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~~29, 2021

☐	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~~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
~~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~~November 30, 2021, 1,344,557,784 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


	Three months ended				Six months ended
(in millions, except per share data)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Net sales	$	7,847	$	7,647	$	15,835	$	14,154
Costs and expenses:
Cost of products sold	2,497		2,705		5,095		5,209
Research and development expense	676		639		1,426		1,260
Selling, general, and administrative expense	2,615		2,600		5,163		5,017
Amortization of intangible assets	431		443		866		884
Restructuring charges, net	10		97		21		150
Certain litigation charges, net	34		84		60		(4)

Other operating expense, net	21		149		781		35
Operating profit	1,563		930		2,422		1,603
Other non-operating income, net	(66)		(65)		(177)		(147)
Interest expense	136		470		273		641
Income before income taxes	1,493		525		2,326		1,109
Income tax provision	176		31		240		124
Net income	1,317		494		2,086		985
Net income attributable to noncontrolling interests	(6)		(5)		(12)		(9)
Net income attributable to Medtronic	$	1,311	$	489	$	2,074	$	976
Basic earnings per share	$	0.97	$	0.36	$	1.54	$	0.73
Diluted earnings per share	$	0.97	$	0.36	$	1.53	$	0.72
Basic weighted average shares outstanding	1,345.1		1,344.4		1,344.8		1,343.1
Diluted weighted average shares outstanding	1,355.3		1,352.1		1,355.9		1,351.1

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


	Three months ended				Six months ended
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Net income	$	1,317	$	494	$	2,086	$	985

Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investment securities	(56)		(12)		(44)		113
Translation adjustment	(247)		144		(602)		1,261
Net investment hedge	356		(164)		780		(1,276)
Net change in retirement obligations	18		17		37		20
Unrealized gain (loss) on cash flow hedges	95		(45)		269		(395)
Other comprehensive income (loss)	166		(60)		440		(277)
Comprehensive income including noncontrolling interests	1,483		434		2,526		708
Comprehensive income attributable to noncontrolling interests	(5)		(6)		(9)		(15)
Comprehensive income attributable to Medtronic	$	1,478	$	428	$	2,517	$	693

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 0 0
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


(in millions)	October 29, 2021		April 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	2,900	$	3,593
Investments	7,769		7,224
Accounts receivable, less allowances and credit losses of $255 and $241, respectively	5,493		5,462
Inventories, net	4,349		4,313
Other current assets	2,220		1,955
Total current assets	22,731		22,548
Property, plant, and equipment	12,978		12,700
Accumulated depreciation	(7,790)		(7,479)
Property, plant, and equipment, net	5,188		5,221
Goodwill	41,612		41,961
Other intangible assets, net	16,523		17,740
Tax assets	3,203		3,169
Other assets	2,499		2,443
Total assets	$	91,756	$	93,083
LIABILITIES AND EQUITY
Current liabilities:
Current debt obligations	$	16	$	11
Accounts payable	1,917		2,106
Accrued compensation	1,934		2,482
Accrued income taxes	467		435
Other accrued expenses	3,469		3,475
Total current liabilities	7,803		8,509
Long-term debt	25,607		26,378
Accrued compensation and retirement benefits	1,505		1,557
Accrued income taxes	2,110		2,251
Deferred tax liabilities	1,024		1,028
Other liabilities	1,547		1,756
Total liabilities	39,596		41,481
Commitments and contingencies (Note 16)	0		0
Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,344,861,769 and 1,345,400,671 shares issued and outstanding, respectively	—		—
Additional paid-in capital	26,059		26,319
Retained earnings	28,974		28,594
Accumulated other comprehensive loss	(3,042)		(3,485)
Total shareholders’ equity	51,991		51,428
Noncontrolling interests	168		174
Total equity	52,159		51,602
Total liabilities and equity	$	91,756	$	93,083

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 30, 2021	1,345	$	—	$	26,319	$	28,594	$	(3,485)	$	51,428	$	174	$	51,602
Net income	—	—		—		763		—		763		6		769
Other comprehensive (loss) income	—	—		—		—		276		276		(2)		274
Dividends to shareholders ($0.63 per ordinary share)	—	—		—		(846)		—		(846)		—		(846)
Issuance of shares under stock purchase and award plans	2	—		107		—		—		107		—		107
Repurchase of ordinary shares	(2)	—		(311)		—		—		(311)		—		(311)
Stock-based compensation	—	—		69		—		—		69		—		69


July 30, 2021	1,345	$	—	$	26,184	$	28,511	$	(3,209)	$	51,486	$	178	$	51,664
Net income	—	—		—		1,311		—		1,311		6		1,317
Other comprehensive (loss) income	—	—		—		—		167		167		(1)		166
Dividends to shareholders ($0.63 per ordinary share)	—	—		—		(847)		—		(847)		—		(847)
Issuance of shares under stock purchase and award plans	3	—		92		—		—		92		—		92
Repurchase of ordinary shares	(3)	—		(358)		—		—		(358)		—		(358)
Stock-based compensation	—	—		140		—		—		140		—		140
Changes to noncontrolling ownership interests	—	—		1		—		—		1		(16)		(15)

October 29, 2021	1,345	$	—	$	26,059	$	28,974	$	(3,042)	$	51,991	$	168	$	52,159

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 $ 0 $ 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 $ 0 $ 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 $ 0 $ 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					Ordinary Shares					Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total Shareholders’ Equity				Noncontrolling Interests				Total Equity
(in millions)	(in millions)	Number	Par Value										(in millions)				Number							Par Value
April 26, 2019		1,341	$	0			$	26,532					$	26,270				$	(2,711)		$	50,091			$	121		$	50,212
April 24, 2020																								April 24, 2020			1,341			$	—			$	26,165			$	28,132			$	(3,560)			$	50,737			$	135			$	50,872
Net income	Net income	—	—		—				864		—				864				13			877		Net income			—			—		—				487				—				487				4				491
Other comprehensive income		—	—		—				—		227				227				—			227
Dividends to shareholders ($0.54 per ordinary share)		—	—		—				(724)		—				(724)				—			(724)
Other comprehensive (loss) income																								Other comprehensive (loss) income			—			—		—				—				(222)				(222)				5				(217)
Dividends to shareholders ($0.58 per ordinary share)																								Dividends to shareholders ($0.58 per ordinary share)			—			—		—				(778)				—				(778)				—				(778)
Issuance of shares under stock purchase and award plans	Issuance of shares under stock purchase and award plans	3	—		205				—		—				205				—			205		Issuance of shares under stock purchase and award plans			2			—		26				—				—				26				—				26
Repurchase of ordinary shares		(3)	—		(328)				—		—				(328)				—			(328)

Stock-based compensation	Stock-based compensation	—	—		61				—		—				61				—			61		Stock-based compensation			—			—		70				—				—				70				—				70

Changes to noncontrolling ownership interests																								Changes to noncontrolling ownership interests			—			—		—				—				—				—				3				3
Cumulative effect of change in accounting principle(1)	Cumulative effect of change in accounting principle(1)	—	—		—				(33)		—				(33)				—			(33)		Cumulative effect of change in accounting principle(1)			—			—		—				(24)				—				(24)				—				(24)
July 26, 2019		1,341	$	0	$	26,470			$	26,377	$	(2,484)			$	50,363			$	134		$	50,497
July 31, 2020																								July 31, 2020			1,343			$	—	$	26,261			$	27,817			$	(3,782)			$	50,296			$	147			$	50,443
Net income	Net income	—	—		—				1,364		—				1,364				7			1,371		Net income			—			—		—				489				—				489				5				494
Other comprehensive (loss)	Other comprehensive (loss)	—	—		—				—		(127)				(127)				0			(127)		Other comprehensive (loss)			—			—		—				—				(61)				(61)				1				(60)
Dividends to shareholders ($0.54 per ordinary share)		—	—		—				(723)		—				(723)				—			(723)
Dividends to shareholders ($0.58 per ordinary share)																								Dividends to shareholders ($0.58 per ordinary share)			—			—		—				(780)				—				(780)				—				(780)
Issuance of shares under stock purchase and award plans	Issuance of shares under stock purchase and award plans	4	—		145				—		—				145				—			145		Issuance of shares under stock purchase and award plans			2			—		93				—				—				93				—				93
Repurchase of ordinary shares		(5)	—		(552)				—		—				(552)				—			(552)

Stock-based compensation	Stock-based compensation	—	—		108				—		—				108				—			108		Stock-based compensation			—			—		140				—				—				140				—				140
Changes to noncontrolling ownership interests																								Changes to noncontrolling ownership interests			—			—		(13)				—				—				(13)				(1)				(14)

October 25, 2019		1,340	$	0	$	26,171			$	27,018	$	(2,611)			$	50,578			$	141		$	50,719
October 30, 2020																								October 30, 2020			1,345			$	—	$	26,481			$	27,526			$	(3,843)			$	50,164			$	152			$	50,316

(1) The cumulative effect of the change in accounting principle during the first quarter of fiscal year ~~2020~~2021 resulted from the adoption of accounting guidance that ~~requires lessees~~changed the methodology to ~~recognize right-of-use~~be used when measuring credit losses for certain financial instruments and financial assets, ~~and lease liabilities on the balance sheet.~~including trade receivables. As a result of the adoption, the Company adjusted the opening balance of retained earnings for ~~$33~~$24 million as of April ~~27, 2019.~~25, 2020.

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 0
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


	Six months ended
(in millions)	October 29, 2021		October 30, 2020
Operating Activities:
Net income	$	2,086	$	985
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,347		1,340
Provision for doubtful accounts	34		86
Deferred income taxes	(78)		(69)
Stock-based compensation	209		210
Loss on debt extinguishment	—		308


MCS asset impairment and inventory write-down	515		—
Other, net	130		112
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net	(171)		(669)
Inventories	(156)		(145)
Accounts payable and accrued liabilities	(446)		108
Other operating assets and liabilities	(409)		(127)


Net cash provided by operating activities	3,061		2,139
Investing Activities:
Acquisitions, net of cash acquired	(91)		(370)

Additions to property, plant, and equipment	(649)		(615)
Purchases of investments	(5,311)		(5,360)
Sales and maturities of investments	4,637		4,337
Other investing activities, net	(79)		(4)
Net cash used in investing activities	(1,493)		(2,012)
Financing Activities:
Change in current debt obligations, net	—		(57)
Proceeds from short-term borrowings (maturities greater than 90 days)	—		2,789

Issuance of long-term debt	—		7,172
Payments on long-term debt	(1)		(6,336)
Dividends to shareholders	(1,693)		(1,558)
Issuance of ordinary shares	274		119
Repurchase of ordinary shares	(744)		(68)
Other financing activities	(46)		(70)
Net cash provided by (used in) financing activities	(2,210)		1,991
Effect of exchange rate changes on cash and cash equivalents	(51)		162
Net change in cash and cash equivalents	(693)		2,280
Cash and cash equivalents at beginning of period	3,593		4,140
Cash and cash equivalents at end of period	$	2,900	$	6,420

Supplemental Cash Flow Information
Cash paid for:
Income taxes	$	615	$	384
Interest	280		321

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,~~29, 2021, 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. 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 ~~24, 2020.~~30, 2021. The Company’s fiscal years 2022, 2021, ~~2020,~~ and ~~2019~~2020 will end or ended on April 29, 2022, April 30, 2021, and April 24, 2020, ~~and April 26, 2019,~~ respectively. Fiscal year 2021 iswas 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,~~For the ~~Financial Accounting Standards Board (FASB) issued guidance which changes the methodology to be used to measure credit losses for certain financial instruments~~three and ~~financial assets, including trade receivables. The new methodology requires the recognition of an allowance~~six months ended October 29, 2021, there were no newly adopted accounting pronouncements 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 havehad a material impact to ~~the Company’s~~our consolidated financial statements. As of October 29, 2021, 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, 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,~~healthcare systems, clinics, third-party ~~health care~~healthcare providers, distributors, and other institutions, including governmental ~~health care~~healthcare programs and group purchasing organizations.

During the fourth quarter of fiscal year 2021, the Company realigned its divisions within Cardiovascular. As a result, fiscal year 2021 revenue has been recast to adjust for these realignments. Additionally, the Company implemented a new operating model in fiscal year 2021, which was fully operational beginning in the fourth quarter.

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~~29, 2021 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 831 955 1,611 1,896
Aortic, Peripheral, & Venous 468 474 873 942
Cardiac & Vascular Group 2,725 2,855 5,158 5,645
Surgical Innovations 1,393 1,454 2,473 2,871
Respiratory, Gastrointestinal, & Renal 893 688 1,613 1,371
Minimally Invasive Therapies Group 2,285 2,142 4,086 4,242
Cranial & Spinal Technologies 1,071 1,117 2,015 2,167
Specialty Therapies 581 575 1,035 1,138
Neuromodulation 411 420 725 818
Restorative Therapies Group 2,063 2,112 3,774 4,124
Diabetes Group 574 596 1,136 1,188
Total $ 7,647 $ 7,706 $ 14,154 $ 15,199

~~(1) Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.~~

During the first quarter of fiscal year 2021, the Company realigned the divisions within the Restorative Therapies Group to the following: Cranial & Spinal Technologies (includes Core Spine and Biologics, Enabling Technologies, and China Orthopedics), Specialty Therapies (includes ENT, Pelvic Health, and Neurovascular), and Neuromodulation (includes Pain Therapies, Brain Modulation, and Interventional). As a result, net sales for fiscal year 2020 have been recast to adjust for this realignment.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~30, 2020:


	Three months ended				Six months ended
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Cardiac Rhythm & Heart Failure	$	1,471	$	1,426	$	2,954	$	2,673
Structural Heart & Aortic	750		733		1,537		1,360
Coronary & Peripheral Vascular	606		567		1,226		1,125
Cardiovascular	2,827		2,725		5,717		5,158
Surgical Innovations	1,497		1,393		3,051		2,473
Respiratory, Gastrointestinal, & Renal	802		893		1,570		1,613
Medical Surgical	2,299		2,285		4,621		4,086
Cranial & Spinal Technologies	1,067		1,071		2,189		2,015
Specialty Therapies	634		581		1,275		1,035
Neuromodulation	435		411		875		725
Neuroscience	2,136		2,063		4,340		3,774
Diabetes	585		574		1,157		1,136
Total	$	7,847	$	7,647	$	15,835	$	14,154

The table below illustrates net sales by market geography for each segment for the three and six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019:~~30, 2020:

U.S.(1)(4)
Non-U.S. Developed Markets(2)(4)
Emerging Markets(3)(4)
Three months ended Three months ended Three months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Cardiac & Vascular Group $ 1,377 $ 1,455 $ 945 $ 890 $ 404 $ 510
Minimally Invasive Therapies Group 996 922 837 782 452 438
Restorative Therapies Group 1,397 1,440 426 416 240 256
Diabetes Group 284 311 238 226 51 59
Total $ 4,054 $ 4,129 $ 2,446 $ 2,315 $ 1,147 $ 1,262
U.S.(1)(4)
Non-U.S. Developed Markets(2)(4)
Emerging Markets(3)(4)
Six months ended Six months ended Six months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Cardiac & Vascular Group $ 2,582 $ 2,816 $ 1,798 $ 1,820 $ 778 $ 1,009
Minimally Invasive Therapies Group 1,718 1,835 1,556 1,573 811 834
Restorative Therapies Group 2,533 2,778 802 842 439 504
Diabetes Group 572 618 465 457 100 113
Total $ 7,405 $ 8,046 $ 4,621 $ 4,692 $ 2,128 $ 2,460


	U.S.(1)				Non-U.S. Developed Markets(2)				Emerging Markets(3)
	Three months ended				Three months ended				Three months ended
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Cardiovascular	$	1,373	$	1,377	$	948	$	945	$	506	$	404
Medical Surgical	970		996		841		837		488		452
Neuroscience	1,394		1,397		433		426		309		240
Diabetes	261		284		256		238		69		51
Total	$	3,997	$	4,054	$	2,478	$	2,446	$	1,372	$	1,147

	U.S.(1)				Non-U.S. Developed Markets(2)				Emerging Markets(3)
	Six months ended				Six months ended				Six months ended
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Cardiovascular	$	2,793	$	2,582	$	1,952	$	1,798	$	972	$	778
Medical Surgical	1,959		1,718		1,710		1,556		951		811
Neuroscience	2,840		2,533		898		802		602		439
Diabetes	506		572		519		465		132		100
Total	$	8,098	$	7,405	$	5,079	$	4,621	$	2,658	$	2,128

(1)U.S. includes the United States and U.S. territories.

(2)Non-U.S. developed markets include Japan, Australia, New Zealand, Korea, Canada, and the countries within Western Europe.

(3)Emerging markets include the countries of the Middle East, Africa, Latin America, Eastern Europe, and the countries of Asia that are not included in the non-U.S. developed markets, as defined above.

~~(4)Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.~~

The amount of revenue recognized is reduced by sales rebates and returns. Adjustments to rebates and returns reserves are recorded as increases or decreases to revenue. At October ~~30, 2020, $955 million~~29, 2021, $1.1 billion of rebates were classified as other accrued expenses, and $~~464~~518 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. At April ~~24, 2020, $706~~30, 2021, $906 million of rebates were classified as other accrued expenses, and ~~$321~~$485 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheet. For the three and six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019,~~30, 2020, adjustments to rebate and return reserves recognized in revenue that were included in the rebate and return reserves at the beginning of the period were not material.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Deferred Revenue and Remaining Performance Obligations

The Company records a deferred revenue liability if a customer pays consideration, or the Company has the right to invoice, before the Company transfers a good or service to the customer. Deferred revenue at October ~~30, 2020~~29, 2021 and April ~~24, 2020~~30, 2021 was ~~$317~~$365 million and ~~$303~~$368 million, respectively. At October ~~30, 2020~~29, 2021 and April ~~24, 2020, $225~~30, 2021, $267 million and ~~$213~~$276 million ~~respectively,~~ was included in other accrued expenses, respectively, and ~~$92~~$98 million and ~~$90~~$93 million ~~respectively,~~ was included in other liabilities,.respectively. During the six months ended October ~~30, 2020,~~29, 2021, the Company recognized ~~$162~~$155 million of revenue that was included in deferred revenue as of April ~~24, 2020.~~30, 2021.

Remaining performance obligations include ~~deferred revenue and amounts the Company expects to receive for~~ goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments. At October ~~30, 2020,~~29, 2021, the estimated revenue expected to be recognized in future periods related to unsatisfied performance obligations for executed contracts with an original duration of one year or more was approximately $1.1 billion. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next four years.

4. Acquisitions

~~The Company had acquisitions during~~During the three and six months ended October 29, 2021 and October 30, 2020, ~~and October 25, 2019~~the Company had acquisitions that were accounted for as business combinations. The assets and liabilities of the businesses acquired were recorded and consolidated on the acquisition date at their respective fair values. Goodwill resulting from business combinations is largely attributable to future, yet to be defined technologies, new customer relationships, existing workforce of the acquired businesses, and synergies expected to arise after the Company's acquisition of these businesses. The pro forma impact of these acquisitions was not significant, either individually or in the aggregate, to the consolidated results of the Company for the three and six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019.~~30, 2020. 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 and six months ended October 29, 2021, purchase price allocation adjustments were not significant.

~~Medtronic plc~~Fiscal Year 2022

~~Notes~~The acquisition date fair value of net assets acquired during the six months ended October 29, 2021 was $125 million, consisting of $154 million of assets acquired and $29 million of liabilities assumed. Based upon preliminary valuations, assets acquired were primarily comprised of $50 million of technology-based intangible assets with estimated useful lives ranging from 15 to ~~Consolidated Financial Statements~~

~~(Unaudited)~~

16 years and $80 million of goodwill. The goodwill is not deductible for tax purposes. The Company recognized $31 million of contingent consideration liabilities in connection with business combinations during the six months ended October 29, 2021, which are comprised of revenue and product development milestone-based payments.

Fiscal Year 2021

The acquisition date fair value of net assets acquired during the six months ended October 30, 2020 was $539 million, consisting of $577 million of assets acquired and $38 million of liabilities assumed. ~~Based upon preliminary valuations, assets~~Assets acquired were primarily comprised of $156 million of technology-based intangible assets ~~and $13 million of customer-related intangible assets~~ with estimated useful lives ranging from 810 to 15 years and $381 million of goodwill. The goodwill is not deductible for tax purposes. The Company recognized $158 million of contingent consideration liabilities in connection with business combinations during the six months ended October 30, 2020, which are comprised of revenue and product development milestone-based payments. Additionally, during the six months ended October 30, 2020, the Company recognized a gain of $132 million related to a change in amounts accrued for certain contingent liabilities from a recent acquisition. The benefit was recognized in other operating expense, net in the consolidated statements of income as the purchase accounting was finalized in fiscal year 2020. ~~For~~Purchase price allocation adjustments were not significant as a result of final valuations.

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

IPR&D with no alternative future use acquired outside of a business combination is expensed immediately. The Company did not acquire any IPR&D in connection with asset acquisitions during the three months ended October 29, 2021. During the six months ended October 29, 2021, the Company acquired $90 million of IPR&D in connection with asset acquisitions, which was recognized in research and development expense in the consolidated statements of income. During the three and six months ended October 30, 2020, ~~purchase price allocation adjustments were~~IPR&D acquired in connection with asset acquisitions was not significant.

~~Fiscal Year 2020~~

Medtronic plc

The acquisition date fair value of net assets acquired during the six months ended October 25, 2019 was $272 million, consisting of $324 million of assets acquired and $52 million of liabilities assumed. Assets acquired were primarily comprised of $139 million of technology-based intangible assets and $26 million of customer-related intangible assets with estimated useful lives ranging from 8Notes to 16 years, $40 million of inventory, and $92 million of goodwill. The goodwill is not deductible for tax purposes. The Company recognized $65 million of contingent consideration liabilities in connection with business combinations during the six months ended October 25, 2019, which are comprised of revenue milestone-based payments. For the three and six months ended October 25, 2019, purchase price allocation adjustments were not significant.Consolidated Financial Statements

(Unaudited)

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. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows.

The fair value of contingent consideration at October ~~30, 2020~~29, 2021 and April ~~24, 2020~~30, 2021 was ~~$461~~$269 million and ~~$280~~$270 million, respectively. At October ~~30, 2020, $342~~29, 2021, $66 million was recorded in other accrued expenses, and ~~$119~~$203 million was recorded in other liabilities in the consolidated balance ~~sheets.~~sheet. At April ~~24, 2020, $112~~30, 2021, $78 million was recorded in other accrued expenses, and ~~$168~~$192 million was recorded in other liabilities in the consolidated balance ~~sheets.~~sheet.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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


		Three months ended				Six months ended					Three months ended				Six months ended
(in millions)	(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019		(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Beginning balance	Beginning balance	$	297	$	269	$	280	$	222	Beginning balance	$	294	$	297	$	270	$	280
Purchase price contingent consideration	Purchase price contingent consideration	158		7		158		65		Purchase price contingent consideration	31		158		31		158
Purchase price allocation adjustments										Purchase price allocation adjustments	—		—		25		—
Payments	Payments	(1)		(15)		(2)		(29)		Payments	(30)		(1)		(41)		(2)
Change in fair value	Change in fair value	7		(1)		25		2		Change in fair value	(26)		7		(16)		25
Ending balance	Ending balance	$	461	$	260	$	461	$	260	Ending balance	$	269	$	461	$	269	$	461

The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based consideration). Projected revenues are based on the Company's most recent internal operational budgets and long-range strategic plans. Changes in projected payment dates, discount rates, probabilities of payment, and projected revenues may result in adjustments to the fair value measurement. 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					Fair Value at
(in millions)	(in millions)	October 30, 2020	Unobservable Input	Range	Weighted Average (1)	(in millions)	October 29, 2021	Unobservable Input	Range	Weighted Average (1)
			Discount rate	14.0% - 32.4%	20.7%			Discount rate	5.5% - 31.6%	16.9%
Revenue and other performance-based payments	Revenue and other performance-based payments	$203	Probability of payment	40% - 100%	99.4%	Revenue and other performance-based payments	$211	Probability of payment	30% - 100%	89.7%
			Projected fiscal year of payment	2021 - 2027	2024			Projected fiscal year of payment	2022 - 2027	2024
			Discount rate	5.5%	5.5%			Discount rate	5.5%	5.5%
Product development and other milestone-based payments	Product development and other milestone-based payments	$258	Probability of payment	50% - 100%	93.2%	Product development and other milestone-based payments	$58	Probability of payment	70% - 100%	90.6%
			Projected fiscal year of payment	2021 - 2027	2024			Projected fiscal year of payment	2022 - 2025	2024

(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)

5. Restructuring and Other Costs

Enterprise Excellence

In the third quarter of fiscal year 2018, the Company announced its Enterprise Excellence restructuring program. Further program ~~which is expected~~details are described in Note 4 to ~~leverage~~the consolidated financial statements included in the Company's ~~global size and scale, as well as enhance~~Annual Report on Form 10-K for the ~~customer and employee experience, with a focus on three objectives: global operations, functional optimization, and commercial optimization. Primary activities of~~fiscal year ended April 30, 2021. Since inception, the restructuring program include integrating and enhancing global manufacturing and supply processes, systems and site presence, enhancing and leveraging global operating models across several enabling functions, and optimizing certain commercial processes, systems, and models.

~~The~~ Company ~~estimates that, in connection with its Enterprise Excellence restructuring program, it will recognize~~has incurred pre-tax exit and disposal costs and other costs, across all segments, of $1.4 billion in connection with the Enterprise Excellence program. In total, the Company estimates it will recognize approximately $1.6 billion to $1.8 billion of exit and disposal costs and other costs related to the Enterprise Excellence program, and the majority of ~~which~~the remaining estimated charges are expected to be incurred by the end of this fiscal ~~year 2022. Approximately half~~year.

For the three and six months ended October 29, 2021, the Company recognized net charges of ~~the estimated charges are related to employee termination benefits. The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program~~$62 million and ~~consulting expenses. These charges are~~$136 million, of which $31 million and $64 million, respectively, were recognized within ~~restructuring charges, net,~~ cost of products soldand $27 million and $57 million, respectively, were recognized withinselling, general, and administrative expense in the consolidated statements of income.

For the three and six months ended October 30, 2020, the Company recognized net charges of ~~$90~~$87 million and ~~$169~~$164 million, ~~respectively. Additionally, the Company incurred accrual adjustments~~ of $3 million and $5 million for the three and six months ended October 30, 2020, respectively, related to certain employees identified for termination finding other positions within Medtronic and contract terminations being settled for less than originally estimated. For the three and six months ended October 30, 2020, charges includedwhich $32 million and $59 million, respectively, were recognized within cost of products sold and $48 million and $95 million, respectively, ~~recognized within~~ ~~selling, general, and administrative expense~~ ~~in the consolidated statements of income.~~

For the three and six months ended October 25, 2019, the Company recognized charges of $95 million and $231 million, respectively. Additionally, the Company incurred accrual adjustments of $1 million and $13 million for the three and six months ended October 25, 2019, respectively, related to certain employees identified for termination finding other positions within Medtronic. For the three and six months ended October 25, 2019, charges included $32 million and $67 million, respectively, recognized within ~~cost of products sold~~ ~~and $35~~

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~million and $77 million, respectively,~~were recognized within selling, general, and administrative expense in the consolidated statements of income.

The following table summarizes the activity related to the Enterprise Excellence restructuring program for the six months ended October ~~30, 2020:~~29, 2021:


(in millions)	(in millions)	Employee Termination Benefits		Associated Costs(1)		Other Costs		Total		(in millions)	Employee Termination Benefits		Associated Costs(1)		Other Costs		Total
April 24, 2020		$	89	$	19	$	4	$	112
April 30, 2021										April 30, 2021	$	64	$	18	$	1	$	83
Charges	Charges	17		150		2		169		Charges	17		121		—		138
Cash payments	Cash payments	(42)		(146)		(3)		(191)		Cash payments	(25)		(123)		—		(148)

Accrual adjustments(2)	Accrual adjustments(2)	(3)		0		(2)		(5)		Accrual adjustments(2)	(2)		—		—		(2)
October 30, 2020		$	61	$	23	$	1	$	85
October 29, 2021										October 29, 2021	$	54	$	16	$	1	$	71

(1)Associated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses.

(2)Accrual adjustments relate to certain employees identified for termination finding other positions within the Company and contract terminations being settled for less than originally estimated.

Simplification

In the first quarter of fiscal year 2021, the Company initiated the Simplification restructuring program. Further program ~~designed~~details are described in Note 4 to ~~make~~ the ~~Company a more nimble and competitive organization focused~~consolidated financial statements included in the Company's Annual Report on ~~accelerating innovation, enhancing~~Form 10-K for the customer experience, driving revenue growth, and winning market share, while also more efficiently and effectively leveraging the Enterprise scale. Under the oversight of the portfolio leaders, this new operating model, which will be fully operational the beginning of the fourth quarter of fiscal year 2021, will simplify the Company's organizational structure and accelerate decision-making and execution. Primary activities of the restructuring program will include reorganizing the Company into a portfolio-level structure, including the creation of highly focused, accountable, and empowered Operating Units (OUs), consolidating Operations at the Enterprise level, establishing Technology Development Centers in areas whereended April 30, 2021. Since inception, the Company has deep core technology competencies to be leveraged by multiple OUs, and forming dedicated sales organizations that leverage the Company's scale but move with the same agility as smaller, local competitors.

~~The Company estimates that, in connection with its Simplification restructuring program, it will recognize~~incurred pre-tax exit and disposal costs and other costs, across all segments, of $293 million in connection with the Simplification program. In total, the Company estimates it will recognize approximately $400 million to $450 million of exit and disposal costs and other costs related to the Simplification program, and the majority of ~~which~~the remaining estimated charges are expected to be incurred by the end of this fiscal ~~year 2022. Approximately~~year.

For the three ~~quarters~~and six months ended October 29, 2021, the Company recognized net charges of ~~the estimated charges are related to employee termination benefits. The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program~~$18 million and ~~consulting expenses. These charges are~~$25 million, respectively, of which $9 million and $16 million were recognized within~~restructuring charges, net~~, ~~cost of products sold, and~~ selling, general, and administrative expense in the consolidated statements of income.

