Medtronic plc [MDT] Filings

10-Q 1 mdt-20230728.htm 10-Q mdt-20230728

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 28, 2023

☐	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.)

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
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
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
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
1.750% 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 August 25, 2023, 1,330,533,713 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	28
3.	Quantitative and Qualitative Disclosures About Market Risk	47
4.	Controls and Procedures	48
	PART II
1.	Legal Proceedings	48
2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
5.	Other Information	48
6.	Exhibits	49
	Signature	50

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 28, 2023		July 29, 2022
Net sales	$	7,702	$	7,371
Costs and expenses:
Cost of products sold, excluding amortization of intangible assets	2,628		2,516
Research and development expense	668		692
Selling, general, and administrative expense	2,613		2,567
Amortization of intangible assets	429		423
Restructuring charges, net	54		14
Certain litigation charges	40		—
Other operating expense, net	1		35
Operating profit	1,268		1,125
Other non-operating income, net	(76)		(83)
Interest expense, net	148		164
Income before income taxes	1,196		1,044
Income tax provision	400		112
Net income	797		931
Net income attributable to noncontrolling interests	(6)		(2)
Net income attributable to Medtronic	$	791	$	929
Basic earnings per share	$	0.59	$	0.70
Diluted earnings per share	$	0.59	$	0.70
Basic weighted average shares outstanding	1,330.5		1,329.4
Diluted weighted average shares outstanding	1,333.8		1,334.5

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 28, 2023		July 29, 2022
Net income	$	797	$	931
Other comprehensive (loss) income, net of tax:
Unrealized loss on investment securities	(19)		(16)
Translation adjustment	14		(884)
Net investment hedge	(143)		1,002
Net change in retirement obligations	3		1
Unrealized (loss) gain on cash flow hedges	(30)		220
Other comprehensive (loss) income	(175)		324
Comprehensive income including noncontrolling interests	622		1,255
Comprehensive income attributable to noncontrolling interests	(6)		—
Comprehensive income attributable to Medtronic	$	616	$	1,255

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

Medtronic plc

Consolidated Balance Sheets

(Unaudited)


(in millions)	July 28, 2023		April 28, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,339	$	1,543
Investments	6,537		6,416
Accounts receivable, less allowances and credit losses of $190 and $176, respectively	5,806		5,998
Inventories, net	5,668		5,293
Other current assets	2,518		2,425
Total current assets	21,869		21,675
Property, plant, and equipment, net	5,665		5,569
Goodwill	41,436		41,425
Other intangible assets, net	14,434		14,844
Tax assets	3,461		3,477
Other assets	3,912		3,959
Total assets	$	90,776	$	90,948
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	519	$	20
Accounts payable	2,239		2,662
Accrued compensation	1,695		1,949
Accrued income taxes	1,013		840
Other accrued expenses	3,581		3,581
Total current liabilities	9,047		9,051
Long-term debt	24,463		24,344
Accrued compensation and retirement benefits	1,092		1,093
Accrued income taxes	2,407		2,360
Deferred tax liabilities	687		708
Other liabilities	1,715		1,727
Total liabilities	39,410		39,283
Commitments and contingencies (Note 16)
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,330,498,304 and 1,330,809,036 shares issued and outstanding, respectively	—		—
Additional paid-in capital	24,587		24,590
Retained earnings	30,265		30,392
Accumulated other comprehensive loss	(3,674)		(3,499)
Total shareholders’ equity	51,178		51,483
Noncontrolling interests	188		182
Total equity	51,366		51,665
Total liabilities and equity	$	90,776	$	90,948

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 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


	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 29, 2022	1,331	$	—	$	24,566	$	30,250	$	(2,265)	$	52,551	$	171	$	52,722
Net income	—	—		—		929		—		929		2		931
Other comprehensive income (loss)	—	—		—		—		326		326		(2)		324
Dividends to shareholders ($0.68 per ordinary share)	—	—		—		(903)		—		(903)		—		(903)
Issuance of shares under stock purchase and award plans	2	—		41		—		—		41		—		41
Repurchase of ordinary shares	(3)	—		(333)		—		—		(333)		—		(333)
Stock-based compensation	—	—		62		—		—		62		—		62


