Medtronic plc
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Six months ended
|
(in millions)
|
October 28, 2016
|
|
October 30, 2015
|
Operating Activities:
|
|
|
|
|
|
Net income
|
$
|
2,040
|
|
|
$
|
1,340
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
1,469
|
|
|
1,397
|
|
Amortization of debt discount and issuance costs
|
14
|
|
|
15
|
|
Acquisition-related items
|
(47
|
)
|
|
222
|
|
Provision for doubtful accounts
|
18
|
|
|
30
|
|
Deferred income taxes
|
(50
|
)
|
|
(274
|
)
|
Stock-based compensation
|
190
|
|
|
209
|
|
Other, net
|
(105
|
)
|
|
(85
|
)
|
Change in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
Accounts receivable, net
|
(89
|
)
|
|
(1
|
)
|
Inventories
|
(187
|
)
|
|
(326
|
)
|
Accounts payable and accrued liabilities
|
(271
|
)
|
|
(369
|
)
|
Other operating assets and liabilities
|
75
|
|
|
73
|
|
Certain litigation charges
|
82
|
|
|
26
|
|
Certain litigation payments
|
(117
|
)
|
|
(162
|
)
|
Net cash provided by operating activities
|
3,022
|
|
|
2,095
|
|
Investing Activities:
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
(1,306
|
)
|
|
(997
|
)
|
Additions to property, plant, and equipment
|
(598
|
)
|
|
(446
|
)
|
Purchases of investments
|
(2,110
|
)
|
|
(3,370
|
)
|
Sales and maturities of investments
|
3,625
|
|
|
2,752
|
|
Other investing activities, net
|
32
|
|
|
(13
|
)
|
Net cash used in investing activities
|
(357
|
)
|
|
(2,074
|
)
|
Financing Activities:
|
|
|
|
|
|
Acquisition-related contingent consideration
|
(36
|
)
|
|
(19
|
)
|
Change in current debt obligations, net
|
1,154
|
|
|
1,277
|
|
Proceeds from short-term borrowings (maturities greater than 90 days)
|
4
|
|
|
48
|
|
Issuance of long-term debt
|
131
|
|
|
—
|
|
Payments on long-term debt
|
(252
|
)
|
|
(1,608
|
)
|
Dividends to shareholders
|
(1,192
|
)
|
|
(1,075
|
)
|
Issuance of ordinary shares
|
260
|
|
|
263
|
|
Repurchase of ordinary shares
|
(2,794
|
)
|
|
(1,460
|
)
|
Other financing activities
|
74
|
|
|
49
|
|
Net cash used in financing activities
|
(2,651
|
)
|
|
(2,525
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
64
|
|
|
39
|
|
Net change in cash and cash equivalents
|
78
|
|
|
(2,465
|
)
|
Cash and cash equivalents at beginning of period
|
2,876
|
|
|
4,843
|
|
Cash and cash equivalents at end of period
|
$
|
2,954
|
|
|
$
|
2,378
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
Income taxes
|
$
|
258
|
|
|
$
|
1,021
|
|
Interest
|
559
|
|
|
652
|
|
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 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. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, comprehensive income, financial condition, and cash flows in conformity with U.S. GAAP. In the opinion of management, the consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results of Medtronic plc and its subsidiaries (Medtronic plc, Medtronic or the Company) for the periods presented. 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. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
April 29, 2016
.
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 fully eliminated in consolidation.
The Company’s fiscal years
2017
,
2016
, and
2015
will end or ended on
April 28, 2017
,
April 29, 2016
, and
April 24, 2015
, respectively.
2
.
New Accounting Pronouncements
Recently Adopted
In April 2015, the Financial Accounting Standards Board (FASB) issued accounting guidance that requires debt issuance costs to be presented in the balance sheet as a direct deduction from the related debt liability. Prior to this amendment, debt issuance costs were recognized as an asset in the balance sheet and did not offset the related debt liability. The Company retrospectively adopted this guidance in the first quarter of fiscal year 2017. Its adoption resulted in a reduction of assets and an increase in liabilities of
$138 million
on the Company's consolidated balance sheet at
April 29, 2016
as previously filed in the 2016 Annual Report on Form 10-K.
Not Yet Adopted
In May 2014, the FASB issued amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue in an amount that reflects the consideration to which an entity expects to be entitled in exchange for the transfer of goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2019 using one of two prescribed retrospective methods. The Company is evaluating the impact of the amended revenue recognition guidance on the Company’s consolidated financial statements.
In January 2016, the FASB issued guidance which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The guidance also includes a simplified impairment assessment of equity investments without readily determinable fair values and presentation and disclosure changes. This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2019. The Company is evaluating the impact of the equity investment guidance on the Company's consolidated financial statements.
In February 2016, the FASB issued guidance which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. The Company is evaluating the impact of the lease guidance on the Company's consolidated financial statements.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
In March 2016, the FASB issued guidance to simplify the accounting for share-based payment transactions by requiring all excess tax benefits and deficiencies to be recognized in income tax expense or benefit in earnings; eliminating the requirement to classify the excess tax benefit and deficiencies as additional paid-in capital. For the three and six months ended October 28, 2016, the Company recognized
$18 million
and
$75 million
, respectively, of excess tax benefits in additional paid-in capital. Under the new guidance, an entity makes an accounting policy election to either estimate the expected forfeiture awards or account for forfeitures as they occur. This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2018.
In October 2016, the FASB issued guidance that requires the tax effect of inter-entity transactions, other than sales of inventory, to be recognized when the transaction occurs. This would eliminate the exception under the current guidance in which the tax effects of inter-entity asset transactions are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2019. The Company is evaluating the impact of the inter-entity transaction guidance on the Company's consolidated financial statements.
3
.
Acquisitions and Acquisition-Related Items
The Company had various acquisitions during the first two quarters of fiscal year
2017
. Certain acquisitions were accounted for as business combinations as noted below. In accordance with authoritative guidance on business combination accounting, the assets and liabilities of the businesses acquired were recorded and consolidated on the acquisition date at their respective fair values. Unless otherwise noted, the pro forma impact of these acquisitions was not significant, either individually or in the aggregate, to the results of the Company for the three and six months ended
October 28, 2016
and
October 30, 2015
. The results of operations related to each business acquired have been included in the Company's consolidated statements of income since the date each business was acquired.
The preliminary fair values of the assets acquired and liabilities assumed during the six months ended
October 28, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
HeartWare International, Inc.
|
|
Smith & Nephew's Gynecology Business
|
|
All Other
|
|
Total
|
Other current assets
|
$
|
351
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
368
|
|
Property, plant, and equipment
|
13
|
|
|
3
|
|
|
5
|
|
|
21
|
|
Other intangible assets
|
625
|
|
|
167
|
|
|
65
|
|
|
857
|
|
Goodwill
|
479
|
|
|
180
|
|
|
113
|
|
|
772
|
|
Other assets
|
55
|
|
|
—
|
|
|
15
|
|
|
70
|
|
Total assets acquired
|
1,523
|
|
|
350
|
|
|
215
|
|
|
2,088
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
144
|
|
|
—
|
|
|
9
|
|
|
153
|
|
Deferred tax liabilities
|
60
|
|
|
—
|
|
|
6
|
|
|
66
|
|
Long-term debt
|
245
|
|
|
—
|
|
|
—
|
|
|
245
|
|
Other liabilities
|
2
|
|
|
—
|
|
|
4
|
|
|
6
|
|
Total liabilities assumed
|
451
|
|
|
—
|
|
|
19
|
|
|
470
|
|
Net assets acquired
|
$
|
1,072
|
|
|
$
|
350
|
|
|
$
|
196
|
|
|
$
|
1,618
|
|
HeartWare International, Inc.
On August 23, 2016, the Company's Cardiac and Vascular Group acquired HeartWare International, Inc. (HeartWare), a medical device company that develops and manufactures miniaturized implantable heart pumps, or ventricular assist devices, to treat patients around the world suffering from advanced heart failure. Total consideration for the transaction was approximately
$1.1 billion
. Based upon a preliminary acquisition valuation, the Company acquired
$602 million
of technology-based and customer-related intangible assets and
$23 million
of tradenames, with estimated useful lives of
15
and
5
years, respectively, and
$479 million
of goodwill. The acquired goodwill is not deductible for tax purposes. In addition, we acquired
$245 million
of debt through the acquisition, of which we redeemed
$203 million
as part of a cash tender offer in August 2016. The remaining
$42 million
of debt acquired is due December 2017 and is recorded within
long term debt
on the consolidated balance sheets.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Smith & Nephew's Gynecology Business
On August 5, 2016, the Company's Minimally Invasive Therapies Group acquired Smith & Nephew's gynecology business, which expands and strengthens Medtronic's minimally invasive surgical offerings and further complements its existing global gynecology business. Total consideration for the transaction was approximately
$350 million
, which primarily related to an upfront payment. Based upon a preliminary acquisition valuation, the Company acquired
$167 million
of other intangible assets, which primarily consisted of customer-related and technology related intangible assets with useful lives of
13
years, and
$180 million
of goodwill. The acquired goodwill is deductible for tax purposes.
The Company accounted for the acquisitions above as business combinations using the acquisition method of accounting.
For information on the Company's fiscal year 2016 acquisitions, refer to Note 2
to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2016
.
Acquisition-Related Items
During the three and six months ended
October 28, 2016
, the Company recognized acquisition-related items expense of
$28 million
and
$80 million
, primarily due to integration-related costs incurred in connection with the Covidien acquisition and acquisition-related costs incurred in connection with the HeartWare acquisition, partially offset by the change in fair value of contingent consideration as a result of revised revenue forecasts and anticipated regulatory milestones.
During the three and six months ended
October 30, 2015
, the Company recognized acquisition-related items expense of
$49 million
and
$120 million
, respectively, primarily due to integration related costs incurred in connection with the Covidien acquisition, partially offset by income related to the change in fair value of contingent consideration associated with acquisitions subsequent to April 24, 2009.
Contingent Consideration
Certain of the Company’s business combinations involve the potential for the payment of future consideration upon the achievement of certain product development milestones and/or various other favorable operating conditions. Payment of the additional consideration is generally contingent on the acquired business reaching certain performance milestones, including attaining specified revenue levels or achieving product development targets. For business combinations subsequent to April 24, 2009, 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 using Level 3 inputs, and the change in fair value recognized as income or expense within
acquisition-related items
in the consolidated statements of income.
The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based considerations). Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model. Projected revenues are based on the Company’s most recent internal operational budgets and long-range strategic plans. Changes in projected revenues, probabilities of payment, discount rates, and projected payment dates may result in adjustments to the fair value measurement. The recurring Level 3 fair value measurements of contingent consideration include the following significant unobservable inputs:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
(in millions)
|
|
October 28, 2016
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
|
|
|
|
|
|
|
Discount rate
|
|
11% - 32.5%
|
Revenue-based payments
|
|
$125
|
|
Discounted cash flow
|
|
Probability of payment
|
|
30% - 100%
|
|
|
|
|
|
|
Projected fiscal year of payment
|
|
2017 - 2025
|
|
|
|
|
|
|
Discount rate
|
|
0.3% - 5.5%
|
Product development-based payments
|
|
$160
|
|
Discounted cash flow
|
|
Probability of payment
|
|
0% - 100%
|
|
|
|
|
|
|
Projected fiscal year of payment
|
|
2017 - 2025
|
At
October 28, 2016
, there were no future contingent consideration payments that the Company expects to make associated with all completed business combinations or purchases of intellectual property prior to April 24, 2009.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The fair value of contingent consideration associated with acquisitions subsequent to April 24, 2009, at
October 28, 2016
and
April 29, 2016
, was
$285 million
and
$377 million
, respectively. At
October 28, 2016
,
$246 million
was reflected in
other liabilities
and
$39 million
was reflected in
other accrued expenses
in the consolidated balance sheet. At
April 29, 2016
,
$311 million
was reflected in
other liabilities
and
$66 million
was reflected in
other accrued expenses
in the consolidated balance sheet. The portion of the contingent consideration paid related to the acquisition date fair value is reported as financing activities in the consolidated statements of cash flows. Amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows.