For the three and six months ended October 30, 2020, the Company recognized net charges of ~~$102~~$94 million and ~~$153~~$145 million, respectively, which included $97 million of incremental defined benefit pension and post-retirement related expenses for employees that accepted voluntary early retirement packages. ~~These costs are not included in the table summarizing restructuring~~The net charges below, because they are associated with costs that are accounted for under the pension and post-retirement rules. See Note 14 for further discussion on the incremental defined benefit pension and post-retirement expenses. The charges recognized for the three and six months ended October 30, 2020 were partially offset by accrual adjustments of $8 million for both periods related to certain employees identified for termination finding other positions within the Company. The charges recognized for the three and six months ended October 30, 2020 also included $2 million and $3 million, respectively, ~~recognized~~ withinselling, general, and administrative expense in the consolidated statements of income.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the activity related to the Simplification restructuring program for ~~the~~ six months ended October ~~30, 2020:~~

(in millions) Employee Termination Benefits
Associated Costs(1)
Total
April 24, 2020 $ 0 $ 0 $ 0
Charges 53 3 56
Cash payments (9) (3) (12)
Accrual adjustments (8) 0 (8)
October 30, 2020 $ 36 $ 0 $ 36
29, 2021:


(in millions)	Employee Termination Benefits		Associated Costs(1)		Total
April 30, 2021	$	59	$	4	$	63
Charges	13		16		29
Cash payments	(48)		(16)		(64)
Accrual adjustments(2)	(5)		—		(5)
October 29, 2021	$	19	$	4	$	23

(1) Associated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses.

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

Mechanical Circulatory Support (MCS)

On June 3, 2021, the Company announced the decision to stop the distribution and sale of the Medtronic HVAD System in light of a growing body of observational clinical comparisons indicating a lower frequency of neurological adverse events and mortality with another circulatory support device available to patients compared to the HVAD system. In connection with this decision, the Company recorded charges of $726 million (MCS charges) within the Cardiovascular segment during the three months ended July 30, 2021, including $58 million recognized in costs of products sold and $668 million recognized within other operating expense, net in the consolidated statement of income. The charges included $515 million of non-cash impairments and write-downs primarily related to $409 million of intangible asset impairments and $58 million of inventory write-downs. The Company also recorded charges of $211 million for commitments and obligations associated with the decision, which included charges for patient support obligations, restructuring, and other associated costs. As of October 29, 2021, accruals were recorded in the consolidated balance sheet for these obligations, with $86 million reflected in other accrued expenses and $30 million recorded in other liabilities. Medtronic remains committed to serving the needs of the approximately 4,000 patients currently implanted with the HVAD system.

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 ~~held-to-maturity. Investments classified as available-for-sale~~ are remeasured on a recurring basis. ~~Investments classified as held-to-maturity are measured at amortized cost.~~ The following tables summarize the Company's investments in available-for-sale ~~and held-to-maturity~~ debt securities by significant investment category and the related consolidated balance sheet classification at October ~~30, 2020~~29, 2021 and April ~~24, 2020:~~ 30, 2021:


	October 29, 2021
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	513	$	20	$	(3)	$	530	$	530	$	—
Level 2:
Corporate debt securities	5,025		72		(18)		5,079		5,079		—
U.S. government and agency securities	918		—		(9)		909		909		—
Mortgage-backed securities	647		15		(15)		646		646		—
Non-U.S. government and agency securities	24		1		—		25		25		—
Certificates of deposit	15		—		—		15		15		—
Other asset-backed securities	558		3		(1)		560		560		—
Debt funds	6		—		—		6		6		—
Total Level 2	7,193		91		(44)		7,240		7,240		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	7,741	$	111	$	(49)	$	7,803	$	7,769	$	33

October 30, 2020
Valuation Balance Sheet Classification
(in millions) Cost Unrealized
Gains Unrealized
Losses Fair Value Investments Other Assets
Available-for-sale securities:
Level 1:
U.S. government and agency securities $ 497 $ 39 $ 0 $ 536 $ 536 $ 0
Level 2:
Corporate debt securities 4,234 124 (32) 4,326 4,326 0
U.S. government and agency securities 888 1 (1) 888 888 0
Mortgage-backed securities 661 27 (19) 669 669 0
Non-U.S. government and agency securities 36 1 0 37 37 0
Other asset-backed securities 518 4 (7) 515 515 0
Total Level 2 6,337 157 (59) 6,435 6,435 0
Level 3:
Auction rate securities 36 0 0 36 0 36
Total available-for-sale debt securities 6,870 196 (59) 7,007 6,971 36
Held-to-maturity securities:
Level 2:
Time deposit 886 0 0 886 886 0
Total debt securities $ 7,756 $ 196 $ (59) $ 7,893 $ 7,857 $ 36

April 24, 2020
Valuation Balance Sheet Classification
(in millions) Cost Unrealized
Gains Unrealized
Losses Fair Value Investments Other Assets
Level 1:
U.S. government and agency securities $ 542 $ 47 $ 0 $ 589 $ 589 $ 0
Level 2:
Corporate debt securities 4,285 66 (90) 4,261 4,261 0
U.S. government and agency securities 746 1 0 747 747 0
Mortgage-backed securities 705 20 (28) 697 697 0
Non-U.S. government and agency securities 34 0 0 34 34 0
Other asset-backed securities 499 1 (20) 480 480 0
Total Level 2 6,269 88 (138) 6,219 6,219 0
Level 3:
Auction rate securities 36 0 (3) 33 0 33
Total available-for-sale debt securities $ 6,847 $ 135 $ (141) $ 6,841 $ 6,808 $ 33

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	April 30, 2021
	Valuation								Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	505	$	26	$	(3)	$	528	$	528	$	—
Level 2:
Corporate debt securities	4,557		103		(13)		4,647		4,647		—
U.S. government and agency securities	810		—		(7)		804		804		—
Mortgage-backed securities	645		21		(16)		650		650		—
Non-U.S. government and agency securities	31		1		—		33		33		—
Certificates of deposit	19		—		—		19		19		—
Other asset-backed securities	534		4		(1)		537		537		—
Debt funds	7		—		—		7		7		—
Total Level 2	6,603		129		(36)		6,696		6,696		—
Level 3:
Auction rate securities	36		—		(3)		33		—		33
Total available-for-sale debt securities	$	7,144	$	155	$	(42)	$	7,257	$	7,224	$	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 October ~~30, 2020~~29, 2021 and April ~~24, 2020:~~30, 2021:


	October 29, 2021
	Less than 12 months				More than 12 months
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government and agency securities	$	—	$	—	$	943	$	(12)
Corporate debt securities	—		—		3,312		(18)
Mortgage-backed securities	—		—		645		(15)

Other asset-backed securities	—		—		542		(1)
Auction rate securities	—		—		33		(3)
Total	$	—	$	—	$	5,475	$	(49)

October 30, 2020
Less than 12 months More than 12 months
(in millions) Fair Value Unrealized
Losses Fair Value Unrealized
Losses
U.S. government and agency securities $ 0 $ 0 $ 196 $ (1)
Corporate debt securities 5 0 858 (32)
Mortgage-backed securities 25 (3) 119 (16)
Other asset-backed securities 8 0 347 (7)
Total $ 38 $ (3) $ 1,520 $ (56)


		April 24, 2020									April 30, 2021
		Less than 12 months				More than 12 months					Less than 12 months				More than 12 months
(in millions)	(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

U.S. government and agency securities										U.S. government and agency securities	$	946	$	(10)	$	—	$	—
Corporate debt securities	Corporate debt securities	$	1,368	$	(2)	$	2,893	$	(88)	Corporate debt securities	—		—		3,209		(13)
Mortgage-backed securities	Mortgage-backed securities	35		(1)		663		(27)		Mortgage-backed securities	—		—		650		(16)

Other asset-backed securities	Other asset-backed securities	17		0		463		(20)		Other asset-backed securities	—		—		531		(1)
Auction rate securities	Auction rate securities	33		(3)		0		0		Auction rate securities	—		—		33		(3)
Total	Total	$	1,453	$	(6)	$	4,019	$	(135)	Total	$	946	$	(10)	$	4,423	$	(32)

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 and six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019.~~30, 2020. 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.

There were no purchases, sales, settlements, or significant gains or losses recognized in earnings or other comprehensive income for debt securities classified as Level 3 during the three and six months ended October 30, 2020 and October 25, 2019.

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

Three months ended Six months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Proceeds from sales $ 1,932 $ 1,691 $ 4,335 $ 3,258
Gross realized gains 3 4 8 8
Gross realized losses (1) (4) (7) (12)

Credit losses represent the difference between the present value of cash flows expected to be collected on certain mortgage-backed securities and auction rate securities and the amortized cost of these securities. Based on the Company’s assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which the Company is invested, the Company believes it has recognized all necessary impairments, as the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, before recovery of the amortized cost. At October 30, 2020 and April 24, 2020, there were 0 debt securities in a credit loss position. NaN available-for-sale or held-to-maturity securities were sold for significantly less than carrying value during the three and six months ended October 30, 2020 and October 25, 2019.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	Three months ended				Six months ended
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Proceeds from sales	$	2,299	$	1,932	$	4,751	$	4,335
Gross realized gains	4		3		8		8
Gross realized losses	(2)		(1)		(4)		(7)

The October ~~30, 2020~~29, 2021 balance of available-for-sale ~~and held-to-maturity~~ 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.

October 30, 2020
(in millions) Available-For-Sale Held-To-Maturity
Due in one year or less $ 1,930 $ 886
Due after one year through five years 3,315 0
Due after five years through ten years 1,695 0
Due after ten years 67 0
Total $ 7,007 $ 886


(in millions)	October 29, 2021
Due in one year or less	$	2,299
Due after one year through five years	3,199
Due after five years through ten years	1,646
Due after ten years	658
Total	$	7,803

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 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 and investments without readily determinable fair values 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 all pertinent financial information available related to the investees, including financial statements, market participant valuations from recent and proposed equity offerings, and other third-party data.

The following table summarizes the Company's equity and other investments at October ~~30, 2020~~29, 2021 and April ~~24, 2020,~~30, 2021, which are classified as other assets in the consolidated balance sheets:


(in millions)	(in millions)	October 30, 2020		April 24, 2020		(in millions)	October 29, 2021		April 30, 2021
Investments with readily determinable fair value (marketable equity securities)	Investments with readily determinable fair value (marketable equity securities)	$	25	$	18	Investments with readily determinable fair value (marketable equity securities)	$	85	$	74
Investments without readily determinable fair values	Investments without readily determinable fair values	478		391		Investments without readily determinable fair values	616		537
Equity method and other investments	Equity method and other investments	74		71		Equity method and other investments	80		76
Total equity and other investments	Total equity and other investments	$	577	$	480	Total equity and other investments	$	781	$	687

The table below includes activity related to the Company’s portfolio of equity and other investments. Gains and losses on equity and other investments are recognized in other non-operating income, net in the consolidated statements of income.


		Three months ended				Six months ended					Three months ended				Six months ended
(in millions)	(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019		(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Proceeds from sales	Proceeds from sales	$	2	$	0	$	2	$	2	Proceeds from sales	$	14	$	2	$	66	$	2
Gross gains	Gross gains	2		14		14		14		Gross gains	12		2		70		14
Gross losses	Gross losses	(2)		0		(2)		0		Gross losses	(15)		(2)		(20)		(2)
Impairment losses recognized	Impairment losses recognized	0		(2)		(2)		(3)		Impairment losses recognized	—		—		(10)		(2)

During the three and six months ended October 29, 2021, there were $8 million of net unrealized losses and $7 million of net unrealized gains, respectively, on equity securities and other investments still held at October 29, 2021. The net unrealized gains recognized ~~for~~during the three months ended October 30, 2020 were ~~0t significant, and the net gains recognized for~~not significant. During the six months ended October 30, 2020, there were $12 million ~~comprised~~ of net unrealized gains on equity securities and other investments still held at October 30, 2020. The net gains recognized for the three and six months ended October 25, 2019 were $14 million comprised of unrealized gains on equity securities and other investments still held at October 25, 2019. There were 0 impairment charges incurred on the Company's equity securities, equity method investments, and other investments during the three months ended October 30, 2020. Impairment charges incurred on the Company's equity securities, equity method investments, and other investments during the six months ended October 30, 2020 and the three and six months ended October 25, 2019 were not significant.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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. ~~NaN~~No commercial paper was outstanding at ~~both~~ October ~~30, 2020~~29, 2021 and April ~~24, 2020.~~30, 2021. 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 October ~~30, 2020~~29, 2021 and April ~~24, 2020, 0~~30, 2021, 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 ~~agreement also contains customary covenants, all of which the~~ Company ~~was~~is in compliance with ~~at October 30, 2020.~~

the covenants under the Credit Facility.

1615

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 October 30, 2020 April 24, 2020
Current debt obligations 2021 $ 4,041 $ 2,776
Long-term debt
3.150 percent seven-year 2015 senior notes
2022 0 1,534
3.200 percent ten-year 2012 senior notes
2023 0 650
0.000 percent four-year 2019 senior notes
2023 886 815
0.375 percent four-year 2019 senior notes
2023 1,772 1,631
0.000 percent two-year 2020 senior notes
2023 1,477 0
2.750 percent ten-year 2013 senior notes
2023 0 530
2.950 percent ten-year 2013 senior notes
2024 0 310
3.625 percent ten-year 2014 senior notes
2024 0 432
3.500 percent ten-year 2015 senior notes
2025 1,890 2,700
0.250 percent seven-year 2019 senior notes
2026 1,181 1,087
0.000 percent five-year 2020 senior notes
2026 1,181 0
1.125 percent eight-year 2019 senior notes
2027 1,772 1,631
3.350 percent ten-year 2017 senior notes
2027 368 368
0.375 percent eight-year 2020 senior notes
2029 1,181 0
1.625 percent twelve-year 2019 senior notes
2031 1,181 1,087
1.000 percent thirteen-year 2019 senior notes
2032 1,181 1,087
0.750 percent twelve-year 2020 senior notes
2033 1,181 0
4.375 percent twenty-year 2015 senior notes
2035 1,932 1,932
6.550 percent thirty-year 2007 senior notes
2038 253 253
2.250 percent twenty-year 2019 senior notes
2039 1,181 1,087
6.500 percent thirty-year 2009 senior notes
2039 158 158
1.500 percent twenty-year 2019 senior notes
2040 1,181 1,087
5.550 percent thirty-year 2010 senior notes
2040 224 224
1.375 percent twenty-year 2020 senior notes
2041 1,181 0
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 1,181 1,087
1.625 percent thirty-year 2020 senior notes
2051 1,181 0
Bank borrowings 2022 43 55
Finance lease obligations 2022 - 2035 56 45
Deferred financing costs 2021 - 2051 (133) (104)
Debt discount, net 2021 - 2051 (72) (15)
Long-term debt $ 25,967 $ 22,021

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


(in millions)	Maturity by Fiscal Year	October 29, 2021		April 30, 2021
Current debt obligations	2022 - 2023	$	16	$	11

Long-term debt
0.000 percent three-year 2019 senior notes	2023	870		907
0.375 percent four-year 2019 senior notes	2023	1,740		1,813
0.000 percent two-year 2020 senior notes	2023	1,450		1,511
3.500 percent ten-year 2015 senior notes	2025	1,890		1,890
0.250 percent six-year 2019 senior notes	2026	1,160		1,209
0.000 percent five-year 2020 senior notes	2026	1,160		1,209
1.125 percent eight-year 2019 senior notes	2027	1,740		1,813
3.350 percent ten-year 2017 senior notes	2027	368		368
0.375 percent eight-year 2020 senior notes	2029	1,160		1,209
1.625 percent twelve-year 2019 senior notes	2031	1,160		1,209
1.000 percent twelve-year 2019 senior notes	2032	1,160		1,209
0.750 percent twelve-year 2020 senior notes	2033	1,160		1,209
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	1,160		1,209
6.500 percent thirty-year 2009 senior notes	2039	158		158
1.500 percent twenty-year 2019 senior notes	2040	1,160		1,209
5.550 percent thirty-year 2010 senior notes	2040	224		224
1.375 percent twenty-year 2020 senior notes	2041	1,160		1,209
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	1,160		1,209
1.625 percent thirty-year 2020 senior notes	2051	1,160		1,209

Finance lease obligations	2022 - 2036	59		62
Deferred financing costs	2022 - 2051	(117)		(125)
Debt discount, net	2022 - 2051	(66)		(75)
Long-term debt		$	25,607	$	26,378

Senior Notes

The Company has outstanding unsecured senior obligations, described as senior notes in the tables above (collectively, the Senior Notes). The Senior Notes rank equally with all other unsecured and unsubordinated indebtedness of the Company. The ~~indentures under which the Senior Notes were issued contain customary covenants, all of which the~~ Company ~~remained~~is in compliance with ~~at October 30, 2020.~~ all covenants related to the Senior Notes.

In June 2019, Medtronic Luxco issued 6 tranches of Euro-denominated Senior Notes with an aggregate principal of €5.0 billion, with maturities ranging from fiscal year 2021 to fiscal year 2050, resulting in cash proceeds of approximately $5.6 billion, net of discounts and issuance costs. The Company used the net proceeds of the offering to fund the cash tender offer and early redemption of $5.2 billion of Medtronic Inc., CIFSA, and Medtronic Luxco Senior Notes for $5.6 billion of total consideration. The Company recognized a loss on debt extinguishment of $413 million during the first quarter of fiscal year 2020, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss was recognized in ~~interest expense~~ ~~in the consolidated statement of income for the six months ended October 25, 2019.~~

In September 2020, Medtronic ~~Luxco~~Global Holdings S.C.A. (Medtronic Luxco) issued ~~an additional~~ 6 tranches of Euro-denominated Senior Notes with an aggregate principal of €6.3 billion, with maturities ranging from fiscal year 2023 to fiscal year 2051, resulting in cash proceeds of approximately $7.2 billion, net of discounts and issuance costs. The Company used the net proceeds of the offering to fund the early redemption of $4.3 billion of Medtronic Inc. and CIFSA Senior Notes and €1.5 billion of Medtronic Luxco Senior Notes for $6.3 billion of total consideration in October 2020. Additionally, the Company ~~intends to use~~used the proceeds to repay its €750 million floating rate senior notes at maturity in March 2021. The Company recognized a loss on debt extinguishment of $308 million during the ~~current~~second quarter of fiscal year

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

2021, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss was recognized in interest expense in the consolidated ~~statements~~statement of ~~income for the three and six months ended October 30, 2020.~~income.

The Euro-denominated debt issued in ~~June 2019 and~~ September 2020 is designated as a net investment hedge of certain of the Company's European operations. Refer to Note 8 for additional information regarding the net investment hedge.

Term Loan Agreements

On May 12, 2020, Medtronic Luxco entered into a term loan agreement (Loan Agreement) by and among Medtronic Luxco, Medtronic plc, Medtronic, Inc., and Mizuho Bank, Ltd. as administrative agent and as lender. The Loan Agreement provides an unsecured term loan in an aggregate principal amount of up to ¥300 billion, ~~or approximately $2.8 billion,~~ with a term of six months ~~which may be extended~~and the option to extend for an additional six months at Medtronic Luxco’s option. On May 13, 2020, Medtronic Luxco borrowed the entire amount of the term loan under the Loan Agreement. The Japanese Yen-denominated debt was designated as a net investment hedge for certain of the Company's Japanese operations. Borrowings under the Loan Agreement ~~will bear~~carried interest at the TIBOR Rate (as defined in the Loan Agreement) plus a margin of 0.50% per annum. Medtronic plc and Medtronic, Inc. ~~have~~ guaranteed the obligations of Medtronic Luxco under the Loan Agreement. On November 12, 2020, the Company exercised its option to extend the term loan for an additional six months. ~~The Japanese~~During the fourth quarter of fiscal year 2021, the Company de-designated the Yen-denominated debt ~~is designated~~ as a net investment hedge ~~of certain of our Japanese operations.~~and repaid the term loan in full, including interest.

Financial Instruments Not Measured at Fair Value

At October ~~30, 2020,~~29, 2021, the estimated fair value of the Company’s Senior Notes was ~~$29.9~~$28.0 billion compared to a principal value of ~~$27.0~~$25.7 billion. At April ~~24, 2020,~~30, 2021, the estimated fair value was ~~$27.1~~$28.6 billion compared to a principal value of ~~$24.5~~$26.5 billion. The fair value was estimated using quoted market prices for the publicly registered Senior Notes, which are classified as Level 2 within the fair value hierarchy. The fair values and principal values consider the terms of the related debt and exclude the impacts of debt discounts and hedging activity.

8. Derivatives and Currency Exchange Risk Management

The Company uses operational and economic hedges, including currency exchange rate derivative contracts and interest rate derivative instruments, to manage the impact of currency exchange and interest rate changes on earnings and cash flows. In addition, the Company uses cross currency interest rate swaps to manage currency risk related to certain debt. In order to minimize earnings and cash flow volatility resulting from currency exchange rate changes, the Company enters into derivative instruments, principally forward currency exchange rate contracts. These contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets and liabilities. At inception of the contract, the derivative is designated as either a freestanding derivative or a cash flow hedge. Currencies of our derivative instruments include the Euro, Japanese Yen, Chinese Yuan, and others. The Company does not enter into currency exchange rate derivative contracts for speculative purposes. The gross notional amount of all currency exchange rate derivative instruments outstanding was ~~$18.5~~$15.2 billion and ~~$11.9~~$14.7 billion at October ~~30, 2020~~29, 2021 and April ~~24, 2020,~~30, 2021, respectively.

The Company also uses derivative and non-derivative instruments to manage the impact of currency exchange rate changes on net investments in foreign currency-denominated operations. The information that follows explains the various types of derivatives and financial instruments used by the Company, reasons the Company uses such instruments, and the impact such instruments have on the Company’s consolidated balance sheets and statements of income.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Freestanding Derivative Contracts

Freestanding derivative contracts are primarily used to offset the Company’s exposure to the change in value of specific foreign-currency-denominated assets and liabilities, and to offset variability of cash flows associated with forecasted transactions denominated in foreign currencies. The gross notional amount of the Company's freestanding currency exchange rate contracts outstanding at October ~~30, 2020~~29, 2021 and April ~~24, 2020~~30, 2021 was ~~$10.7~~$5.1 billion and ~~$4.9~~$5.7 billion, respectively. The Company's freestanding currency exchange rate contracts are not designated as hedges, and therefore, changes in the value of these contracts are recognized in earnings, thereby offsetting the current earnings effect of the related change in value of foreign-currency-denominated assets, liabilities, and cash flows.

The Company also uses total return swaps to hedge the liability of a non-qualified deferred compensation plan. The gross notional amount of the Company's total return swaps outstanding at October ~~30, 2020~~29, 2021 and April ~~24, 2020~~30, 2021 was ~~$197~~$261 million and ~~$181~~$243 million, respectively. The Company's total return swaps are not designated as hedges, and therefore, changes in the value of these instruments are recognized in earnings. The cash flows related to the Company's freestanding derivative contracts are reported as operating or financing activities, depending on the nature of the underlying hedged item, in the consolidated statements of cash flows.

~~The amounts and classification of the (gains) losses in the consolidated statements of income related~~

Medtronic plc

Notes to ~~derivative instruments not designated as hedging instruments for the three and six months ended October 30, 2020 and October 25, 2019 were as follows:~~Consolidated Financial Statements

Three months ended Six months ended
(in millions) Classification October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Currency exchange rate contracts Other operating expense, net $ (2) $ (12) $ 125 $ (6)
Total return swaps Other operating expense, net (1) 1 (28) (4)
Total $ (3) $ (11) $ 97 $ (10)
(Unaudited)

Cash Flow Hedges

Forward contracts designated as cash flow hedges are designed to hedge the variability of cash flows associated with forecasted transactions denominated in a foreign currency that will take place in the future. The gross notional amount of these contracts, designated as cash flow hedges, outstanding at October ~~30, 2020~~29, 2021 and April ~~24, 2020~~30, 2021 was ~~$7.8~~$10.1 billion and ~~$7.0~~$9.0 billion, respectively, and will mature within the subsequent three-year period. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss. The gain or loss on the derivative instrument is reclassified into earnings and is included in other operating expense, net or cost of products soldin the consolidated statements of income in the same period or periods during which the hedged transaction affects earnings. Amounts excluded from the measurement of hedge effectiveness are recognized in earnings in the current period. The cash flows related to all of the Company's derivative instruments designated as cash flow hedges are reported as operating activities in the consolidated statements of cash flows. No components of the hedge contracts were excluded in the measurement of hedge effectiveness, and no forward contracts designated as cash flow hedges were derecognized or discontinued during the three and six months ended October 30, 2020 and October 25, 2019.

The amount of the (gains) losses recognized in accumulated other comprehensive loss (AOCI) related to the currency exchange rate contract derivative instruments designated as cash flow hedges for the three and six months ended October 30, 2020 and October 25, 2019 were as follows:

Three months ended Six months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Currency exchange rate contracts $ 63 $ (76) $ 451 $ (103)

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The amount of the (gains) losses recognized in the consolidated statements of income related to derivative instruments designated as cash flow hedges for the three and six months ended October 30, 2020 and October 25, 2019 were as follows:

Three months ended Six months ended
October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
(in millions) Other operating expense, net Other operating expense, net Other operating expense, net Other operating expense, net
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of cash flow hedges are recorded $ 149 $ 149 $ 35 $ 127
Currency exchange rate contracts designated as cash flow hedges:
Amount of gain reclassified from AOCI into income (2) (68) (55) (125)

~~Forecasted Debt Issuance Interest Rate Risk~~

Forward starting interest rate derivative instruments designated as cash flow hedges are designed to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. The gains or losses on forward starting interest rate derivative instruments that are designated and qualify as cash flow hedges are reported as a component of ~~accumulated other comprehensive loss. Beginning in the period in which the planned debt issuance occurs and the related derivative instruments are terminated, the gains or losses are then reclassified into~~ ~~interest expense~~ over the term of the related debt. For the three and six months ended October 30, 2020 and October 25, 2019, the reclassifications of net (gains) losses on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense were not significant.

At October ~~30, 2020~~29, 2021 and April ~~24, 2020,~~30, 2021, the Company had ~~$129~~$16 million in after-tax net unrealized ~~losses~~gains and ~~$266~~$253 million in after-tax net unrealized ~~gains,~~losses, respectively, associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that $34 million of after-tax net unrealized ~~losses~~gains at October ~~30, 2020~~29, 2021 will be recognized in the consolidated statements of income over the next 12 months.

Net Investment Hedges

The Company has designated Euro-denominated ~~and Japanese Yen-denominated~~ debt as a net investment ~~hedges~~hedge of certain of its European ~~and Japanese~~ operations to manage the exposure to currency and exchange rate movements for foreign currency-denominated net investments in foreign operations. At October ~~30, 2020,~~29, 2021, the Company had €16.0 billion, or ~~$18.9~~$18.6 billion, of outstanding Euro-denominated debt designated as a hedge of its net investment in certain of its European ~~operations, and ¥300 billion, or $2.9 billion, of outstanding Yen-denominated debt designated as a hedge of its net investment in certain of its Japanese~~ operations. The Euro-denominated debt will mature in fiscal ~~years~~years 2023 through ~~2051 and the Yen-denominated debt will mature in fiscal year 2022.~~

Additionally, during the first quarter of fiscal year 2020, the Company entered into and settled forward currency exchange rate contracts to manage the exposure to exchange rate movements in anticipation of the issuance of Euro-denominated senior notes. Certain of these forward currency exchange rate contracts were designated as a net investment hedge of certain of the Company's European operations. These contracts matured in conjunction with the issuance of Euro-denominated debt in the first quarter of fiscal year 2020.2051.

For instruments that are designated and qualify as net investment hedges, the gains or losses are reported as a component of accumulated other comprehensive loss. The gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary. Amounts excluded from the assessment of effectiveness are recognized in other operating expense, net. The cash flows related to the Company's derivative instruments designated as net investment hedges are reported as investing activities in the consolidated statements of cash flows.

~~At October 30, 2020~~Gains and ~~April 24, 2020, the Company had $1.0 billion in after-tax unrealized losses~~Losses on Hedging Instruments and ~~$236 million in after-tax unrealized gains, respectively, associated with net investment hedges recorded in~~ ~~accumulated other comprehensive loss~~. Derivatives not Designated as Hedging Instruments

The ~~Company does 0t expect any~~amount of the ~~after-tax unrealized~~ gains ~~at October 30, 2020 to be recognized in~~and losses on our hedging instruments and derivative instruments not designated as hedging instruments and the classification of those gains and losses within our consolidated financial statements ~~of income over the next 12 months.~~

~~The Company did 0t recognize any gains or losses during~~for the three and six months ended October 29, 2021 and October 30, 2020 ~~or October 25, 2019 on instruments that no longer qualify~~were as ~~net investment hedges.~~follows:


	(Gain) Loss Recognized in Accumulated Other Comprehensive Income								(Gain) Loss Reclassified into Income

	Three months ended				Six months ended				Three months ended				Six months ended				Location of (Gain) Loss in Income Statement
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Cash flow hedges
Currency exchange rate contracts	$	(158)	$	16	$	(322)	$	402	$	(14)	$	(2)	$	5	$	(55)	Other operating expense, net
Currency exchange rate contracts	39		47		43		49		14		—		26		—		Cost of products sold
Net investment hedges	(356)		164		(780)		1,276		—		—		—		—		Other operating expense, net
Total	$	(475)	$	227	$	(1,059)	$	1,727	$	—	$	(2)	$	31	$	(55)


	(Gain) Loss Recognized in Income				(Gain) Loss Recognized in Income
	Three months ended				Six months ended				Location of (Gain) Loss in Income Statement
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Derivatives not designated as hedging instruments
Currency exchange rate contracts	$	(16)	$	(2)	$	(34)	$	125	Other operating expense, net
Total return swaps	(12)		(1)		(25)		(28)		Other operating expense, net
Total	$	(28)	$	(3)	$	(59)	$	97

2018

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The amount and classifications of the (gains) losses recognized in the consolidated statements of income for the portion of the net investment hedges excluded from the measurement of hedge effectiveness were as follows:

Three months ended Six months ended
(in millions) Classification October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Net investment hedges Other operating expense, net $ 0 $ 0 $ 0 $ 7

The amount of the (gains) losses recognized in AOCI related to instruments designated as net investment hedges for the three and six months ended October 30, 2020 and October 25, 2019 were as follows:

Three months ended Six months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Net investment hedges $ 164 $ (53) $ 1,276 $ (152)

Balance Sheet Presentation

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at October ~~30, 2020~~29, 2021 and April ~~24, 2020.~~30, 2021. The fair value amounts are presented on a gross basis and are segregated between derivatives that are designated and qualify as hedging instruments and those that are not designated and do not qualify as hedging instruments and are further segregated by type of contract within those two categories.