July 29, 2022	1,329	$	—	$	24,335	$	30,276	$	(1,939)	$	52,672	$	170	$	52,843

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 28, 2023		July 29, 2022
Operating Activities:
Net income	$	797	$	931
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	672		668
Provision for credit losses	21		15
Deferred income taxes	—		(18)
Stock-based compensation	73		62
Loss on debt extinguishment	—		53



Other, net	135		121
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net	164		89
Inventories, net	(410)		(380)
Accounts payable and accrued liabilities	(673)		(147)
Other operating assets and liabilities	96		(311)


Net cash provided by operating activities	875		1,083
Investing Activities:
Acquisitions, net of cash acquired	—		(1,191)

Additions to property, plant, and equipment	(354)		(426)
Purchases of investments	(1,916)		(1,884)
Sales and maturities of investments	1,748		1,886
Other investing activities, net	(17)		30
Net cash used in investing activities	(539)		(1,585)
Financing Activities:
Change in current debt obligations, net	500		—

Proceeds from short-term borrowings (maturities greater than 90 days)	—		2,284

Payments on long-term debt	—		(2,311)
Dividends to shareholders	(918)		(903)
Issuance of ordinary shares	77		43
Repurchase of ordinary shares	(152)		(336)
Other financing activities	(8)		273
Net cash used in financing activities	(501)		(950)
Effect of exchange rate changes on cash and cash equivalents	(39)		(122)
Net change in cash and cash equivalents	(204)		(1,574)
Cash and cash equivalents at beginning of period	1,543		3,714
Cash and cash equivalents at end of period	$	1,339	$	2,140

Supplemental Cash Flow Information
Cash paid for:
Income taxes	$	117	$	260
Interest	84		68

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 28, 2023. The Company’s fiscal years 2024, 2023, and 2022 will end or ended on April 26, 2024, April 28, 2023, and April 29, 2022, respectively.

2. New Accounting Pronouncements

Recently Adopted

Supplier Finance Programs

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities— Supplier Finance Programs (Subtopic 405-50), which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The Company adopted this guidance on April 29, 2023. The adoption of this standard does not have a material impact on the Company’s Consolidated Financial Statements.

As of July 28, 2023, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our 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, 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. Prior period revenue has been recast to reflect the new reporting structure, which primarily includes allocating certain prior Medical Surgical businesses to the Other line. Refer to Note 17 to the consolidated financial statements for additional information regarding the Company's new reporting structure.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The table below illustrates net sales by segment and division for the three months ended July 28, 2023 and July 29, 2022:


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Cardiac Rhythm & Heart Failure	$	1,446	$	1,381
Structural Heart & Aortic	814		741
Coronary & Peripheral Vascular	589		579
Cardiovascular	2,850		2,701
Cranial & Spinal Technologies	1,103		1,043
Specialty Therapies	695		667
Neuromodulation	420		405
Neuroscience	2,219		2,115
Surgical & Endoscopy	1,546		1,455
Patient Monitoring & Respiratory Interventions	493		479
Medical Surgical	2,039		1,933
Diabetes	578		541
Other(1)	16		81
Total	$	7,702	$	7,371

(1) Includes revenue from the divested Renal Care Solutions business and Transition Manufacturing Agreements from previously divested businesses.

The table below illustrates net sales by market geography for each segment for the three months ended July 28, 2023 and July 29, 2022:


	U.S.(1)				Non-U.S. Developed Markets(2)				Emerging Markets(3)
	Three months ended				Three months ended				Three months ended
(in millions)	July 28, 2023		July 29, 2022		July 28, 2023		July 29, 2022		July 28, 2023		July 29, 2022
Cardiovascular	$	1,350	$	1,286	$	956	$	892	$	544	$	523
Neuroscience	1,497		1,419		416		407		306		290
Medical Surgical	881		831		772		735		386		368
Diabetes	188		206		315		264		75		72
Other(4)	8		25		5		32		3		24
Total	$	3,924	$	3,766	$	2,463	$	2,328	$	1,314	$	1,276

(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)Includes revenue from the divested Renal Care Solutions (RCS) business and Transition Manufacturing Agreements from previously divested businesses.

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 28, 2023, $1.1 billion of rebates were classified as other accrued expenses, and $602 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. At April 28, 2023, $1.1 billion of rebates were classified as other accrued expenses, and $555 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet.