The following table provides a reconciliation of the beginning and ending balances of contingent consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in millions)
|
October 28, 2016
|
|
October 30, 2015
|
|
October 28, 2016
|
|
October 30, 2015
|
Beginning Balance
|
$
|
379
|
|
|
$
|
291
|
|
|
$
|
377
|
|
|
$
|
264
|
|
Purchase price contingent consideration
|
11
|
|
|
109
|
|
|
32
|
|
|
135
|
|
Payments
|
(25
|
)
|
|
(17
|
)
|
|
(39
|
)
|
|
(20
|
)
|
Change in fair value
|
(80
|
)
|
|
(15
|
)
|
|
(85
|
)
|
|
(11
|
)
|
Ending Balance
|
$
|
285
|
|
|
$
|
368
|
|
|
$
|
285
|
|
|
$
|
368
|
|
4
.
Restructuring Charges, Net
Cost Synergies Initiative
The cost synergies initiative is the Company's restructuring program primarily related to the integration of Covidien. This initiative is expected to contribute to the approximately
$850 million
in cost synergies expected to be achieved as a result of the integration of the Covidien acquisition through fiscal year 2018, including administrative office optimization, manufacturing and supply chain infrastructure, certain program cancellations, and reduction of general and administrative redundancies. Restructuring charges are expected to be incurred on a quarterly basis throughout fiscal year 2017 and in future fiscal years as cost synergy strategies are finalized.
A summary of the restructuring accrual, recorded within
other accrued expenses
and
other liabilities
in the consolidated balance sheets, and related activity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Employee
Termination
Costs
|
|
Asset Write-downs
|
|
Other Costs
|
|
Total
|
April 29, 2016
|
$
|
213
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
250
|
|
Restructuring charges
|
117
|
|
|
17
|
|
|
24
|
|
|
158
|
|
Payments/write-downs
|
(121
|
)
|
|
(17
|
)
|
|
(36
|
)
|
|
(174
|
)
|
Reversal of excess accrual
|
(8
|
)
|
|
—
|
|
|
1
|
|
|
(7
|
)
|
October 28, 2016
|
$
|
201
|
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
227
|
|
As part of the cost synergies initiative, for the three and six months ended
October 28, 2016
, the Company recognized
$47 million
and
$158 million
in restructuring charges, respectively. For the three and six months ended
October 28, 2016
, restructuring charges consisted primarily of employee termination costs. For the three months and six months ended
October 28, 2016
, asset write-downs included
$3 million
and
$7 million
, respectively, related to property, plant, and equipment impairments. For the six months ended October 28, 2016, asset write-downs also included
$10 million
related to inventory write-offs of discontinued product lines, which were recognized within
cost of products sold
in the consolidated statements of income. The Company did not record any reversal of excess restructuring reserves for the three months ended
October 28, 2016
. As a result of certain employees identified for termination finding other positions within the Company, the Company recognized a
$7 million
reversal of excess restructuring reserves for the six months ended
October 28, 2016
.
As part of the cost synergies initiative, for the three and six months ended
October 30, 2015
, the Company recognized
$86 million
and
$153 million
in restructuring charges, respectively. For the three and six months ended
October 30, 2015
, restructuring charges consisted primarily of employee termination costs. As a result of certain employees identified for termination finding other positions within the Company, the Company recognized a
$13 million
reversal of excess restructuring reserves for the three and six months ended
October 30, 2015
.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
5
.
Financial Instruments
The Company holds investments consisting primarily of marketable debt and equity securities. The authoritative guidance is principally applied to financial assets and liabilities, such as marketable equity securities and debt and equity securities, that are classified and accounted for as trading and available-for-sale and are measured on a recurring basis. The Company also holds cost method, equity method, and other investments which are measured at fair value on a nonrecurring basis.
The following table summarizes the Company's investments by significant investment category and the related consolidated balance sheet classification at
October 28, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
587
|
|
|
$
|
10
|
|
|
$
|
(1
|
)
|
|
$
|
596
|
|
|
$
|
596
|
|
|
$
|
—
|
|
Marketable equity securities
|
59
|
|
|
29
|
|
|
(3
|
)
|
|
85
|
|
|
—
|
|
|
85
|
|
Total Level 1
|
646
|
|
|
39
|
|
|
(4
|
)
|
|
681
|
|
|
596
|
|
|
85
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
4,109
|
|
|
93
|
|
|
(15
|
)
|
|
4,187
|
|
|
4,187
|
|
|
—
|
|
U.S. government and agency securities
|
887
|
|
|
—
|
|
|
(1
|
)
|
|
886
|
|
|
886
|
|
|
—
|
|
Mortgage-backed securities
|
817
|
|
|
17
|
|
|
(14
|
)
|
|
820
|
|
|
820
|
|
|
—
|
|
Foreign government and agency securities
|
50
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
50
|
|
|
—
|
|
Other asset-backed securities
|
215
|
|
|
2
|
|
|
(1
|
)
|
|
216
|
|
|
216
|
|
|
—
|
|
Debt funds
|
1,743
|
|
|
—
|
|
|
(195
|
)
|
|
1,548
|
|
|
1,548
|
|
|
—
|
|
Total Level 2
|
7,821
|
|
|
112
|
|
|
(226
|
)
|
|
7,707
|
|
|
7,707
|
|
|
—
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Auction rate securities
|
47
|
|
|
—
|
|
|
(3
|
)
|
|
44
|
|
|
—
|
|
|
44
|
|
Total Level 3
|
48
|
|
|
—
|
|
|
(3
|
)
|
|
45
|
|
|
—
|
|
|
45
|
|
Total available-for-sale securities
|
$
|
8,515
|
|
|
$
|
151
|
|
|
$
|
(233
|
)
|
|
$
|
8,433
|
|
|
$
|
8,303
|
|
|
$
|
130
|
|
Cost method, equity method, and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
Cost method, equity method, and other investments
|
599
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|
599
|
|
Total Level 3
|
599
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|
599
|
|
Total cost method, equity method, and other investments
|
$
|
599
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
N/A
|
|
|
$
|
—
|
|
|
$
|
599
|
|
Total investments
|
$
|
9,114
|
|
|
$
|
151
|
|
|
$
|
(233
|
)
|
|
$
|
8,433
|
|
|
$
|
8,303
|
|
|
$
|
729
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the Company's investments by significant investment category and the related consolidated balance sheet classification at
April 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
792
|
|
|
$
|
14
|
|
|
$
|
(1
|
)
|
|
$
|
805
|
|
|
$
|
805
|
|
|
$
|
—
|
|
Marketable equity securities
|
75
|
|
|
21
|
|
|
(11
|
)
|
|
85
|
|
|
—
|
|
|
85
|
|
Total Level 1
|
867
|
|
|
35
|
|
|
(12
|
)
|
|
890
|
|
|
805
|
|
|
85
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
3,935
|
|
|
85
|
|
|
(24
|
)
|
|
3,996
|
|
|
3,996
|
|
|
—
|
|
U.S. government and agency securities
|
902
|
|
|
2
|
|
|
—
|
|
|
904
|
|
|
904
|
|
|
—
|
|
Mortgage-backed securities
|
1,016
|
|
|
17
|
|
|
(18
|
)
|
|
1,015
|
|
|
1,015
|
|
|
—
|
|
Other asset-backed securities
|
192
|
|
|
3
|
|
|
—
|
|
|
195
|
|
|
195
|
|
|
—
|
|
Debt funds
|
3,040
|
|
|
5
|
|
|
(281
|
)
|
|
2,764
|
|
|
2,764
|
|
|
—
|
|
Total Level 2
|
9,085
|
|
|
112
|
|
|
(323
|
)
|
|
8,874
|
|
|
8,874
|
|
|
—
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Auction rate securities
|
47
|
|
|
—
|
|
|
(3
|
)
|
|
44
|
|
|
—
|
|
|
44
|
|
Total Level 3
|
48
|
|
|
—
|
|
|
(3
|
)
|
|
45
|
|
|
—
|
|
|
45
|
|
Total available-for-sale securities
|
$
|
10,000
|
|
|
$
|
147
|
|
|
$
|
(338
|
)
|
|
$
|
9,809
|
|
|
$
|
9,679
|
|
|
$
|
130
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded funds
|
65
|
|
|
15
|
|
|
(1
|
)
|
|
79
|
|
|
79
|
|
|
—
|
|
Total Level 1
|
65
|
|
|
15
|
|
|
(1
|
)
|
|
79
|
|
|
79
|
|
|
—
|
|
Total trading securities
|
$
|
65
|
|
|
$
|
15
|
|
|
$
|
(1
|
)
|
|
$
|
79
|
|
|
$
|
79
|
|
|
$
|
—
|
|
Cost method, equity method, and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
Cost method, equity method, and other investments
|
506
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|
506
|
|
Total Level 3
|
506
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|
506
|
|
Total cost method, equity method, and other investments
|
$
|
506
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
N/A
|
|
|
$
|
—
|
|
|
$
|
506
|
|
Total investments
|
$
|
10,571
|
|
|
$
|
162
|
|
|
$
|
(339
|
)
|
|
$
|
9,888
|
|
|
$
|
9,758
|
|
|
$
|
636
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Marketable Debt and Equity Securities
The following tables represent the gross unrealized losses and fair values of the Company’s available-for-sale securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category at
October 28, 2016
and
April 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2016
|
|
Less than 12 months
|
|
More than 12 months
|
(in millions)
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
Corporate debt securities
|
$
|
807
|
|
|
$
|
(9
|
)
|
|
$
|
190
|
|
|
$
|
(6
|
)
|
Auction rate securities
|
—
|
|
|
—
|
|
|
44
|
|
|
(3
|
)
|
Mortgage-backed securities
|
191
|
|
|
(4
|
)
|
|
127
|
|
|
(10
|
)
|
U.S. government and agency securities
|
386
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
Debt funds
|
499
|
|
|
(8
|
)
|
|
1,049
|
|
|
(187
|
)
|
Asset-backed securities
|
48
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Marketable equity securities
|
1
|
|
|
(1
|
)
|
|
1
|
|
|
(2
|
)
|
Total
|
$
|
1,932
|
|
|
$
|
(25
|
)
|
|
$
|
1,411
|
|
|
$
|
(208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2016
|
|
Less than 12 months
|
|
More than 12 months
|
(in millions)
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
Corporate debt securities
|
$
|
756
|
|
|
$
|
(18
|
)
|
|
$
|
136
|
|
|
$
|
(6
|
)
|
Auction rate securities
|
—
|
|
|
—
|
|
|
44
|
|
|
(3
|
)
|
Mortgage-backed securities
|
196
|
|
|
(5
|
)
|
|
92
|
|
|
(5
|
)
|
U.S. government and agency securities
|
308
|
|
|
(4
|
)
|
|
67
|
|
|
(5
|
)
|
Debt funds
|
670
|
|
|
(26
|
)
|
|
1,601
|
|
|
(256
|
)
|
Marketable equity securities
|
45
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
Total
|
$
|
1,975
|
|
|
$
|
(64
|
)
|
|
$
|
1,940
|
|
|
$
|
(275
|
)
|
The following table represents the range of the unobservable inputs utilized in the fair value measurement of the auction rate securities classified as Level 3 at
October 28, 2016
:
|
|
|
|
|
|
Valuation Technique
|
Unobservable Input
|
Range (Weighted Average)
|
Auction rate securities
|
Discounted cash flow
|
Years to principal recovery
|
2 yrs. - 12 yrs. (3 yrs.)