October 30, 2020
Derivative Assets Derivative Liabilities
(in millions) Balance Sheet Classification Fair Value Balance Sheet Classification Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts Other current assets $ 44 Other accrued expenses $ 88
Currency exchange rate contracts Other assets 6 Other liabilities 70
Total derivatives designated as hedging instruments 50 158
Derivatives not designated as hedging instruments
Currency exchange rate contracts Other current assets 33 Other accrued expenses 43
Total return swaps Other current assets 2 Other accrued expenses 0
Cross-currency interest rate contracts Other current assets 2 Other accrued expenses 0
Total derivatives not designated as hedging instruments 37 43
Total derivatives $ 87 $ 201

April 24, 2020
Derivative Assets Derivative Liabilities
(in millions) Balance Sheet Classification Fair Value Balance Sheet Classification Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts Other current assets $ 271 Other accrued expenses $ 2
Currency exchange rate contracts Other assets 103 Other liabilities 2
Total derivatives designated as hedging instruments 374 4
Derivatives not designated as hedging instruments
Currency exchange rate contracts Other current assets 25 Other accrued expenses 13
Total return swaps Other current assets 0 Other accrued expenses 25
Cross-currency interest rate contracts Other current assets 3 Other accrued expenses 0
Total derivatives not designated as hedging instruments 28 38
Total derivatives $ 402 $ 42

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	Fair Value - Assets					Fair Value - Liabilities
(in millions)	October 29, 2021		April 30, 2021		Classification	October 29, 2021		April 30, 2021		Classification
Derivatives designated as hedging instruments
Currency exchange rate contracts	$	160	$	49	Other current assets	$	101	$	190	Other accrued expenses

Currency exchange rate contracts	75		22		Other assets	50		94		Other liabilities
Total derivatives designated as hedging instruments	235		70			151		285
Derivatives not designated as hedging instruments
Currency exchange rate contracts	8		14		Other current assets	12		11		Other accrued expenses
Total return swaps	10		18		Other current assets	—		—		Other accrued expenses



Total derivatives not designated as hedging instruments	19		32			12		11
Total derivatives	$	254	$	102		$	163	$	296

The following table provides information by level for the derivative assets and liabilities that are measured at fair value on a recurring basis.


		October 30, 2020				April 24, 2020			October 29, 2021				April 30, 2021
(in millions)	(in millions)	Level 1		Level 2			Level 1			Level 2		(in millions)	Level 1		Level 2		Level 1		Level 2
Derivative assets	Derivative assets	$	83	$	4		$	399		$	3	Derivative assets	$	244	$	10	$	85	$	18
Derivative liabilities	Derivative liabilities	201		0			17			25		Derivative liabilities	163		—		296		—

The Company has elected to present the fair value of derivative assets and liabilities within the consolidated balance sheets on a gross basis, even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. The cash flows related to collateral posted and received are reported gross as investing and financing activities, respectively, in the consolidated statements of cash flows.

The following tables provide information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria as stipulated by the terms of the master netting arrangements with each of the counterparties. Derivatives not subject to master netting arrangements are not eligible for net presentation.

October 30, 2020
Gross Amount Not Offset on the Balance Sheet
(in millions) Gross Amount of Recorded Assets (Liabilities) Financial Instruments Cash Collateral Posted (Received) Net Amount
Derivative assets:
Currency exchange rate contracts $ 83 $ (80) $ 0 $ 3
Cross-currency interest rate contracts 2 0 0 2
Total return swaps 2 0 0 2
87 (80) 0 7
Derivative liabilities:
Currency exchange rate contracts (201) 80 17 (104)
Total $ (114) $ 0 $ 17 $ (97)

April 24, 2020
Gross Amount Not Offset on the Balance Sheet
(in millions) Gross Amount of Recorded Assets (Liabilities) Financial Instruments Cash Collateral Posted (Received) Net Amount
Derivative assets:
Currency exchange rate contracts $ 399 $ (17) $ (48) $ 334
Cross-currency interest rate contracts 3 0 0 3
402 (17) (48) 337
Derivative liabilities:
Currency exchange rate contracts (17) 17 0 0
Total return swaps (25) 0 0 (25)
(42) 17 0 (25)
Total $ 360 $ 0 $ (48) $ 312


	October 29, 2021
			Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recorded Assets (Liabilities)		Financial Instruments		Cash Collateral Posted (Received)		Net Amount
Derivative assets:
Currency exchange rate contracts	$	244	$	(100)	$	—	$	144


Total return swaps	10		—		—		10
	254		(100)		—		154
Derivative liabilities:
Currency exchange rate contracts	(163)		100		27		(36)




Total	$	91	$	—	$	27	$	118

2219

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)


	April 30, 2021
			Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recorded Assets (Liabilities)		Financial Instruments		Cash Collateral Posted (Received)		Net Amount
Derivative assets:
Currency exchange rate contracts	$	85	$	(83)	$	—	$	1



Total return swaps	18		��		—		18
	102		(83)		—		19
Derivative liabilities:
Currency exchange rate contracts	(296)		83		46		(167)




Total	$	(194)	$	—	$	46	$	(148)

9. Inventories

Inventory balances, net of reserves, were as follows:

(in millions) October 30, 2020 April 24, 2020
Finished goods $ 2,944 $ 2,874
Work in-process 647 608
Raw materials 893 747
Total $ 4,484 $ 4,229


(in millions)	October 29, 2021		April 30, 2021
Finished goods	$	2,908	$	2,906
Work in-process	622		611
Raw materials	819		796
Total	$	4,349	$	4,313

10. Goodwill and Other Intangible Assets

Goodwill

The following table presents the changes in the carrying amount of goodwill by segment:


(in millions)	(in millions)	Cardiac and Vascular Group		Minimally Invasive Therapies Group		Restorative Therapies Group		Diabetes Group		Total		(in millions)	Cardiovascular		Medical Surgical		Neuroscience		Diabetes		Total
April 24, 2020		$	6,831	$	20,176	$	10,920	$	1,914	$	39,841
April 30, 2021												April 30, 2021	$	7,209	$	21,195	$	11,300	$	2,257	$	41,961
Goodwill as a result of acquisitions	Goodwill as a result of acquisitions	0		0		35		346		381		Goodwill as a result of acquisitions	55		—		26		—		80
Purchase accounting adjustments	Purchase accounting adjustments	0		0		3		0		3		Purchase accounting adjustments	26		3		3		(2)		30
Currency translation and other	Currency translation and other	95		772		119		1		987		Currency translation and other	(32)		(366)		(63)		—		(459)
October 30, 2020		$	6,926	$	20,948	$	11,077	$	2,261	$	41,212
October 29, 2021												October 29, 2021	$	7,258	$	20,832	$	11,266	$	2,255	$	41,612

The Company assesses goodwill for impairment annually as of the first day of the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Impairment testing for goodwill is performed at the reporting unit level. The test for impairment of goodwill requires the Company to make several estimates ~~about fair value, most of which are based on~~related to projected future cash ~~flows.~~flows to determine the fair value of the goodwill reporting units. The Company calculates the excess of each reporting unit's fair value over its carrying amount, including goodwill, utilizing a discounted cash flow analysis. Internal operational budgets and long-range strategic plans are used as a basis for the cash flow analysis. The Company also utilizes assumptions for working capital, capital expenditures, and terminal growth rates. The discount rate applied to the cash flow analysis is based on the weighted average cost of capital ("WACC") for each reporting unit. An impairment loss is recognized when the carrying amount of the reporting unit's net assets exceeds the estimated fair value of the reporting unit. The Company did 0tnot recognize any goodwill impairment during the three and six months ended October ~~30, 2020~~29, 2021 or October ~~25, 2019.~~30, 2020.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

Intangible Assets

The following table presents the gross carrying amount and accumulated amortization of intangible assets:

October 30, 2020 April 24, 2020
(in millions) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Definite-lived:
Customer-related $ 17,017 $ (5,567) $ 16,963 $ (5,065)
Purchased technology and patents 11,041 (4,767) 10,742 (4,354)
Trademarks and tradenames 469 (241) 464 (232)
Other 78 (58) 75 (53)
Total $ 28,605 $ (10,633) $ 28,244 $ (9,704)
Indefinite-lived:
IPR&D $ 440 $ — $ 523 $ —

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	October 29, 2021				April 30, 2021
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Definite-lived:
Customer-related	$	16,998	$	(6,536)	$	17,036	$	(6,058)
Purchased technology and patents	10,840		(5,327)		11,286		(5,156)
Trademarks and tradenames	475		(259)		475		(251)
Other	83		(63)		82		(68)
Total	$	28,396	$	(12,185)	$	28,879	$	(11,533)
Indefinite-lived:
IPR&D	$	312	$	—	$	394	$	—

The Company assesses definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an intangible asset (asset group) may not be recoverable. When events or changes in circumstances indicate that the carrying value of an intangible asset may not be recoverable, the Company calculates the excess of an intangible asset's carrying value over its undiscounted future cash flows. If the carrying value is not recoverable, an impairment loss is recognized based on the amount by which the carrying value exceeds the fair value. ~~The inputs used~~During the six months ended October 29, 2021, the Company recognized $409 million of definite-lived intangible asset charges in connection with MCS within the Cardiovascular Portfolio. Refer to Note 5 Restructuring and Other Costs for additional information on what led to the impairment. Intangible asset impairment charges are recognized in other operating expense, net in the ~~fair value analysis fall within Level 3~~consolidated statements of ~~the fair value hierarchy due to the use of significant unobservable inputs to determine fair value.~~income. The Company did 0tnot recognize any definite-lived intangible asset charges during the three ~~and six~~ months ended October ~~30, 2020. The Company recognized $33 million of definite-lived intangible asset charges during~~29, 2021 and the three and six months ended October ~~25, 2019 in connection with exit of businesses within the Restorative Therapies Group segment. Intangible asset impairment charges are recognized in~~ ~~other operating expense, net~~ ~~in the consolidated statements of income.~~30, 2020.

The Company assesses indefinite-lived intangibles for impairment annually in the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate that the carrying value may be impaired. The Company did 0tnot recognize any indefinite-lived intangible asset impairments during the three and six months ended October ~~30, 2020~~29, 2021 or October ~~25, 2019.~~30, 2020. Due to the nature of IPR&D projects, the Company may experience future delays or failures to obtain regulatory approvals to conduct clinical trials, failures of clinical trials, delays or failures to obtain required market clearances, other failures to achieve a commercially viable product, or the discontinuation of certain projects, and as a result, may recognize impairment losses in the future.

Amortization Expense

Intangible asset amortization expense for the three months ended October 29, 2021 and October 30, 2020 ~~and October 25, 2019~~ was ~~$443~~$431 million and ~~$441~~$443 million, respectively. For the six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019,~~30, 2020, intangible asset amortization expense was ~~$884~~$866 million and ~~$881~~$884 million, respectively. Estimated aggregate amortization expense by fiscal year based on the carrying value of definite-lived intangible assets at October ~~30, 2020,~~29, 2021, excluding any possible future amortization associated with acquired IPR&D which has not yet met technological feasibility, is as follows:

(in millions) Amortization Expense
Remaining 2021 $ 888
2022 1,738
2023 1,674
2024 1,643
2025 1,617
2026 1,604


(in millions)	Amortization Expense
Remaining 2022	$	862
2023	1,664
2024	1,630
2025	1,607
2026	1,593
2027	1,569

11. Income Taxes

The Company's effective tax rate for the three and six months ended October ~~30, 2020~~29, 2021 was ~~5.9~~11.8 percent and ~~11.2~~10.3 percent, respectively, as compared to ~~(6.0)~~5.9 percent and ~~1.0~~11.2 percent for the three and six months ended October ~~25, 2019,~~30, 2020, respectively. The ~~increase~~change in ~~the~~our effective tax rate for the three and six months ended October ~~30, 2020,~~29, 2021, as compared to the corresponding periods in the prior fiscal year, was primarily due to the tax impact of ~~certain tax adjustments~~the debt tender premium, stock-based compensation benefits, and year-over-year changes in operational results by ~~jurisdiction.~~

~~Certain Tax Adjustments~~

~~During the three months ended October 30, 2020, the cost from certain tax adjustments of $16 million, recognized in~~ ~~income tax provision (benefit)~~ in the consolidated statements of income, included a cost of $16 million associated with the amortization of the previously established deferred tax assets from intercompany intellectual property transactions.

~~During the six months ended October 30, 2020, the net cost from certain tax adjustments of $20 million, recognized in~~ ~~income tax provision (benefit)~~ ~~in the consolidated statements of income, included the following:~~

•A benefit of $3 million associated with the finalization of an intercompany sale of intellectual property and the establishment of a deferred tax asset. The cumulative amount of deferred tax benefit previously recognized from intercompany intellectual property transactions and recorded as Certain Tax Adjustments is $1.5 billion. The corresponding deferred tax assets will be amortized over a period of approximately 20 years.

•~~A cost of $23 million associated with the amortization of the previously established deferred tax assets from intercompany intellectual property transactions.~~

2421

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

~~During the three months ended October 25, 2019, the benefit from certain tax adjustments of $251 million, recognized in~~ ~~income tax provision (benefit)~~ in the consolidated statements of income, included a benefit of $251 million related to tax legislative changes in Switzerland which abolished certain preferential tax regimes the Company benefited fromjurisdiction; and replaced them with a new set of internationally accepted measures. The legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.

~~During~~specifically impacting the six months ended ~~October 25, 2019,~~comparison are the ~~net benefit from certain~~ tax ~~adjustments~~impact of ~~$281 million, recognized in~~ ~~income~~the MCS charges and the tax ~~provision (benefit)~~ cost associated with a change in the ~~consolidated statements of income, included the following:~~

•A net benefit of $30 million related to U.S. Treasury’s issuance of certain Final Regulations associated with U.S. Tax Reform. The primary impact of these regulations resulted in the re-establishment of our permanently reinvestedcompany's permanent reinvestment assertion on certain foreign earnings and reversing the previously accrued tax liability. This benefit was partially offset by additional tax associated with a previously executed internal reorganization of certain foreign subsidiaries.

•A benefit of $251 million related to tax legislative changes in Switzerland which abolished certain preferential tax regimes the Company benefited from and replaced them with a new set of internationally accepted measures. The legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.historical earnings.

At both October ~~30, 2020~~29, 2021 and April ~~24, 2020,~~30, 2021, the Company's gross unrecognized tax benefits were ~~$1.9~~$1.7 billion. In addition, the Company had accrued gross interest and penalties of ~~$251~~$110 million at October ~~30, 2020.~~29, 2021. If all the Company’s unrecognized tax benefits were recognized, approximately ~~$1.8~~$1.6 billion would impact the Company’s effective tax rate. At October ~~30, 2020~~29, 2021 and April ~~24, 2020,~~30, 2021, the amount of the Company's gross unrecognized tax benefits, net of cash advance, recorded as a noncurrent liability within accrued income taxes on the consolidated balance sheets was ~~$940~~$819 million and ~~$911~~$809 million, respectively. The Company recognizes interest and penalties related to income tax matters within income tax provision ~~(benefit)~~ in the consolidated statements of income and records the liability within either current or noncurrent accrued income taxes on the consolidated balance sheets.

Refer to Note 16 to the consolidated financial statements for additional information regarding the status of current tax audits and proceedings.

12. Earnings Per Share

Earnings per share is calculated using the two-class method, as the Company's A Preferred Shares are considered participating securities. Accordingly, earnings are allocated to both ordinary shares and participating securities in determining earnings per ordinary share. Due to the limited number of A Preferred Shares outstanding, this allocation had no effect on the ordinary earnings per share; therefore, it is not presented below. Basic earnings per share is computed based on the weighted average number of ordinary shares outstanding. Diluted earnings per share is computed based on the weighted ~~average~~ number of ordinary shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive ordinary shares been issued, and reduced by the number of shares the Company could have repurchased with the proceeds from issuance of the potentially dilutive shares. Potentially dilutive ordinary shares include stock-based awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The table below sets forth the computation of basic and diluted earnings per share:


		Three months ended				Six months ended					Three months ended				Six months ended
(in millions, except per share data)	(in millions, except per share data)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019		(in millions, except per share data)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Numerator:	Numerator:									Numerator:
Net income attributable to ordinary shareholders	Net income attributable to ordinary shareholders	$	489	$	1,364	$	976	$	2,228	Net income attributable to ordinary shareholders	$	1,311	$	489	$	2,074	$	976
Denominator:	Denominator:									Denominator:
Basic – weighted average shares outstanding	Basic – weighted average shares outstanding	1,344.4		1,340.8		1,343.1		1,340.8		Basic – weighted average shares outstanding	1,345.1		1,344.4		1,344.8		1,343.1
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Employee stock options	Employee stock options	5.9		8.0		5.3		7.4		Employee stock options	8.2		5.9		8.4		5.3
Employee restricted stock units	Employee restricted stock units	1.8		2.6		2.3		3.1		Employee restricted stock units	1.7		1.8		2.0		2.3
Other	Other	0		0		0.4		0.3		Other	0.4		—		0.7		0.4
Diluted – weighted average shares outstanding	Diluted – weighted average shares outstanding	1,352.1		1,351.4		1,351.1		1,351.6		Diluted – weighted average shares outstanding	1,355.3		1,352.1		1,355.9		1,351.1

Basic earnings per share	Basic earnings per share	$	0.36	$	1.02	$	0.73	$	1.66	Basic earnings per share	$	0.97	$	0.36	$	1.54	$	0.73
Diluted earnings per share	Diluted earnings per share	$	0.36	$	1.01	$	0.72	$	1.65	Diluted earnings per share	$	0.97	$	0.36	$	1.53	$	0.72

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 84 million and 2 million ordinary shares for the three and six months ended October 29, 2021, respectively, and 8 million for both the three and six months ended October 30, 2020, ~~and 4 million ordinary shares for both the three and six months ended October 25, 2019,~~ because their effect would have been anti-dilutive on the Company’s earnings per share.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

13. Stock-Based Compensation

The following table presents the components and classification of stock-based compensation expense for stock options, restricted stock, performance share units, and employee stock purchase plan shares recognized for the three and six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019:~~30, 2020:


		Three months ended				Six months ended				Three months ended				Six months ended
(in millions)	(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019			(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Stock options	Stock options	$	43	$	31	$	51	$	40		Stock options	$	35	$	43	$	45	$	51
Restricted stock	Restricted stock	88		71		138		113			Restricted stock	52		53		94		103

Performance share units											Performance share units	43		35		50		35
Employee stock purchase plan	Employee stock purchase plan	9		6		21		16			Employee stock purchase plan	9		9		20		21
Total stock-based compensation expense	Total stock-based compensation expense	$	140	$	108	$	210	$	169		Total stock-based compensation expense	$	140	$	140	$	209	$	210

Cost of products sold	Cost of products sold	$	14	$	10	$	21	$	16		Cost of products sold	$	14	$	14	$	21	$	21
Research and development expense	Research and development expense	15		13		23		20			Research and development expense	15		15		23		23
Selling, general, and administrative expense	Selling, general, and administrative expense	111		85		166		133			Selling, general, and administrative expense	110		111		165		166
Total stock-based compensation expense	Total stock-based compensation expense	140		108		210		169			Total stock-based compensation expense	140		140		209		210
Income tax benefits	Income tax benefits	(24)		(19)		(36)		(29)			Income tax benefits	(26)		(24)		(37)		(36)
Total stock-based compensation expense, net of tax	Total stock-based compensation expense, net of tax	$	116	$	89	$	174	$	140		Total stock-based compensation expense, net of tax	$	114	$	116	$	172	$	174

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

14. Retirement Benefit Plans

The Company sponsors various retirement benefit plans, including defined benefit pension plans, post-retirement medical plans, defined contribution savings plans, and termination indemnity plans, covering substantially all U.S. employees and many employees outside the U.S. The net periodic benefit cost of the defined benefit pension plans included the following components for the three and six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019:~~30, 2020:

U.S. Non-U.S.
Three months ended Three months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Special termination benefits $ 80 $ 0 $ 0 $ 0
Service cost 27 26 17 15
Interest cost 27 32 7 7
Expected return on plan assets (61) (56) (14) (15)
Amortization of net actuarial loss 17 14 6 4
Net periodic benefit cost $ 90 $ 16 $ 16 $ 11


		U.S.				Non-U.S.					U.S.				Non-U.S.
		Six months ended				Six months ended					Three months ended				Three months ended
(in millions)	(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019		(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Special termination benefits	Special termination benefits	$	80	$	0	$	0	$	0	Special termination benefits	$	—	$	80	$	—	$	—
Service cost	Service cost	54		52		34		30		Service cost	25		27		16		17
Interest cost	Interest cost	54		64		13		14		Interest cost	26		27		7		7
Expected return on plan assets	Expected return on plan assets	(122)		(112)		(28)		(30)		Expected return on plan assets	(57)		(61)		(16)		(14)

Amortization of net actuarial loss										Amortization of net actuarial loss	16		17		5		6
Net periodic benefit cost										Net periodic benefit cost	$	10	$	90	$	12	$	16

											U.S.				Non-U.S.
											Six months ended				Six months ended
(in millions)										(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Special termination benefits										Special termination benefits	$	—	$	80	$	—	$	—
Service cost										Service cost	50		54		32		34
Interest cost										Interest cost	52		54		14		13
Expected return on plan assets										Expected return on plan assets	(114)		(122)		(32)		(28)

Amortization of net actuarial loss	Amortization of net actuarial loss	35		28		12		7		Amortization of net actuarial loss	32		35		10		12

Net periodic benefit cost	Net periodic benefit cost	$	101	$	32	$	31	$	21	Net periodic benefit cost	$	20	$	101	$	24	$	31

Components of net periodic benefit cost other than the service component are recognized in other non-operating income, net in the consolidated statements of income.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

During fiscal year 2021, as part of the Simplification restructuring program, the Company offered certain eligible U.S. employees voluntary early retirement packages, resulting in incremental expense of $97 million recognized during the three and six months ended October 30, 2020. Of this amount, ~~$80~~$73 million related to U.S. pension benefits, $11 million related to defined contribution plans, $4$11 million related to U.S. post-retirement benefits, and $2 million related to cash payments and administrative fees. See Note 5 for additional information on the Simplification restructuring program.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

15. Accumulated Other Comprehensive Loss

The following table provides changes in AOCI, net of tax, and by component:

(in millions) Unrealized Gain (Loss) on Investment Securities Cumulative Translation Adjustments Net Investment Hedges Net Change in Retirement Obligations Unrealized Gain (Loss) on Cash Flow Hedges Total Accumulated Other Comprehensive (Loss) Income
April 24, 2020 $ 0 $ (2,210) $ 236 $ (1,852) $ 266 $ (3,560)
Other comprehensive income (loss) before reclassifications 114 1,255 (1,276) (14) (359) (280)
Reclassifications (1) 0 0 34 (36) (3)
Other comprehensive income (loss) 113 1,255 (1,276) 20 (395) (283)
October 30, 2020 $ 113 $ (955) $ (1,040) $ (1,832) $ (129) $ (3,843)
(in millions) Unrealized (Loss) Gain on Investment Securities Cumulative Translation Adjustment Net Investment Hedges Net Change in Retirement Obligations Unrealized Gain (Loss) on Cash Flow Hedges Total Accumulated Other Comprehensive (Loss) Income
April 26, 2019 $ (45) $ (1,383) $ (169) $ (1,308) $ 194 $ (2,711)
Other comprehensive income before reclassifications 68 (148) 152 (1) 82 153
Reclassifications 5 0 0 26 (84) (53)
Other comprehensive income (loss) 73 (148) 152 25 (2) 100
October 25, 2019 $ 28 $ (1,531) $ (17) $ (1,283) $ 192 $ (2,611)


(in millions)	Unrealized Gain (Loss) on Investment Securities		Cumulative Translation Adjustments		Net Investment Hedges		Net Change in Retirement Obligations		Unrealized Gain (Loss) on Cash Flow Hedges		Total Accumulated Other Comprehensive (Loss) Income
April 30, 2021	$	92	$	(519)	$	(1,458)	$	(1,347)	$	(253)	$	(3,485)
Other comprehensive income (loss) before reclassifications	(41)		(599)		780		4		237		381
Reclassifications	(3)		—		—		33		32		62
Other comprehensive income (loss)	(44)		(599)		780		37		269		443
October 29, 2021	$	48	$	(1,118)	$	(678)	$	(1,310)	$	16	$	(3,042)


(in millions)	Unrealized Gain (Loss) on Investment Securities		Cumulative Translation Adjustment		Net Investment Hedges		Net Change in Retirement Obligations		Unrealized Gain (Loss) on Cash Flow Hedges		Total Accumulated Other Comprehensive (Loss) Income
April 24, 2020	$	—	$	(2,210)	$	236	$	(1,852)	$	266	$	(3,560)
Other comprehensive income (loss) before reclassifications	114		1,255		(1,276)		(14)		(359)		(280)
Reclassifications	(1)		—		—		34		(36)		(3)
Other comprehensive income (loss)	113		1,255		(1,276)		20		(395)		(283)

October 30, 2020	$	113	$	(955)	$	(1,040)	$	(1,832)	$	(129)	$	(3,843)

The income tax on gains and losses on investment securities in other comprehensive income before reclassifications during the six months ended October 29, 2021 and October 30, 2020 was a benefit of $6 million and ~~October 25, 2019 was~~ an expense of $31 million, ~~and $1 million,~~ respectively. ~~There was 0 income tax on gains and losses on investment securities reclassified from AOCI for the six months ended October 30, 2020.~~ During the six months ended October ~~25, 2019,~~29, 2021, realized gains and losses on investment securities reclassified from AOCI were reduced by income taxes of $2$1 million. During the six months ended October 30, 2020 there was no income tax on realized gains and losses on investment securities reclassified from AOCI. When realized, gains and losses on investment securities reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 6 to the consolidated financial statements for additional information.

~~The~~During the six months ended October 29, 2021 there was no income tax on cumulative translation ~~adjustment for~~adjustment. For the six months ended October 30, 2020 the income tax on cumulative translation adjustment was an expense of $4 million. ~~For the six months ended October 25, 2019, there was 0 income tax on cumulative translation adjustment.~~

During the six months ended October 29, 2021 and October 30, 2020, ~~and October 25, 2019,~~ there were 0no tax impacts on net investment hedges. Refer to Note 8 to the consolidated financial statements for additional information.

The net change in retirement obligations in other comprehensive income includes amortization of net actuarial losses included in net periodic benefit cost. During the six months ended October 29, 2021 and October 30, 2020, the net change in retirement obligations in other comprehensive income before reclassifications resulted in anincome tax expense of $2 million and income tax benefit of $5 ~~million.~~million, respectively. During the six months ended October ~~25, 2019, there was 0 income tax impact on the net change in retirement obligations in other comprehensive income before reclassifications. During the six months ended~~29, 2021 and October 30, 2020, ~~and October 25, 2019,~~ the gains and losses on defined benefit and pension items reclassified from AOCI were reduced by income taxes of $8$7 million and $6$8 million, respectively. When realized, net gains and losses on defined benefit and pension items reclassified from AOCI are recognized within other non-operating income, net. Refer to Note 14 to the consolidated financial statements for additional information.

The income tax on unrealized gains and losses on cash flow hedges in other comprehensive income before reclassifications during the six months ended October 29, 2021 and October 30, 2020 was an expense of $42 million and ~~October 25, 2019 was~~ a benefit of $93 ~~million and an expense of $21~~ million, respectively. During the six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019,~~30, 2020, gains and losses on cash flow hedges reclassified from AOCI were reduced by income taxes of ~~$10~~$1 million and ~~$26~~$10 million, respectively. When realized, gains and losses on currency exchange rate contracts reclassified from AOCI are recognized within other operating expense, net, and gains and losses on forward starting interest rate derivatives reclassified from AOCI are recognized within interest expense. Refer to Note 8 to the consolidated financial statements for additional information.

2824

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

16. Commitments and Contingencies

Legal Matters

The Company and its affiliates are involved in a number of legal actions involving product liability, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, tax disputes, and governmental proceedings and investigations, including those described below. With respect to governmental proceedings and investigations, like other companies in our industry, the Company is subject to extensive regulation by national, state, and local governmental agencies in the United States and in other jurisdictions in which the Company and its affiliates operate. As a result, interaction with governmental agencies is ongoing. The Company’s standard practice is to cooperate with regulators and investigators in responding to inquiries. The outcomes of legal actions are not within the Company’s complete control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies (including injunctions barring the sale of products that are the subject of the proceeding), that could require significant expenditures, result in lost revenues, or limit the Company's ability to conduct business in the applicable jurisdictions.

The Company records a liability in the consolidated financial statements on an undiscounted basis for loss contingencies related to legal actions when a loss is known or considered probable and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. When determining the estimated loss or range of loss, significant judgment is required. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages with incomplete scientific facts or legal discovery, involve unsubstantiated or indeterminate claims for damages, potentially involve penalties, fines or punitive damages, or could result in a change in business practice. The Company classifies litigation charges and gains related to significant legal matters as certain litigation charges. During the three and six months ended October 29, 2021, the Company recognized $34 million and $60 million, respectively, of certain litigation charges. During the three and six months ended October 30, 2020, the Company recognized charges of $84 million and a net benefit of $4 million, respectively, primarily due to favorable settlements in the first quarter of fiscal year 2021, partially offset by charges recognized in the second quarter of fiscal year 2021. ~~During the three and six months ended October 25, 2019, the Company recognized $121 million and $168 million, respectively, of certain litigation charges.~~ At October ~~30, 2020~~29, 2021 and April ~~24, 2020,~~30, 2021, accrued litigation was approximately ~~$0.4~~$0.3 billion and ~~$0.5~~$0.4 billion, respectively. The ultimate cost to the Company with respect to accrued litigation could be materially different than the amount of the current estimates and accruals and could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows. The Company includes accrued litigation in other accrued expenses and other liabilities on the consolidated balance sheets. While it is not possible to predict the outcome for most of the legal matters discussed below, the Company believes it is possible that the costs associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.