Deferred Revenue and Remaining Performance Obligations

Deferred revenue at July 28, 2023 and April 28, 2023 was $425 million and $405 million, respectively. At July 28, 2023 and April 28, 2023, $334 million and $314 million was included in other accrued expenses, respectively, and $90 million and $91 million was included in other liabilities, respectively. 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.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 28, 2023, 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 $0.6 billion. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next three years.

4. Acquisitions and Dispositions

Fiscal Year 2024

The Company had no acquisitions that were accounted for as business combinations during the three months ended July 28, 2023. For the three months ended July 28, 2023, purchase price allocation adjustments were not significant.

Fiscal Year 2023

The Company had acquisitions that were accounted for as business combinations during the three months ended July 29, 2022. 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 29, 2022. 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. For the three months ended July 29, 2022, purchase price allocation adjustments were not significant.

Intersect ENT

On May 13, 2022, the Company acquired Intersect ENT, a global ear, nose, and throat (ENT) medical technology leader which offers a broad suite of solutions to assist surgeons treating patients who suffer from chronic rhinosinusitis (CRS). Total consideration, net of cash acquired, for the transaction, was $1.2 billion consisting of $1.1 billion of cash and $98 million previously held investments in Intersect ENT. The Company acquired $615 million of goodwill, $635 million of technology-based intangible assets, $35 million of customer-related intangible assets, and $13 million of tradenames with estimated useful lives of 20 years. The goodwill is not deductible for tax purposes.

Revenue and net loss attributable to Intersect ENT since the date of acquisition as well as costs incurred in connection with the acquisition included in the consolidated statements of income were not significant for the three months ended July 29, 2022.

The acquisition date fair values of the assets acquired and liabilities assumed were as follows:


(in millions)	Intersect ENT
Cash and cash equivalents	$	39
Inventory	32
Goodwill	615
Other intangible assets	683
Other assets	40
Total assets acquired	1,408

Current liabilities	63
Deferred tax liabilities	51
Other liabilities	18
Total liabilities assumed	131
Net assets acquired	$	1,277

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Other acquisitions

For acquisitions, other than Intersect ENT, the acquisition date fair value of net assets acquired during the three months ended July 29, 2022, was $123 million. Assets acquired were primarily comprised of $66 million of goodwill and $57 million of technology-based intangible assets, with estimated useful lives of 16 years. The goodwill is deductible for tax purposes. The Company recognized $73 million of non-cash contingent consideration liabilities in connection with these acquisitions, which are comprised of revenue and product development milestone-based payments.

Acquired In-Process Research & Development (IPR&D)

IPR&D with no alternative future use acquired outside of a business combination is expensed immediately. During the three months ended July 28, 2023, the Company did not acquire any IPR&D in connection with asset acquisitions of technology not yet approved. During the three months ended July 29, 2022, IPR&D acquired in connection with asset acquisitions of technology not yet approved by regulators was not significant.

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 28, 2023 and April 28, 2023 was $206 million. At July 28, 2023, $33 million was recorded in other accrued expenses, and $173 million was recorded in other liabilities in the consolidated balance sheet. At April 28, 2023, $34 million was recorded in other accrued expenses, and $171 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 28, 2023		July 29, 2022
Beginning balance	$	206	$	119
Purchase price contingent consideration	—		73

Payments	(3)		—
Change in fair value	3		2
Ending balance	$	206	$	193

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 28, 2023	Unobservable Input	Range	Weighted Average (1)
Revenue and other performance-based payments	$81	Discount rate	11.2% - 27.2%	17.3%
		Projected fiscal year of payment	2024 - 2027	2025
Product development and other milestone-based payments	$125	Discount rate	3.9% - 5.5%	4.1%
		Projected fiscal year of payment	2024 - 2027	2026

(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.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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 2025 through 2029. The fair value of the contingent consideration receivable at July 28, 2023 and April 28, 2023 was $152 million and $195 million, respectively, 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:


(in millions)	July 28, 2023
Beginning balance	$	195
Change in fair value	(43)
Ending balance	$	152