|
Illiquidity premium
|
6%
|
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. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended
October 28, 2016
and
October 30, 2015
. 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.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The following tables provide a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 28, 2016
|
|
|
|
|
|
|
|
|
(in millions)
|
Total Level 3
Investments
|
|
Corporate debt
securities
|
|
Auction rate
securities
|
July 29, 2016
|
$
|
45
|
|
|
$
|
1
|
|
|
$
|
44
|
|
Total unrealized gains included in other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
October 28, 2016
|
$
|
45
|
|
|
$
|
1
|
|
|
$
|
44
|
|
|
|
|
|
|
|
Three months ended October 30, 2015
|
|
|
|
|
|
|
|
|
(in millions)
|
Total Level 3
Investments
|
|
Corporate debt
securities
|
|
Auction rate
securities
|
July 31, 2015
|
$
|
103
|
|
|
$
|
1
|
|
|
$
|
102
|
|
Total unrealized gains included in other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
October 30, 2015
|
$
|
103
|
|
|
$
|
1
|
|
|
$
|
102
|
|
|
|
|
|
|
|
Six months ended October 28, 2016
|
|
|
|
|
|
(in millions)
|
Total Level 3
Investments
|
|
Corporate Debt
Securities
|
|
Auction Rate
Securities
|
April 29, 2016
|
$
|
45
|
|
|
$
|
1
|
|
|
$
|
44
|
|
Total unrealized losses included in other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
October 28, 2016
|
$
|
45
|
|
|
$
|
1
|
|
|
$
|
44
|
|
|
|
|
|
|
|
Six months ended October 30, 2015
|
|
|
|
|
|
|
|
|
(in millions)
|
Total Level 3
Investments
|
|
Corporate Debt
Securities
|
|
Auction Rate
Securities
|
April 24, 2015
|
$
|
106
|
|
|
$
|
1
|
|
|
$
|
105
|
|
Total unrealized losses included in other comprehensive income
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
October 30, 2015
|
$
|
103
|
|
|
$
|
1
|
|
|
$
|
102
|
|
Activity related to the Company’s investment portfolio is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
October 28, 2016
|
|
October 30, 2015
|
(in millions)
|
Debt
(1)
|
|
Equity
(2)
|
|
Debt
(1)
|
|
Equity
(2)
|
Proceeds from sales
|
$
|
2,444
|
|
|
$
|
76
|
|
|
$
|
1,481
|
|
|
$
|
5
|
|
Gross realized gains
|
57
|
|
|
25
|
|
|
4
|
|
|
20
|
|
Gross realized losses
|
(37
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
Impairment losses recognized
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
October 28, 2016
|
|
October 30, 2015
|
(in millions)
|
Debt
(1)
|
|
Equity
(2)
|
|
Debt
(1)
|
|
Equity
(2)
|
Proceeds from sales
|
$
|
3,542
|
|
|
$
|
82
|
|
|
$
|
2,718
|
|
|
$
|
34
|
|
Gross realized gains
|
64
|
|
|
29
|
|
|
9
|
|
|
32
|
|
Gross realized losses
|
(49
|
)
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
Impairment losses recognized
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(42
|
)
|
|
|
(1)
|
Includes available-for-sale debt securities.
|
|
|
(2)
|
Includes marketable equity securities, cost method, equity method, exchange-traded funds, and other investments.
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
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 other-than-temporary 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 28, 2016
and
April 29, 2016
, the credit loss portion of other-than temporary impairments on debt securities was not significant. The total reductions of available-for-sale debt securities sold during the three and six months ended
October 28, 2016
and
October 30, 2015
, were not significant. The total other-than-temporary impairment losses on available-for-sale debt securities for the three and six months ended
October 28, 2016
and
October 30, 2015
were not significant.
The
October 28, 2016
balance of available-for-sale debt securities, excluding debt funds which have no single maturity date, by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
|
|
|
|
|
(in millions)
|
October 28, 2016
|
Due in one year or less
|
$
|
761
|
|
Due after one year through five years
|
3,056
|
|
Due after five years through ten years
|
2,928
|
|
Due after ten years
|
55
|
|
Total
|
$
|
6,800
|
|
The Company holds investments in marketable equity securities, which are classified as
other assets
in the consolidated balance sheets. The aggregate carrying amount of these investments was
$85 million
at both
October 28, 2016
and
April 29, 2016
. The Company did not recognize any significant impairment charges related to marketable equity securities during the three and six months ended
October 28, 2016
, nor during the three months ended
October 30, 2015
. During the six months ended
October 30, 2015
, the Company determined that the fair values of certain marketable equity securities were below the carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized
$20 million
in impairment charges for the six months ended
October 30, 2015
, which were recognized within
other expense, net
in the consolidated statements of income.
Cost method, equity method, and other investments
The Company holds investments in equity and other securities that are accounted for using the cost or equity method, which are classified as
other assets
in the consolidated balance sheets. At
October 28, 2016
and
April 29, 2016
, the aggregate carrying amount of equity and other securities without a quoted market price and accounted for using the cost or equity method were
$599 million
and
$506 million
, respectively. Cost and equity method investments are measured at fair value on a nonrecurring basis. The total carrying value of these investments is reviewed quarterly for changes in circumstance or the occurrence of events that suggest the Company’s investment may not be recoverable. If there are identified events or changes in circumstances that may have a material adverse effect on the fair value of the investment, the investment is assessed for impairment.
During the three and six months ended
October 28, 2016
and
October 30, 2015
, the Company determined that the fair values of certain cost method investments were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized
$7 million
and
$10 million
in impairment charges during the three and six months ended
October 28, 2016
, respectively, which were recognized in
other expense, net
in the consolidated statements of income. The Company recognized
$19 million
and
$21 million
in impairment charges during the three and six months ended
October 30, 2015
, respectively, which were recognized in
other expense, net
in the consolidated statements of income. Cost method investments fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value, as the investments are in privately-held entities without quoted market prices. To determine the fair value of these investments, the Company uses all pertinent financial information available related to the entities, including financial statements and market participant valuations from recent and proposed equity offerings.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
6
.
Financing Arrangements
Commercial Paper
The Company maintains a commercial paper program that allows the Company to have a maximum of
$3.5 billion
in commercial paper outstanding. Commercial paper outstanding at
October 28, 2016
totaled
$1.1 billion
.
No
amounts were outstanding at
April 29, 2016
. During the three and six months ended
October 28, 2016
, the weighted average original maturity of the commercial paper outstanding was approximately
43
days and
37
days, respectively, and the weighted average interest rate was
0.80
percent and
0.78
percent, respectively. The issuance of commercial paper proportionately reduced 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 credit facility (Credit Facility) which provides back-up funding for the commercial paper program described above. At
October 28, 2016
and
April 29, 2016
,
no
amounts were outstanding.
Interest rates 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 remained in compliance with at
October 28, 2016
.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Long-Term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except interest rates)
|
|
Maturity by
Fiscal Year
|
|
October 28, 2016
|
|
April 29, 2016
|
6.000 percent ten-year 2008 CIFSA senior notes
|
|
2018
|
|
$
|
—
|
|
|
$
|
1,150
|
|
1.500 percent three-year 2015 senior notes
|
|
2018
|
|
1,000
|
|
|
1,000
|
|
1.375 percent five-year 2013 senior notes
|
|
2018
|
|
1,000
|
|
|
1,000
|
|
5.600 percent ten-year 2009 senior notes
|
|
2019
|
|
400
|
|
|
400
|
|
4.450 percent ten-year 2010 senior notes
|
|
2020
|
|
766
|
|
|
766
|
|
2.500 percent five-year 2015 senior notes
|
|
2020
|
|
2,500
|
|
|
2,500
|
|
Floating rate five-year 2015 senior notes
|
|
2020
|
|
500
|
|
|
500
|
|
4.200 percent ten-year 2010 CIFSA senior notes
|
|
2021
|
|
600
|
|
|
600
|
|
4.125 percent ten-year 2011 senior notes
|
|
2021
|
|
500
|
|
|
500
|
|
3.125 percent ten-year 2012 senior notes
|
|
2022
|
|
675
|
|
|
675
|
|
3.150 percent seven-year 2015 senior notes
|
|
2022
|
|
2,500
|
|
|
2,500
|
|
3.200 percent ten-year 2012 CIFSA senior notes
|
|
2023
|
|
650
|
|
|
650
|
|
2.750 percent ten-year 2013 senior notes
|
|
2023
|
|
530
|
|
|
530
|
|
2.950 percent ten-year 2013 CIFSA senior notes
|
|
2024
|
|
310
|
|
|
310
|
|
3.625 percent ten-year 2014 senior notes
|
|
2024
|
|
850
|
|
|
850
|
|
3.500 percent ten-year 2015 senior notes
|
|
2025
|
|
4,000
|
|
|
4,000
|
|
4.375 percent twenty-year 2015 senior notes
|
|
2035
|
|
2,382
|
|
|
2,382
|
|
6.550 percent thirty-year 2008 CIFSA senior notes
|
|
2038
|
|
374
|
|
|
374
|
|
6.500 percent thirty-year 2009 senior notes
|
|
2039
|
|
300
|
|
|
300
|
|
5.550 percent thirty-year 2010 senior notes
|
|
2040
|
|
500
|
|
|
500
|
|
4.500 percent thirty-year 2012 senior notes
|
|
2042
|
|
400
|
|
|
400
|
|
4.000 percent thirty-year 2013 senior notes
|
|
2043
|
|
325
|
|
|
325
|
|
4.625 percent thirty-year 2014 senior notes
|
|
2044
|
|
650
|
|
|
650
|
|
4.625 percent thirty-year 2015 senior notes
|
|
2045
|
|
4,000
|
|
|
4,000
|
|
Three-year term loan
|
|
2018
|
|
3,000
|
|
|
3,000
|
|
Interest rate swaps (Note 7)
|
|
2018 - 2022
|
|
80
|
|
|
89
|
|
Capital lease obligations
|
|
2018 - 2025
|
|
27
|
|
|
26
|
|
Bank borrowings
|
|
2018-2021
|
|
189
|
|
|
56
|
|
Debt premium
|
|
2018-2045
|
|
131
|
|
|
214
|
|
Deferred Financing Costs
(1)
|
|
2018-2045
|
|
(129
|
)
|
|
(138
|
)
|
Total Long-Term Debt
|
|
|
|
$
|
29,010
|
|
|
$
|
30,109
|
|
|
|
(1)
|
We retrospectively adopted the guidance to simplify the presentation of deferred issuance costs in the quarter ending July 29, 2016. As a result, deferred issuance costs have been reclassified from
other assets
to
long-term debt.
See Note 2 to the consolidated financial statements for additional information.
|
Senior Notes
The Company has outstanding unsecured senior obligations including those described as senior notes in the long-term debt table 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 in compliance with at
October 28, 2016
. The Company used the net proceeds from the sale of the Senior Notes primarily for working capital and general corporate uses, which includes the repayment of other indebtedness of the Company, and to fund the acquisition of Covidien in fiscal year 2015. For additional information regarding the terms of these agreements, refer to Note 7
to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2016
.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Financial Instruments Not Measured at Fair Value
At
October 28, 2016
, the total estimated fair value of the Company’s long-term debt, including the current portion, was
$29.5 billion
compared to a principal value of
$27.4 billion
. At
April 29, 2016
, the total estimated fair value was
$29.8 billion
compared to a principal value of
$27.4 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 derivative/hedging activity.
7
.
Derivatives and Currency Exchange Risk Management
The Company uses operational and economic hedges, as well as 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. The primary currencies of the derivative instruments are the Euro and Japanese Yen. 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 at
October 28, 2016
and
April 29, 2016
was
$10.9 billion
and
$10.8 billion
, respectively.
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, statements of income, and statements of cash flows.
Freestanding Derivative Contracts
Freestanding derivative contracts are 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 a foreign currency. The gross notional amount of these contracts, not designated as hedging instruments, outstanding at
October 28, 2016
and
April 29, 2016
, was
$5.1 billion
and
$5.0 billion
, respectively.