Product Liability Matters

Pelvic Mesh Litigation

The Company is currently involved in litigation in various state and federal courts against manufacturers of pelvic mesh products alleging personal injuries resulting from the implantation of those products. NaN subsidiaries of Covidien supplied pelvic mesh products to 1 of the manufacturers, C.R. Bard (Bard), named in the litigation. The litigation includes a federal multi-district litigation in the U.S. District Court for the Northern District of West Virginia and cases in various state courts and jurisdictions outside the U.S. Generally, complaints allege design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. In fiscal year 2016, Bard paid the Company $121 million towards the settlement of 11,000 of these claims. In May 2017, the agreement with Bard was amended to extend the terms to apply to up to an additional 5,000 claims. That agreement does not resolve the dispute between the Company and Bard with respect to claims that do not settle, if any. As part of the agreement, the Company and Bard agreed to dismiss without prejudice their pending litigation with respect to Bard’s obligation to defend and indemnify the Company. The Company estimates law firms representing approximately 16,200 claimants have asserted or may assert claims involving products manufactured by Covidien’s subsidiaries. As of November ~~4, 2020,~~3, 2021, the Company had reached agreements to settle approximately 15,900 of these claims. The Company's accrued expenses for this matter are included within accrued litigation as discussed above.

Hernia Mesh Litigation

~~During~~Starting in fiscal year 2020, plaintiffs filed lawsuits against certain subsidiaries of the Company in U.S. state and federal courts alleging personal injury from hernia mesh products sold by those subsidiaries. The majority of the pending cases are in Massachusetts state court, where they have been consolidated before a single judge. Certain plaintiffs' law firms have advised the Company that they may file a large volume of additional cases in the future. The pending lawsuits relate almost entirely to hernia mesh products that have not been subject to recalls, withdrawals, or other adverse regulatory action. The Company has not recorded an expense related to damages in connection with

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

these matters because any potential loss is not currently probable or reasonably ~~estimable under U.S. GAAP.~~estimable. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from these matters.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Patent Litigation

~~Ethicon~~

On December 14, 2011, Ethicon filed an action against Covidien in the U.S. District Court for the Southern District of Ohio, alleging patent infringement and seeking monetary damages and injunctive relief. On January 22, 2014, the district court entered summary judgment in Covidien's favor, and the majority of this ruling was affirmed by the Federal Circuit on August 7, 2015.Following appeal, the case was remanded back to the District Court with respect to 1 patent. On January 21, 2016, Covidien filed a second action in the U.S. District Court for the Southern District of Ohio, seeking a declaration of non-infringement with respect to a second set of patents held by Ethicon. The court consolidated this second action with the remaining patent issues from the first action. Following consolidation of the cases, Ethicon dismissed 6 of the asserted patents, leaving a single asserted patent. The court has scheduled this matter for a bench trial in the first half of calendar year 2021. The Company has not recognized an expense related to damages in connection with this matter because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from this matter.

Sasso

The Company is involved in litigation in Indiana relating to certain patent and royalty disputes with Dr. Sasso under agreements originally entered into in 1999 and 2001. On November 28, 2018, a jury in Indiana state court returned a verdict against the Company for approximately $112 million. The Company has strong arguments to appeal the verdict and has filed post-trial motions and appeals with the appropriate appellate courts. The Company's accrued expenses for this matter are included within accrued litigation as discussed above.

~~Shareholder Related Matters~~

~~Covidien Acquisition~~

On ~~July 2, 2014, Lewis Merenstein filed a putative shareholder class action in Hennepin County, Minnesota, District Court seeking~~June 15, 2021, pursuant to enjoin the then-potential acquisition of Covidien. The lawsuit named Medtronic, Inc., Covidien, and each member of the Medtronic, Inc. Board of Directors at the time as defendants, and alleged that the directors breached their fiduciary duties to shareholders with regard to the then-potential acquisition. On August 21, 2014, Kenneth Steiner filed a putative shareholder class action in Hennepin County, Minnesota, District Court, also seeking an injunction to prevent the potential Covidien acquisition. In September 2014, the ~~Merenstein~~ ~~and~~ ~~Steiner~~ ~~matters were consolidated and in December 2014, the plaintiffs filed a preliminary injunction motion seeking to enjoin the Covidien transaction. On March 20, 2015, the District Court issued~~ an order ~~and opinion granting Medtronic’s motion to dismiss~~from the case. In May 2015, the plaintiffs filed an appeal, and, in January 2016, the Minnesota State Court of Appeals affirmed in part, and reversed in part. On April 19, 2016 the Minnesota Supreme Court granted the Company’s petition to review the issue of whether most of the original claims are properly characterized as direct or derivative under Minnesota law. In August 2017, the Minnesota Supreme Court affirmed the decision of the Minnesota State Court of Appeals, sending the matter back to the trialstate court, for further proceedings, which are ongoing. In April 2020, the District Court issued an order and opinion denying the plaintiffs' motion for class certification. In June 2020, the Minnesota State Court of Appeals denied the plaintiffs' request to review the District Court's denial of class certification, and in September 2020, the Minnesota Supreme Court denied the plaintiffs' request to review the Court of Appeals decision. The Company has not recognized an expense related to damages in connection with this matter because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company paid the judgment plus accrued interest to Dr. Sasso, subject to repayment if the Company's ongoing appeal is ~~unable to reasonably estimate the range of loss, if any, that may result from these matters.~~successful.

Environmental Proceedings

The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. These projects relate to a variety of activities, including removal of solvents, metals and other hazardous substances from soil and groundwater. The ultimate cost of site cleanup and timing of future cash flows is difficult to predict given uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods.

The Company is a successor to a company ~~that~~which owned and operated a chemical manufacturing facility in Orrington, Maine from 1967 until 1982, and is responsible for the costs of completing an environmental site investigation as required by the Maine Department of Environmental Protection (MDEP). MDEP served a compliance order on Mallinckrodt LLC and U.S. Surgical Corporation, subsidiaries of Covidien, in December 2008, which included a directive to remove a significant volume of soils at the site. After a hearing on the compliance order before the Maine Board of Environmental Protection (Maine Board) to challenge the terms of the compliance order, the Maine Board modified the MDEP order and issued a final order requiring removal of 2 landfills, capping of the remaining 3 landfills, installation of a groundwater extraction system and long-term monitoring of the site and the 3 remaining landfills.

The Company has proceeded with implementation of the investigation and remediation at the site in accordance with the MDEP order as modified by the Maine Board order.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Since the early 2000s, the Company or its predecessors have also been involved in a lawsuit filed in the U.S. District Court for the District of Maine by the Natural Resources Defense Council and the Maine People’s Alliance. Plaintiffs sought an injunction requiring the Company's predecessor to conduct extensive studies of mercury contamination of the Penobscot River and Bay and options for remediating such contamination, and to perform appropriate remedial activities, if necessary.

Following a trial in March 2002, the Court held that conditions in the Penobscot River and Bay may pose an imminent and substantial endangerment and that the Company’s predecessor was liable for the cost of performing a study of the River and Bay. Following a second trial in June 2014, the Court ordered that further engineering study and engineering design work was needed to determine the nature and extent of remediation in the Penobscot River and Bay. The Court also appointed an engineering firm to conduct such studies and issue a report on potential remediation alternatives. In connection with these proceedings, reports have been produced including a variety of cost estimates for a variety of potential remedial options. ~~A third trial~~In March 2021, the parties notified the Court that they had agreed on a settlement in principle of all issues in this matter. Finalization of the proposed settlement remains subject to ~~determine the course of remediation to be pursued is scheduled to occur in fiscal year 2021.~~Court approval.

The Company's accrued expenses for environmental proceedings are included within accrued litigation as discussed above.

Income Taxes

In March 2009, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2005 and 2006. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2005 and 2006 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of the Company's key manufacturing sites. The U.S. Tax Court reviewed this dispute, and on June 9, 2016, issued its opinion with respect to the allocation of income between the parties for fiscal years 2005 and 2006. The U.S. Tax Court generally rejected the IRS’s position, but also made certain modifications to the Medtronic, Inc. tax returns as filed. On April 21, 2017, the IRS filed their Notice of Appeal to the U.S. Court of Appeals for the 8th Circuit regarding the Tax Court Opinion. Oral argument for the Appeal occurred on March 14, 2018. The 8th Circuit Court of Appeals issued their opinion on August 16, 2018 and remanded the case back to the U.S. Tax Court for additional factual findings. The U.S. Tax Court trial ~~is scheduled~~relating to ~~occur in~~the issues remanded by the 8th Circuit Court of Appeals concluded during June of 2021. The parties are awaiting the Tax Court decision, which will remain subject to appeal by either party upon its issuance.

~~In October 2011, the~~

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The IRS has issued its audit ~~report~~reports on Medtronic, Inc. for fiscal years 2007 and 2008. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2007 and 2008 relates to the allocation of income betweenthrough 2016. Medtronic, Inc. and ~~its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006.~~

~~In April 2014,~~ the IRS ~~issued its audit report on Medtronic, Inc. for fiscal years 2009, 2010, and 2011. Medtronic, Inc.~~have reached agreement ~~with the IRS~~ on ~~some but not~~ all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2009, 2010, and 2011 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006.

In May 2017, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2012, 2013, and 2014. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The significant issues that remain unresolved relate to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, and proposed adjustments associated with the utilization of certain net operating losses. The Company disagrees with the IRS and will attempt to resolve these matters at the IRS Appellate level.

~~Subsequent to quarter-end, in November 2020, the IRS issued its audit report on Medtronic, Inc.~~except for ~~fiscal years 2015 and 2016. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The significant issue that remains unresolved relates to~~ the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006.

Medtronic, Inc.’s fiscal years 2017, 2018, and 2019 U.S. federal income tax returns are currently being audited by the IRS.

Covidien ~~and~~LP (a wholly owned subsidiary of Medtronic plc) has either reached agreement with the IRS ~~have concluded and reached agreement~~or the statute of limitations has lapsed on ~~its audit of Covidien’s~~their U.S. federal income tax returns ~~for all tax years~~ through ~~2012. The statute of limitations for Covidien’s 2013 and 2014 U.S. federal income tax returns lapsed during the first quarter of fiscal years 2018 and 2019, respectively. Covidien's~~ fiscal year 2015 U.S. federal income tax returns are currently being audited by the IRS. The statute of limitations for Covidien's 2016 U.S. federal income tax return lapsed during the third quarter of fiscal year 2020.2017.

While it is not possible to predict the outcome for most of the income tax matters discussed above, the Company believes it is possible that charges associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.

Refer to Note 11 for additional discussion of income taxes.

~~Medtronic plc~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Guarantees

As part of the Company’s sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses to Cardinal on July 29, 2017, the Company has indemnified Cardinal for certain contingent tax liabilities related to the divested businesses that existed prior to the date of divestiture. The actual amounts that the Company may be required to ultimately accrue or pay could vary depending upon the outcome of the unresolved tax matters.

In the normal course of business, the Company and/or its affiliates periodically enter into agreements that require one or more of the Company and/or its affiliates to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising as a result of the Company or its affiliates’ products, the negligence of the Company's personnel, or claims alleging that the Company's products infringe on third-party patents or other intellectual property. The Company also offers warranties on various products. The Company’s maximum exposure under these guarantees is unable to be estimated. Historically, the Company has not experienced significant losses on these types of guarantees.

The Company believes the ultimate resolution of the above guarantees is not expected to have a material effect on the Company’s consolidated earnings, financial position, and/or cash flows.

17. Segment and Geographic Information

Segment disclosures are on a performance basis consistent with internal management reporting. Net sales of the Company's reportable segments include end-customer revenues from the sale of products the segment develops, manufactures, and distributes. ~~There are certain corporate and centralized expenses that are not allocated to the segments.~~

The Company’s management evaluates performance of the segments and allocates resources based on net sales and segment operating profit. Segment operating profit represents income before income taxes, excluding interest expense, amortization of intangible assets, centralized distribution costs, non-operating income or expense items, certain corporate charges, and other items not allocated to the segments.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April ~~24, 2020.~~30, 2021. Certain depreciable assets may be recorded by one segment, while the depreciation expense is allocated to another segment. The allocation of depreciation expense is based on the proportion of the assets used by each segment.

Effective February 1, 2021, the Company implemented a new operating model, moving from a Group structure to a Portfolio structure: Cardiovascular Portfolio (formerly Cardiac and Vascular Group), Neuroscience Portfolio (formerly Restorative Therapies Group), and Medical Surgical Portfolio (formerly Minimally Invasive Therapies Group). The Diabetes Operating Unit (formerly Diabetes Group) remains a separate operating and reportable segment in the new structure. There were no changes to the reportable segments during the fiscal year ended April 30, 2021, such that the 4 principal operating and reportable segments are as follows: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio, and Diabetes Operating Unit.

Medtronic plc

Notes to Consolidated Financial Statements

(Unaudited)

The following tables present reconciliations of financial information from the segments to the applicable line items in the Company's consolidated financial statements:

Segment Operating Profit

Three months ended Six months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Cardiac and Vascular Group $ 992 $ 1,128 $ 1,751 $ 2,183
Minimally Invasive Therapies Group 775 823 1,230 1,593
Restorative Therapies Group 805 840 1,327 1,633
Diabetes Group 132 148 235 297
Segment operating profit 2,704 2,939 4,543 5,706
Interest expense (470) (165) (641) (774)
Other non-operating income, net 65 108 147 209
Amortization of intangible assets (443) (441) (884) (881)
Corporate (460) (350) (825) (657)
Centralized distribution costs (542) (424) (940) (768)
Restructuring and associated costs (179) (94) (307) (218)
Acquisition-related items (37) (27) 68 (46)
Certain litigation charges, net (84) (121) 4 (168)
IPR&D charges (10) 0 (19) 0
Exit of businesses 0 (41) 0 (41)
Debt tender premium and other charges 0 0 0 7
Medical device regulations (19) (10) (37) (18)
Contribution to Medtronic Foundation 0 (80) 0 (80)
Income before income taxes $ 525 $ 1,294 $ 1,109 $ 2,271


	Three months ended				Six months ended
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Cardiovascular	$	1,095	$	992	$	2,256	$	1,751
Medical Surgical	908		775		1,823		1,230
Neuroscience	887		805		1,850		1,327
Diabetes	157		132		290		235
Segment operating profit	3,047		2,704		6,219		4,543
Interest expense	(136)		(470)		(273)		(641)
Other non-operating income, net	66		65		177		147
Amortization of intangible assets	(431)		(443)		(866)		(884)
Corporate	(415)		(460)		(864)		(825)
Centralized distribution costs	(516)		(542)		(981)		(940)
Restructuring and associated costs	(77)		(179)		(159)		(307)
Acquisition-related items	13		(47)		(96)		49
Certain litigation charges, net	(34)		(84)		(60)		4
MCS impairments / costs	—		—		(726)		—

Medical device regulations	(24)		(19)		(45)		(37)
Income before income taxes	$	1,493	$	525	$	2,326	$	1,109

Geographic Information

Net sales are attributed to the country based on the location of the customer taking possession of the products or in which the services are rendered. The following table presents net sales for the three and six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019~~30, 2020 for the Company's country of domicile, countries with significant concentrations, and all other countries:


		Three months ended				Six months ended					Three months ended				Six months ended
(in millions)	(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019		(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Ireland	Ireland	$	24	$	23	$	49	$	43	Ireland	$	27	$	24	$	52	$	49

United States	United States	4,054		4,129		7,405		8,046		United States	3,997		4,054		8,098		7,405
Rest of world	Rest of world	3,569		3,554		6,700		7,110		Rest of world	3,823		3,569		7,685		6,700
Total other countries, excluding Ireland	Total other countries, excluding Ireland	7,623		7,683		14,105		15,156		Total other countries, excluding Ireland	7,820		7,623		15,783		14,105
Total	Total	$	7,647	$	7,706	$	14,154	$	15,199	Total	$	7,847	$	7,647	$	15,835	$	14,154

3328

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

UNDERSTANDING OUR FINANCIAL INFORMATION

The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of Medtronic plc and its subsidiaries (Medtronic plc, Medtronic, or the Company, or we, us, or our). For a full understanding of financial condition and results of operations, you should read this discussion along with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended April ~~24, 2020.~~30, 2021. In addition, you should read this discussion along with our consolidated financial statements and related notes thereto at and for the three and six months ended October ~~30, 2020.~~29, 2021. 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.

Financial Trends

Throughout this Management’s Discussion and Analysis, we present certain financial measures that we use to evaluate the operational performance of the Company and as a basis for strategic planning; however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S.) (U.S. GAAP). These financial measures are considered "non-GAAP financial measures" and are intended to supplement, and should not be considered as superior to, financial measures presented in accordance with U.S. GAAP. We generally use non-GAAP financial measures to facilitate management's review of the operational performance of the Company and as a basis for strategic planning. We believe that non-GAAP financial measures provide information useful to investors in understanding the Company's underlying operational performance and trends and may facilitate comparisons with the performance of other companies in the medical technologies industry.

As presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measures exclude the impact of certain charges or benefits that contribute to or reduce earnings and that may affect financial trends and include certain charges or benefits that result from transactions or events that we believe may or may not recur with similar materiality or impact to our operations in future periods (Non-GAAP Adjustments).

In the event there is a Non-GAAP Adjustment recognized in our operating results, the tax cost or benefit attributable to that item is separately calculated and reported. Because the effective rate can be significantly impacted by the Non-GAAP Adjustments that take place during the period, we often refer to our tax rate using both the effective rate and the non-GAAP nominal tax rate (Non-GAAP Nominal Tax Rate). The Non-GAAP Nominal Tax Rate is calculated as the income tax provision, adjusted for the impact of Non-GAAP Adjustments, as a percentage of income before income taxes, excluding Non-GAAP Adjustments.

Free cash flow is a non-GAAP financial measure calculated by subtracting property, plant, and equipment additions from operating cash flows.

Refer to the “GAAP to Non-GAAP Reconciliations," "Income Taxes," and "Free Cash Flow" sections for reconciliations of the non-GAAP financial measures to their most directly comparable financial measures prepared in accordance with U.S. GAAP.

EXECUTIVE LEVEL OVERVIEW

Medtronic is ~~among~~ the ~~world's largest medical~~leading global healthcare technology ~~services, and solutions companies –~~company — alleviating pain, restoring health, and extending life for millions of people around the world. Our primary products include those for cardiac rhythm disorders, cardiovascular disease, advanced and general surgical care, respiratory and monitoring solutions, renal care, neurological disorders, spinal conditions and musculoskeletal trauma, urological and digestive disorders, and ear, nose, and throat, and diabetes conditions.

The global healthcare system is ~~facing an~~continuing to respond to the unprecedented challenge ~~as a result of~~posed by the Covid-19 pandemic ("COVID-19" or the "pandemic"). COVID-19 is having, and may continue to have, an adverse impact on significant aspects of our Company and business, including the demand for our products, our operations, supply chains and distribution systems, and our ability to research and develop and bring to market new products and services. While mostMost of our businesses ~~have been~~were affected by a decline in global procedural volumes during fiscal year 2021, particularly in the ~~spring~~first and ~~early summer, as compared to~~second quarters. During the ~~corresponding periods~~first quarter of fiscal year 2022, most of our businesses performed at or above pre-COVID-19 levels, while also experiencing a slowdown in elective procedures in certain businesses and geographies in the ~~prior fiscal year, our results for~~final weeks of the quarter as a result of the Delta variant of COVID-19. In the second quarter of fiscal year ~~2021 reflect our~~2022, certain international markets saw procedural recovery ~~to date~~ from the ~~depths~~resurgence experienced in prior quarters. However, particularly in the U.S., the COVID-19 resurgence as well as healthcare system staffing shortages impacted our revenue results for the three months ended October 29, 2021. While we expect the impact of the Delta variant may be less severe than prior waves of COVID-19 as vaccination rates continue to rise, we cannot predict with confidence the duration and severity of the pandemic that we experienced in April. Procedure volumes continued to recover in multiple markets around the world during the second quarter. While many countries are past their initial peak with COVID-19, many regions, including the U.S. and Europe, are now experiencing a second wave. To the extent individuals and hospital systems de-prioritize, delay or cancel deferrable medical procedures, our business, cash flows, financial condition and results of operations will continue to be negatively affected.

Further, COVID-19 is straining hospital systems around the world, resulting in adverse financial impacts to those systems, which has resulted in and may continue to result in reduced expenditures for capital equipment and other products and services we provide. As COVID-19 continues to impact hospital systems and other customers, we may encounter higher inventory levels which could result in inventory obsolescence due to excess and/or expired inventory. Additionally, the pandemic'sits impact on our customers may adversely impact the collectability of our current and future accounts receivable balance. COVID-19 has also disrupted and may continue to disrupt our product launches for our recently approved products and may negatively impact the regulatory approval of new products.

~~In addition, a significant number of our~~ global suppliers, vendors, and distributors have been adversely affected by COVID-19, including employee absenteeism which may impact their operations. Therefore, although we work closely with our suppliers to try to ensure

continuity of supply while maintaining high quality and reliability, the supply of certain components, raw materials, and services has been and may continue to be interrupted, in certain instances, as a direct result of COVID-19.

procedure volumes. We expect medical procedure ~~recovery~~ rates to continue to vary by therapy and country and to be impacted by regional COVID-19 case volumes, ~~hospital~~vaccine immunization rates, and ~~clinical occupancy and~~new COVID-19 variants, including the Omicron variant. Also, we cannot predict the impact healthcare system staffing ~~levels, patient’s willingness to schedule deferrable procedures, travel restrictions, transportation limitations, quarantine restrictions, and COVID-19 resurgence.~~shortages may have on procedural volumes.

The following is a summary of revenue and diluted earnings per share for the three months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019~~30, 2020, and operating cash flow for the six months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019:~~30, 2020:

3530

GAAP to Non-GAAP Reconciliations The tables below present our GAAP to Non-GAAP reconciliations for the three ~~and six~~ months ended October ~~30, 2020~~29, 2021 and October ~~25, 2019:~~30, 2020:

Three months ended October 30, 2020
(in millions, except per share data) Income Before Income Taxes Income
Tax Provision
(Benefit) Net Income Attributable to Medtronic
Diluted EPS(1)
Effective
Tax Rate
GAAP $ 525 $ 31 $ 489 $ 0.36 5.9 %
Non-GAAP Adjustments:
Restructuring and associated costs (2)
179 44 135 0.10 24.6
Acquisition-related items (3)
37 6 31 0.02 16.2
Certain litigation charges 84 21 63 0.05 25.0
(Gain)/loss on minority investments (4)
1 — 1 — —
IPR&D charges (5)
10 2 8 0.01 20.0
Medical device regulations (6)
19 3 16 0.01 15.8
Amortization of intangible assets 443 70 373 0.28 15.8
Debt tender premium (7)
308 60 248 0.18 19.5
Certain tax adjustments, net (8)
— (16) 16 0.01 —
Non-GAAP $ 1,606 $ 221 $ 1,380 $ 1.02 13.8 %
Three months ended October 25, 2019
(in millions, except per share data) Income Before Income Taxes Income
Tax Provision (Benefit) Net Income Attributable to Medtronic
Diluted EPS(1)
Effective
Tax Rate
GAAP $ 1,294 $ (77) $ 1,364 $ 1.01 (6.0) %
Non-GAAP Adjustments:
Restructuring and associated costs (2)
94 16 78 0.06 17.0
Acquisition-related items (9)
27 4 23 0.02 14.8
Certain litigation charges 121 28 93 0.07 23.1
(Gain)/loss on minority investments (4)
(12) (2) (10) (0.01) 16.7
Medical device regulations (6)
10 1 9 0.01 10.0
Exit of businesses (10)
41 6 35 0.03 14.6
Contribution to the Medtronic Foundation 80 18 62 0.05 22.5
Amortization of intangible assets 441 67 374 0.28 15.2
Certain tax adjustments, net (11)
— 251 (251) (0.19) —
Non-GAAP $ 2,096 $ 312 $ 1,777 $ 1.31 14.9 %


	Three months ended October 29, 2021
(in millions, except per share data)	Income Before Income Taxes		Income Tax Provision (Benefit)		Net Income Attributable to Medtronic		Diluted EPS		Effective Tax Rate
GAAP	$	1,493	$	176	$	1,311	$	0.97	11.8	%
Non-GAAP Adjustments:
Restructuring and associated costs (1)	77		15		62		0.05		19.5
Acquisition-related items (2)	(13)		2		(15)		(0.01)		(15.4)
Certain litigation charges	34		4		30		0.02		11.8
(Gain)/loss on minority investments (3)	6		—		6		—		—
Medical device regulations (4)	24		4		20		0.01		16.7
Amortization of intangible assets	431		69		361		0.27		16.0
Certain tax adjustments, net (5)	—		(16)		16		0.01		—
Non-GAAP	$	2,052	$	254	$	1,792	$	1.32	12.4	%

	Three months ended October 30, 2020
(in millions, except per share data)	Income Before Income Taxes		Income Tax Provision (Benefit)		Net Income Attributable to Medtronic		Diluted EPS		Effective Tax Rate
GAAP	$	525	$	31	$	489	$	0.36	5.9	%
Non-GAAP Adjustments:
Restructuring and associated costs (1)	179		44		135		0.10		24.6
Acquisition-related items (2)	47		8		39		0.03		17.0
Certain litigation charges	84		21		63		0.05		25.0
(Gain)/loss on minority investments (3)	1		—		1		—		—
Medical device regulations (4)	19		3		16		0.01		15.8
Amortization of intangible assets	443		70		373		0.28		15.8
Debt tender premium (6)	308		60		248		0.18		19.5
Certain tax adjustments, net (5)	—		(16)		16		0.01		—
Non-GAAP	$	1,606	$	221	$	1,380	$	1.02	13.8	%

(1)~~Amounts in this column have been intentionally rounded to the nearest $0.01 and, therefore, may not sum.~~

~~(2)~~Associated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses.

~~(3)~~(2)The charges primarily include business combination costs, ~~and~~ changes in fair value of contingent ~~consideration.~~consideration, and for the three months ended October 30, 2020, certain license payments for unapproved technology.

~~(4)~~(3)We exclude unrealized and realized gains and losses on our minority investments as we do not believe that these components of income or expense have a direct correlation to our ongoing or future business operations.

~~(5)The charges relate to certain license payments for unapproved technology.~~

~~(6)~~(4)The charges represent incremental costs of complying with the new European Union (E.U.) medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses.

~~(7)~~(5)The charges include the amortization on previously established deferred tax assets from intercompany intellectual property transactions.

(6)The charges relate to the early redemption of approximately $6.0 billion of debt.

~~(8)Relates to the amortization of previously established deferred tax assets from intercompany intellectual property transactions.~~

~~(9)~~The charges primarily include costs incurred in connection with legacy-Covidien enterprise resource planning deployment activities, business combination related costs, and changes in the fair value of contingent consideration.

~~(10)The net charge relates to the exit of businesses and is primarily comprised of intangible asset impairments.~~

~~(11)The benefit relates to the impact of tax reform in Switzerland.~~

3631

Six months ended October 30, 2020
(in millions, except per share data) Income Before Income Taxes Income
Tax Provision (Benefit) Net Income Attributable to Medtronic
Diluted EPS(1)
Effective
Tax Rate
GAAP $ 1,109 $ 124 $ 976 $ 0.72 11.2 %
Non-GAAP Adjustments:
Restructuring and associated costs (2)
307 66 241 0.18 21.5
Acquisition-related items (3)
(68) (24) (44) (0.03) 35.3
Certain litigation charges (4) 2 (6) — (50.0)
(Gain)/loss on minority investments (4)
(9) 1 (10) (0.01) (11.1)
IPR&D charges (5)
19 3 16 0.01 15.8
Medical device regulations (6)
37 5 32 0.02 13.5
Amortization of intangible assets 884 141 743 0.55 16.0
Debt tender premium and other charges (7)
308 60 248 0.18 19.5
Certain tax adjustments, net — (20) 20 0.01 —
Non-GAAP $ 2,583 $ 358 $ 2,216 $ 1.64 13.9 %
Six months ended October 25, 2019
(in millions, except per share data) Income Before Income Taxes Income
Tax Provision (Benefit) Net Income Attributable to Medtronic
Diluted EPS(1)
Effective
Tax Rate
GAAP $ 2,271 $ 23 $ 2,228 $ 1.65 1.0 %
Non-GAAP Adjustments:
Restructuring and associated costs (2)
218 31 187 0.14 14.2
Acquisition-related items (8)
46 6 40 0.03 13.0
Certain litigation charges 168 32 136 0.10 19.0
(Gain)/loss on minority investments (4)
(11) (2) (9) (0.01) 18.2
Debt tender premium and other charges (9)
406 86 320 0.24 21.2
Medical device regulations (6)
18 2 16 0.01 11.1
Exit of businesses (10)
41 6 35 0.03 14.6
Contribution to the Medtronic Foundation 80 18 62 0.05 22.5
Amortization of intangible assets 881 135 746 0.55 15.3
Certain tax adjustments, net (11)
— 281 (281) (0.21) —
Non-GAAP $ 4,118 $ 618 $ 3,480 $ 2.57 15.0 %
The tables below present our GAAP to Non-GAAP reconciliations for the six months ended October 29, 2021 and October 30, 2020:


	Six months ended October 29, 2021
(in millions, except per share data)	Income Before Income Taxes		Income Tax Provision (Benefit)		Net Income Attributable to Medtronic		Diluted EPS		Effective Tax Rate
GAAP	$	2,326	$	240	$	2,074	$	1.53	10.3	%
Non-GAAP Adjustments:
Restructuring and associated costs (1)	159		31		128		0.09		19.5
Acquisition-related items (2)	96		24		72		0.05		25.0
Certain litigation charges	60		9		51		0.04		15.0
(Gain)/loss on minority investments (3)	(25)		—		(22)		(0.02)		—
Medical device regulations (4)	45		9		36		0.03		20.0
Amortization of intangible assets	866		139		728		0.54		16.1
MCS impairments / costs (5)	726		162		564		0.42		22.3
Certain tax adjustments, net (6)	—		(69)		69		0.05		—
Non-GAAP	$	4,253	$	545	$	3,699	$	2.73	12.8	%

	Six months ended October 30, 2020
(in millions, except per share data)	Income Before Income Taxes		Income Tax Provision (Benefit)		Net Income Attributable to Medtronic		Diluted EPS		Effective Tax Rate
GAAP	$	1,109	$	124	$	976	$	0.72	11.2	%
Non-GAAP Adjustments:
Restructuring and associated costs (1)	307		66		241		0.18		21.5
Acquisition-related items (2)	(49)		(21)		(28)		(0.02)		42.9
Certain litigation charges	(4)		2		(6)		—		(50.0)
(Gain)/loss on minority investments (3)	(9)		1		(10)		(0.01)		(11.1)
Medical device regulations (4)	37		5		32		0.02		13.5
Amortization of intangible assets	884		141		743		0.55		16.0
Debt tender premium (7)	308		60		248		0.18		19.5
Certain tax adjustments, net (6)	—		(20)		20		0.01		—
Non-GAAP	$	2,583	$	358	$	2,216	$	1.64	13.9	%

(1)~~Amounts in this column have been intentionally rounded to the nearest $0.01 and, therefore, may not sum.~~

~~(2)~~Associated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses.

