology, taking into consideration various assumptions including discount rate, and all pertinent financial information available related to the investees, including the timing of anticipated product launches, historical financial results, and projections of future cash flows. Equity investments that do not have readily determinable fair values, and that are not accounted for via the fair value option, are included within Level 3 of the fair value hierarchy, as they are measured using the measurement alternative at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

The following table summarizes the Company's equity and other investments at July 26, 2024 and April 26, 2024, which are classified as primarily other assets in the consolidated balance sheets:


(in millions)	July 26, 2024		April 26, 2024
Investments with readily determinable fair value (marketable equity securities)	$	45	$	28
Investments for which the fair value option has been elected	311		311
Investments without readily determinable fair values	860		859
Equity method and other investments	89		84
Total equity and other investments	$	1,305	$	1,282

Gains and losses on the Company's portfolio of equity and other investments are recognized in other non-operating income, net in the consolidated statements of income. During the three months ended July 26, 2024, there were $17 million of net unrealized gains on equity securities and other investments still held at July 26, 2024. During the three months ended July 28, 2023, there were $64 million of net unrealized losses on equity securities and other investments still held at July 28, 2023.

Mozarc Medical Investment

As further described in Note 4, on April 1, 2023, the Company sold half of its RCS business to Mozarc, and as a result of the transaction the Company retained a 50 percent equity interest in Mozarc. Although the equity investment provides the Company with the ability to exercise significant influence over Mozarc, the Company has elected the fair value option to account for this equity investment. The Company believes the fair value option best reflects the economics of the underlying transaction.

Under the fair value option, changes in the fair value of the investment are recognized through earnings each reporting period in other non-operating income, net in the consolidated statements of income. During the three months ended July 26, 2024 and July 28, 2023, the change in fair value was insignificant.

7. Financing Arrangements

Commercial Paper

The Company maintains commercial paper programs that allow the Company to issue U.S. dollar or Euro-denominated unsecured commercial paper notes. The aggregate amount outstanding at any time under the commercial paper programs may not exceed the equivalent of $3.5 billion. Commercial paper outstanding at July 26, 2024 was $449 million. During the three months ended July 26, 2024, the commercial paper outstanding had a weighted average original maturity of 16 days and a weighted average interest rate of 5.50 percent. Commercial paper outstanding at April 26, 2024 was $1.1 billion. During fiscal year 2024, the weighted average original maturity of the commercial paper outstanding was approximately 20 days and the weighted average interest rate was 5.45 percent. 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 programs described above. The Credit Facility includes a multi-currency borrowing feature for certain specified foreign currencies. At July 26, 2024 and April 26, 2024, no amounts were outstanding under the Credit Facility.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 Company is in compliance with the covenants under the Credit Facility.

Debt Obligations

The Company's debt obligations consisted of the following:


(in millions)	Maturity by Fiscal Year	July 26, 2024		April 26, 2024
Current debt obligations	2025 - 2026	$	1,553	$	1,092

Long-term debt
0.250 percent six-year 2019 senior notes	2026	—		1,070
2.625 percent three-year 2022 senior notes	2026	543		535
0.000 percent five-year 2020 senior notes	2026	1,085		1,070
1.125 percent eight-year 2019 senior notes	2027	1,628		1,606
4.250 percent five-year 2023 senior notes	2028	1,000		1,000
3.000 percent six-year 2022 senior notes	2029	1,085		1,070
0.375 percent eight-year 2020 senior notes	2029	1,085		1,070
3.650 percent five-year 2024 senior notes	2030	922		—
1.625 percent twelve-year 2019 senior notes	2031	1,085		1,070
1.000 percent twelve-year 2019 senior notes	2032	1,085		1,070
3.125 percent nine-year 2022 senior notes	2032	1,085		1,070
0.750 percent twelve-year 2020 senior notes	2033	1,085		1,070
4.500 percent ten-year 2023 senior notes	2033	1,000		1,000
3.375 percent twelve-year 2022 senior notes	2035	1,085		1,070
4.375 percent twenty-year 2015 senior notes	2035	1,932		1,932
3.875 percent twelve-year 2024 senior notes	2037	922		—
6.550 percent thirty-year 2007 CIFSA senior notes	2038	253		253
2.250 percent twenty-year 2019 senior notes	2039	1,085		1,070
6.500 percent thirty-year 2009 senior notes	2039	158		158
1.500 percent twenty-year 2019 senior notes	2040	1,085		1,070
5.550 percent thirty-year 2010 senior notes	2040	224		224
1.375 percent twenty-year 2020 senior notes	2041	1,085		1,070
4.500 percent thirty-year 2012 senior notes	2042	105		105
4.000 percent thirty-year 2013 senior notes	2043	305		305
4.150 percent nineteen-year 2024 senior notes	2044	651		—
4.625 percent thirty-year 2014 senior notes	2044	127		127
4.625 percent thirty-year 2015 senior notes	2045	1,813		1,813
1.750 percent thirty-year 2019 senior notes	2050	1,085		1,070
1.625 percent thirty-year 2020 senior notes	2051	1,085		1,070

4.150 percent twenty-nine-year 2024 senior notes	2054	760		—
Finance lease obligations	2026 - 2036