The amounts and classification of the (losses) gains in the consolidated statements of income related to derivative instruments, not designated as hedging instruments, for the three and six months ended
October 28, 2016
and
October 30, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Three months ended
|
Derivatives Not Designated as Hedging Instruments
|
|
Classification
|
|
October 28, 2016
|
|
October 30, 2015
|
Currency exchange rate contracts (losses) gains
|
|
Other expense, net
|
|
$
|
(38
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Six months ended
|
Derivatives Not Designated as Hedging Instruments
|
|
Classification
|
|
October 28, 2016
|
|
October 30, 2015
|
Currency exchange rate contracts (losses) gains
|
|
Other expense, net
|
|
$
|
(41
|
)
|
|
$
|
16
|
|
Cash Flow Hedges
Currency Exchange Rate Risk
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. No gains or losses relating to ineffectiveness of foreign currency cash flow hedges were recognized in earnings during the three and six months ended
October 28, 2016
and
October 30, 2015
. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness and no hedges were derecognized or discontinued during the three and six months ended
October 28, 2016
and
October 30, 2015
. The gross notional amount of these contracts, designated as cash flow hedges, outstanding at
October 28, 2016
and
April 29, 2016
, was
$5.8 billion
and
$5.7 billion
, respectively, and will mature within the subsequent
three
-year period.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The amount of gains (losses), location of the gains (losses) in the consolidated statements of income, and the accumulated other comprehensive (loss) income (AOCI) related to currency exchange rate contract derivative instruments designated as cash flow hedges for the three and six months ended
October 28, 2016
and
October 30, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 28, 2016
|
|
|
|
|
|
|
|
|
|
|
Gross Gains (Losses) Recognized in OCI
on Effective Portion of Derivative
|
|
Effective Portion of Gains (Losses) on Derivative Reclassified from AOCI into Income
|
(in millions)
|
|
|
Derivatives in Cash Flow
Hedging Relationships
|
|
Amount
|
|
Classification
|
|
Amount
|
Currency exchange rate contracts
|
|
$
|
69
|
|
|
Other expense, net
|
|
$
|
6
|
|
Total
|
|
$
|
69
|
|
|
|
|
$
|
6
|
|
Three months ended October 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Gross Gains (Losses) Recognized in OCI
on Effective Portion of Derivative
|
|
Effective Portion of Gains (Losses) on Derivative Reclassified from AOCI into Income
|
(in millions)
|
|
|
Derivatives in Cash Flow
Hedging Relationships
|
|
Amount
|
|
Classification
|
|
Amount
|
Currency exchange rate contracts
|
|
$
|
17
|
|
|
Other expense, net
|
|
$
|
89
|
|
|
|
|
|
|
Cost of products sold
|
|
(15
|
)
|
Total
|
|
$
|
17
|
|
|
|
|
$
|
74
|
|
Six months ended October 28, 2016
|
|
|
|
|
|
|
|
|
|
|
Gross Gains (Losses) Recognized in OCI
on Effective Portion of Derivative
|
|
Effective Portion of Gains (Losses) on Derivative Reclassified from AOCI into Income
|
(in millions)
|
|
|
Derivatives in Cash Flow
Hedging Relationships
|
|
Amount
|
|
Location
|
|
Amount
|
Currency exchange rate contracts
|
|
$
|
190
|
|
|
Other expense, net
|
|
$
|
22
|
|
Total
|
|
$
|
190
|
|
|
|
|
$
|
22
|
|
Six months ended October 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Gross Gains (Losses) Recognized in OCI
on Effective Portion of Derivative
|
|
Effective Portion of Gains (Losses) on Derivative Reclassified from AOCI into Income
|
(in millions)
|
|
|
Derivatives in Cash Flow
Hedging Relationships
|
|
Amount
|
|
Location
|
|
Amount
|
Currency exchange rate contracts
|
|
$
|
3
|
|
|
Other expense, net
|
|
$
|
184
|
|
|
|
|
|
|
Cost of products sold
|
|
(36
|
)
|
Total
|
|
$
|
3
|
|
|
|
|
$
|
148
|
|
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. No gains or losses relating to ineffectiveness of forward starting interest rate derivative instruments were recognized in earnings during the three and six months ended
October 28, 2016
and
October 30, 2015
. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness during the three and six months ended
October 28, 2016
and
October 30, 2015
. At
October 28, 2016
, the Company had
$300 million
of fixed pay, forward starting interest rate swaps with a weighted average fixed-rate of
3.10
percent in anticipation of planned debt issuances in fiscal year 2017.
For the three and six months ended
October 28, 2016
and
October 30, 2015
, the reclassification of the effective portion of the net losses on forward starting interest rate derivative instruments from
accumulated other comprehensive loss
to
interest expense, net
was not significant.
The unrealized losses on outstanding forward starting interest rate swap derivative instruments at
October 28, 2016
and
April 29, 2016
were
$54 million
and
$48 million
, respectively. Unrealized losses on outstanding forward starting interest rate swap derivative instruments were recorded in
other liabilities,
with the offset recorded in
accumulated other comprehensive loss
in the consolidated balance sheets.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
At
October 28, 2016
and
April 29, 2016
, the Company had
$16 million
and
$(90) million
, respectively, in after-tax net unrealized gains (losses) associated with cash flow hedging instruments recorded in
accumulated other comprehensive loss
. The Company expects that
$66 million
of after-tax net unrealized gains at
October 28, 2016
will be reclassified into the consolidated statements of income over the next 12 months.
Fair Value Hedges
Interest rate derivative instruments designated as fair value hedges are designed to manage the exposure to interest rate movements and to reduce borrowing costs by converting fixed-rate debt into floating-rate debt. Under these agreements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
At
October 28, 2016
and
April 29, 2016
, the Company had interest rate swaps in gross notional amounts of
$1.2 billion
, designated as fair value hedges of underlying fixed-rate senior note obligations. For additional information regarding the terms of the Company’s interest rate swap agreements, refer to Note 8
to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2016
.
At
October 28, 2016
, the market value of outstanding interest rate swap agreements was a net
$80 million
unrealized gain, and the market value of the hedged item was a net
$80 million
unrealized loss. The amounts were recorded in
other assets, other current assets,
and
other liabilities
with the offsets recorded in
long-term debt
and
current debt obligations
in the consolidated balance sheets. No significant hedge ineffectiveness was recorded as a result of these fair value hedges for the three and six months ended
October 28, 2016
and
October 30, 2015
.
During the three and six months ended
October 28, 2016
and
October 30, 2015
, the Company did not have any significant ineffective fair value hedging instruments. In addition, during the three and six months ended
October 28, 2016
and
October 30, 2015
, the Company did not recognize any significant gains or losses on firm commitments that no longer qualify as fair value hedges.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Balance Sheet Presentation
The following tables summarize the balance sheet classification and fair value amounts of derivative instruments reported in the consolidated balance sheets at
October 28, 2016
and
April 29, 2016
. 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 and are further segregated by type of contract within those two categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2016
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(in millions)
|
Balance Sheet Classification
|
|
Fair Value
|
|
Balance Sheet Classification
|
|
Fair Value
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Currency exchange rate contracts
|
Other current assets
|
|
$
|
207
|
|
|
Other accrued expenses
|
|
$
|
98
|
|
Interest rate contracts
|
Other assets
|
|
80
|
|
|
Other liabilities
|
|
54
|
|
Currency exchange rate contracts
|
Other assets
|
|
80
|
|
|
Other liabilities
|
|
40
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
367
|
|
|
|
|
$
|
192
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Currency exchange rate contracts
|
Other current assets
|
|
$
|
58
|
|
|
Other accrued expenses
|
|
$
|
46
|
|
Cross currency interest rate contracts
|
Other current assets
|
|
1
|
|
|
Other accrued expenses
|
|
—
|
|
Cross currency interest rate contracts
|
Other assets
|
|
6
|
|
|
Other liabilities
|
|
10
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
65
|
|
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
$
|
432
|
|
|
|
|
$
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2016
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(in millions)
|
Balance Sheet Classification
|
|
Fair Value
|
|
Balance Sheet Classification
|
|
Fair Value
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Currency exchange rate contracts
|
Other current assets
|
|
$
|
123
|
|
|
Other accrued expenses
|
|
$
|
89
|
|
Interest rate contracts
|
Other assets
|
|
89
|
|
|
Other liabilities
|
|
48
|
|
Currency exchange rate contracts
|
Other assets
|
|
9
|
|
|
Other liabilities
|
|
54
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
221
|
|
|
|
|
$
|
191
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
Other current assets
|
|
$
|
—
|
|
|
Other accrued expenses
|
|
$
|
1
|
|
Currency exchange rate contracts
|
Other current assets
|
|
13
|
|
|
Other accrued expenses
|
|
23
|
|
Cross currency interest rate contracts
|
Other assets
|
|
14
|
|
|
Other liabilities
|
|
4
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
27
|
|
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
$
|
248
|
|
|
|
|
$
|
219
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The following table provides information by level for the derivative assets and liabilities that are measured at fair value on a recurring basis at
October 28, 2016
and
April 29, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2016
|
|
April 29, 2016
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 1
|
|
Level 2
|
Derivative assets
|
$
|
345
|
|
|
$
|
87
|
|
|
$
|
145
|
|
|
$
|
103
|
|
Derivative liabilities
|
184
|
|
|
64
|
|
|
166
|
|
|
53
|
|
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 following table provides 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 28, 2016
|
|
|
|
Gross Amount Not Offset on the Balance Sheet
|
|
|
(in millions)
|
|
Gross Amount of Recorded Assets (Liabilities)
|
|
Financial Instruments
|
|
Collateral (Received) Posted
|
|
Net Amount
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Currency exchange rate contracts
|
|
$
|
345
|
|
|
$
|
(199
|
)
|
|
$
|
(19
|
)
|
|
$
|
127
|
|
Interest rate contracts
|
|
80
|
|
|
(19
|
)
|
|
(2
|
)
|
|
59
|
|
Cross currency interest rate contracts
|
|
7
|
|
|
(3
|
)
|
|
—
|
|
|
4
|
|
|
|
$
|
432
|
|
|
$
|
(221
|
)
|
|
$
|
(21
|
)
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Currency exchange rate contracts
|
|
$
|
(184
|
)
|
|
$
|
168
|
|
|
$
|
—
|
|
|
$
|
(16
|
)
|
Interest rate contracts
|
|
(54
|
)
|
|
50
|
|
|
—
|
|
|
(4
|
)
|
Cross currency interest rate contracts
|
|
(10
|
)
|
|
3
|
|
|
—
|
|
|
(7
|
)
|
|
|
$
|
(248
|
)
|
|
$
|
221
|
|
|
$
|
—
|
|
|
$
|
(27
|
)
|
Total
|
|
$
|
184
|
|
|
$
|
—
|
|
|
$
|
(21
|
)
|
|
$
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2016
|
|
|
|
Gross Amount Not Offset on the Balance Sheet
|
|
|
(in millions)
|
|
Gross Amount of Recorded Assets (Liabilities)
|
|
Financial Instruments
|
|
Collateral (Received) Posted
|
|
Net Amount
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Currency exchange rate contracts
|
|
$
|
145
|
|
|
$
|
(98
|
)
|
|
$
|
(1
|
)
|
|
$
|
46
|
|
Interest rate contracts
|
|
89
|
|
|
(20
|
)
|
|
—
|
|
|
69
|
|
Cross currency interest rate contracts
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
|
$
|
248
|
|
|
$
|
(118
|
)
|
|
$
|
(1
|
)
|
|
$
|
129
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Currency exchange rate contracts
|
|
$
|
(166
|
)
|
|
$
|
85
|
|
|
$
|
26
|
|
|
$
|
(55
|
)
|
Interest rate contracts
|
|
(48
|
)
|
|
34
|
|
|
—
|
|
|
(14
|
)
|
Cross currency interest rate contracts
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Commodity contracts
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
|
$
|
(219
|
)
|
|
$
|
119
|
|
|
$
|
26
|
|
|
$
|
(74
|
)
|
Total
|
|
$
|
29
|
|
|
$
|
1
|
|
|
$
|
25
|
|
|
$
|
55
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
8
.
Inventories
Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments, and other economic factors. Inventory balances were as follows:
|
|
|
|
|
|
|
|
|
(in millions)
|
October 28, 2016
|
|
April 29, 2016
|
Finished goods
|
$
|
2,419
|
|
|
$
|
2,242
|
|
Work in-process
|
533
|
|
|
499
|
|
Raw materials
|
765
|
|
|
732
|
|
Total
|
$
|
3,717
|
|
|
$
|
3,473
|
|
9
.