~~(3)~~(2)The charges primarily include business combination costs, changes in ~~the~~ fair value of contingent consideration, acquisitions of, and acertain license payments for, unapproved technology, and specifically for the six months ended October 30, 2020, change in amounts accrued for certain contingent liabilities for recent acquisitions.

~~(5)The charges relate to certain license payments for unapproved technology.~~

~~(6)~~(4)The charges represent incremental costs of complying with the new ~~European Union~~E.U. medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses.

(5)The charges relate to the Company’s June 2021 decision to stop the distribution and sale of the Medtronic HVAD System within the Mechanical Circulatory Support Operating Unit (MCS). The charges included $515 million of non-cash impairments, primarily related to $409 million of intangible asset impairments, as well as $211 million for commitments and obligations in connection with the decision, including customer support obligations, restructuring, and other associated costs. Medtronic is committed to serving the needs of the approximately 4,000 patients currently implanted with the HVAD System.

(6)The charges include the amortization on previously established deferred tax assets from intercompany intellectual property transactions, and specifically for the six months ended October 29, 2021, charges associated with a change in the company's permanent reinvestment assertion on certain historical earnings.

(7)The charges relate to the early redemption of approximately $6.0 billion of debt.

~~(8)~~The charges primarily include costs incurred in connection with legacy-Covidien enterprise resource planning deployment activities, business combination related costs, and changes in the fair value of contingent consideration.

~~(9)~~The charges, which include $413 million recognized in interest expense and ($7 million) recognized in other operating expense, net, primarily related to the early redemption of approximately $5.2 billion of debt.

~~(10)The net charges relate to the exit of businesses and are primarily comprised of intangible asset impairments.~~

~~(11)The net benefit primarily relates to the impact of tax reform in Switzerland and the United States.~~

~~NET SALES~~

~~Segment and Division~~

~~The charts below illustrate the percent of net sales by division for the three months ended October 30, 2020 and October 25, 2019:~~

~~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 % Change October 30, 2020 October 25, 2019 % Change
Cardiac Rhythm & Heart Failure $ 1,426 $ 1,426 — % $ 2,673 $ 2,807 (5) %
Coronary & Structural Heart 831 955 (13) 1,611 1,896 (15)
Aortic, Peripheral, & Venous 468 474 (1) 873 942 (7)
Cardiac & Vascular Group 2,725 2,855 (5) 5,158 5,645 (9)
Surgical Innovations 1,393 1,454 (4) 2,473 2,871 (14)
Respiratory, Gastrointestinal, & Renal 893 688 30 1,613 1,371 18
Minimally Invasive Therapies Group 2,285 2,142 7 4,086 4,242 (4)
Cranial & Spinal Technologies 1,071 1,117 (4) 2,015 2,167 (7)
Specialty Therapies 581 575 1 1,035 1,138 (9)
Neuromodulation 411 420 (2) 725 818 (11)
Restorative Therapies Group 2,063 2,112 (2) 3,774 4,124 (8)
Diabetes Group 574 596 (4) 1,136 1,188 (4)
Total $ 7,647 $ 7,706 (1) % $ 14,154 $ 15,199 (7) %

~~(1) Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.~~

The decrease in net sales for the three months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year, was primarily attributable to the impact of COVID-19, partially offset by growth in the Minimally Invasive Therapies Group as demand increased for COVID-19 related diagnostics and therapies, including strong growth in ventilators. The decrease in net sales for the six months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year, was primarily attributable to the decline in procedure volume, particularly in the spring and early summer, in the Cardiac and Vascular Group, Minimally Invasive Therapies Group, and Restorative Therapies Group resulting from the impact of COVID-19. Further contributing to the decrease were delays in new patient starts on insulin pumps and continued competitive pressure in Diabetes. Net sales for the six months ended October 30, 2020 were also impacted by an additional selling week during the first fiscal month of the first quarter of fiscal year 2021 due to our 52/53 week fiscal year calendar. Although we cannot precisely calculate the impact of the extra selling week, we estimate that it benefited net sales for the six months ended October 30, 2020 by approximately $360 to $390 million.

During the first quarter of fiscal year 2021, we realigned our divisions within the Restorative Therapies Group. As a result, fiscal year 2020 results have been recast to adjust for this realignment. Additionally, we are in the process of implementing a new operating model, which will be fully operational the beginning of the fourth quarter of our fiscal year 2021, that will simplify our organization in order to accelerate decision making, improve commercial execution, and more effectively leverage the scale of our company.

~~Segment and Market Geography~~

~~The charts below illustrate the percent of net sales by market geography for the three months ended October 30, 2020 and October 25, 2019:~~

~~The table below includes net sales by market geography for each of our segments for the three and six months ended October 30, 2020 and October 25, 2019:~~

U.S.(1)(4)
Non-U.S. Developed Markets(2)(4)
Emerging Markets(3)(4)
Three months ended Three months ended Three months ended
(in millions) October 30, 2020 October 25, 2019 % Change October 30, 2020 October 25, 2019 % Change October 30, 2020 October 25, 2019 % Change
Cardiac and Vascular Group $ 1,377 $ 1,455 (5) % $ 945 $ 890 6 % $ 404 $ 510 (21) %
Minimally Invasive Therapies Group 996 922 8 837 782 7 452 438 3
Restorative Therapies Group 1,397 1,440 (3) 426 416 2 240 256 (6)
Diabetes Group 284 311 (9) 238 226 5 51 59 (14)
Total $ 4,054 $ 4,129 (2) % $ 2,446 $ 2,315 6 % $ 1,147 $ 1,262 (9) %

U.S.(1)(4)
Non-U.S. Developed Markets(2)(4)
Emerging Markets(3)(4)
Six months ended Six months ended Six months ended
(in millions) October 30, 2020 October 25, 2019 % Change October 30, 2020 October 25, 2019 % Change October 30, 2020 October 25, 2019 % Change
Cardiac and Vascular Group $ 2,582 $ 2,816 (8) % $ 1,798 $ 1,820 (1) % $ 778 $ 1,009 (23) %
Minimally Invasive Therapies Group 1,718 1,835 (6) 1,556 1,573 (1) 811 834 (3)
Restorative Therapies Group 2,533 2,778 (9) 802 842 (5) 439 504 (13)
Diabetes Group 572 618 (7) 465 457 2 100 113 (12)
Total $ 7,405 $ 8,046 (8) % $ 4,621 $ 4,692 (2) % $ 2,128 $ 2,460 (13) %

~~(1)U.S. includes the United States and U.S. territories.~~

~~(2)Non-U.S. developed markets include Japan, Australia, New Zealand, Korea, Canada, and the countries within Western Europe.~~

~~(3)Emerging markets include the countries of the Middle East, Africa, Latin America, Eastern Europe, and the countries of Asia that are not included in the non-U.S. developed markets, as defined above.~~

~~(4)Revenue amounts have intentionally been rounded to the nearest million and, therefore, may not sum.~~

Net sales decreases in the U.S. and emerging markets for the three months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year, were primarily attributable to the impact of COVID-19 driven by reduced procedure volumes. These decreases were partially offset by strong growth in our non-U.S. developed markets across all groups for the three months ended October 30, 2020. Canada, Korea, and Western Europe experienced the largest increases in net sales in non-U.S. developed markets. Currency had a favorable impact on net sales in non-U.S. developed markets and emerging markets of $59 million for the three months ended October 30, 2020.

Net sales decreases in the U.S., non-U.S. developed markets, and emerging markets for the six months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year, were primarily attributable to the impact of COVID-19 driven by a combination of deferred procedures and reduced demand for certain products as hospital systems continued to prioritize the treatment of COVID-19 patients, particularly in the spring and early summer. Japan, Canada, and Australia experienced the largest decreases in net sales in non-U.S. developed markets, and Latin America and South Asia experienced the largest decreases in net sales in emerging markets. Currency had an unfavorable impact on net sales in non-U.S. developed markets and emerging markets of $46 million for the six months ended October 30, 2020. Net sales for the six months ended October 30, 2020 were also impacted by an additional selling week during the first fiscal month of the first quarter of fiscal year 2021.

Looking ahead, we expect COVID-19 could continue to have a significant impact on our business, noting that it is not possible to accurately predict the length and severity of the pandemic. Additionally, our segments are likely to face competitive product launches and pricing pressure, geographic macro-economic risks, reimbursement challenges, impacts from changes in the mix of our product offerings, the timing of product registration approvals, replacement cycle challenges, and fluctuations in currency exchange rates. Additionally, changes in procedural volumes could affect our Cardiac and Vascular, Minimally Invasive Therapies, and Restorative Therapies Groups and changes in new therapy adoptions could affect our Diabetes Group.

~~Cardiac and Vascular Group~~

The Cardiac and Vascular Group’s products include pacemakers, insertable monitors, cardiac resynchronization therapy devices (CRT-D), implantable cardioverter defibrillators (ICD), leads and delivery systems, ventricular assist systems, ablation products, electrophysiology catheters, products for the treatment of arrhythmias including atrial fibrillation, information systems for the management of patients with Cardiac Rhythm & Heart Failure devices, products designed to reduce surgical site infections, coronary and peripheral stents and related delivery systems, balloons and related delivery systems, endovascular stent graft systems, heart valve replacement technologies, cardiac tissue ablation systems, and open heart and coronary bypass grafting surgical products. The Cardiac and Vascular Group also includes Care Management Services and Cath Lab Managed Services (CLMS) within the Cardiac Rhythm & Heart Failure division. The Cardiac and Vascular Group’s net sales for the three and six months ended October 30, 2020 were $2.7 billion and $5.2 billion, respectively, which represents a decline of 5 percent and 9 percent, respectively, compared to corresponding periods in the prior fiscal year. Currency had a $27 million favorable impact on net sales for the three months ended October 30, 2020 and an unfavorable impact of $12 million for the six months ended October 30, 2020. The Cardiac and Vascular Group's net sales declines for both periods were a result of a reduction in global procedural volumes, particularly in the spring and early summer, as the COVID-19 pandemic continues to affect the global healthcare system.

~~The graphs below illustrate the percent of Cardiac and Vascular Group net sales by division for the three months ended October 30, 2020 and October 25, 2019:~~

Cardiac Rhythm & Heart Failure net sales for the three months ended October 30, 2020 were $1.4 billion, which was flat compared to the three months ended October 25, 2019. For the six months ended October 30, 2020, net sales of Cardiac Rhythm & Heart Failure were $2.7 billion, a decline of 5 percent compared corresponding period in the prior fiscal year. Net sales for both periods were impacted by a decline in procedural volumes due to the on-going impact of the pandemic. The net sales decline for the six months ended October 30, 2020 was led

~~by ICDs, Implantable Diagnostics, and LVADs. Sales of the TYRX antibacterial envelope, Pacemakers, and CRT-Ds, partially offset these declines for the six months ended~~ ~~October 30, 2020, and led the recovery of net sales for the three months ended~~ ~~October 30, 2020~~. Pacemaker growth is the result of recent product launch momentum for the Micra AV pacemaker. The launch of the Cobalt and Crome ICD and CRT-D devices, which include remote programming and remote management capabilities, drove CRT-D growth for the three and six months ended ~~October 30, 2020~~.

~~Coronary & Structural Heart net sales for the three and six months ended October 30, 2020 were $831 million and $1.6 billion, respectively, a decrease of~~ 13 percent and 15 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The declines were a result of a decrease in procedural volumes due to COVID-19. Within Structural Heart, while transcatheter aortic valve replacement (TAVR) nets sales declined for both the three and six months ended October 30, 2020, procedural volumes increased sequentially in the second fiscal quarter of fiscal year 2021 as compared to the first fiscal quarter. Coronary net sales for both periods were negatively impacted by the effect of the Chinese national tender on coronary stent sales in China, which resulted in significant price declines.

Aortic, Peripheral, & Venous net sales for the three and six months ended October 30, 2020 were $468 million and $873 million, respectively, which represents a decline of 1 percent and 7 percent, respectively, compared to the corresponding periods in the prior fiscal year. These decreases were driven by declines in procedure rates as a result of COVID-19. Partially offsetting the declines was growth in drug-coated balloons and the VenaSeal vein closure system for both the three and six months ended October 30, 2020. Drug-coated balloon growth was the result of strong adoption of the IN.PACT AV drug-coated balloon driven by its pivotal data published during the current quarter as well as the negative impact that uncertainty surrounding Paclitaxel had on the drug-coated balloon market for the corresponding periods in the prior fiscal year. While experiencing declines during the six months ended October 30, 2020, Aortic experienced growth during the three months ended October 30, 2020 as thoracic endovascular aortic repair procedures experienced a rebound in procedural volumes.

~~In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead, we expect our Cardiac and Vascular Group could be affected by the following:~~

•While many countries are past their initial peak with COVID-19, many regions, including the U.S. and Europe, are now experiencing a second wave. As a result, it is not possible to accurately predict the timing of recovery of a broad resumption of deferrable medical procedures to pre-COVID-19 levels, as to date, we are seeing the speed of recovery vary by therapy and geography. Therapies that might be considered more deferrable include Cardiac Ablation Solutions, EndoVenous, and Diagnostics while more urgent therapies include Pacing, Aortic, Coronary, and Cardiac Surgery. Moderately deferrable procedures include ICD’s CRT-D’s, TAVR/Structural Heart, and Peripheral. Extracorporeal Life Support products, including ECMO machines and disposables within our Cardiac Surgery business, are in higher demand as a result of COVID-19.

•Continued growth of our Micra transcatheter pacing system. Micra AV received U.S. FDA approval and CE Mark approval in January and April 2020, respectively. Micra AV expands the Micra target population from 15 percent to 55 percent of pacemaker patients.

•Acceptance and growth of the Cobalt and Crome portfolio of ICDs and CRT-Ds. These devices received CE Mark approval during the fourth quarter of fiscal year 2020 and U.S. FDA approval during the first quarter of fiscal year 2021.

•~~Continued acceptance and growth of the Claria MRI CRT-D system with EffectivCRT Diagnostic and Effective CRT during AF algorithm.~~

•Continued acceptance and growth from the Azure XT and S SureScan pacing systems. Azure pacemakers feature Medtronic-exclusive BlueSync technology, which enables automatic, secure wireless remote monitoring with increased device longevity.

•~~Acceptance and growth of the LINQ 2 cardiac monitor, which received CE Mark in November 2019 and gained U.S. FDA approval during the first quarter of fiscal year 2021.~~

•~~Changes in the U.S. heart transplant guidelines as well as a competitor's product launch as it relates to our LVAD business.~~

•~~Continued acceptance and growth of the CRT-P quadripolar pacing system.~~

•Continued growth, adoption, and utilization of the TYRX Envelope for implantable devices driven by the favorable results of the WRAP-IT clinical study. In the fourth quarter of fiscal year 2020, we received 12-month shelf-life extension for our TYRX Envelope product.

•~~Continued acceptance of Care Management Services and post-acute care services becoming even more critical in bundled payment models for different interventions or therapies.~~

•Continued acceptance and growth of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform into intermediate risk indication globally and for the treatment of patients determined to be at low risk with surgery. The Platform received both CE Mark for low risk and bicuspid labeling indication in Europe during the first quarter of fiscal year 2021. In August 2020, the U.S. FDA approved revised commercial labeling for the platform that modified a precaution for the treatment of patients at low risk.

•~~Changes to the U.S. Medicare national coverage determination for transcatheter aortic valve replacement that will allow approximately 30 percent more U.S. centers to offer the therapy to patients.~~

•~~Continued expansion and training of field support to increase coverage in the U.S. centers performing transcatheter aortic valve replacement procedures.~~

•Continued acceptance and growth from Evolut PRO, which provides industry-leading hemodynamics, reliable delivery, and advanced sealing with an excellent safety profile, as well as acceptance of our next generation Evolut PRO Plus TAVR valve which launched late in the second quarter of fiscal year 2020.

•Continued acceptance and growth from the VenaSeal vein closure system in the U.S. The VenaSeal system is a unique non-thermal solution to address superficial venous disease that provides improved patient comfort, reduces the recovery time, and eliminates the risk of thermal nerve injury.

•~~Continued acceptance and growth from the Valiant family of thoracic stent grafts, including the Valiant Navion.~~

~~Minimally Invasive Therapies Group~~

The Minimally Invasive Therapies Group’s products span the entire continuum of patient care from diagnosis to recovery, with a focus on diseases of the gastrointestinal tract, lungs, pelvic region, kidneys, obesity, and preventable complications. The products include advanced and general surgical products, surgical stapling devices, vessel sealing instruments, wound closure products, electrosurgery products, hernia mechanical devices, hernia mesh implants, advanced ablation, interventional lung devices, ventilators, capnography, airway products, sensors, renal care products, patient monitoring products, and visualization systems. The Minimally Invasive Therapies Group’s net sales for the three and six months ended October 30, 2020 were $2.3 billion and $4.1 billion, respectively, an increase of 7 percent and a decrease of 4 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had a favorable impact on net sales for the three months ended October 30, 2020 of $11 million and an unfavorable impact for the six months ended October 30, 2020 of $27 million.

Net sales growth for the three months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year, was primarily driven by increased demand for COVID-19 related diagnostics and therapies, particularly due to strong ventilator sales. Additionally, demand for acute catheters and renal access products in the U.S. and China contributed to growth.

Net sales decline for the six months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year, reflects the continued impact of COVID-19, resulting in a decline in procedure volume as elective procedures were delayed. The decline was partially offset by increased demand for COVID-19 related diagnostics and therapies, particularly within the ventilator portfolio.

~~The graphs below illustrate the percent of Minimally Invasive Therapies Group net sales by division for the three months ended October 30, 2020 and October 25, 2019:~~

Surgical Innovations net sales for the three and six months ended October 30, 2020 were $1.4 billion and $2.5 billion, respectively, a decrease of 4 percent and 14 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The decreases were driven by reduced surgical volumes, though for the three months ended October 30, 2020 Western Europe and the U.S showed improvement resulting from a backlog of delayed procedures from the fourth quarter of fiscal year 2020 and first quarter of fiscal year 2021. The Surgical Innovations decline in procedure volumes, particularly Bariatric, Colorectal, Gynecological Health, Hernia, and Thoracic procedures, resulted in lower demand for Advanced Stapling products and General Surgery products, partially offset by new product launches driving growth in Advanced Energy for the three months ended October 30, 2020.

Respiratory, Gastrointestinal, & Renal net sales for the three and six months ended October 30, 2020 were $893 million and $1.6 billion, respectively, an increase of 30 percent and 18 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Respiratory, Gastrointestinal, & Renal net sales growth was attributable to increased demand for Respiratory Interventions products due to COVID-19, driven by the Puritan Bennett high acuity ventilator portfolio.

In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead, we expect our Minimally Invasive Therapies Group could be affected by the following:

•While many countries are past their initial peak with COVID-19, many regions, including the U.S. and Europe, are now experiencing a second wave. As a result, it is not possible to accurately predict the timing of recovery of a broad resumption of deferrable medical procedures to pre-COVID-19 levels, as to date, we are seeing the speed of recovery vary by therapy and geography. Therapies that might be considered more deferrable include Surgical Innovations bariatric, hysterectomy, hernia, advanced parameter monitoring products, and GI while more urgent therapies include Surgical Innovations appendectomy, bowel obstruction, and trauma, Respiratory and Patient Monitoring, and Renal Care. Moderately deferrable procedures include Surgical Innovations CABG and oncology. Ventilators, pulse oximetry and capnography capital within our Respiratory and Patient Monitoring business are in higher demand as a result of COVID-19. As such, we anticipate ventilator demand will decline back to normal pre-COVID-19 levels in fiscal year 2022.

•Continued acceptance and future growth of Open-to-MIS techniques and tools supported by our efforts to transition open surgery to MIS (minimally invasive surgery). The Open-to-MIS initiative focuses on furthering our presence in and working to optimize open surgery globally, while capturing the market opportunity that exists in transitioning open procedures to MIS, whether through traditional MIS, or advanced technologies including robotics.

•Continued acceptance and future growth of powered stapling and energy platform, along with our ability to execute ongoing strategies to develop, gain regulatory approval, and commercialize new products including our surgical soft tissue robotics platform.

•Our ability to execute ongoing strategies in order to address the competitive pressure of reprocessing of our vessel sealing disposables and growth of surgical soft tissue robotics procedures in the U.S.

•Our ability to create markets and drive products and procedures into emerging markets. We have high quality and cost-effective surgical products designed for customers in emerging markets such as the ValleyLab LS10 single channel vessel sealing generator, which is compatible with our line of LigaSure instruments and designed for simplified use and affordability.

•Continued acceptance and growth within the end stage renal disease market. The population of patients treated for end stage renal disease globally is expected to double over the next decade. We plan to grow our therapy innovation with scalable and affordable dialysis delivery while investing in vascular creation and maintenance technologies. In addition, the HD multi-pass system reduces infrastructure by requiring less water, less start-up costs, and offers high quality ultrapure dialysate treatment. We are expecting regulatory filing in calendar year 2021, with launch following regulatory clearance in targeted countries.

•Continued elevation of the standard of care for respiratory compromise, a progressive condition impacting a patient’s ability to breathe effectively, which leverages our market leading MicroStream capnography technology.

•Continued acceptance and growth in patient monitoring, airway, and ventilation management. Key products in this area include the Puritan Bennett 980 ventilator, Microstream Capnography, Nellcor pulse oximetry system with OxiMax technology, Shiley tracheostomy and endotracheal tubes, and McGRATH MAC video laryngoscopes.

imaging systems, Bravo Calibration-free reflux testing, and the Emprint ablation system with Thermosphere Technology, which maintains predictable spherical ablation zones throughout procedures reducing procedure time and cost.

•Continued and future acceptance of Interventional Lung Solutions. Products include the superDimension GenCut core biopsy system and the Triple Needle Cytology Brush, a lung tissue biopsy tool for use with the superDimension navigation system. The superDimension system enables a minimally invasive approach to accessing difficult-to-reach areas of the lung, which may aid in the diagnosis of lung cancer.

•Expanding the use of less invasive treatments and furthering our commitment to improving options for women with abnormal uterine bleeding. Our expanded and strengthened surgical offerings are expected to complement our global gynecology business.

~~Restorative Therapies Group~~

The Restorative Therapies Group's products focus on various areas of the spine, bone graft substitutes, biologic products, trauma, implantable neurostimulation therapies and drug delivery systems for the treatment of chronic pain, movement disorders, epilepsy, overactive bladder, urinary retention, fecal incontinence and gastroparesis, as well as products to treat conditions of the ear, nose, and throat (ENT), and systems that incorporate advanced energy surgical instruments. The Restorative Therapies Group also manufactures and sells image-guided surgery and intra-operative imaging systems, robotic guidance systems used in robot assisted spine procedures, and therapies to treat diseases of the vasculature in and around the brain, including coils, neurovascular stents and flow diversion products. During the first quarter of fiscal year 2021, the Company realigned the divisions within the Restorative Therapies Group to the following: Cranial & Spinal Technologies (includes Core Spine and Biologics, Enabling Technologies, and China Orthopedics), Specialty Therapies (includes ENT, Pelvic Health, and Neurovascular), and Neuromodulation (includes Pain Therapies, Brain Modulation, and Interventional). The Restorative Therapies Group’s net sales for the three and six months ended October 30, 2020 were $2.1 billion and $3.8 billion, respectively, a decrease of 2 percent and 8 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had a favorable impact of $13 million on net sales for the three months ended October 30, 2020, and an unfavorable impact of $4 million on net sales for the six months ended October 30, 2020. The Restorative Therapies Group’s net sales declines for both the three and six months ended October 30, 2020 reflected the continued impact of COVID-19, including a reduction in capital equipment purchases, and declines in deferrable procedures particularly in the first quarter of fiscal year 2021. Net sales declines for the six months ended October 30, 2020 were experienced across all divisions, while declines for the three months ended October 30, 2020 were partially offset by modest gains in Specialty Therapies.

~~The graphs below illustrate the percent of Restorative Therapies Group net sales by division for the three months ended October 30, 2020 and October 25, 2019:~~

Cranial and Spinal Technologies net sales for the three and six months ended October 30, 2020 were $1.1 billion and $2.0 billion, respectively, a decrease of 4 percent and 7 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Net sales declines for the six months ended October 30, 2020 were driven by declines both in Core Spine and Enabling Technologies (previously Neurosurgery). Enabling Technologies net sales declines were impacted by continued delays in capital equipment sales due to COVID-19, particularly with the ENT Navigation and Power Systems and O-Arm Imaging Systems. Despite the challenging environment for capital equipment, net sales declines for both the three and six months ended October 30, 2020 were partially offset by growth in Advanced Energy, particularly in the U.S. For the six months ended October 30, 2020, Core Spine net sales continued to be impacted by a decline in procedural volumes when compared to the corresponding period in the prior fiscal year, as a result of the pandemic. However, for the three months ended October 30, 2020, Core Spine saw modest growth in the U.S. driven by the continued acceptance of the products of Titan Spine, which was acquired in the first quarter of fiscal year 2020.

Specialty Therapies net sales for the three and six months ended October 30, 2020 were $581 million and $1.0 billion, respectively, an increase of 1 percent and a decrease of 9 percent as compared to the corresponding periods in the prior fiscal year. For the three months ended October 30, 2020, net sales growth was driven by recovery in Pelvic Health and strength in Neurovascular, partially offset by declines in ENT. For the three months ended October 30, 2020, the Pelvic Health business drove net sales growth due to the successful launch of the InterStim Micro neurostimulator and SureScan MRI lead in the U.S., and continued acceptance of the products in Europe. For the six months ended October 30, 2020, net sales declines were driven by ENT and Pelvic Health, partially offset by growth in Neurovascular. Neurovascular's modest growth in both the three and six months ended October 30, 2020 was driven by strength in coil sales, and aspiration catheters as well as catch-up from previously delayed procedures in the Hemorrhagic stroke business. This growth was partially offset by declines in flow diversion products due to two recent competitive entrants.

Neuromodulation net sales for the three and six months ended October 30, 2020 were $411 million and $725 million, a decrease of 2 percent and 11 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The declines were seen across both Pain Therapies and Brain Modulation for the six months ended October 30, 2020 and continued to be primarily driven by a decline in procedural volumes particularly in the spring and early summer, as a result of COVID-19. For the three months ended October 30, 2020, net sales declines in Pain Therapies were partially offset by growth in Brain Modulation propelled by sales of the Percept PC deep brain stimulation (DBS) device with Brainsense technology.

~~In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect our Restorative Therapies Group could be affected by the following:~~

•While many countries are past their initial peak with COVID-19, many regions, including the U.S. and Europe, are now experiencing a second wave. As a result, it is not possible to accurately predict the timing of recovery of deferrable medical procedures and capital equipment sales to pre-COVID-19 levels, as to date, we are seeing the speed of recovery varies by therapy and geography. The Restorative Therapies Group therapies tend to be used in procedures that are more deferrable. Therapies that might be considered more deferrable include Spine, Pain Therapies, Pelvic Health, and ENT while more urgent therapies include Spine trauma and Neurovascular stroke businesses. Moderately deferrable procedures include Brain Modulation. In addition, COVID-19 may continue to result in delayed evaluation and purchases for certain capital equipment including the Enabling Technologies business, which has a high mix of capital sales.

•Continued growth from Enabling Technologies StealthStation and O-Arm Imaging Systems, Midas, and ENT Navigation and Power Systems, as well as acceptance of the Stealth Autoguide cranial robotic guidance platform.

•~~Continued sales of Mazor robotic units and associated market adoption of robot-assisted spine procedures, including the Mazor X Stealth, our integrated robotics and navigation platform.~~

•~~Strengthening of our position in the spine titanium interbody implant marketplace as a result of the June 2019 acquisition of Titan Spine.~~

•Continued adoption of our integrated solutions through the Surgical Synergy strategy, which integrates our spinal implants with enabling technologies such as imaging, navigation, power instruments, nerve monitoring, and Mazor robotics.

•Market acceptance and continued global adoption of innovative new spine products and procedural solutions within our Cranial and Spinal Technologies business such as our Infinity OCT System and Prestige LP cervical disc system.

•Growth in the broader vertebral compression fracture (VCF) and adjacent markets as we continue to pursue the development of other therapies to treat more patients with VCF, including continued success of both the Kyphon V vertebroplasty system and the Osteocool RF Spinal Tumor ablation system.

•Continued acceptance and growth of our ENT and Pelvic Health therapies within our Specialty Therapies division, including our InterStim therapy with InterStim II and InterStim Micro neurostimulators, which received CE mark approval in January 2020 and U.S. FDA approval in August 2020, for the treatment of the symptoms of overactive bladder, urinary retention, and bowel incontinence, and capital equipment sales of the Stealth Station ENT surgical navigation system and intraoperative NIM nerve monitoring system.

•Continued acceptance and growth of the Solitare FR revascularization device for treatment of acute ischemic stroke and the Pipeline Embolization Devices, endovascular treatments for large or giant wide-necked brain aneurysms.

•~~Continued acceptance of our React Catheter and Riptide aspiration system, along with our next-generation Solitaire revascularization device.~~

•Market acceptance and continued global adoption of our Intellis spinal cord stimulator, DTM (differential target multiplexed) proprietary waveform, Evolve workflow algorithm, and Snapshot reporting to treat chronic pain in major markets around the world.