Renal Care Solutions disposition

This sale is part of an agreement between Medtronic and DaVita to form a new, independent kidney care-focused medical device company (“Mozarc Medical” or "Mozarc") with equal equity ownership. RCS was part of the Company’s Medical Surgical portfolio. At closing, the Company received $45 million cash consideration, recorded non-cash contingent consideration receivables valued at $195 million, made an additional cash investment of $224 million, and retained a 50% non-controlling equity interest in Mozarc valued at $307 million. For the contingent consideration receivables, the maximum consideration the Company could receive in the future is $300 million based on the achievement of the aforementioned milestones. The Company recorded a non-cash pre-tax impairment of $67 million in the three months ended July 29, 2022, primarily related to goodwill, recognized in other operating expense, net in the consolidated statements of income. Refer to Note 10 to the consolidated financial statements for additional information on the goodwill impairment. Refer to Note 6 to the consolidated financial statements for additional information on the Company’s retained 50% equity investment in Mozarc as a result of this transaction.

The Company determined that the sale of the RCS business did not meet the criteria to be classified as discontinued operations.

5. Restructuring and Other Costs

For the three months ended July 28, 2023, the Company incurred $91 million of restructuring and associated costs related to employee termination benefits and facility consolidations to support cost reduction initiatives. For the three months ended July 29, 2022, restructuring charges primarily related to the Enterprise Excellence and Simplification restructuring programs, both of which were substantially completed as of the end of fiscal year 2023. Enterprise Excellence was designed to leverage the Company’s global size and scale to focus on global operations, and functional and commercial optimization, and had total pre-tax charges of $1.8 billion. Simplification was designed to focus the organization on accelerating innovation, enhancing customer experience, driving revenue growth and winning market share, and had total pre-tax charges of $0.5 billion.

Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated and voluntary early retirement benefits. Associated costs primarily include salaries and wages of employees that are fully-dedicated to restructuring programs and consulting expenses.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

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


	Three months ended
(in millions)	July 28, 2023		July 29, 2022
Cost of products sold	$	16	$	20
Selling, general, and administrative expenses	21		41
Restructuring charges, net	54		14
Total restructuring and associated costs	$	91	$	76

The following table summarizes the activity related to restructuring programs for the three months ended July 28, 2023:


(in millions)	Employee Termination Benefits		Associated Costs		Other Costs		Total
April 28, 2023	$	204	$	23	$	1	$	230
Charges	55		37		—		92
Cash payments	(147)		(53)		—		(201)
Accrual adjustments(1)	(2)		—		—		(2)
July 28, 2023	$	110	$	7	$	1	$	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 28, 2023 and April 28, 2023:


	July 28, 2023
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	549	$	—	$	(28)	$	521	$	521	$	—
Level 2:
Corporate debt securities	4,219		5		(171)		4,053		4,053		—
U.S. government and agency securities	897		—		(52)		845		845		—
Mortgage-backed securities	574		—		(56)		518		518		—
Non-U.S. government and agency securities	14		—		—		14		14		—

Other asset-backed securities	601		—		(16)		585		585		—
Total Level 2	6,305		5		(295)		6,015		6,015		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	6,890	$	5	$	(326)	$	6,570	$	6,537	$	33


	April 28, 2023
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	527	$	—	$	(22)	$	505	$	505	$	—
Level 2:
Corporate debt securities	4,140		6		(162)		3,984		3,984		—
U.S. government and agency securities	879		—		(45)		834		834		—
Mortgage-backed securities	560		—		(54)		506		506		—
Non-U.S. government and agency securities	15		—		—		15		15		—
Certificates of deposit	10		—		—		10		10		—
Other asset-backed securities	580		—		(19)		561		561		—
Total Level 2	6,185		6		(281)		5,911		5,911		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	6,748	$	6	$	(305)	$	6,449	$	6,416	$	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 28, 2023 and April 28, 2023:


	July 28, 2023
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate debt securities	$	376	$	(6)	$	2,896	$	(165)
U.S. government and agency securities	86		(2)		860		(78)
Mortgage-backed securities	26		(1)		463		(55)
Other asset-backed securities	—		—		534		(16)
Auction rate securities	—		—		33		(3)
Total	$	488	$	(9)	$	4,786	$	(317)


	April 28, 2023
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate debt securities	$	286	$	(4)	$	2,901	$	(158)
U.S. government and agency securities	89		(3)		821		(64)
Mortgage-backed securities	26		(1)		460		(53)
Other asset-backed securities	—		—		545		(19)
Auction rate securities	—		—		33		(3)
Total	$	401	$	(8)	$	4,760	$	(297)