Goodwill and Other Intangible Assets, Net
Goodwill
The changes in the carrying amount of goodwill by reporting unit for the
six months ended
October 28, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Cardiac and Vascular Group
|
|
Minimally Invasive Therapies Group
|
|
Restorative Therapies Group
|
|
Diabetes Group
|
|
Total
|
April 29, 2016
|
$
|
6,243
|
|
|
$
|
23,784
|
|
|
$
|
9,620
|
|
|
$
|
1,853
|
|
|
$
|
41,500
|
|
Goodwill as a result of acquisitions
|
509
|
|
|
226
|
|
|
37
|
|
|
—
|
|
|
772
|
|
Currency adjustment, net
|
(30
|
)
|
|
(505
|
)
|
|
(30
|
)
|
|
—
|
|
|
(565
|
)
|
October 28, 2016
|
$
|
6,722
|
|
|
$
|
23,505
|
|
|
$
|
9,627
|
|
|
$
|
1,853
|
|
|
$
|
41,707
|
|
The Company assesses goodwill for impairment annually in the third quarter 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 projected future cash flows. The Company calculates the excess of each reporting unit's fair value over its carrying amount, including goodwill, utilizing a discounted cash flow analysis. The Company did not recognize any goodwill impairment during the three or six months ended
October 28, 2016
or
October 30, 2015
.
Intangible Assets
The gross carrying amount and accumulated amortization of intangible assets at
October 28, 2016
and
April 29, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2016
|
|
April 29, 2016
|
(in millions)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
Definite-lived:
|
|
|
|
|
|
|
|
Customer-related
|
$
|
18,727
|
|
|
$
|
(1,864
|
)
|
|
$
|
18,596
|
|
|
$
|
(1,331
|
)
|
Purchased technology and patents
|
12,221
|
|
|
(3,379
|
)
|
|
11,397
|
|
|
(2,976
|
)
|
Trademarks and tradenames
|
832
|
|
|
(448
|
)
|
|
854
|
|
|
(403
|
)
|
Other
|
78
|
|
|
(36
|
)
|
|
72
|
|
|
(31
|
)
|
Total
|
$
|
31,858
|
|
|
$
|
(5,727
|
)
|
|
$
|
30,919
|
|
|
$
|
(4,741
|
)
|
Indefinite-lived:
|
|
|
|
|
|
|
|
IPR&D
|
$
|
608
|
|
|
|
|
$
|
721
|
|
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The Company assesses definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset (asset group) may not be recoverable. When events or changes in circumstances indicate that the carrying amount 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 in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. The Company did not recognize any intangible asset impairments during the three or six months ended
October 28, 2016
or
October 30, 2015
.
The Company assesses indefinite-lived intangibles for impairment annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. The indefinite-lived intangibles impairment test requires the Company to perform an assessment involving several estimates about fair value. The Company calculates the excess of indefinite-lived intangibles asset fair values over their carrying values utilizing a discounted future cash flow analysis. During the three and six months ended
October 28, 2016
the Company recognized an impairment to indefinite-lived intangibles of
$5 million
. During the three and six months ended
October 30, 2015
, the Company did not recognize any indefinite-lived intangibles impairments. 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 such clinical trials, delays or failures to obtain required market clearances or other failures to achieve a commercially viable product, and as a result, may recognize impairment losses in the future.
Amortization Expense
Intangible asset amortization expense for the three and six months ended
October 28, 2016
was
$500 million
and
$987 million
, respectively, and for the three and six months ended
October 30, 2015
was $
483 million
and $
964 million
, respectively.
Estimated aggregate amortization expense by fiscal year based on the current carrying value of definite-lived intangible assets at
October 28, 2016
, excluding any possible future amortization associated with acquired IPR&D, which has not met technological feasibility, is as follows:
|
|
|
|
|
(in millions)
|
Amortization Expense
|
Remaining 2017
|
$
|
997
|
|
2018
|
1,971
|
|
2019
|
1,877
|
|
2020
|
1,829
|
|
2021
|
1,812
|
|
2022
|
1,768
|
|
10
.
Income Taxes
The Company’s effective tax rate for the three and six months ended
October 28, 2016
was
8.3
percent and
7.3
percent, respectively, compared to
52.0
percent and
33.8
percent for the three and six months ended
October 30, 2015
, respectively. The change in the effective tax rate for the three and six months ended
October 28, 2016
was primarily due to certain tax adjustments, the impact of restructuring charges, net, certain litigation charges, acquisition-related items, changes to certain deferred income tax balances and uncertain tax position reserves, and year over year changes in operational results by jurisdiction.
During the six months ended
October 28, 2016
, the Company's gross unrecognized tax benefits decreased from
$2.7 billion
to
$1.9 billion
. In addition, the Company has accrued gross interest and penalties of
$274 million
at
October 28, 2016
. If all of the Company’s unrecognized tax benefits were recognized, approximately
$1.8 billion
would impact the Company’s effective tax rate. The Company has recorded all of the gross unrecognized tax benefits as a non-current liability within
accrued income taxes
on the consolidated balance sheets. The Company will continue to recognize interest and penalties related to income tax matters within
provision for income taxes
in the consolidated statements of income and record the liability within
accrued income taxes
on the consolidated balance sheets.
See Note
15
to the consolidated financial statements
for additional information regarding the status of current tax audits and proceedings.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
11
.
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 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 from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive ordinary shares include stock options and other stock-based awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan.
The table below sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in millions, except per share data)
|
October 28, 2016
|
|
October 30, 2015
|
|
October 28, 2016
|
|
October 30, 2015
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ordinary shareholders
|
$
|
1,115
|
|
|
$
|
520
|
|
|
$
|
2,044
|
|
|
$
|
1,340
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Basic – weighted average shares outstanding
|
1,380.0
|
|
|
1,412.9
|
|
|
1,386.5
|
|
|
1,415.6
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
9.3
|
|
|
12.2
|
|
|
9.9
|
|
|
12.7
|
|
Employee restricted stock units
|
3.2
|
|
|
3.6
|
|
|
3.6
|
|
|
4.3
|
|
Other
|
—
|
|
|
0.1
|
|
|
0.2
|
|
|
0.1
|
|
Diluted – weighted average shares outstanding
|
1,392.5
|
|
|
1,428.8
|
|
|
1,400.2
|
|
|
1,432.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.81
|
|
|
$
|
0.37
|
|
|
$
|
1.47
|
|
|
$
|
0.95
|
|
Diluted earnings per share
|
$
|
0.80
|
|
|
$
|
0.36
|
|
|
$
|
1.46
|
|
|
$
|
0.94
|
|
The calculation of weighted average diluted shares outstanding excludes options to purchase approximately
5 million
and
4 million
ordinary shares for the three and six months ended
October 28, 2016
, respectively, and approximately
6 million
and
3 million
ordinary shares for the three and six months ended
October 30, 2015
, respectively, because their effect would be anti-dilutive on the Company’s earnings per share. Additionally, the calculation of weighted average diluted shares outstanding excludes
no
shares and approximately
3 million
shares for the three and six months ended
October 28, 2016
, respectively, and
22 million
and
21 million
shares for the three and six months ended
October 30, 2015
, respectively, because the performance criteria had not yet been met. The calculation of weighted average diluted shares outstanding excludes approximately
1 million
restricted stock units for each of the three and six months ended
October 28, 2016
and
October 30, 2015
, because the performance criteria had not yet been met.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
12
.
Stock-Based Compensation
The following table presents the components and classification of stock-based compensation expense for stock options, restricted stock awards, and employee stock purchase plan shares recognized for the three and six months ended
October 28, 2016
and
October 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in millions)
|
October 28, 2016
|
|
October 30, 2015
|
|
October 28, 2016
|
|
October 30, 2015
|
Stock options
|
$
|
53
|
|
|
$
|
62
|
|
|
$
|
91
|
|
|
$
|
119
|
|
Restricted stock awards
|
54
|
|
|
46
|
|
|
88
|
|
|
80
|
|
Employee stock purchase plan shares
|
4
|
|
|
5
|
|
|
11
|
|
|
10
|
|
Total stock-based compensation expense
|
$
|
111
|
|
|
$
|
113
|
|
|
$
|
190
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
$
|
15
|
|
|
$
|
14
|
|
|
$
|
26
|
|
|
$
|
26
|
|
Research and development expense
|
13
|
|
|
12
|
|
|
22
|
|
|
20
|
|
Selling, general, and administrative expense
|
73
|
|
|
65
|
|
|
124
|
|
|
114
|
|
Restructuring charges, net
|
1
|
|
|
6
|
|
|
2
|
|
|
14
|
|
Acquisition-related items
|
9
|
|
|
16
|
|
|
16
|
|
|
35
|
|
Total stock-based compensation expense
|
$
|
111
|
|
|
$
|
113
|
|
|
$
|
190
|
|
|
$
|
209
|
|
Income tax benefits
|
(33
|
)
|
|
(34
|
)
|
|
(54
|
)
|
|
(63
|
)
|
Total stock-based compensation expense, net of tax
|
$
|
78
|
|
|
$
|
79
|
|
|
$
|
136
|
|
|
$
|
146
|
|
13
.
Retirement Benefit Plans
The Company sponsors various retirement benefit plans, including defined benefit pension plans (pension benefits), 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 28, 2016
and
October 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension Benefits
|
|
Three months ended
|
|
Three months ended
|
(in millions)
|
October 28, 2016
|
|
October 30, 2015
|
|
October 28, 2016
|
|
October 30, 2015
|
Service cost
|
$
|
29
|
|
|
$
|
30
|
|
|
$
|
19
|
|
|
$
|
22
|
|
Interest cost
|
27
|
|
|
31
|
|
|
6
|
|
|
9
|
|
Expected return on plan assets
|
(47
|
)
|
|
(45
|
)
|
|
(12
|
)
|
|
(13
|
)
|
Amortization of net actuarial loss
|
23
|
|
|
24
|
|
|
4
|
|
|
6
|
|
Net periodic benefit cost
|
$
|
32
|
|
|
$
|
40
|
|
|
$
|
17
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension Benefits
|
|
Six months ended
|
|
Six months ended
|
(in millions)
|
October 28, 2016
|
|
October 30, 2015
|
|
October 28, 2016
|
|
October 30, 2015
|
Service cost
|
$
|
58
|
|
|
$
|
60
|
|
|
$
|
38
|
|
|
$
|
44
|
|
Interest cost
|
54
|
|
|
62
|
|
|
12
|
|
|
18
|
|
Expected return on plan assets
|
(94
|
)
|
|
(90
|
)
|
|
(24
|
)
|
|
(26
|
)
|
Amortization of net actuarial loss
|
46
|
|
|
48
|
|
|
8
|
|
|
12
|
|
Net periodic benefit cost
|
$
|
64
|
|
|
$
|
80
|
|
|
$
|
34
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
14
.