•~~Continued acceptance and growth of our Percept PC deep brain stimulation (DBS) device with Brainsense technology, which received CE Mark approval in January 2020 and U.S. FDA approval in June 2020.~~

•~~Continued acceptance of our devices for the treatment of Parkinson's Disease, epilepsy and other movement disorders.~~

•Ongoing obligations under the U.S. FDA consent decree entered in April 2015 relating to the SynchroMed drug infusion system and the Neuromodulation quality system. The U.S. FDA lifted its distribution requirements on our implantable drug pump in October 2017 and its warning letter in November 2017.

~~Diabetes Group~~

The Diabetes Group's products include insulin pumps, continuous glucose monitoring (CGM) systems, insulin pump consumables, and smart insulin pen systems. The Diabetes Group’s net sales for the three and six months ended October 30, 2020 were $574 million and $1.1 billion, a decrease of 4 percent as compared to the corresponding periods in the prior fiscal year. Currency had a favorable impact of $8 million on net sales for the three months ended October 30, 2020 and an unfavorable impact of $3 million on net sales for the six months ended October 30, 2020. The Diabetes Group's net sales declines for the three and six months ended October 30, 2020 were primarily attributable to the insulin pump business from new patient start delays associated with COVID-19 and continued competitive pressures in the U.S. The decrease is also largely attributable to COVID-19 pressures in the international markets. The declines were partially offset by growth for the Guardian Connect system.

~~In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect our Diabetes Group could be affected by the following:~~

•Strengthening our position in the diabetes market as a result of the September 10, 2020 acquisition of Companion Medical. Companion Medical offers a U.S. FDA cleared InPen smart pen system that combines the freedom of a reusable Bluetooth pen with the intelligence of an intuitive mobile application that helps users administer the appropriate insulin dose. In addition, subsequent to quarter end, we have integrated our CGM data into the Companion Medical InPen Application which allows users to have their CGM readings in real-time alongside insulin dose information, all in one view.

•~~Continued pump competition in an expanding U.S. market.~~

•Patient demand for the MiniMed 770G BLE enabled system, which received U.S. FDA approval in August 2020. The system is powered by SmartGuard technology, as featured in the MiniMed 670 system, with the added benefits of smartphone connectivity and an expanded age indication to children as young as age two. Subsequent to quarter-end, the MiniMed 770G began limited release in the U.S.

•~~Changes in medical reimbursement policies and programs, along with additional payor coverage on insulin pumps.~~

•Continued future growth internationally for the advanced hybrid closed loop system. The advanced hybrid closed loop system was approved in the European Union (EU) on June 5, 2020, and launched in twelve countries outside the U.S., primarily in Europe, during October 2020. The global adoption of sensor-augmented insulin pump systems has resulted in strong sensor attachment rates.

•Our ability to execute ongoing strategies to develop, gain regulatory approval, commercialize, and gain customer acceptance of new products, including our advanced hybrid closed loop system, as well as our Personalized Closed Loop system that was granted "Breakthrough Device" designation by the U.S. FDA. These technologies feature our next-generation algorithms by further automating insulin delivery.

•Continued acceptance and growth of the Guardian Connect CGM system, which displays glucose information directly to a smartphone. During the first quarter of fiscal year 2021, we introduced the Guardian Connect system for Android devices to ensure patients have access to their glucose levels seamlessly and discretely. The Guardian Connect CGM system is available on Apple iOS and Android devices.

~~CRITICAL ACCOUNTING ESTIMATES~~

We have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 24, 2020.

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect our best judgment about economic and market conditions and the potential effects on the valuation and/or carrying value of assets and liabilities based upon relevant information available. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

~~Our critical accounting estimates include the following:~~

~~Litigation Contingencies~~ We are involved in a number of legal actions involving product liability, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, tax disputes, and governmental proceedings and investigations. The outcomes of these legal actions are not completely within our control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies (including injunctions barring the sale of products that are the subject of the proceeding), that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions. Estimating probable losses from our litigation and governmental proceedings is inherently difficult, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, or punitive damages; or could result in a change in business practice. Our significant legal proceedings are discussed in Note 16 to the current period's consolidated financial statements.

~~Income Tax Reserves~~ We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may or may not prevail. Under U.S. GAAP, if we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by determining the amount that is greater than 50 percent likely of being realized upon settlement. We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We regularly monitor our tax positions and tax liabilities. We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) a completion of a tax audit, (ii) effective settlement of an issue, (iii) a change in applicable tax law including a tax case or legislative guidance, or (iv) the expiration of the applicable statute of limitations. Significant judgment is required in accounting for tax reserves. Although we believe that we have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our effective tax rate, consolidated earnings, financial position and/or cash flows.

~~Valuation of Intangible Assets and Goodwill~~ When we acquire a business, the assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill is the excess of the purchase price over the estimated fair value of net assets of acquired businesses. Intangible assets primarily include patents, trademarks, tradenames, customer relationships, purchased technology, and in process research and development (IPR&D). Determining the fair value of intangible assets acquired as part of a business combination requires us to make significant estimates. These estimates include the amount and timing of projected future cash flows of each project or technology, the discount rate used to discount those cash flows to present value, the assessment of the asset’s life cycle, and the consideration of legal, technical, regulatory, economic, and competitive risks.

The test for goodwill impairment requires us to make several estimates to determine fair value, most of which are based on projected future cash flows. Our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value. We assess the impairment of goodwill at the reporting unit level annually as of the first day of the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired.

We test definite-lived intangible assets for impairment when an event occurs or circumstances change that would indicate the carrying amount of the assets or asset group may be impaired. Our tests are based on future cash flows that require significant judgment with respect to future revenue and expense growth rates, appropriate discount rates, asset groupings, and other assumptions and estimates. We use estimates that are consistent with the highest and best use of the assets based on a market participant's view of the assets being evaluated. Actual results may differ from our estimates due to a number of factors including, among others, changes in competitive conditions, timing of regulatory approval, results of clinical trials, changes in worldwide economic conditions, and fluctuations in currency exchange rates.

We assess the impairment of indefinite-lived intangible assets annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Our impairment tests of indefinite-lived intangible assets require us to make several estimates to determine fair value, including projected future cash flows and discount rates.

~~NEW ACCOUNTING PRONOUNCEMENTS~~

~~Information regarding new accounting pronouncements is included in Note 2 to the current period's consolidated financial statements.~~

~~ACQUISITIONS~~

~~Information regarding acquisitions is included in Note 4 to the current period's consolidated financial statements.~~

~~COSTS AND EXPENSES~~

The following is a summary of cost of products sold, research and development, and selling, general, and administrative expenses as a percent of net sales for the three and six months ended October 30, 2020 and October 25, 2019 (dollar amounts in millions):

~~Cost of Products Sold~~ We continue to focus on reducing our costs of production through supplier management, manufacturing improvements, and optimizing our manufacturing network. Cost of products sold for the three and six months ended October 30, 2020 was $2.7 billion and $5.2 billion, respectively. The increase in cost of products sold as a percentage of net sales for the three and six months ended October 30, 2020, as compared to the corresponding periods in the prior fiscal year, was largely due to increased expenses as a result of COVID-19, primarily due to period expensing of some of our fixed overhead costs due to idle capacity at certain manufacturing facilities and increases in reserves for excess and obsolete inventory, as well as negative impact from mix, as products in higher demand had lower gross margins.

~~Research and Development Expense~~ We remain committed to accelerating the development of meaningful innovations to deliver better patient outcomes at appropriate costs that lead to enhanced quality of life and may be validated by clinical and economic evidence. We are also focused on expanding access to quality healthcare. Research and development expense for the three and six months ended October 30, 2020 was $639 million and $1.3 billion, respectively.

During the first quarter of fiscal year 2021, we entered into arrangements with third parties to fund the development of certain technologies in our Diabetes Group. As there is a substantive and genuine transfer of risk to the third parties, the development funding provided is recognized as an obligation to perform contractual services, and therefore is recorded as income in ~~other operating expense, net~~ in the consolidated statements of income in the period the corresponding research and development expenses are incurred. If the technologies receive regulatory approval and are successfully commercialized, we will pay royalties to the third parties. For the three and six months ended October 30, 2020, no projects were significant, either individually or in aggregate, to our consolidated results.

~~Selling, General, and Administrative Expense~~ Our goal is to continue to leverage selling, general, and administrative expense initiatives and to continue to realize cost synergies expected from our acquisitions. Selling, general, and administrative expense primarily consists of salaries and wages, other administrative costs, such as professional fees and marketing expenses, and certain acquisition and restructuring expenses.

Selling, general, and administrative expense for the three and six months ended October 30, 2020 was $2.6 billion and $5.0 billion, respectively. The increase in selling, general, and administrative expense as a percentage of net sales for the six months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year, was primarily driven by the deleveraging experienced due to the impact of COVID-19 on net sales. The decrease in selling, general, and administrative expense in absolute values was primarily due to savings from our Enterprise Excellence program, as well as reduced travel and discretionary spending due to the pandemic. For the three months ended October 30, 2020, selling, general, and administrative expense as a percentage of net sales was flat, as compared to the corresponding period in the prior fiscal year, with increased annual incentive accruals offset by Enterprise Excellence savings.

~~The following is a summary of other costs and expenses:~~

Three months ended Six months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
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
Other non-operating income, net (65) (108) (147) (209)
Interest expense 470 165 641 774

~~Amortization of Intangible Assets~~ Amortization of intangible assets includes the amortization expense of our definite-lived intangible assets, consisting of purchased patents, trademarks, tradenames, customer relationships, purchased technology, and other intangible assets. Amortization expense was $443 million and $884 million for the three and six months ended October 30, 2020, respectively, as compared to $441 million and $881 million for the three and six months ended October 25, 2019, respectively.

~~Restructuring Charges, Net~~

~~Enterprise Excellence~~

In the third quarter of fiscal year 2018, we announced a multi-year global Enterprise Excellence Program designed to drive long-term business growth and sustainable efficiency. The Enterprise Excellence Program is expected to further leverage our global size and scale as well as enhance the customer and employee experience.

~~The Enterprise Excellence Program is focused on three objectives:~~

•~~Global Operations – integrating and enhancing global manufacturing and supply processes, systems and site presence to improve quality, delivery cost and cash flow~~

•~~Functional Optimization – enhancing and leveraging global operating models and systems across several enabling functions to improve productivity and employee experience~~

•~~Commercial Optimization – optimizing certain processes, systems and models to improve productivity and the customer experience~~

The Enterprise Excellence Program is designed to drive operating margin improvement as well as fund investment in strategic growth initiatives, with expected annual gross savings of more than $3.0 billion from cost reductions and leverage of our fixed infrastructure by the end of fiscal year 2022. Approximately $500 million to $700 million of gross annual savings are expected to be achieved through the end of fiscal year 2022.

The Enterprise Excellence Program is expected to result in pre-tax restructuring charges of approximately $1.6 billion to $1.8 billion, the vast majority of which are expected to be incurred by the end of fiscal year 2022 and result in cash outlays to be substantially complete by the end of fiscal year 2023. Approximately half of the estimated charges are related to employee termination benefits. The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program and consulting expenses. We expect these costs to be recognized within ~~restructuring charges, net, cost of products sold, and~~ ~~selling, general, and administrative expense~~ ~~in the consolidated statements of income~~.

For the three months and six months ended October 30, 2020, we recognized charges of $90 million and $169 million, respectively, partially offset by accrual adjustments of $3 million and $5 million, respectively. Accrual adjustments relate to certain employees identified for termination finding other positions within Medtronic and contract terminations being settled for less than originally estimated. For the three and six months ended October 30, 2020, charges included $10 million and $15 million, respectively, recognized within ~~restructuring charges, net~~ ~~in the consolidated statements of income, primarily comprised of employee termination benefits~~. For the three and six months ended October 30, 2020, charges also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $32 million and $59 million, respectively, recognized within ~~cost of products~~

~~sold~~ ~~and $48 million and $95 million, respectively, recognized within~~ ~~selling, general, and administrative expense~~ ~~in the consolidated statements of income.~~

For the three and six months ended October 25, 2019, we recognized charges of $95 million and $231 million, respectively, partially offset by accrual adjustments of $1 million and $13 million, respectively, related to certain employees identified for termination finding other positions within Medtronic. For the three and six months ended October 25, 2019, charges included $28 million and $81 million, respectively, recognized within ~~restructuring charges, net~~ in the consolidated statements of income, primarily comprised of employee termination benefits. For the three and six months ended October 25, 2019, charges also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $32 million and $61 million, respectively, recognized within ~~cost of products sold~~ ~~and $35 million and $77 million, respectively, recognized within~~ ~~selling, general and administrative expense~~ ~~in consolidated statements of income. For the six months ended October 25, 2019,~~ ~~selling, general and administrative expense~~ ~~also included $6 million of fixed asset write-downs.~~

~~Simplification~~

In the first quarter of fiscal year 2021, we initiated our Simplification restructuring program, designed to make the Company a more nimble and competitive organization focused on accelerating innovation, enhancing the customer experience, driving revenue growth, and winning market share, while also more efficiently and effectively leveraging our Enterprise scale. Under the oversight of the portfolio leaders, this new operating model, which will be fully operational the beginning of the fourth quarter of fiscal year 2021, will simplify our organizational structure and accelerate decision-making and execution. Primary activities of the restructuring program will include reorganizing our business into a portfolio-level structure, including the creation of highly focused, accountable and empowered Operating Units (OUs), consolidating operations at the enterprise level, establishing Technology Development Centers in areas where we have deep core technology competencies to be leveraged by multiple OUs, and forming dedicated sales organizations that leverage our scale but move with the same agility as our smaller, local competitors.

The Simplification program designed to streamline our operating model, improve competitiveness, and enhance the customer and employee experience will result in substantial reduction in selling, general, and administrative expenses, the majority of which are expected to be achieved through the end of fiscal year 2022. Annual savings of approximately $450 million to $475 million are expected to be realized by the various components of the Simplification program.

We estimate that, in connection with the Simplification restructuring program, we will recognize pre-tax exit and disposal costs and other costs across all segments of approximately $400 million to $450 million, the majority of which are expected to be incurred by the end of fiscal year 2022. Approximately three quarters of the estimated charges are related to employee termination benefits. The remaining charges are costs associated with the restructuring program, such as salaries for employees supporting the program and consulting expenses. These charges are recognized within ~~restructuring charges, net~~, ~~cost of products sold, and~~ ~~selling, general, and administrative expense~~ ~~in the consolidated statements of income.~~

For the three and six months ended October 30, 2020, we recognized charges of $102 million and $153 million, respectively, partially offset by accrual adjustments of $8 million for both periods, related to certain employees identified for termination finding other positions within Medtronic. For the three and six months ended October 30, 2020, we recognized charges of $100 million and $150 million, respectively, within ~~restructuring charges, net~~ in the consolidated statements of income related to employee termination benefits, including $97 million of incremental defined benefit pension and post-retirement related expenses for employees that accepted voluntary early retirement packages. For the three and six months ended October 30, 2020, charges also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $2 million and $3 million, respectively, recognized within ~~selling, general and administrative expense~~ ~~in the consolidated statements of income.~~

~~For additional information about our restructuring programs, refer to Note 5 to the current period's consolidated financial statements.~~

~~Certain Litigation Charges, Net~~ We classify litigation charges and gains related to significant legal matters as certain litigation charges. During the three and six months ended October 30, 2020, we recognized charges of $84 million and a net benefit of $4 million, respectively. The net benefit for the six months ended October 30, 2020 is primarily related to favorable settlements in the first quarter of fiscal year 2021, partially offset by charges recognized in the second quarter of fiscal year 2021. During the three and six months ended October 25, 2019, we recognized charges of $121 million and $168 million, respectively, related to probable and estimable damages.

~~Other Operating Expense, Net~~ Other operating expense, net primarily includes royalty income and expense, currency remeasurement and derivative gains and losses, Puerto Rico excise taxes, changes in the fair value of contingent consideration, change in amounts accrued for certain contingent liabilities for a recent acquisition, a commitment to the Medtronic Foundation, charges associated with business exits, and income from funded research and development arrangements. For the three and six months ended October 30, 2020, other operating expense, net was $149 million and $35 million, respectively, as compared to $149 million and $127 million, for the three and six months ended October 25, 2019, respectively. The changes in other operating expense, net are primarily attributable to our remeasurement and

hedging programs, change in amounts accrued for certain contingent liabilities, commitment to the Medtronic Foundation, and charges associated with business exits. Combined, our remeasurement and hedging programs resulted in a $16 million loss and $15 million gain for the three and six months ended October 30, 2020, respectively, as compared to a $47 million gain and $121 million gain for the three and six months ended October 25, 2019, respectively. Additionally, for the six months ended October 30, 2020, other operating expense, net includes a $132 million gain related to amounts accrued for certain contingent liabilities for a recent acquisition. For the three and six months ended October 25, 2019, other operating expense, net includes a $41 million charge associated with the exit of businesses and an $80 million charge associated with our commitment to the Medtronic Foundation.

~~Other Non-Operating Income, Net~~ Other non-operating income, net includes the non-service component of net periodic pension and postretirement benefit cost, investment gains and losses, and interest income. For the three and six months ended October 30, 2020, other non-operating income, net was $65 million and $147 million, respectively, as compared to $108 million and $209 million for the three and six months ended October 25, 2019, respectively. The change in other non-operating income, net is primarily attributable to interest income, which was $46 million and $98 million for the three and six months ended October 30, 2020, respectively, as compared to $77 million and $160 million for the three and six months ended October 25, 2019, respectively.

~~Interest Expense~~ Interest expense includes interest incurred on our outstanding borrowings, amortization of debt issuance costs and debt premiums or discounts, amortization of gains or losses on terminated or de-designated interest rate derivative instruments, and charges recognized in connection with the tender and early redemption of senior notes. For the three and six months ended October 30, 2020, interest expense was $470 million and $641 million, respectively, as compared to $165 million and $774 million for the three and six months ended October 25, 2019, respectively. The increase in interest expense during the three months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year, was primarily driven by $308 million of charges recognized in connection with the early redemption of $6.0 billion of debt. The decrease in interest expense during the six months ended October 30, 2020 was primarily due to a decrease in charges related to debt tender and redemption transactions, which were $308 million for the six months ended October 30, 2020, as compared to $413 million for the six months ended October 25, 2019, as well as a decrease in the weighted-average interest rate of outstanding debt obligations driven by our debt issuance and tender transactions in the first quarter of fiscal year 2020 and second quarter of fiscal year 2021.

~~INCOME TAXES~~

Three months ended Six months ended
(in millions) October 30, 2020 October 25, 2019 October 30, 2020 October 25, 2019
Income tax provision $ 31 $ (77) $ 124 $ 23
Income before income taxes 525 1,294 1,109 2,271
Effective tax rate 5.9 % (6.0) % 11.2 % 1.0 %
Non-GAAP income tax provision $ 221 $ 312 $ 358 $ 618
Non-GAAP income before income taxes 1,606 2,096 2,583 4,118
Non-GAAP Nominal Tax Rate 13.8 % 14.9 % 13.9 % 15.0 %
Difference between the effective tax rate and Non-GAAP Nominal Tax Rate 7.9 % 20.9 % 2.7 % 14.0 %

Our effective tax rate for the three and six months ended October 30, 2020 was 5.9 percent and 11.2 percent, respectively, as compared to (6.0) percent and 1.0 percent for the three and six months ended October 25, 2019, respectively. The increase in our effective tax rate for the three and six months ended October 30, 2020, as compared to the corresponding periods in the prior fiscal year, was primarily due to the impact of certain tax adjustments and year-over-year changes in operational results by jurisdiction.

Our Non-GAAP Nominal Tax Rate for the three and six months ended October 30, 2020 was 13.8 percent and 13.9 percent, respectively, as compared to 14.9 percent and 15.0 percent for the three and six months ended October 25, 2019, respectively. The decrease in our Non-GAAP Nominal Tax Rate was due to the impact of year-over-year changes in operational results by jurisdiction. An increase in our Non-GAAP Nominal Tax Rate of 1 percent would result in an additional income tax provision for the three and six months ended October 30, 2020 of approximately $16 million and $26 million, respectively.

~~Certain Tax Adjustments~~

•~~A cost of $23 million associated with the amortization of the previously established deferred tax assets from intercompany intellectual property transactions.~~

~~During the three months ended October 25, 2019, the benefit from certain tax adjustments of $251 million, recognized in~~ ~~income tax provision (benefit)~~ in the consolidated statements of income, included a benefit of $251 million related to tax legislative changes in Switzerland which abolished certain preferential tax regimes the Company benefited from and replaced them with a new set of internationally accepted measures. The legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.

~~During the six months ended October 25, 2019, the net benefit from certain tax adjustments of $281 million, recognized in~~ ~~income tax provision (benefit)~~ ~~in the consolidated statements of income, included the following:~~

•A net benefit of $30 million related to U.S. Treasury’s issuance of certain Final Regulations associated with U.S. Tax Reform. The primary impact of these regulations resulted in the re-establishment of our permanently reinvested assertion on certain foreign earnings and reversing the previously accrued tax liability. This benefit was partially offset by additional tax associated with a previously executed internal reorganization of certain foreign subsidiaries.

•A benefit of $251 million related to tax legislative changes in Switzerland, which abolished certain preferential tax regimes the Company benefited from and replaced them with a new set of internationally accepted measures. The legislation provided for higher effective tax rates but allowed for a transitional period whereby an amortizable asset was created for Swiss federal income tax purposes which will be amortized and deducted over a 10-year period.

~~LIQUIDITY AND CAPITAL RESOURCES~~

We are currently in a strong financial position. Despite the impact from COVID-19 on operating cash flow and net income, we believe our balance sheet and liquidity provide us with flexibility, and our cash, cash equivalents, and current investments, as well as our credit facility and related commercial paper programs outlined below, will satisfy our foreseeable operating needs. We believe we have ample liquidity, with $14.3 billion of cash and investments as of October 30, 2020, and an undrawn $3.5 billion credit facility, with $4.0 billion of debt obligation due within twelve months of October 30, 2020. Given our strong financial position, we are continuing to focus on making capital allocation decisions to drive our long-term strategies.

Our liquidity and capital structure is evaluated regularly within the context of our annual operating and strategic planning process. We consider the liquidity necessary to fund our operations, which includes working capital needs, investments in research and development, property, plant, and equipment, and other operating costs. We also consider capital allocation alternatives that balance returning value to shareholders through dividends and share repurchases, satisfying maturing debt, and acquiring businesses and technology.

~~Summary of Cash Flows~~

The following is a summary of cash provided by (used in) operating, investing, and financing activities, the effect of exchange rate changes on cash and cash equivalents, and the net change in cash and cash equivalents:

Six months ended
(in millions) October 30, 2020 October 25, 2019
Cash provided by (used in):
Operating activities $ 2,139 $ 3,377
Investing activities (2,012) (1,767)
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)

~~Operating Activities~~ The $1.2 billion decrease in net cash provided was primarily driven by a decrease in cash collected from customers, partially offset by a decrease in cash paid for income taxes, and a decrease in cash paid to employees. The decrease in cash collected from customers was primarily related to COVID-19 driving decreased sales in the fourth quarter of fiscal year 2020 and first quarter of fiscal year 2021, when compared to the corresponding periods in the prior fiscal year. Our relative sales performance in the three months ended October 30, 2020 compared to the prior fiscal year did not have a significant impact on our net cash provided. The decrease in cash paid for income taxes was primarily due to the decrease in estimated U.S. federal tax payments, as well as tax payments associated with a European audit settlement in the first quarter of fiscal year 2020. Cash paid to employees decreased due to lower annual incentive plan payouts compared the corresponding period in the prior fiscal year.

~~Investing Activities~~ The $245 million increase in net cash used was primarily attributable to an increase in cash paid for acquisitions of $169 million and an increase in net purchases of investments of $57 million during the six months ended October 30, 2020, as compared to the corresponding period in the prior fiscal year.

~~Financing Activities~~The $4.0 billion increase in net cash provided was primarily attributable to the Mizuho Bank term loan under which the Company borrowed $2.8 billion in the first quarter of fiscal year 2021, as well as the net proceeds from the debt issuance and early redemption described below. Also contributing to the total increase in cash provided was the decrease in net cash used for share repurchases of $894 million. Cash flow activity related to share repurchases for the six months ended October 30, 2020 is related to cash remitted to taxing authorities for shares withheld for employee taxes on share-based payment deliveries and exercises; the Company did not repurchase any shares during the six months ended October 30, 2020. Partially offsetting these items was a decrease in the issuance of ordinary shares of $313 million, when compared to the corresponding period in the prior fiscal year. For the six months ended October 30, 2020 financing cash flows were impacted by the issuance of $7.2 billion of Euro-denominated senior notes offset by the early redemption of $6.0 billion of senior notes for $6.3 billion of total consideration. For comparison, financing cash flows for the six months ended October 25, 2019 were impacted by the issuance of $5.6 billion of Euro-denominated senior notes, offset by the tender of $5.2 billion of senior notes for $5.6 billion of total consideration. For more information on the aforementioned Mizuho Bank term loan, and issuances and redemptions of senior notes, please see the Debt and Capital section.

5332

Free Cash Flow

Free cash flow, a non-GAAP financial measure, is calculated by subtracting additions to property, plant, and equipment from net cash provided by operating activities. Management uses this non-GAAP financial measure, in addition to U.S. GAAP financial measures, to evaluate our operating results. Free cash flow should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with U.S. GAAP. Reconciliations between net cash provided by operating activities (the most comparable U.S. GAAP measure) and free cash flow are as follows:


		Six months ended					Six months ended
(in millions)	(in millions)	October 30, 2020		October 25, 2019		(in millions)	October 29, 2021		October 30, 2020

Net cash provided by operating activities	Net cash provided by operating activities	$	2,139	$	3,377	Net cash provided by operating activities	$	3,061	$	2,139
Additions to property, plant, and equipment	Additions to property, plant, and equipment	(615)		(584)		Additions to property, plant, and equipment	(649)		(615)
Free cash flow	Free cash flow	$	1,524	$	2,793	Free cash flow	$	2,412	$	1,524

Refer to the Summary of Cash Flows section for drivers of the change in cash provided by operating activities.

NET SALES

Segment and Division

The charts below illustrate the percent of net sales by segment for the three months ended October 29, 2021 and October 30, 2020:

The table below illustrates net sales by segment and division for the three and six months ended October 29, 2021 and October 30, 2020:


	Three months ended						Six months ended
(in millions)	October 29, 2021		October 30, 2020		% Change		October 29, 2021		October 30, 2020		% Change
Cardiac Rhythm & Heart Failure	$	1,471	$	1,426	3	%	$	2,954	$	2,673	11	%
Structural Heart & Aortic	750		733		2		1,537		1,360		13
Coronary & Peripheral Vascular	606		567		7		1,226		1,125		9
Cardiovascular	2,827		2,725		4		5,717		5,158		11
Surgical Innovations	1,497		1,393		7		3,051		2,473		23
Respiratory, Gastrointestinal, & Renal	802		893		(10)		1,570		1,613		(3)
Medical Surgical	2,299		2,285		1		4,621		4,086		13
Cranial & Spinal Technologies	1,067		1,071		—		2,189		2,015		9
Specialty Therapies	634		581		9		1,275		1,035		23
Neuromodulation	435		411		6		875		725		21
Neuroscience	2,136		2,063		4		4,340		3,774		15
Diabetes	585		574		2		1,157		1,136		2
Total	$	7,847	$	7,647	3	%	$	15,835	$	14,154	12	%

Segment and Market Geography

The charts below illustrate the percent of net sales by market geography for the three months ended October 29, 2021 and October 30, 2020:

The table below includes net sales by market geography for each of our segments for the three and six months ended October 29, 2021 and October 30, 2020:


	U.S.(1)						Non-U.S. Developed Markets(2)						Emerging Markets(3)
	Three months ended						Three months ended						Three months ended
(in millions)	October 29, 2021		October 30, 2020		% Change		October 29, 2021		October 30, 2020		% Change		October 29, 2021		October 30, 2020		% Change
Cardiovascular	$	1,373	$	1,377	—	%	$	948	$	945	—	%	$	506	$	404	25	%
Medical Surgical	970		996		(3)		841		837		—		488		452		8
Neuroscience	1,394		1,397		—		433		426		2		309		240		29
Diabetes	261		284		(8)		256		238		8		69		51		35
Total	$	3,997	$	4,054	(1)	%	$	2,478	$	2,446	1	%	$	1,372	$	1,147	20	%


	U.S.(1)						Non-U.S. Developed Markets(2)						Emerging Markets(3)
	Six months ended						Six months ended						Six months ended
(in millions)	October 29, 2021		October 30, 2020		% Change		October 29, 2021		October 30, 2020		% Change		October 29, 2021		October 30, 2020		% Change
Cardiovascular	$	2,793	$	2,582	8	%	$	1,952	$	1,798	9	%	$	972	$	778	25	%
Medical Surgical	1,959		1,718		14		1,710		1,556		10		951		811		17
Neuroscience	2,840		2,533		12		898		802		12		602		439		37
Diabetes	506		572		(12)		519		465		12		132		100		32
Total	$	8,098	$	7,405	9	%	$	5,079	$	4,621	10	%	$	2,658	$	2,128	25	%

(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.

The increase in net sales for the three months ended October 29, 2021, as compared to the corresponding period in the prior fiscal year, was driven by strength in the international markets partially offset by declines in the U.S. largely due to the COVID-19 resurgence and healthcare system staffing shortages. For the six months ended October 29, 2021, most of our businesses and geographies continue to achieve revenue levels at or above pre-pandemic levels. Currency had a favorable impact on net sales of $32 million and $277 million, respectively, for the three and six months ended October 29, 2021. For the three months ended, currency had a favorable impact on emerging markets of $37 million partially offset by an unfavorable impact for non-U.S. developed markets of $5 million. For the six months ended October 29, 2021, currency had a favorable impact for emerging markets and non-U.S. developed markets of $100 million and $177 million, respectively.

During the fourth quarter of fiscal year 2021, we realigned our divisions within the Cardiovascular Portfolio. As a result, fiscal year 2021 results have been recast to adjust for this realignment. Additionally, in fiscal year 2021 we implemented our new operating model, which was fully operational the beginning of the fourth quarter. Our new operating model simplifies our organization in order to accelerate decision making, improve commercial execution, and more effectively leverage the scale of our company.