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 28, 2023 and July 29, 2022. 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 28, 2023		July 29, 2022
Proceeds from sales	$	1,747	$	1,864
Gross realized gains	5		1
Gross realized losses	(12)		(9)

The July 28, 2023 balance of available-for-sale debt securities by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


(in millions)	July 28, 2023
Due in one year or less	$	1,339
Due after one year through five years	3,799
Due after five years through ten years	761
Due after ten years	672
Total	$	6,570

Interest income is recognized in other non-operating income, net, in the consolidated statements of income. During the three months ended July 28, 2023 and July 29, 2022, there was $111 million and $55 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 historical financial statements and projected 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 28, 2023 and April 28, 2023, which are classified as other assets in the consolidated balance sheets:


(in millions)	July 28, 2023		April 28, 2023
Investments with readily determinable fair value (marketable equity securities)	$	51	$	115
Investments for which the fair value option has been elected	531		531
Investments without readily determinable fair values	899		872
Equity method and other investments	88		89
Total equity and other investments	$	1,569	$	1,607

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 28, 2023, there were $64 million of net unrealized losses on equity securities and other investments still held at July 28, 2023. During the three months ended July 29, 2022, there were $8 million of net unrealized gains on equity securities and other investments still held at July 29, 2022.

Mozarc Medical Investment

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% equity interest in Mozarc. Refer to Note 4 for additional information on this transaction. 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 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 28, 2023 was $500 million. During the three months ended July 28, 2023, the commercial paper outstanding had a weighted average original maturity of 14 days and a weighted average interest rate of 5.262 percent. No commercial paper was outstanding at April 28, 2023. 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 28, 2023 and April 28, 2023, no amounts were outstanding under the Credit Facility.

Interest rates on advances on the Credit Facility are determined by a pricing matrix, based on the Company’s long-term debt ratings, assigned by Standard & Poor’s Ratings Services and Moody’s Investors Service. Facility fees are payable on the Credit Facility and are determined in the same manner as the interest rates. The Company is in compliance with the covenants under the Credit Facility.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Debt Obligations

The Company's debt obligations consisted of the following:


(in millions)	Maturity by Fiscal Year	July 28, 2023		April 28, 2023
Current debt obligations	2024 - 2025	$	519	$	20

Long-term debt
0.250 percent six-year 2019 senior notes	2026	1,105		1,097
2.625 percent three-year 2022 senior notes	2026	552		549
0.000 percent five-year 2020 senior notes	2026	1,105		1,097
1.125 percent eight-year 2019 senior notes	2027	1,657		1,646
4.250 percent five-year 2023 senior notes	2028	1,000		1,000
3.000 percent six-year 2022 senior notes	2029	1,105		1,097
0.375 percent eight-year 2020 senior notes	2029	1,105		1,097
1.625 percent twelve-year 2019 senior notes	2031	1,105		1,097
1.000 percent twelve-year 2019 senior notes	2032	1,105		1,097
3.125 percent nine-year 2022 senior notes	2032	1,105		1,097
0.750 percent twelve-year 2020 senior notes	2033	1,105		1,097
4.500 percent ten-year 2023 senior notes	2033	1,000		1,000
3.375 percent twelve-year 2022 senior notes	2035	1,105		1,097
4.375 percent twenty-year 2015 senior notes	2035	1,932		1,932
6.550 percent thirty-year 2007 CIFSA senior notes	2038	253		253
2.250 percent twenty-year 2019 senior notes	2039	1,105		1,097
6.500 percent thirty-year 2009 senior notes	2039	158		158
1.500 percent twenty-year 2019 senior notes	2040	1,105		1,097
5.550 percent thirty-year 2010 senior notes	2040	224		224
1.375 percent twenty-year 2020 senior notes	2041	1,105		1,097
4.500 percent thirty-year 2012 senior notes	2042	105		105
4.000 percent thirty-year 2013 senior notes	2043	305		305
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	1,105		1,097
1.625 percent thirty-year 2020 senior notes	2051	1,105		1,097

Finance lease obligations	2024 - 2036	57		57
Deferred financing costs	2026 - 2051	(120)		(124)
Debt discount, net	2026 - 2051	(65)