Accumulated Other Comprehensive (Loss) Income
and Supplemental Equity Disclosure
Changes in AOCI by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Unrealized Gain (Loss) on Available-for-Sale Securities
(1)
|
|
Cumulative Translation Adjustments
(2)
|
|
Net Change in Retirement Obligations
(3)
|
|
Unrealized Gain (Loss) on Derivatives
(4)
|
|
Total Accumulated Other Comprehensive (Loss) Income
|
April 29, 2016, net of tax
|
$
|
(107
|
)
|
|
$
|
(474
|
)
|
|
$
|
(1,197
|
)
|
|
$
|
(90
|
)
|
|
$
|
(1,868
|
)
|
Other comprehensive income (loss) before reclassifications, before tax
|
132
|
|
|
(686
|
)
|
|
—
|
|
|
184
|
|
|
(370
|
)
|
Tax expense
|
(44
|
)
|
|
—
|
|
|
—
|
|
|
(66
|
)
|
|
(110
|
)
|
Other comprehensive income (loss) before reclassifications, net of tax
|
88
|
|
|
(686
|
)
|
|
—
|
|
|
118
|
|
|
(480
|
)
|
Reclassifications, before tax
|
(20
|
)
|
|
—
|
|
|
54
|
|
|
(19
|
)
|
|
15
|
|
Tax (expense) benefit
|
7
|
|
|
—
|
|
|
(10
|
)
|
|
8
|
|
|
5
|
|
Reclassifications, net of tax
|
(13
|
)
|
|
—
|
|
|
44
|
|
|
(11
|
)
|
|
20
|
|
Other comprehensive income (loss), net of tax
|
75
|
|
|
(686
|
)
|
|
44
|
|
|
107
|
|
|
(460
|
)
|
October 28, 2016, net of tax
|
$
|
(32
|
)
|
|
$
|
(1,160
|
)
|
|
$
|
(1,153
|
)
|
|
$
|
17
|
|
|
$
|
(2,328
|
)
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Unrealized Gain (Loss) on Available-for-Sale Securities
(1)
|
|
Cumulative Translation Adjustments
(2)
|
|
Net Change in Retirement Obligations
(3)
|
|
Unrealized Gain (Loss) on Derivatives
(4)
|
|
Total Accumulated Other Comprehensive (Loss) Income
|
April 24, 2015, net of tax
|
$
|
14
|
|
|
$
|
(277
|
)
|
|
$
|
(1,131
|
)
|
|
$
|
210
|
|
|
$
|
(1,184
|
)
|
Other comprehensive (loss) income before reclassifications, before tax
|
(302
|
)
|
|
(59
|
)
|
|
(5
|
)
|
|
44
|
|
|
(322
|
)
|
Tax benefit (expense)
|
108
|
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
91
|
|
Other comprehensive (loss) income before reclassifications, net of tax
|
(194
|
)
|
|
(59
|
)
|
|
(5
|
)
|
|
27
|
|
|
(231
|
)
|
Reclassifications, before tax
|
(20
|
)
|
|
—
|
|
|
60
|
|
|
(133
|
)
|
|
(93
|
)
|
Tax benefit (expense)
|
7
|
|
|
—
|
|
|
(20
|
)
|
|
50
|
|
|
37
|
|
Reclassifications, net of tax
|
(13
|
)
|
|
—
|
|
|
40
|
|
|
(83
|
)
|
|
(56
|
)
|
Other comprehensive (loss) income, net of tax
|
(207
|
)
|
|
(59
|
)
|
|
35
|
|
|
(56
|
)
|
|
(287
|
)
|
October 30, 2015, net of tax
|
$
|
(193
|
)
|
|
$
|
(336
|
)
|
|
$
|
(1,096
|
)
|
|
$
|
154
|
|
|
$
|
(1,471
|
)
|
|
|
(1)
|
Represents net realized gains (losses) on sales of available-for-sale securities that were reclassified from AOCI to
other expense, net
(see Note
5
).
|
|
|
(2)
|
Taxes are not provided on cumulative translation adjustments as substantially all translation adjustments relate to earnings that are intended to be indefinitely reinvested outside the U.S.
|
|
|
(3)
|
Includes net amortization of prior service costs and actuarial losses included in net periodic benefit cost (see Note
13
).
|
|
|
(4)
|
Relates to currency cash flow hedges that were reclassified from AOCI to
other expense, net
or
cost of products sold
and forward starting interest rate derivative instruments that were reclassified from AOCI to
interest expense, net
(see Note
7
).
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The supplemental equity schedule below presents changes in the Company's noncontrolling interests and total shareholders' equity for the six months ended
October 28, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Total Shareholders' Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
April 29, 2016
|
|
$
|
52,063
|
|
|
$
|
—
|
|
|
$
|
52,063
|
|
Net income
|
|
2,044
|
|
|
(4
|
)
|
|
2,040
|
|
Other comprehensive loss
|
|
(460
|
)
|
|
—
|
|
|
(460
|
)
|
Dividends to shareholders
|
|
(1,192
|
)
|
|
—
|
|
|
(1,192
|
)
|
Issuance of shares under stock purchase and award plans
|
|
260
|
|
|
—
|
|
|
260
|
|
Repurchase of ordinary shares
|
|
(2,794
|
)
|
|
—
|
|
|
(2,794
|
)
|
Tax benefit from exercise of stock-based awards
|
|
75
|
|
|
—
|
|
|
75
|
|
Stock-based compensation
|
|
190
|
|
|
—
|
|
|
190
|
|
Additions of noncontrolling ownership interests
|
|
—
|
|
|
111
|
|
|
111
|
|
October 28, 2016
|
|
$
|
50,186
|
|
|
$
|
107
|
|
|
$
|
50,293
|
|
15
.
Commitments and Contingencies
The Company and its affiliates are involved in a number of legal actions involving product liability, intellectual property disputes, shareholder related matters, environmental proceedings, income tax disputes, and governmental proceedings and investigations in the United States and around the world, 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 these 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 applicable jurisdictions. The Company records a liability in the consolidated financial statements for loss contingencies related to legal actions when a loss is known or considered probable and the amount can 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 can 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. At
October 28, 2016
and
April 29, 2016
, accrued certain litigation charges were approximately
$1.0 billion
. The ultimate cost to the Company with respect to accrued certain litigation charges 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, or cash flows. The Company includes accrued certain litigation charges in
other accrued expenses
and
other liabilities
on the consolidated balance sheets.
In addition to litigation contingencies, the Company also has certain income tax and guarantee obligations that may potentially result in future charges. While it is not possible to predict the outcome for most of the matters discussed below, 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, or cash flows.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Product Liability Matters
Sprint Fidelis
In 2007, a putative class action was filed in the Ontario Superior Court of Justice in Canada seeking damages for personal injuries allegedly related to the Company's Sprint Fidelis family of defibrillation leads. On October 20, 2009, the court certified a class proceeding but denied class certification on plaintiffs' claim for punitive damages. Pretrial proceedings are underway. 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 cannot reasonably estimate the range of loss, if any, that may result from this matter.
INFUSE Litigation
The Company estimates law firms representing approximately
6,000
claimants have asserted or intend to assert personal injury claims against Medtronic in the U.S. state and federal courts involving the INFUSE bone graft product. As of December 1, 2016, the Company has reached agreements to settle approximately
4,300
of these claims, and certain of the remaining claims are expected to proceed to trial beginning in fiscal year 2017. The Company's accrued expenses for this matter are included within accrued certain litigation charges in
other accrued expenses
and
other liabilities
on the consolidated balance sheets as discussed above.
Other INFUSE Litigation
On June 5, 2014, Humana, Inc. filed a lawsuit for unspecified monetary damages in the U.S. District Court for the Western District of Tennessee, alleging that Medtronic, Inc. violated federal racketeering (RICO) law and various state laws, by conspiring with physicians to promote unapproved uses of INFUSE. In September of 2015 the Court granted Medtronic’s motion to dismiss the primary allegations, including the RICO claims, in Humana’s complaint. In April of 2016 the Court denied Humana's motion to file an amended complaint. 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 cannot reasonably estimate the range of loss, if any, that may result from this matter.
Pelvic Mesh Litigation
The Company, through the acquisition of Covidien, 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. Two subsidiaries of Covidien supplied pelvic mesh products to one 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 July 2015, the Company and Bard agreed that Bard would pay the Company
$121 million
towards the settlement of
11,000
of these 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
15,800
claimants have asserted or may assert claims involving products manufactured by Covidien’s subsidiaries. As of December 1, 2016, the Company has reached agreements to settle approximately
7,600
of these claims. The Company's accrued expenses for this matter are included within accrued certain litigation charges in
other accrued expenses
and
other liabilities
on the consolidated balance sheets as discussed above.
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
one
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. In addition to claims of non-infringement, the Company asserts affirmative defenses of invalidity for each of the patents-in-suit. The case is currently in the fact discovery stage. 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 cannot reasonably estimate the range of loss, if any, that may result from this matter.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Shareholder Related Matters
INFUSE
On March 12, 2012, Charlotte Kokocinski (Kokocinski) filed a shareholder derivative action against both Medtronic, Inc. and certain of its current and former officers and directors in the U.S. District Court for the District of Minnesota, setting forth certain allegations, including a claim that defendants violated various purported duties in connection with the INFUSE bone graft product and otherwise. On March 25, 2013, the Court dismissed the case without prejudice, and Kokocinski subsequently filed an amended complaint. On March 30, 2015, the Court granted defendants’ motion to dismiss the amended complaint, dismissing the case with prejudice. Kokocinski sought reconsideration of that decision, and, on September 30, 2015, the Court denied Kokocinski’s request for reconsideration. Kokocinski has appealed the Court’s decision to the U.S. Court of Appeals for the Eighth Circuit.
West Virginia Pipe Trades and Phil Pace, on June 27, 2013 and July 3, 2013, respectively, filed putative class action complaints against Medtronic, Inc. and certain of its officers in the U.S. District Court for the District of Minnesota, alleging that the defendants made false and misleading public statements regarding the INFUSE Bone Graft product during the period of December 8, 2010 through August 3, 2011. The matters were consolidated in September, 2013, and in the consolidated complaint plaintiffs alleged a class period of September 28, 2010 through August 3, 2011. On September 30, 2015, the Court granted defendants’ motion for summary judgment in the consolidated matters. Plaintiffs have appealed the dismissal to the U.S. Court of Appeals for the Eighth Circuit.
COVIDIEN ACQUISITION
On July 2, 2014, Lewis Merenstein filed a putative shareholder class action in Hennepin County, Minnesota, District Court seeking 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 December 30, 2014, a hearing was held on plaintiffs’ motion for preliminary injunction and on defendants’ motion to dismiss. On January 2, 2015, the District Court denied the plaintiffs’ motion for preliminary injunction and on January 5, 2015 issued its opinion. On March 20, 2015, the District Court issued its order and opinion granting Medtronic’s motion to dismiss the case. In May of 2015, the plaintiffs filed an appeal, and, in January of 2016, the Minnesota State Court of Appeals affirmed in part, reversed in part, and remanded the case to the District Court for further proceedings. In February of 2016, the Company petitioned the Minnesota Supreme Court to review the decision of the Minnesota State Court of Appeals, and on April 19, 2016 the Minnesota Supreme Court granted the Company’s petition on the issue of whether most of the original claims are properly characterized as direct or derivative under Minnesota law. A decision from the Minnesota Supreme Court is expected in calendar year 2017.
HEARTWARE
On January 22, 2016, the St. Paul Teachers’ Retirement Fund Association filed a putative class action complaint (the “Complaint”) in the United States District Court for the Southern District of New York against HeartWare on behalf of all persons and entities who purchased or otherwise acquired shares of HeartWare from June 10, 2014 through January 11, 2016 (the “Class Period”). The Complaint was amended on June 29, 2016 and claims HeartWare and one of its executives violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false and misleading statements about, among other things, HeartWare’s response to a June 2014 FDA warning letter, the development of the Miniaturized Ventricular Assist Device (MVAD) System and the proposed acquisition of Valtech Cardio Ltd. The Complaint seeks to recover damages on behalf of all purchasers or acquirers of HeartWare’s stock during the Class Period. In August of 2016 the Company acquired HeartWare.
The Company has not recognized an expense related to damages in connection with the shareholder related matters, because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company cannot reasonably estimate the range of loss, if any, that may result from these matters.
Environmental Proceedings
The Company, through the acquisition of Covidien, 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.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The Company is a successor to a company 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
two
landfills, capping of the remaining
three
landfills, installation of a groundwater extraction system and long-term monitoring of the site and the
three
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.
The Company has 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 Covidien 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.
On July 29, 2002, following a March 2002 trial, the District Court entered an opinion and order which held that conditions in the Penobscot River and Bay may pose an imminent and substantial endangerment and that Covidien was liable for the cost of performing a study of the river and bay. The District Court subsequently appointed an independent study panel to oversee the study and ordered Covidien to pay costs associated with the study. A report issued by the study panel contains recommendations for a variety of potential remedial options which could be implemented individually or in a variety of combinations, and included preliminary cost estimates for a variety of potential remedial options, which the report describes as “very rough estimates of cost,” ranging from
$25 million
to
$235 million
. The report indicates that these costs are subject to uncertainties, and that before any remedial option is implemented, further engineering studies and engineering design work are necessary to determine the feasibility of the proposed remedial options. In June of 2014, a trial was held to determine if remediation was necessary and feasible, and on September 2, 2015, the District Court issued an order concluding that further engineering study and engineering design work is appropriate to determine the nature and extent of remediation in the Penobscot River and Bay. In January of 2016, the Court appointed an engineering firm to conduct the next phase of the study. The study is targeted for completion late calendar year 2017.