Looking ahead, the uncertain and uneven impact of COVID-19 on future procedural volumes, supply constraints, healthcare staffing, and resulting demand for our products and therapies could negatively impact our business. Additionally, our segments may face competitive product launches and pricing pressure, geographic macro-economic risks, reimbursement challenges and national tender pricing for certain products, impacts from changes in the mix of our product offerings, delays in product registration approvals, replacement cycle challenges, and fluctuations in currency exchange rates.

Cardiovascular

Cardiovascular products include pacemakers, insertable cardiac monitors, cardiac resynchronization therapy devices, implantable cardioverter defibrillators (ICD), leads and delivery systems, ablation products, electrophysiology catheters, products for the treatment of atrial fibrillation, information systems for the management of patients with Cardiac Rhythm & Heart Failure devices, products designed to reduce surgical site infections, coronary and peripheral stents and related delivery systems, balloons and related delivery systems, endovascular stent graft systems, heart valve replacement technologies, cardiac tissue ablation systems, and open heart and coronary bypass grafting surgical products. Cardiovascular also includes Care Management Services and Cath Lab Managed Services (CLMS) within the Cardiac Rhythm & Heart Failure division. Cardiovascular's net sales for the three and six months ended October 29, 2021 were $2.8 billion and $5.7 billion, respectively, which represents an increase of 4 percent and 11 percent, respectively, compared to the corresponding periods

in the prior fiscal year. Currency had a favorable impact of $11 million and $106 million, respectively, on net sales for the three and six months ended October 29, 2021. Cardiovascular's net sales increase for the three months ended October 29, 2021 was primarily driven by the recovery of procedural volumes in the international markets, with partially offsetting declines experienced in certain businesses in the U.S. due to the COVID-19 resurgence. The increase for the six months ended October 29, 2021 was primarily due to the recovery of global procedure volumes from the downturn experienced in the first and second quarter of fiscal year 2021 resulting from the pandemic along with growth from recent product launches.

The graphs below illustrate the percent of Cardiovascular net sales by division for the three months ended October 29, 2021 and October 30, 2020:

Cardiac Rhythm & Heart Failure (CRHF) net sales for the three and six months ended October 29, 2021 increased 3 percent and 11 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The increase for the three and six months ended was led by Cardiac Rhythm Management with growth in TYRX antibacterial envelopes, CRT-Ds, and cardiac pacing therapies due to Micra and transvenous pacemakers. Cardiac Ablation Solutions also led growth for both periods with strong sales of Arctic Front cryoablation systems. For the three months ended October 29, 2021, these increases were partially offset by lower growth of Cardiovascular Diagnostics caused by COVID-19 and competitive pressure. For both periods, the net sales growth was partially offset by a decline of Medtronic HVAD System net sales as a result of our June 2021 decision to stop the distribution and sale of the system.

Structural Heart & Aortic (SHA) net sales for the three and six months ended October 29, 2021 increased 2 percent and 13 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The increase in both periods was led by growth in transcatheter aortic valve replacement (TAVR) net sales as a result of continued adoption of the CoreValve Evolut. Cardiac Surgery also contributed to the net increase in sales for both periods as a result of broad-based growth across the business. Partially offsetting these increases was a decline in net sales of the Valiant Navion Thoracic Stent Graft System as a result of our voluntary recall of the system in the fourth quarter of fiscal year 2021.

Coronary & Peripheral Vascular (CPV) net sales for the three and six months ended October 29, 2021 increased 7 percent and 9 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The increase in both periods was led by growth in Peripheral Vascular Health driven by our superficial venous product portfolio, including the VenaSeal and ClosureFast systems, as well as strong performance of the recently launched Abre venous self-expanding stent system for Deep Venous disease. Coronary & Renal Denervation also experienced growth driven by drug-eluting stents and guide catheters.

In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead, we expect Cardiovascular could be affected by the following:

•Continued growth of our Micra transcatheter pacing system. Micra AV received U.S. FDA approval and CE Mark approval in January and April 2020, respectfully. Subsequent to the quarter, the Micra AV launched in Japan in November. Micra AV expands the Micra target population from 15 percent to 45 percent of pacemaker patients.

•Growth of the Cobalt and Crome portfolio of ICDs and CRT-Ds. These devices received CE Mark approval during the fourth quarter of fiscal year 2020 and U.S. FDA approval during the first quarter of fiscal year 2021.

•Continued acceptance and expansion of the Claria MRI CRT-D system with EffectivCRT Diagnostic and EffectivCRT During AF Algorithm.

•Advancement of the LINQ II cardiac monitor, which received CE Mark in November 2019 and gained U.S. FDA approval during the first quarter of fiscal year 2021. We are currently experiencing supply constrains for the LINQ II cardiac monitor as we ramp our wafer scale manufacturing.

•Growth of the CRT-P quadripolar pacing system.

•Continued growth, adoption, and utilization of the TYRX Envelope for implantable devices driven by the favorable results of the WRAP-IT clinical study.

•Continued acceptance and market expansion of Arctic Front cryoablation for treatment of atrial fibrillation. In June 2021, the Arctic Front cryoablation system received a first line therapy designation from the U.S. FDA for the treatment of atrial fibrillation.

•Continued expansion and training of field support to increase coverage in the U.S. centers performing TAVR procedures.

•Continued acceptance and growth from Evolut PRO, which provides industry-leading hemodynamics, reliable delivery, and advanced sealing with an excellent safety profile. In August 2021, the U.S. FDA approved the Evolut FX TAVR, a system enhancement designed to improve the overall procedural experience through enhancements in deliverability, implant visibility and deployment stability.

•The Chinese national and provincial tenders that have negatively impacted drug-eluting stent and coronary balloon prices in China could impact other products within the division.

•Continued acceptance and growth from the VenaSeal Closure System in the U.S. The VenaSeal Closure System is a unique non-thermal solution to address superficial venous disease that provides improved patient comfort, reduces the recovery time, and eliminates the risk of thermal nerve injury.

•Our voluntary recall of the Valiant Navion Thoracic Stent Graft System and our ability to ramp production of our previous generation product, the Valiant Captivia Thoracic Stent Graft System. We are currently ramping production of the Valiant Captivia Thoracic Stent Graft System and plan to reach full production capacity in the fourth quarter of fiscal year 2022.

•Our June 2021 decision to stop the distribution and sale of the Medtronic HVAD System in light of a growing body of observational clinical comparisons indicating a lower frequency of neurological adverse events and mortality with another circulatory support device available to patients compared to the HVAD System.

•Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include the Symplicity Spyral Multi-Electrode Renal Denervation Catheter for the treatment of hypertension through a one-time, minimally invasive catheter procedure; Pulse Field Ablation, a novel energy source that is non-thermal, for the treatment of atrial fibrillation; and transcatheter mitral and tricuspid therapy products led by our Intrepid system.

Medical Surgical

Medical Surgical’s products span the entire continuum of patient care from diagnosis to recovery, with a focus on diseases of the gastrointestinal tract, lungs, pelvic region, kidneys, obesity, and preventable complications. The products include those for advanced and general surgical products, surgical stapling devices, vessel sealing instruments, wound closure, electrosurgery products, hernia mechanical devices, mesh implants, advanced ablation, interventional lung, ventilators, airway products, renal care products, and sensors and monitors

for pulse oximetry, capnography, level of consciousness and cerebral oximetry. Medical Surgical's net sales for the three and six months ended October 29, 2021 were $2.3 billion and $4.6 billion, respectively, an increase of 1 percent and 13 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had a favorable impact of $8 million and $85 million on net sales for the three and six months ended October 29, 2021, respectively. Medical Surgical's net sales increase for the three months ended October 29, 2021 was driven by the recovery of procedural volumes in the international markets, with partially offsetting declines experienced in the U.S. due to the COVID-19 resurgence. The net sales increase for the six months ended October 29, 2021 was primarily due to the recovery of global procedure volumes from the declines experienced in the corresponding period in the prior year.

The graphs below illustrate the percent of Medical Surgical net sales by division for the three months ended October 29, 2021 and October 30, 2020:

Surgical Innovations (SI) net sales for the three and six months ended October 29, 2021 increased 7 percent and 23 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Net sales growth for the three months ended October 29, 2021 was led by the international markets due to strong procedure recovery in certain regions, with growth in advanced stapling and wound closure. This growth was offset by declines in the U.S. largely due to Advanced Energy. The growth for the six months ended October 29, 2021 was experienced worldwide led by Advanced Stapling, Advanced Energy, and Hernia and Wound Management.

Respiratory, Gastrointestinal, & Renal (RGR) net sales for the three and six months ended October 29, 2021 decreased 10 percent and 3 percent, respectively, as compared to the corresponding periods in the prior fiscal year. RGR net sales declines for both periods were largely due to declines in ventilator demands when compared to the corresponding periods in the prior year as demand continues to trend towards pre-pandemic levels. These declines were partially offset by growth in Renal Care Solutions, Patient Monitoring, particularly the Nellcor pulse oximetry system, as well as in Gastrointestinal, driven by the esophageal product portfolio and PillCam capsule endoscopy.

In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect Medical Surgical could be affected by the following:

•Continued acceptance and future growth of powered stapling and energy platform.

vessel sealing generator, which is compatible with our line of LigaSure instruments and designed for simplified use and affordability.

•Continued acceptance and growth within the end stage renal disease market. The population of patients treated for end stage renal disease globally is expected to double over the next decade.

•Continued and future acceptance of less invasive standards of care in Gastrointestinal and Hepatology products, including the areas of GI Diagnostic and Therapeutic product lines. Recently launched products include the PillCam COLON capsule endoscopy, the Barrx platform through ablation with the Barrx 360 Express catheter, Endoflip imaging systems, Bravo Calibration-free reflux testing, and the Emprint ablation system with Thermosphere Technology, which maintains predictable spherical ablation zones throughout procedures reducing procedure time and cost.

•Continued and future acceptance of Interventional Lung Solutions. Products include our Illumisite navigation platform, combined with our portfolio of biopsy tools including the Arcpoint pulmonary needle, and to access lesions outside the airway, the CrossCountry transbronchial access tool. This comprehensive portfolio gives the power to display position and access lung nodules in the periphery of the lungs, in a minimally invasive approach to accessing difficult-to-reach areas of the lung, which may aid in the diagnosis of lung cancer.

•Continued future growth internationally for the Hugo robotic assisted surgery (RAS) system for urologic and gynecologic procedures, which received CE Mark in October 2021. The Hugo RAS system is designed to help reduce unwanted variability, improve patient outcomes, and by extension, lower per procedure cost.

•Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include our Hugo RAS system in the U.S., our NextGen McGrath MAC video laryngoscopes, Signia power stapling devices, and our Ligasure and Sonicion vessel sealing devices.

Neuroscience

Neuroscience's products include various spinal implants, bone graft substitutes, biologic products, image-guided surgery and intra-operative imaging systems, robotic guidance systems used in the robot-assisted spine procedures, and systems that incorporate advanced energy surgical instruments. Neuroscience's products also focus on the treatment of overactive bladder, urinary retention, fecal incontinence, gastroparesis, as well as products to treat ear, nose, and throat (ENT), and therapies to treat the diseases of the vasculature in and around the brain, including coils, neurovascular stents and flow diversion products. Neuroscience also manufactures products related to implantable neurostimulation therapies and drug delivery systems for the treatment of chronic pain, movement disorders, and epilepsy. Neuroscience’s net sales for the three and six months ended October 29, 2021 were $2.1 billion and $4.3 billion, respectively, which represents an increase of 4 percent and 15 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had a favorable impact of $10 million and $57 million, respectively, on net sales for the three and six months ended October 29, 2021. Neuroscience's net sales increase for the three months ended October 29, 2021 was driven by the recovery of procedural volumes in the international markets, with partially offsetting declines in certain businesses in the U.S. due to the COVID-19 resurgence. The net sales growth for the six months ended October 29, 2021 was primarily due to the recovery of global procedure volumes from the declines experienced in the corresponding period in the prior year.

The graphs below illustrate the percent of Neuroscience net sales by division for the three months ended October 29, 2021 and October 30, 2020:

Cranial and Spinal Technologies (CST) net sales growth for the three and six months ended October 29, 2021 was flat and increased 9 percent, respectively, as compared to the corresponding periods in the prior fiscal year. For both periods, Neurosurgery experienced growth from strong sales of Midas Rex powered surgical instruments, StealthStation Navigation, and O-arm imaging surgery. For the six months ended October 29, 2021, the increase was also driven by Spine and Biologics due to the recovery of global procedural volumes when compared to the corresponding period in the prior year. For the three months ended, the international markets of Spine and Biologics recovered, resulting in sales growth, partially offset by declines in the U.S.

Specialty Therapies (Specialty) net sales for the three and six months ended October 29, 2021 increased 9 percent and 23 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The increase for both periods was driven by growth in Neurovascular led by flow diversion and liquid embolic products. ENT experienced worldwide growth for both periods, including strong performance outside the U.S. in power, navigation, and monitoring. For the three months ended October 29, 2021, Pelvic Health sales growth was due to the international markets offset by declines in the U.S. For the six months ended October 29, 2021, Pelvic Health saw continued growth led by sales of the recently launched InterStim Micro neurostimulator and SureScan MRI leads.

Neuromodulation (NM) net sales for the three and six months ended October 29, 2021 increased 6 percent and 21 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Sales growth in both periods was driven by Brain Modulation and Interventional businesses. Brain Modulation and Interventional saw net sales growth driven by strong performance in the Percept PC deep brain stimulation (DBS) device with BrainSense technology. For the six months ended October 29, 2021, the increase was also driven by Pain Stim and Pain Therapies, largely due to strong performance of recent product launches. For the three months ended October 29, 2021, Pain Stim and Pain Therapies partially offset the sales growth with declines in the U.S.

In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect Neuroscience could be affected by the following:

•Continued growth from Enabling Technologies, including StealthStation and O-Arm Imaging Systems, Midas, and ENT Navigation and Power Systems, as well as acceptance of the Stealth Autoguide cranial robotic guidance platform.

•Continued sales of Mazor robotic units and associated market adoption of robot-assisted spine procedures, including the Mazor X Stealth, our integrated robotics and navigation platform.

•Continued growth from spine titanium interbody implants.

•Continued adoption of our integrated solutions through the Surgical Synergy strategy which integrates our spinal implants with enabling technologies such as imaging, navigation, power instruments, nerve monitoring, and Mazor

robotics, as well as AI-driven surgical planning, personalized spinal implants, and robot-assisted surgery due to the newly acquired Medicrea technologies.

•Market acceptance and continued global adoption of innovative new spine products and procedural solutions within our CST division, such as our Infinity OCT System and Prestige LP cervical disc system.

•Continued acceptance and growth of our ENT and Pelvic Health therapies within our Specialty Therapies division, including our InterStim therapy with InterStim II and InterStim Micro neurostimulators for the treatment of the symptoms of overactive bladder, urinary retention, and bowel incontinence, and capital equipment sales of the Stealth Station ENT surgical navigation system and intraoperative NIM nerve monitoring system.

•Continued acceptance and growth of the Solitaire FR revascularization device for treatment of acute ischemic stroke and the Pipeline Embolization Devices, endovascular treatments for large or giant wide-necked brain aneurysms.

•Continued acceptance of our React Catheter and Riptide aspiration system, along with our next-generation Solitaire revascularization device.

•Market acceptance and continued global adoption of our Intellis spinal cord stimulator, DTM proprietary waveform, Evolve workflow algorithm, and Snapshot reporting to treat chronic pain in major markets around the world.

•Continued acceptance and growth of our Percept PC DBS device with BrainSense technology, including its treatment of Parkinson's Disease, epilepsy, and other movement disorders.

•Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include our closed-loop Percept PC and RC devices with adaptive DBS (aDBS) within Neuromodulation, as well as our hemorrhagic stroke intravascular device within Specialty Therapies, and our next-generation spine enabling technologies within CST.

Diabetes

Diabetes' products include insulin pumps, continuous glucose monitoring (CGM) systems, consumables, and smart insulin pen systems. Diabetes' net sales for the three and six months ended October 29, 2021 were $585 million and $1.2 billion, respectively, an increase of 2 percent as compared to the corresponding periods in the prior fiscal year. Currency had a favorable impact of $3 million and $29 million on net sales for the three and six months ended October 29, 2021, respectively. Diabetes' net sales growth for both periods was primarily attributable to growth in the international markets in durable pumps and integrated CGM. The growth was also driven by durable pumps in the U.S. while CGM experienced declines in the U.S. for both periods.

In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect Diabetes could be affected by the following:

•Patient demand for the MiniMed 770G insulin pump system, which received U.S. FDA approval in August 2020 and launched in November 2020. The system is powered by SmartGuard technology and features the added benefits of smartphone connectivity and an expanded age indication to children as young as age two.

•Continued future growth internationally for the MiniMed 780G insulin pump system. The MiniMed 780G system was approved in the E.U. in June 2020 and has launched in over 40 countries on four continents outside the U.S. starting in October 2020. The global adoption of sensor-augmented insulin pump systems has resulted in strong sensor attachment rates.

•Continued acceptance and growth of the Guardian Connect CGM system which displays glucose information directly to a smartphone to help ensure patients have access to their glucose levels seamlessly and discretely. The Guardian Connect CGM system is available on both Apple iOS and Android devices.

•Strengthening our position in the diabetes market as a result of the September 2020 acquisition of Companion Medical. Companion Medical offered a U.S. FDA cleared InPen smart pen system that combines the freedom of a reusable Bluetooth pen with the intelligence of an intuitive mobile application that helps users administer the appropriate insulin

dose. During the third quarter of fiscal year 2021, we integrated our CGM data into the InPen Application, which allows users to have their CGM readings in real-time alongside insulin dose information, all in one view.

•Continued pump and CGM competition in an expanding global market.

•Changes in medical reimbursement policies and programs, along with additional payor coverage on insulin pumps.

•Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include our MiniMed 780G insulin pump and the Guardian 4 sensor, which have been submitted to the U.S. FDA. These technologies feature our next-generation algorithms by further automating insulin delivery.

COSTS AND EXPENSES

Cost of Products Sold We continue to focus on reducing our costs of production through supplier management, manufacturing improvements, and optimizing our manufacturing network. Cost of products sold for the three and six months ended October 29, 2021 was $2.5 billion and $5.1 billion, respectively, as compared to $2.7 billion and $5.2 billion for the corresponding periods in the prior fiscal year. The decrease in cost of products sold as a percentage of net sales for both periods was largely due to increased expenses in the prior year comparable periods as a result of COVID-19. During the three and six months ended October 30, 2020, the conditions of the pandemic resulted in period expensing some of our fixed overhead costs due to idle capacity at certain manufacturing facilities, and increases in our reserves in our excess and obsolete inventory, as well as negative impact from mix, as products in higher demand had lower gross margins. The six months ended October 29, 2021 included $58 million of inventory write-downs associated with our June 2021 decision to stop the distribution and sale of Medtronic's HVAD System (MCS charges).

Research and Development Expense We remain committed to deliver the best possible experiences for every patient, physician, and caregiver we serve; to create technologies that expand what’s possible across the entire human body to transform lives; to turn data and insights into real action to serve real patient needs, dramatically improving care; and to expand healthcare access and deliver positive outcomes that go far beyond our products. Research and development expense for the three and six months ended October 29, 2021 was $676 million and $1.4 billion, respectively, as compared to $639 million and $1.3 billion, respectively, for the corresponding periods in the prior fiscal year. The six months ended October 29, 2021 included $90 million of asset acquisitions and certain license payments for unapproved technology primarily in our Diabetes segment.

Selling, General, and Administrative Expense Our goal is to continue to leverage selling, general, and administrative expense initiatives. Selling, general, and administrative expense primarily consists of salaries and wages, other administrative costs, such as professional fees and marketing expenses, and certain acquisition and restructuring expenses.

Selling, general, and administrative expense for the three and six months ended October 29, 2021 was $2.6 billion and $5.2 billion, as compared to $2.6 billion and $5.0 billion for the corresponding periods in the prior fiscal year. The decrease in selling, general, and administrative expense as a percentage of net sales for both periods was primarily driven by net sales growth as a result of the recovery of procedural volumes as well as cost containment measures implemented in the current year.

The following is a summary of other costs and expenses (income):


	Three months ended				Six months ended
(in millions)	October 29, 2021		October 30, 2020		October 29, 2021		October 30, 2020
Amortization of intangible assets	$	431	$	443	$	866	$	884
Restructuring charges, net	10		97		21		150
Certain litigation charges, net	34		84		60		(4)
Other operating expense, net	21		149		781		35
Other non-operating income, net	(66)		(65)		(177)		(147)
Interest expense	136		470		273		641

Amortization of Intangible Assets Amortization of intangible assets includes the amortization expense of our definite-lived intangible assets, consisting of purchased patents, trademarks, tradenames, customer relationships, purchased technology, and other intangible assets.

Restructuring Charges, Net

Enterprise Excellence

In the third quarter of fiscal year 2018, we announced a multi-year global Enterprise Excellence Program designed to drive long-term business growth and sustainable efficiency. Further program details are described in Note 4 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of $1.4 billion in connection with the Enterprise Excellence program. In total, the Company estimates it will recognize approximately $1.6 billion to $1.8 billion of exit and disposal costs and other costs related to the Enterprise Excellence program, the majority of which are expected to be incurred by the end of this fiscal year.

For the three and six months ended October 29, 2021, we recognized net charges of $62 million and $136 million, respectively, associated with our Enterprise Excellence Program, including $4 million and $15 million, respectively, recognized within restructuring charges, net in the consolidated statements of income primarily comprised of employee termination benefits. Netcharges for the three and six months ended October 29, 2021 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $31 million and $64 million, respectively, recognized within cost of products sold and $27 million and $57 million, respectively, recognized within selling, general, and administrative expense in the consolidated statements of income.

For the three and six months ended October 30, 2020, we recognized net charges of $87 million and $164 million, respectively, associated with our Enterprise Excellence Program, including $7 million and $10 million, respectively, recognized within restructuring charges, net in the consolidated statements of income primarily comprised of employee termination benefits. Net charges for the three and six months ended October 29, 2021 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $32 million and $59 million, respectively, recognized within cost of products sold, and $48 million and $95 million, respectively, recognized within selling, general and administrative expense in the consolidated statements of income.

Simplification

In the first quarter of fiscal year 2021, we initiated our Simplification restructuring program, designed to make the Company a more nimble and competitive organization. Further program details are described in Note 4 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of $293 million in connection with the Simplification program. In total, the Company estimates it will recognize approximately $400 million to $450 million of exit and disposal costs and other costs related to the Simplification program, the majority of which are expected to be incurred by the end of this fiscal year.

For the three and six months ended October 29, 2021, we recognized net charges of $18 million and $25 million, respectively, including $9 million recognized within restructuring charges, net in the consolidated statements of income for both periods primarily comprised of employee termination benefits. Net charges for the three and six months ended October 29, 2021 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $9 million and $16 million, respectively, recognized within selling, general and administrative expense in the consolidated statements of income.

For the three and six months ended October 30, 2020, we recognized net charges of $94 million and $145 million, respectively, including $92 million and $142 million, respectively, recognized within restructuring charges, net in the consolidated statements of income primarily comprised of employee termination benefits, including $97 million of incremental defined benefit pension and post-retirement related expenses for employees that accepted voluntary early retirement packages. Net charges for the three and six months ended October 30, 2020 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $2 million and $3 million, respectively, recognized within selling, general and administrative expense in the consolidated statements of income.

For additional information about our restructuring programs, refer to Note 5 to the current period's consolidated financial statements.

Certain Litigation Charges, Net We classify litigation charges and gains related to significant legal matters as certain litigation charges. Information regarding certain litigation charges, net is included in Note 16 to the current period's consolidated financial statements.

Other Operating Expense, Net Other operating expense, net primarily includes royalty income and expense, currency remeasurement and derivative gains and losses, Puerto Rico excise taxes, changes in the fair value of contingent consideration, changes in amounts accrued for certain contingent liabilities for a past acquisition, MCS charges, and income from funded research and development arrangements.

For the three months ended October 29, 2021, the change in other operating expense, net is primarily attributable to changes in fair value of contingent consideration, which resulted in a $26 million gain for the three months ended October 29, 2021 as compared to a $7 million loss in the corresponding period in the prior year. Additionally, the change is driven by a $27 million charge for certain personal protective equipment in the three months ended October 30, 2020.

For the six months ended October 29, 2021, the change in other operating expense, net was primarily driven by MCS charges recorded during the three months ended July 30, 2021. The charges of $668 million primarily included $409 million of intangible asset impairments and $211 million for commitments and obligations, including customer support obligations, restructuring, and other associated costs. The change was also driven by a change in amounts accrued for certain contingent liabilities for a past acquisition resulting in a $132 million gain for the six months ended October 30, 2020. Additionally, the net currency impact of remeasurement expense and our hedging programs resulted in a net loss of $36 million for the six months ended October 29, 2021, as compared to a net gain of $16 million for the six months ended October 30, 2020. Additional information regarding the MCS charges is included in Note 5 Restructuring and Other Costs.

Other Non-Operating Income, Net Other non-operating income, net includes the non-service component of net periodic pension and postretirement benefit cost, investment gains and losses, and interest income.

The increase in other non-operating income, net for the six months ended October 29, 2021 when compared to the corresponding in the prior year, is primarily attributable to gains on our equity method and minority investment portfolios partially offset by a decrease in interest income. Gains on equity method and minority investments were $38 million and $4 million for the six months ended October 29, 2021 and October 30, 2020, respectively. Interest income was $89 million and $98 million for the six months ended October 29, 2021 and October 30, 2020, respectively.

Interest Expense Interest expense includes interest incurred on our outstanding borrowings, amortization of debt issuance costs and debt premiums or discounts, amortization of gains or losses on terminated or de-designated interest rate derivative instruments, and charges recognized in connection with the tender and early redemption of senior notes. The decrease in interest expense for both periods was primarily due to the $308 million charge incurred as a result of the early redemption of approximately $6.0 billion of debt during the three months ended October 30, 2020.

INCOME TAXES


	Three months ended						Six months ended
(in millions)	October 29, 2021			October 30, 2020			October 29, 2021			October 30, 2020
Income tax provision	$	176		$	31		$	240		$	124
Income before income taxes	1,493			525			2,326			1,109
Effective tax rate	11.8		%	5.9		%	10.3		%	11.2		%

Non-GAAP income tax provision	$	254		$	221		$	545		$	358
Non-GAAP income before income taxes	2,052			1,606			4,253			2,583
Non-GAAP Nominal Tax Rate	12.4		%	13.8		%	12.8		%	13.9		%

Difference between the effective tax rate and Non-GAAP Nominal Tax Rate	0.6		%	7.9		%	2.5		%	2.7		%

Our effective tax rate for the three and six months ended October 29, 2021 was 11.8 percent and 10.3 percent, respectively, as compared to 5.9 percent and 11.2 percent for the three and six months ended October 30, 2020, respectively. The change in our effective tax rate for the three and six months ended October 29, 2021, as compared to the corresponding periods in the prior fiscal year, was primarily due to the tax impact of the debt tender premium, stock-based compensation benefits, and year over-year-changes in operational results by jurisdiction; and specifically impacting the six months ended comparison are the tax impact of the MCS charges and the tax cost associated with a change in the company’s permanent reinvestment assertion on certain historical earnings.

Our Non-GAAP Nominal Tax Rate for the three and six months ended October 29, 2021 was 12.4 percent and 12.8 percent, respectively, as compared to 13.8 percent and 13.9 percent for the three and six months ended October 30, 2020, respectively. The decrease in our Non-GAAP Nominal Tax Rate was primarily due to the impact of year-over-year changes in stock-based compensation benefits and operational results by jurisdiction. An increase in our Non-GAAP Nominal Tax Rate of 1 percent would result in an additional income tax provision for the three and six months ended October 29, 2021 of approximately $21 million and $43 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We are currently in a strong financial position, and we believe our balance sheet and liquidity as of October 29, 2021 provide us with flexibility, and our cash, cash equivalents, and current investments, along with our credit facility and related commercial paper programs will satisfy our foreseeable operating needs.

Our liquidity and capital structure are evaluated regularly within the context of our annual operating and strategic planning processes. We consider the liquidity necessary to fund our operations, which includes working capital needs, investments in research and development, property, plant, and equipment, and other operating costs. We also consider capital allocation alternatives that balance returning value to shareholders through dividends and share repurchases, satisfying maturing debt, and acquiring businesses and technology.

Summary of Cash Flows


	Six months ended
(in millions)	October 29, 2021		October 30, 2020
Cash provided by (used in):
Operating activities	$	3,061	$	2,139
Investing activities	(1,493)		(2,012)
Financing activities	(2,210)		1,991
Effect of exchange rate changes on cash and cash equivalents	(51)		162
Net change in cash and cash equivalents	$	(693)	$	2,280

Operating Activities The $922 million increase in net cash provided was primarily driven by an increase in cash collected from customers, partially offset by an increase in cash paid for income taxes and cash paid to employees. The increase in cash collected from customers was primarily related to COVID-19 driving decreased sales in the fourth quarter of fiscal year 2020 and first and second quarters of fiscal year 2021. The increase in cash paid for income taxes in the six months ended October 29, 2021 was primarily due to a tax

payment associated with a foreign audit settlement as well as estimated income tax payments. Cash paid to employees increased due to higher annual incentive plan payouts compared to the corresponding period in the prior fiscal year.

Investing Activities The $519 million decrease in cash used was primarily attributable to a decrease in net purchases of $349 million, and decrease of cash paid for acquisitions of $279 million during the six months ended October 29, 2021, as compared to the corresponding period in the prior fiscal year.

Financing ActivitiesThe $4.2 billion increase in net cash used was largely the result of the Mizuho Bank term loan under which the Company borrowed $2.8 billion in the first quarter of the prior fiscal year, and as well as the net proceeds from the debt issuance and early redemption described below. Also contributing to the total increase in cash used was the increase in net cash used for share repurchases of $676 million. For the six months ended October 30, 2020 financing cash flows were impacted by the issuance of $7.2 billion of Euro-denominated senior notes offset by the early redemption of $6.0 billion of senior notes for $6.3 billion of total consideration. For more information on the aforementioned Mizuho Bank term loan, refer to Note 7 to the current period's consolidated financial statements.