The Company's accrued expenses for environmental proceedings are included within accrued certain litigation charges in
other accrued expenses
and
other liabilities
on the consolidated balance sheets as discussed above.
Government Matters
Medtronic has received subpoenas or document requests from the Attorneys General in Massachusetts, California, Oregon, Illinois, and Washington seeking information regarding sales, marketing, clinical, and other information relating to the INFUSE bone graft product. The Company has not recognized an expense related to damages in connection with these matters, because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company cannot reasonably estimate the range of loss, if any, that may result from these matters.
On May 2, 2011, the U.S. Attorney’s Office for the District of Massachusetts issued a subpoena to ev3, a subsidiary of the Company, requesting production of documents relating to sales and marketing and other issues in connection with several neurovascular products. The matters under investigation relate to activities prior to Covidien's acquisition of ev3 in 2010. ev3 complied as required with the subpoena and cooperated with the investigation. In the third quarter of fiscal year 2016, the Company accrued expenses in connection with this matter, which are included within accrued certain litigation charges in
other accrued expenses
and
other liabilities
on the consolidated balance sheets as discussed above.
On September 2, 2014, the U.S. Department of Health and Human Services, Office of Inspector General and the U.S. Attorney’s Office for the Northern District of California, issued a subpoena requesting production of documents relating to sales and marketing practices associated with certain of ev3’s peripheral vascular products. 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 cannot reasonably estimate the range of loss, if any, that may result from this matter.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
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. On December 23, 2010, the IRS issued a statutory notice of deficiency with respect to the remaining issues. Medtronic, Inc. filed a petition with the U.S. Tax Court on March 21, 2011 objecting to the deficiency. During October and November 2012, Medtronic, Inc. reached resolution with the IRS on various matters, including the deductibility of a settlement payment. Medtronic, Inc. and the IRS agreed to hold one issue, the calculation of amounts eligible for the one-time repatriation holiday, because such specific issue was being addressed by other taxpayers in litigation with the IRS. 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 proceeding with respect to this issue began on February 3, 2015 and ended on March 12, 2015. On June 9, 2016, the U.S. Tax court issued its opinion with respect to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico 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. During November 2016, Medtronic and the IRS entered into a Stipulation of Settled Issues with the Tax Court which resolved the one-time repatriation holiday as an outstanding issue unless, either party concludes to appeal the Tax Court Opinion and a final decision is inconsistent with the U.S. Tax Court Opinion. An appeal of the U.S. Tax Court Opinion must be filed within 90 days of the final decision by the Tax Court. The final decision by the Tax Court is expected to occur later this fiscal year once all administrative matters for fiscal years 2005 and 2006 are resolved.
In October 2011, the IRS issued its audit report 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. During the first quarter of fiscal year 2016, the Company finalized its agreement with the IRS on the proposed adjustments associated with the tax effects of the Company's acquisition of Kyphon Inc. (Kyphon). The settlement was consistent with the certain tax adjustment recorded during the fourth quarter of fiscal year 2015. During the first quarter of fiscal year 2017, an expected settlement was reached with the IRS for all outstanding issues for fiscal years 2007 and 2008 except for 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 April 2014, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2009, 2010, and 2011. 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 tax effects of its acquisition structures for Ardian, CoreValve, Inc., and Ablation Frontiers, Inc. During the first quarter of fiscal year 2017, an expected settlement was reached with the IRS for all outstanding issues for fiscal years 2009, 2010, and 2011 except for 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. The IRS continues to audit Medtronic, Inc.'s U.S. federal income tax returns for the fiscal years 2012 through 2014.
Covidien and the IRS have concluded and reached agreement on its audit of Covidien’s U.S. federal income tax returns for the 2008 and 2009 tax years. The IRS continues to audit Covidien’s U.S. federal income tax returns for the years 2010 through 2012.
The IRS concluded its field examination of certain of Tyco International’s U.S. federal income tax returns for the years 1997 through 2000 and proposed tax adjustments, several of which also affect Covidien’s income tax returns for certain years after 2000. Tyco International appealed certain of the tax adjustments proposed by the IRS and had resolved all but one of the matters associated with the proposed tax adjustments. The IRS asserted that substantially all of Tyco International’s intercompany debt originating during the years 1997 through 2000 should not be treated as debt for U.S. federal income tax purposes, and disallowed interest deductions related to the intercompany debt and certain tax attribute adjustments recognized on Tyco International’s U.S. income tax returns. The Company disagreed with the IRS’s proposed adjustments and, on July 22, 2013, Tyco International filed a petition with the U.S. Tax Court contesting the IRS assessment. On January 15, 2016, Tyco International, as audit managing party under the Tax Sharing Agreement, entered into Stipulations of Settled Issues with the IRS intended to resolve all Federal tax disputes related to this intercompany debt issue for the Tax Sharing Participants for the 1997 - 2000 audit cycle before the U.S. Tax Court. The Stipulations of Settled Issues were contingent upon the IRS Appeals Division applying the same settlement terms to all intercompany debt issues on appeal for subsequent audit cycles (2001 - 2007). On May 17, 2016 the IRS Office of Appeals issued fully executed Forms 870-AD that effectively settled the matters on appeal on the same terms as those set forth in the Stipulations of Settled Issues, and on May 31, 2016 the U.S. Tax Court entered decisions consistent with the Stipulations of Settled Issues. As a result, all aspects of this controversy that were before the U.S. Tax Court and Appeals Division of the IRS have been finally resolved for audit cycles from 1997-2007.
See Note
10
for additional discussion of income taxes.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Guarantees
As a result of the acquisition of Covidien, the Company has guarantee commitments and indemnifications with Tyco International, TE Connectivity Ltd. (TE Connectivity), and Mallinckrodt plc (Mallinckrodt) which relate to certain contingent tax liabilities.
On June 29, 2007, Covidien entered into the Tax Sharing Agreement, under which Covidien shares responsibility for certain of its, Tyco International’s, and TE Connectivity’s income tax liabilities for periods prior to Covidien’s 2007 separation from Tyco International (2007 separation). Covidien, Tyco International, and TE Connectivity share
42 percent
,
27 percent
, and
31 percent
, respectively, of U.S. income tax liabilities that arise from adjustments made by tax authorities to Covidien's, Tyco International’s, and TE Connectivity’s U.S. income tax returns, certain income tax liabilities arising from adjustments made by tax authorities to intercompany transactions or similar adjustments, and certain taxes attributable to internal transactions undertaken in anticipation of the 2007 separation. If Tyco International and TE Connectivity default on their obligations to the Company under the Tax Sharing Agreement, the Company would be liable for the entire amount of these liabilities. All costs and expenses associated with the management of these tax liabilities are being shared equally among the parties.
In connection with the 2007 separation, all tax liabilities associated with Covidien business became Covidien’s tax liabilities. Following Covidien’s spin-off of its Pharmaceuticals business to Covidien shareholders through a distribution of all the outstanding ordinary shares of Mallinkrodt (2013 separation), Mallinckrodt became the primary obligor to the taxing authorities for the tax liabilities attributable to its subsidiaries, a significant portion of which relate to periods prior to the 2007 separation. However, Covidien remains the sole party subject to the Tax Sharing Agreement. Accordingly, Mallinckrodt does not share in the Company’s liability to Tyco International and TE Connectivity, nor in the receivable that the Company has from Tyco International, and TE Connectivity.
If any party to the Tax Sharing Agreement were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party’s fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, the Company could be legally liable under applicable tax law for such liabilities and be required to make additional tax payments. Accordingly, under certain circumstances, the Company may be obligated to pay amounts in excess of the Company’s agreed upon share of Covidien's, Tyco International’s and TE Connectivity’s tax liabilities.
The Company has used available information to develop its best estimates for certain assets and liabilities related to periods prior to the 2007 separation, including amounts subject to or impacted by the provisions of the Tax Sharing Agreement. The actual amounts that the Company may be required to ultimately accrue or pay under the Tax Sharing Agreement, however, could vary depending upon the outcome of the unresolved tax matters. Final determination of the balances will be made in subsequent periods, primarily related to certain pre-2007 separation tax liabilities and tax years open for examination. These balances will also be impacted by the filing of final or amended income tax returns in certain jurisdictions where those returns include a combination of Tyco International, Covidien, and/or TE Connectivity legal entities for periods prior to the 2007 separation. The resolutions with the U.S. Tax Court and IRS Appeals for fiscal years 1997 through 2007 were finalized during May 2016. However, the Tax Sharing Agreement remains in place with respect to income tax liabilities that are not the subject of such resolution.
In conjunction with the 2013 separation, Mallinckrodt assumed the tax liabilities that are attributable to its subsidiaries, and Covidien indemnified Mallinckrodt to the extent that such tax liabilities arising from periods prior to 2013 exceed
$200 million
, net of certain tax benefits realized. In addition, in connection with the 2013 separation, Covidien entered into certain other guarantee commitments and indemnifications with Mallinckrodt.
See Note 1
to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2016
for additional information.
Except as described above in this note or for certain income tax related matters, the Company has not recognized an expense related to losses in connection with these matters because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company cannot reasonably estimate the range of loss, if any, that may result from these matters.
In the normal course of business, the Company and/or its affiliates periodically enter into agreements that require one or more of them to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising out of the Company or its affiliates’ products or the negligence of any of their personnel or claims alleging that any of their products infringe third-party patents or other intellectual property. The Company’s maximum exposure under these indemnification provisions cannot be estimated, and the Company has not accrued any liabilities within the consolidated financial statements. Historically, the Company has not experienced significant losses on these types of indemnifications.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
16
.
Segment and Geographic Information
Segment information
The Company’s management evaluates performance and allocates resources based on profit and loss from operations before income taxes and interest expense, net, not including corporate determined charges, as presented in the table below. 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 29, 2016
.
In the first quarter of fiscal year 2017, the Company realigned the divisions within the Restorative Therapies Group. The Restorative Therapies Group consists of the following divisions: Spine, Brain Therapies, Pain Therapies, and Specialty Therapies.
Net sales of the Company’s reportable segments include end-customer revenues from the sale of products each reportable segment develops and manufactures or distributes. Net sales and income from operations before income taxes by reportable segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in millions)
|
October 28, 2016
|
|
October 30, 2015
|
|
October 28, 2016
|
|
October 30, 2015
|
Cardiac and Vascular Group
|
$
|
2,584
|
|
|
$
|
2,482
|
|
|
$
|
5,102
|
|
|
$
|
5,050
|
|
Minimally Invasive Therapies Group
|
2,473
|
|
|
2,356
|
|
|
4,897
|
|
|
4,812
|
|
Restorative Therapies Group
|
1,826
|
|
|
1,770
|
|
|
3,598
|
|
|
3,576
|
|
Diabetes Group
|
462
|
|
|
450
|
|
|
914
|
|
|
894
|
|
Total net sales
|
$
|
7,345
|
|
|
$
|
7,058
|
|
|
$
|
14,511
|
|
|
$
|
14,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in millions)
|
October 28, 2016
|
|
October 30, 2015
|
|
October 28, 2016
|
|
October 30, 2015
|
Cardiac and Vascular Group
|
$
|
716
|
|
|
$
|
755
|
|
|
$
|
1,372
|
|
|
$
|
1,572
|
|
Minimally Invasive Therapies Group
|
347
|
|
|
348
|
|
|
630
|
|
|
682
|
|
Restorative Therapies Group
|
501
|
|
|
483
|
|
|
1,008
|
|
|
964
|
|
Diabetes Group
|
114
|
|
|
122
|
|
|
226
|
|
|
240
|
|
Total reportable segments’ income from operations before income taxes
|
1,678
|
|
|
1,708
|
|
|
3,236
|
|
|
3,458
|
|
Impact of inventory step-up
|
(38
|
)
|
|
—
|
|
|
(38
|
)
|
|
(226
|
)
|
Restructuring charges, net
(1)
|
(47
|
)
|
|
(73
|
)
|
|
(151
|
)
|
|
(140
|
)
|
Certain litigation charges
|
—
|
|
|
(26
|
)
|
|
(82
|
)
|
|
(26
|
)
|
Acquisition-related items
|
(28
|
)
|
|
(49
|
)
|
|
(80
|
)
|
|
(120
|
)
|
Interest expense, net
|
(173
|
)
|
|
(217
|
)
|
|
(352
|
)
|
|
(408
|
)
|
Corporate
|
(180
|
)
|
|
(260
|
)
|
|
(333
|
)
|
|
(515
|
)
|
Total income from operations before income taxes
|
$
|
1,212
|
|
|
$
|
1,083
|
|
|
$
|
2,200
|
|
|
$
|
2,023
|
|
|
|
(1)
|
Restructuring charges, net within this table include the impact of amounts recorded within cost of products sold in the consolidated statements of income.