Debt and Capital

Our capital structure consists of equity and interest-bearing debt. We ~~use a combination of bank borrowings and commercial paper issuances to fund our short-term financing needs and~~primarily utilize unsecured senior debt obligations to meet our ~~long-term~~ financing ~~needs.~~needs and, to a lesser extent, bank borrowings. From time to time, we may repurchase our outstanding debt obligations in the open market or through privately negotiated transactions. ~~Current~~

Total debt at October ~~30, 2020, including the current portion of our long-term debt and finance lease obligations,~~29, 2021 was ~~$4.0~~$25.6 billion as compared to ~~$2.8~~$26.4 billion at April ~~24, 2020. Long-term debt at October~~ 30, ~~2020 was $26.0 billion as compared to $22.0 billion at April 24, 2020.~~2021. The ~~increase~~decrease in total debt was ~~primarily~~ driven by ~~the net impact of issuance and redemption of~~fluctuations in exchange rates as it pertains to our Euro-denominated senior ~~notes~~notes.

We repurchase our ordinary shares on occasion as ~~well as an unsecured term loan agreement entered into with Mizuho Bank, both of which are described below.~~

In May 2020, we entered into an unsecured term loan agreement with Mizuho Bank, Ltd. for an aggregate principal amount of up to ¥300 billion, or approximately $2.8 billion, with a term of six months, which may be extended for an additional six months at the Company’s option. On May 13, 2020, Medtronic Luxco borrowed the entire amount of the term loan under the Loan Agreement. The proceeds of the loan were used for general corporate purposes. The Japanese Yen denominated debt is designated as a net investment hedge of certainpart of our ~~Japanese operations. On November 12, 2020, we exercised~~focus on returning value to our ~~option to extend~~shareholders. In March 2019, the ~~term~~Company's Board of Directors authorized the ~~loan for an additional six months.~~

In September 2020, we issued six tranches of Euro-denominated senior notes with an aggregate principal of €6.3 billion, with maturities ranging from fiscal year 2023 to fiscal year 2051, resulting in cash proceeds of approximately $7.2 billion, net of discounts and issuance costs. The Euro-denominated debt is designated as a net investment hedge of certain of our European operations. We used the net proceeds of the offering to fund the early redemptionrepurchase of $6.0 billion of ~~senior notes~~the Company's ordinary shares. There is no specific time period associated with these repurchase authorizations. During the six months ended October 29, 2021, the Company repurchased a total of 5 million shares under this program at an average price of $127.49. At October 29, 2021, we had approximately $4.7 billion remaining under the share repurchase program authorized by our Board of Directors.

For more information on credit arrangements, refer to Note 7 to the current period's consolidated financial statements and Note 6 to the consolidated financial statements included in our Annual Report on Form 10-K for ~~$6.3~~the fiscal year ended April 30, 2021.

Liquidity

Our liquidity sources at October 29, 2021 included $2.9 billion of ~~total consideration in October 2020.~~cash and cash equivalents and $7.8 billion of current investments. Additionally, we ~~intend~~maintain a commercial paper program and a Credit Facility.

Our investments primarily include available-for-sale debt securities, including U.S. and non-U.S. government and agency securities, corporate debt securities, mortgage-backed securities, and other asset-backed securities. Refer to ~~use proceeds~~Note 6 to ~~repay our €750 million floating rate senior notes at maturity in March 2021. We recognized a loss on debt extinguishment of $308 million during~~ the ~~quarter, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss on debt extinguishment was recognized in~~ ~~interest expense~~ ~~in the~~current period's consolidated financial statements ~~of income.~~for additional information regarding fair value measurements.

We maintain multicurrency commercial paper programs for short-term financing, which ~~allows~~allow us to issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $3.5 billion. At both October ~~30, 2020~~29, 2021 and April ~~24, 2020,~~30, 2021, we had no commercial paper outstanding. The issuance of commercial paper reduces the amount of credit available under our existing line of credit, as explained below.

We also have a $3.5 billion five-year syndicated credit facility (Credit Facility), which expires in December ~~2024.~~2025. The Credit Facility provides backup funding for the commercial paper programs and may also be used for general corporate purposes. The Credit Facility provides us with the ability to increase our borrowing capacity by an additional $1.0 billion at any time during the term of the agreement. At each anniversary date of the Credit Facility, but not more than twice prior to the maturity date, we could also request a one-year extension of the maturity date. At October ~~30, 2020~~29, 2021 and April ~~24, 2020,~~30, 2021, no amounts were outstanding under the Credit Facility.

Interest rates on advances of our Credit Facility are determined by a pricing matrix based on our long-term debt ratings assigned by Standard & Poor's Ratings Services (S&P) and Moody's Investors Service (Moody’s). ~~For additional information on our credit ratings status by S&P and Moody's, refer to the "Liquidity" section of this Management's Discussion and Analysis.~~ Facility fees are payable on the Credit Facility and are determined in the same manner as the interest rates. ~~The agreements also contain customary covenants, all of which we were~~We are in compliance with ~~at October 30, 2020.~~all covenants related to the Credit Facility.

5446

~~We repurchase our ordinary shares from time to time as part~~The following table is a summary of our focus on returning value to our shareholders. In March 2019, our Board of Directors authorized an incremental $6.0 billion in excess of prior authorizations for repurchase of our ordinary shares. There is no specific time period associated with these repurchase authorizations. The Company made no repurchases of ordinary shares during the six months ended October 30, 2020. We had approximately $6.0 billion remaining under the share repurchase program authorized by our Board of Directors at October 30, 2020.

~~For more information on credit arrangements, refer to Note 7 to the current period's consolidated financial statements~~S&P and ~~Note 7 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 24, 2020.~~

~~Liquidity~~

Our liquidity sources at October 30, 2020 include $6.4 billion of cash and cash equivalents and $7.9 billion of current investments. Additionally, we maintain a commercial paper program (no commercial paper outstanding at October 30, 2020) and Credit Facility. See discussion above regarding changes in our cash and cash equivalents and commercial paper program and Credit Facility.

Our investments include available-for-sale and held-to-maturity debt securities, including U.S. and non-U.S. government and agency securities, corporate debt securities, mortgage-backed securities, other asset-backed securities, auction rate securities, and term deposits. Some of our investments may experience reduced liquidity due to changes in market conditions and investor demand. For the six months ended October 30, 2020, the total impairment losses on available-for-sale debt securities were not significant. Based on our assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which we are invested, we believe we have recognized all necessary impairments as we do not have the intent to sell, nor is it more likely than not that we will be required to sell, before recovery of the amortized cost. At October 30, 2020, we had $59 million of gross unrealized losses on our aggregate available-for-sale debt securities of $7.0 billion. If market conditions deteriorate, some of these holdings may experience impairments in the future, which could adversely affect our financial results. We are required to use estimates and assumptions in our valuation of investments, which requires a high degree of judgment, and therefore, actual results could differ materially from estimates. Refer to Note 6 to the current period's consolidated financial statements for additional information regarding fair value measurements.

~~The table below includes our short-term and~~Moody's long-term debt ratings ~~from S&P~~ and ~~Moody's at both October 30, 2020 and April 24, 2020:~~short-term debt ratings:

Agency Rating(1)

October ~~30, 2020~~29, 2021

April ~~24, 2020~~30, 2021

Standard & Poor's Ratings Services

Long-term debt

Short-term debt

A-1

Moody's Investors Service

Long-term debt

Short-term debt

P-2

(1) Agency ratings are subject to change, and there may be no assurance that an agency will continue to provide ratings and/or maintain its current ratings. A security rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by the rating agency, and each rating should be evaluated independently of any other rating.

S&P and Moody's long-term debt ratings and short-term debt ratings at October ~~30, 2020~~29, 2021 were unchanged as compared to the ratings at April ~~24, 2020.~~30, 2021. We do not expect the S&P and Moody's ratings to have a significant impact on our liquidity or future flexibility to access additional liquidity given our balance sheet, ~~and~~ Credit Facility, and related commercial paper ~~program.~~programs.

We have future contractual obligations and other minimum commercial commitments that are entered into in the normal course of business. We believe our off-balance sheet arrangements do not have a material current or anticipated future effect on our consolidated earnings, financial position, and/or cash flows. ~~Refer to the "Off-Balance Sheet Arrangements and Long-Term Contractual Obligations" section of this Management's Discussion and Analysis for more information on these obligations and commitments.~~

Note 16 to the current period's consolidated financial statements provides information regarding amounts we have accrued related to legal matters. In accordance with U.S. GAAP, we record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Actual settlements may be different than estimated and could have a material effect on our consolidated earnings, financial position, and/or cash flows.

We record tax liabilities in our consolidated financial statements for amounts that we expect to repatriate from subsidiaries (to the extent the repatriation would be subject to tax); however, no tax liabilities are recorded for amounts that we consider to be permanently reinvested. We expect to have access to the majority of our cash flows in the future. In addition, we continue to evaluate our legal entity structure

~~supporting our business operations, and to the extent such evaluation results in a change to our overall business structure, we may be required to accrue for additional tax obligations.~~

We believe our balance sheet and liquidity provide us with flexibility, and that our cash, cash equivalents, and current investments, as well as our Credit Facility and related commercial paper program, will satisfy our foreseeable operating needs for at least the next 12 months. We regularly review our capital needs and consider various investing and financing alternatives to support our requirements.

~~Off-Balance Sheet Arrangements and Long-Term Contractual Obligations~~

There have been no material changes to our off-balance sheet arrangements as reported in our most recent Annual Report filed on Form 10-K for the fiscal year ended April 24, 2020. Refer to the Debt and Capital section above for changes in debt obligations during the second quarter of fiscal year 2021; there were no other material changes to our long-term contractual obligations as reported in our most recent Annual Report filed on Form 10-K for the fiscal year ended April ~~24, 2020.~~30, 2021.

ACQUISITIONS

Intersect ENT Pending Acquisition

On August 6, 2021, Medtronic and Intersect ENT entered into a definitive agreement in which Medtronic will acquire all outstanding shares of Intersect ENT for $28.25 per share in an all-cash transaction valued at approximately $1.1 billion. The acquisition is expected to close toward the end of fiscal year 2022 pending clearance of anti-trust filings, and other closing conditions.

Additional information regarding acquisitions is included in Note 4 to the current period's consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

As of October 29, 2021, there were no material changes to our critical accounting estimates.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 2 to the current period's consolidated financial statements.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

Medtronic plc and Medtronic Global Holdings S.C.A. (Medtronic Luxco), a wholly-owned subsidiary guarantor, each have provided full and unconditional guarantees of the obligations of Medtronic, Inc., a wholly-owned subsidiary issuer, under the Senior Notes (Medtronic Senior Notes) and full and unconditional guarantees of the obligations of Covidien International Finance S.A. (CIFSA), a wholly-owned subsidiary issuer, under the Senior Notes (CIFSA Senior Notes). The guarantees of the CIFSA Senior Notes are in addition to the guarantees of the CIFSA Senior Notes by Covidien Ltd. and Covidien Group Holdings Ltd., both of which are wholly-owned subsidiary guarantors of the CIFSA Senior Notes. Medtronic plc and Medtronic, Inc. each have provided a full and unconditional guarantee of the obligations of Medtronic Luxco under the Senior Notes (Medtronic Luxco Senior Notes). The following is a summary of these guarantees:

Guarantees of Medtronic Senior Notes

•Parent Company Guarantor -– Medtronic plc

•Subsidiary Issuer -– Medtronic, Inc.

•Subsidiary Guarantor -– Medtronic Luxco

Guarantees of Medtronic Luxco Senior Notes

•Parent Company Guarantor -– Medtronic plc

•Subsidiary Issuer -– Medtronic Luxco

•Subsidiary Guarantor -– Medtronic, Inc.

Guarantees of CIFSA Senior Notes

•Parent Company Guarantor -– Medtronic plc

•Subsidiary Issuer -– CIFSA

•Subsidiary Guarantors -– Medtronic Luxco, Covidien Ltd., and Covidien Group Holdings Ltd. (CIFSA Subsidiary Guarantors)

The following tables present summarized results of operations for the six months ended October ~~30, 2020~~29, 2021 and summarized balance sheet information at October ~~30, 2020~~29, 2021 and April ~~24, 2020~~30, 2021 for the obligor groups of Medtronic and Medtronic Luxco Senior Notes, and CIFSA Senior Notes. The obligor group consists of the parent company guarantor, subsidiary issuer, and subsidiary guarantors for the applicable senior notes. The summarized financial information is presented after elimination of (i) intercompany transactions and balances among the guarantors and issuers and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor or issuer.

The summarized results of operations information for the six months ended October ~~30, 2020~~29, 2021 was as follows:

(in millions)
Medtronic & Medtronic Luxco Senior Notes (1)
CIFSA Senior Notes (2)
Net sales $ 942 $ —
Operating profit (loss) (383) (40)
Loss before income taxes (1,068) (408)
Net loss attributable to Medtronic (865) (394)


(in millions)	Medtronic & Medtronic Luxco Senior Notes (1)		CIFSA Senior Notes (2)
Net sales	$	1,004	$	—
Operating profit (loss)	247		18
Loss before income taxes	(234)		(435)
Net loss attributable to Medtronic	(221)		(469)

The summarized balance sheet information at October ~~30, 2020~~29, 2021 was as follows:

(in millions)
Medtronic & Medtronic Luxco Senior Notes (1)
CIFSA Senior Notes (2)
Total current assets(3)
$ 18,641 $ 7,895
Total noncurrent assets(4)
11,453 7,914
Total current liabilities(5)
33,553 16,223
Total noncurrent liabilities(6)
55,042 60,828
Noncontrolling interests 152 152


(in millions)	Medtronic & Medtronic Luxco Senior Notes (1)		CIFSA Senior Notes (2)
Total current assets(3)	$	18,890	$	7,094
Total noncurrent assets(4)	11,706		8,165
Total current liabilities(5)	28,108		17,322
Total noncurrent liabilities(6)	56,095		65,103
Noncontrolling interests	168		168

(1)The Medtronic Senior Notes and Medtronic Luxco Senior Notes obligor group consists of the following entities: Medtronic plc, Medtronic Luxco, and Medtronic, Inc. ~~Please refer~~Refer to the guarantee summary above for further details.

(2)The CIFSA Senior Notes obligor group consists of the following entities: Medtronic plc, Medtronic Luxco, CIFSA, and CIFSA Subsidiary Guarantors. ~~Please refer~~Refer to the guarantee summary above for further details.

(3)Includes receivables due from non-guarantor subsidiaries of ~~$16.6~~$18.2 billion and ~~$6.3~~$6.9 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(4)Includes loans receivable due from non-guarantor subsidiaries of $6.5 billion and ~~$7.9~~$8.1 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(5)Includes payables due to non-guarantor subsidiaries of ~~$27.7~~$26.4 billion and ~~$12.4~~$17.2 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(6)Includes loans payable due to non-guarantor subsidiaries of ~~$27.4~~$29.1 billion and ~~$41.5~~$46.0 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

The summarized balance sheet information at April ~~24, 2020~~30, 2021 was as follows:

(in millions)
Medtronic & Medtronic Luxco Senior Notes (1)
CIFSA Senior Notes (2)
Total current assets(3)
$ 19,563 $ 49
Total noncurrent assets(4)
18,516 14,966
Total current liabilities(5)
41,263 16,180
Total noncurrent liabilities(6)
44,480 50,059
Noncontrolling interests 135 135


(in millions)	Medtronic & Medtronic Luxco Senior Notes (1)		CIFSA Senior Notes (2)
Total current assets(3)	$	21,901	$	9,038
Total noncurrent assets(4)	11,597		8,041
Total current liabilities(5)	28,484		17,413
Total noncurrent liabilities(6)	56,772		63,328
Noncontrolling interests	174		174

(3)Includes receivables due from non-guarantor subsidiaries of ~~$19.1~~$21.4 billion and ~~$34 million~~$9.0 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(4)Includes loans receivable due from non-guarantor subsidiaries of ~~$13.7~~$6.5 billion and ~~$15.0~~$8.0 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(5)Includes payables due to non-guarantor subsidiaries of ~~$37.0~~$26.4 billion and ~~$13.6~~$17.3 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(6)Includes loans payable due to non-guarantor subsidiaries of ~~$21.7~~$29.0 billion and ~~$37.9~~$43.5 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

CAUTIONARY NOTE REGARDING ~~FORWARD LOOKING~~FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, and other written reports and oral statements made by or with the approval of one of the Company’s executive officers from time to time, may include “forward-looking” statements. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, objectives of management for future operations and current expectations or forecasts of future results, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Our forward-looking statements may include statements related to our growth and growth strategies, developments in the markets for our products, therapies and services, financial results, product development launches and effectiveness, research and development strategy, regulatory approvals, competitive strengths, the potential or anticipated direct or indirect impact of COVID-19 on our business, results of operations, and/or financial condition, restructuring and cost-saving initiatives, intellectual property rights, litigation and tax matters, governmental proceedings and investigations, mergers and acquisitions, divestitures, market acceptance of our products, therapies and services, accounting estimates, financing activities, ongoing contractual obligations, working capital adequacy, value of our investments, our effective tax rate, our expected returns to shareholders, and sales efforts. In some cases, such statements may be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “looking ahead,” “may,” “plan,” “possible,” “potential,” “project,” “should,” “will,” and similar words or expressions. Forward-looking statements in this Quarterly Report include, but are not limited to, statements regarding our ability to drive long-term shareholder value, development and future launches of products and continued or future acceptance of products, therapies and services in our segments; expected timing for completion of research studies relating to our products; market positioning and performance of our products, including stabilization of certain product markets; divestitures and the potential benefits thereof; the costs and benefits of integrating previous acquisitions; anticipated timing for United States (U.S.) Food and Drug Administration (U.S. FDA) and non-U.S. regulatory approval of new products; increased presence in new markets, including markets outside the U.S.; changes in the market and our market share; acquisitions and investment initiatives, as well as integration of acquired companies into our operations; the resolution of tax matters; the effectiveness of our development activities in reducing patient care costs and hospital stay lengths; our approach towards cost containment; our expectations regarding healthcare costs, including potential changes to reimbursement policies and pricing pressures; our expectations regarding changes to patient standards of care; our ability to identify and maintain successful business partnerships; the elimination of certain positions or costs related to restructuring initiatives; outcomes in our litigation matters and governmental proceedings and investigations; general economic conditions; the adequacy of available working capital and our working capital needs; our payment of dividends and redemption of shares; the continued strength of our balance sheet and liquidity; our accounts receivable exposure; and the potential impact of our compliance with governmental regulations and accounting guidance.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, results of operations, and/or cash flows. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking

statements as predictions of future events. One must carefully consider forward-looking statements and understand that such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, and involve a variety of risks and uncertainties, known and unknown, including, among others, those discussed in the sections entitled “Government ~~Regulation and Other Considerations”~~Regulation” within “Item 1. Business” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as well as those related to:

•the COVID-19 pandemic, ~~and~~including new COVID-19 variants that may emerge from time to time, as well as potential impacts of the ~~actions of businesses, communities, and governments in response;~~pandemic on healthcare staffing levels;

•competition in the medical device industry;

•reduction or interruption in our supply;

•laws and governmental regulations;

•quality problems;

•liquidity shortfalls;

•decreasing prices and pricing pressure;

•fluctuations in currency exchange rates;

•changes in applicable tax rates;

•positions taken by taxing authorities;

•adverse regulatory action;

•delays in regulatory approvals;

•litigation results;

•self-insurance;

•commercial insurance;

•healthcare policy changes;

•international operations;

•cybersecurity incidents;

•failure to complete or achieve the intended benefits of acquisitions or divestitures; or

•disruption of our current plans and operations.

Consequently, no forward-looking statement may be guaranteed, and actual results may vary materially from those projected in the forward-looking statements. We intend to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding our forward-looking statements and are including this sentence for the express purpose of enabling us to use the protections of the safe harbor with respect to all forward-looking statements. While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

CURRENCY EXCHANGE RATE RISK

Due to the global nature of our operations, we are exposed to currency exchange rate changes, which may cause fluctuations in earnings and cash flows. We use operational and economic hedges, including currency exchange rate derivative instruments to manage the impact of currency exchange rate fluctuations. In order to minimize earnings and cash flow volatility resulting from currency exchange rate fluctuations, we enter into derivative instruments, principally forward currency exchange rate contracts. These contracts are designed to hedge anticipated transactions in other currencies and changes in the value of specific assets and liabilities. At inception of the contract, the derivative instrument is designated as either a freestanding derivative or a cash flow hedge. Currencies of our derivative instruments include the Euro, Japanese Yen, Chinese Yuan, and others. Fluctuations in the currency exchange rates of currency exposures that are unhedged, such as in certain emerging markets, may result in future earnings and cash flow volatility. ~~We do not enter into currency exchange rate derivative instruments for speculative purposes.~~

The gross notional amount of all currency exchange rate derivative instruments outstanding at October ~~30, 2020~~29, 2021 and April ~~24, 2020~~30, 2021 was ~~$18.5~~$15.2 billion and ~~$11.9~~$14.7 billion, respectively. At October ~~30, 2020,~~29, 2021, these contracts were in a net unrealized ~~loss~~gain position of ~~$116~~$81 million. Additional information regarding our currency exchange rate derivative instruments is included in Note 8 to the current period's consolidated financial statements.

A sensitivity analysis of changes in the fair value of all currency exchange rate derivative contracts at October ~~30, 2020~~29, 2021 indicates that, if the U.S. dollar uniformly strengthened/weakened by 10 percent against all currencies, it would have the following impact on the fair value of these contracts:


	Increase (decrease)
(in millions)	October ~~30, 2020~~29, 2021
10% appreciation in the U.S. dollar	$	~~864~~1,119
10% depreciation in the U.S. dollar	~~(864)~~(1,119)

Any gains and losses on the fair value of derivative contracts would generally be offset by gains and losses on the underlying transactions. These offsetting gains and losses are not reflected in the above analysis.

In the second quarter of fiscal year 2019, we began accounting for our operations in Argentina as highly inflationary, as the prior three-year cumulative inflation rate exceeded 100 percent. The change did not have a material impact on our results for the three and six months ended October ~~30, 2020.~~29, 2021.

INTEREST RATE RISK

We are subject to interest rate risk on our short-term investments and our borrowings. We manage interest rate risk in the aggregate, while focusing on our immediate and intermediate liquidity needs. Our debt portfolio at October ~~30, 2020~~29, 2021 was comprised of debt predominately denominated in U.S. dollars ~~Euros,~~ and ~~Japanese Yen,~~Euros, of which substantially all is fixed rate debt. We are also exposed to interest rate changes affecting our investments in interest rate sensitive instruments, which include our marketable debt securities.

A sensitivity analysis of the impact on our interest rate-sensitive financial instruments of a hypothetical 10 basis point change in interest rates, as compared to interest rates at October ~~30, 2020,~~29, 2021, would have the following impact on the fair value of these instruments:


	Increase (decrease)
(in millions)	October ~~30, 2020~~29, 2021
10 basis point increase in interest rates	$	2025
10 basis point decrease in interest rates	~~(20)~~(25)

For a discussion of current market conditions and the impact on our financial condition and results of operations, please see the “Liquidity” section of the current period's Management's Discussion and Analysis. For additional discussion of market risk, refer to Notes 6 and 8 to the current period's consolidated financial statements.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) and changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) are effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ~~While there were no~~The Company has not experienced any material ~~changes in our~~impacts to its internal ~~control~~controls over financial reporting ~~we continue to monitor and assess the impact of~~despite the COVID-19 ~~pandemic, which has resulted in many of our employees working remotely.~~pandemic.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In August 2020, the Securities and Exchange Commission issued an updated ruling regarding the threshold for disclosure of proceedings under environmental laws to which a governmental authority is a party. In accordance with this updated ruling, we have adopted a disclosure threshold of $1 million in such circumstances, as we believe matters under this threshold are not material to the Company. A discussion of the Company’s policies with respect to legal proceedings is included in the management’s discussion and analysis, and our legal proceedings and other loss contingencies are described in Note 16 to the current period's consolidated financial statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

~~There were no~~The following table provides information about the shares repurchased by the Company during the second quarter of fiscal year ~~2021.~~2022:


Fiscal Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Program	Maximum Approximate Dollar Value of Shares that may yet be Purchased Under the Program
7/31/2021-8/27/2021	549,022	$	129.19	549,022	$	5,009,710,546
8/28/2021-10/1/2021	1,406,270	130.96		1,406,270	4,825,541,853
10/2/2021-10/29/2021	831,807	124.27		831,807	4,722,175,476
Total	2,787,099	$	128.62	2,787,099	$	4,722,175,476

In March 2019, the Company's Board of Directors authorized the repurchase of $6.0 billion of the Company's ordinary shares. There is no specific time-period associated with these repurchase authorizations.

Item 5. Other Information

Medtronic has engaged in certain activities that it is required to disclose pursuant to Section 13(r)(1)(D)(ii) of the Securities Exchange Act of 1934, as amended. The activities described herein are expressly authorized by the U.S. Government under applicable economic sanctions regulations.

Specifically, Medtronic’s affiliate in Russia, Medtronic Russia LLC (“Medtronic Russia”), is required under Russian law to complete certain notification and filing requirements to Russia’s Federal Security Service (“FSB”) regarding certain Medtronic medical devices that make use of encryption functionality that are imported into Russia. While the FSB has been included on the Specially Designated Nationals (“SDN”) List administered by the Office of Foreign Assets Control (“OFAC”), these activities are and remain authorized. In particular, Cyber General License No. 1B (“Cyber GL 1B”), issued by OFAC, authorizes all transactions ordinarily incident to obtaining such permits from the FSB, provided that certain conditions are met.

Historically, Medtronic has not been required to disclose these lawful dealings with the FSB. However, on March 2, 2021, OFAC designated the FSB pursuant to an additional sanction's authority. While OFAC amended the applicable general license to confirm that all previously authorized dealings with the FSB remain authorized (notwithstanding the additional designation), the designation of the FSB with a [NPWMD] tag pursuant to Executive Order 13382 means that Medtronic is required under Section 13(r)(1)(D)(ii) of the Securities Exchange Act to disclose certain information as a result of this additional designation, as Section 13(r)(1)(D)(ii) does not contain an exception from its reporting requirements for activities that are authorized by the U.S. Government.

During the second quarter of fiscal year 2022, in the normal course of business and consistent with the authorization of Cyber GL 1B, Medtronic Russia filed three notifications with the FSB, as required under local Russian law for the import of medical devices that make use of encryption functionality. These activities did not directly result in any revenues or profits for Medtronic. Medtronic intends to continue engaging in activities for which it is authorized by Cyber GL 1B (or any successor GL), to the extent necessary to comply with local law requirements in Russia.

Item 6. Exhibits

(a)

Exhibits

31 .131.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~10.1~~

~~Form ofPerformance Share Unit Award Agreementunder Amended and Restated~~ ~~2013 Stock Award and Incentive Plan~~

~~10.2~~

~~Amended and Restated Covidien Supplemental Savings and Retirement Plan (restated November 6, 2020)~~

~~10.3~~

~~Medtronic Non-Qualified Retirement Plan Supplemental~~ (~~restated November 6,2020, and form~~er ~~ly known~~ ~~as t~~he S ~~upplemental~~ ~~Executive Retirement Plan~~)

~~10.4~~

~~Medtronic Capital Accumulation Plan Deferral Program (restated November 6, 2020)~~

101.SCH

Inline XBRL Schema Document.

101.CAL

Inline XBRL Calculation Linkbase Document.

101.DEF

Inline XBRL Definition Linkbase Document.

101.LAB

Inline XBRL Label Linkbase Document.

101.PRE

Inline XBRL Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

6152

~~SIGNATURES~~SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned ~~thereunto duly authorized.~~

authorized officer.

~~MEDTRONIC PUBLIC LIMITED COMPANY~~Medtronic plc

(Registrant)

~~Date:~~

~~December 3, 2020~~

~~/s/ Geoffrey S. Martha~~

~~Geoffrey S. Martha~~

~~Chief Executive Officer~~

Date:

December ~~3, 2020~~2, 2021

/s/ ~~Karen L. Parkhill~~Jennifer M. Kirk

Jennifer M. Kirk

~~Karen L. Parkhill~~

Global Controller and Chief Accounting Officer

~~Executive Vice President and~~

(Principal Accounting Officer)

~~Chief Financial Officer~~

6253


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


	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		955		1,611		1,896
Aortic, Peripheral, & Venous	468		474		873		942
Cardiac & Vascular Group	2,725		2,855		5,158		5,645
Surgical Innovations	1,393		1,454		2,473		2,871
Respiratory, Gastrointestinal, & Renal	893		688		1,613		1,371
Minimally Invasive Therapies Group	2,285		2,142		4,086		4,242
Cranial & Spinal Technologies	1,071		1,117		2,015		2,167
Specialty Therapies	581		575		1,035		1,138
Neuromodulation	411		420		725		818
Restorative Therapies Group	2,063		2,112		3,774		4,124
Diabetes Group	574		596		1,136		1,188
Total	$	7,647	$	7,706	$	14,154	$	15,199


	U.S.(1)(4)				Non-U.S. Developed Markets(2)(4)				Emerging Markets(3)(4)
	Three months ended				Three months ended				Three months ended
(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019
Cardiac & Vascular Group	$	1,377	$	1,455	$	945	$	890	$	404	$	510
Minimally Invasive Therapies Group	996		922		837		782		452		438
Restorative Therapies Group	1,397		1,440		426		416		240		256
Diabetes Group	284		311		238		226		51		59
Total	$	4,054	$	4,129	$	2,446	$	2,315	$	1,147	$	1,262

	U.S.(1)(4)				Non-U.S. Developed Markets(2)(4)				Emerging Markets(3)(4)
	Six months ended				Six months ended				Six months ended
(in millions)	October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019		October 30, 2020		October 25, 2019
Cardiac & Vascular Group	$	2,582	$	2,816	$	1,798	$	1,820	$	778	$	1,009
Minimally Invasive Therapies Group	1,718		1,835		1,556		1,573		811		834
Restorative Therapies Group	2,533		2,778		802		842		439		504
Diabetes Group	572		618		465		457		100		113
Total	$	7,405	$	8,046	$	4,621	$	4,692	$	2,128	$	2,460


	October 30, 2020
(in millions)	Available-For-Sale		Held-To-Maturity
Due in one year or less	$	1,930	$	886
Due after one year through five years	3,315		0
Due after five years through ten years	1,695		0
Due after ten years	67		0
Total	$	7,007	$	886


(in millions)	Amortization Expense
Remaining 2021	$	888
2022	1,738
2023	1,674
2024	1,643
2025	1,617
2026	1,604