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Geographic information
Net sales to external customers by geography are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in millions)
|
October 28, 2016
|
|
October 30, 2015
|
|
October 28, 2016
|
|
October 30, 2015
|
Americas
(1)
|
$
|
4,471
|
|
|
$
|
4,390
|
|
|
$
|
8,768
|
|
|
$
|
8,835
|
|
EMEA
(2)
|
1,592
|
|
|
1,567
|
|
|
3,243
|
|
|
3,236
|
|
Asia-Pacific
|
890
|
|
|
736
|
|
|
1,712
|
|
|
1,506
|
|
Greater China
|
392
|
|
|
365
|
|
|
788
|
|
|
755
|
|
Total net sales
|
$
|
7,345
|
|
|
$
|
7,058
|
|
|
$
|
14,511
|
|
|
$
|
14,332
|
|
(1) The U.S., which is included in the Americas, had net sales to external customers of
$4.2 billion
and
$8.2 billion
for the three and six months ended
October 28, 2016
, respectively, compared to
$4.1 billion
and
$8.2 billion
for the three and six months ended
October 30, 2015
.
(2) EMEA consists of the following: Europe, Middle East, and Africa. Sales to Ireland were insignificant during all periods presented.
17
.
Guarantor Financial Information
Medtronic plc (Parent Company Guarantor) and Medtronic Global Holdings S.C.A. (Medtronic Luxco), a Subsidiary Guarantor, each have provided full and unconditional guarantees of the obligations of Medtronic, Inc. under the Senior Notes (Medtronic Senior Notes) and full and unconditional guarantees of the obligations of Covidien International Finance S.A. (CIFSA) 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. The guarantees provided by the Parent Company Guarantor and Subsidiary Guarantor(s) are joint and several. A summary of the guarantees is as follows:
Guarantees of Medtronic Senior Notes
|
|
•
|
Parent Company Guarantor - Medtronic plc
|
|
|
•
|
Subsidiary Issuer - Medtronic, Inc.
|
|
|
•
|
Subsidiary Guarantor - Medtronic Luxco
|
Guarantees of CIFSA Senior Notes
|
|
•
|
Parent Company Guarantor - Medtronic plc
|
|
|
•
|
Subsidiary Issuer - CIFSA
|
|
|
•
|
Subsidiary Guarantors - Medtronic Luxco, Covidien Ltd., and Covidien Group Holdings Ltd.
|
The following presents the Company’s Consolidating Statements of Comprehensive Income for the three and six months ended
October 28, 2016
and
October 30, 2015
, Condensed Consolidating Balance Sheets at
October 28, 2016
and
April 29, 2016
, and Condensed Consolidating Statements of Cash Flows for the six months ended
October 28, 2016
and
October 30, 2015
. Condensed consolidating financial information for the Parent Company Guarantor, Subsidiary Issuer, and Subsidiary Guarantor(s), on a stand-alone basis, is presented using the equity method of accounting.
During the second quarter of fiscal year 2017, the Company undertook certain steps to reorganize ownership of various subsidiaries. The transactions were entirely among subsidiaries under the common control of Medtronic. This reorganization has been reflected as of the beginning of the earliest period presented.
The Company made revisions to its consolidating statements of comprehensive income of the guarantees of the Medtronic Senior Notes and CIFSA Senior notes as previously presented in Note 18 in the Company’s Quarterly Report on Form 10-Q for the period ended October 30, 2015, resulting in an incorrect presentation of the Equity in net (income) loss of subsidiaries balances for both the three and six months ended October 30, 2015. In the consolidating statements of comprehensive income of the guarantees of the Medtronic Senior Notes the
$7.1 billion
revision resulted in additional income reported in the equity in net (income) loss of subsidiaries line item in the Subsidiary Issuer (Medtronic, Inc.) column. In the consolidating statements of comprehensive income of the guarantees of the CIFSA Senior Notes the
$7.1 billion
revision resulted in reduced income reported in the equity in net (income) loss of subsidiaries line item in the Subsidiary Issuer (CIFSA) column. There is no impact to the consolidated financial statements of Medtronic plc as previously filed in the 2016 Annual Report on Form 10-K or Quarterly Reports on Form 10-Q.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
The Company made revisions to its condensed consolidating balance sheets of the guarantees of the Medtronic Senior Notes and CIFSA Senior Notes as previously presented in Note 19 in the Company’s Annual Report on Form 10-K for the year ended April 29, 2016 primarily due to an income statement error recognized in the second quarter of fiscal year 2016, resulting in an incorrect presentation of the investment in subsidiaries balances. In the condensed consolidating balance sheet of the guarantees of the Medtronic Senior Notes the
$5.1 billion
revision increased the line items Investment in Subsidiaries and Shareholders' Equity in the Subsidiary Issuer (Medtronic, Inc.) column. In the condensed consolidating balance sheet of the guarantees of the CIFSA Senior Notes the
$5.1 billion
revision decreased the line items Investment in Subsidiaries and Shareholders' Equity in the Subsidiary Issuer (CIFSA) column. There is no impact to the consolidated financial statements of Medtronic plc as previously filed in the 2016 Annual Report on Form 10-K or Quarterly Reports on Form 10-Q.
Additionally, the Company revised the classification of a previously reported
$20.5 billion
intercompany payable balance in the Parent Guarantor (Medtronic plc) column. The
$20.5 billion
revision decreased the Investment in Subsidiaries and Intercompany Payable balances in the Parent Guarantor (Medtronic plc) column and decreased the Investment in Subsidiaries and Shareholders’ Equity balances in the Subsidiary Guarantor column in both the condensed consolidating balance sheets of the guarantees of the Medtronic Senior Notes and CIFSA Senior Notes, decreased the Intercompany Receivable and Shareholders’ Equity balances in the Subsidiary Issuer (Medtronic, Inc.) column in the condensed consolidating balance sheets of the guarantees of the Medtronic Senior Notes, and decreased the Intercompany Receivable and Shareholders’ Equity balances in the Subsidiary Non-Guarantors column in the condensed consolidating balance sheets of the guarantees of the CIFSA Notes as previously presented in Note 19 in the Company’s Annual Report on Form 10-K for the year ended April 29, 2016. There is no impact to the consolidated financial statements of Medtronic plc as previously filed in the 2016 Annual Report on Form 10-K or Quarterly Reports on Form 10-Q.
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Three Months Ended
October 28, 2016
Medtronic Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (Medtronic, Inc.)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Net sales
|
$
|
—
|
|
|
$
|
337
|
|
|
$
|
—
|
|
|
$
|
7,344
|
|
|
$
|
(336
|
)
|
|
$
|
7,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
243
|
|
|
—
|
|
|
2,412
|
|
|
(329
|
)
|
|
2,326
|
|
Research and development expense
|
—
|
|
|
158
|
|
|
—
|
|
|
396
|
|
|
—
|
|
|
554
|
|
Selling, general, and administrative expense
|
3
|
|
|
284
|
|
|
—
|
|
|
2,129
|
|
|
—
|
|
|
2,416
|
|
Restructuring charges, net
|
—
|
|
|
1
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
47
|
|
Acquisition-related items
|
—
|
|
|
37
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
28
|
|
Amortization of intangible assets
|
—
|
|
|
3
|
|
|
—
|
|
|
497
|
|
|
—
|
|
|
500
|
|
Other (income) expense, net
|
(86
|
)
|
|
(597
|
)
|
|
—
|
|
|
772
|
|
|
—
|
|
|
89
|
|
Operating profit (loss)
|
83
|
|
|
208
|
|
|
—
|
|
|
1,101
|
|
|
(7
|
)
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
(59
|
)
|
|
(165
|
)
|
|
(286
|
)
|
|
419
|
|
|
(91
|
)
|
Interest expense
|
25
|
|
|
396
|
|
|
11
|
|
|
251
|
|
|
(419
|
)
|
|
264
|
|
Interest expense (income), net
|
25
|
|
|
337
|
|
|
(154
|
)
|
|
(35
|
)
|
|
—
|
|
|
173
|
|
Equity in net (income) loss of subsidiaries
|
(1,055
|
)
|
|
(864
|
)
|
|
(901
|
)
|
|
—
|
|
|
2,820
|
|
|
—
|
|
Income from operations before income taxes
|
1,113
|
|
|
735
|
|
|
1,055
|
|
|
1,136
|
|
|
(2,827
|
)
|
|
1,212
|
|
Provision (benefit) for income taxes
|
(2
|
)
|
|
28
|
|
|
—
|
|
|
75
|
|
|
—
|
|
|
101
|
|
Net income
|
1,115
|
|
|
707
|
|
|
1,055
|
|
|
1,061
|
|
|
(2,827
|
)
|
|
1,111
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Net income attributable to Medtronic
|
1,115
|
|
|
707
|
|
|
1,055
|
|
|
1,065
|
|
|
(2,827
|
)
|
|
1,115
|
|
Other comprehensive income (loss), net of tax
|
(304
|
)
|
|
47
|
|
|
(304
|
)
|
|
(329
|
)
|
|
586
|
|
|
(304
|
)
|
Total comprehensive income
|
$
|
811
|
|
|
$
|
754
|
|
|
$
|
751
|
|
|
$
|
736
|
|
|
$
|
(2,241
|
)
|
|
$
|
811
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Six Months Ended
October 28, 2016
Medtronic Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (Medtronic, Inc.)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Net sales
|
$
|
—
|
|
|
$
|
685
|
|
|
$
|
—
|
|
|
$
|
14,510
|
|
|
$
|
(684
|
)
|
|
$
|
14,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
492
|
|
|
—
|
|
|
4,779
|
|
|
(684
|
)
|
|
4,587
|
|
Research and development expense
|
—
|
|
|
321
|
|
|
—
|
|
|
789
|
|
|
—
|
|
|
1,110
|
|
Selling, general, and administrative expense
|
6
|
|
|
564
|
|
|
—
|
|
|
4,274
|
|
|
—
|
|
|
4,844
|
|
Restructuring charges, net
|
—
|
|
|
18
|
|
|
—
|
|
|
123
|
|
|
—
|
|
|
141
|
|
Certain litigation charges
|
—
|
|
|
—
|
|
|
—
|
|
|
82
|
|
|
—
|
|
|
82
|
|
Acquisition-related items
|
—
|
|
|
60
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
80
|
|
Amortization of intangible assets
|
—
|
|
|
6
|
|
|
—
|
|
|
981
|
|
|
—
|
|
|
987
|
|
Other (income) expense, net
|
(74
|
)
|
|
(1,306
|
)
|
|
—
|
|
|
1,508
|
|
|
—
|
|
|
128
|
|
Operating profit (loss)
|
68
|
|
|
530
|
|
|
—
|
|
|
1,954
|
|
|
—
|
|
|
2,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income)
|
—
|
|
|
(121
|
)
|
|
(321
|
)
|
|
(424
|
)
|
|
682
|
|
|
(184
|
)
|
Interest expense
|
41
|
|
|
806
|
|
|
12
|
|
|
359
|
|
|
(682
|
)
|
|
536
|
|
Interest (income) expense, net
|
41
|
|
|
685
|
|
|
(309
|
)
|
|
(65
|
)
|
|
—
|
|
|
352
|
|
Equity in net (income) of subsidiaries
|
(2,013
|
)
|
|
(2,099
|
)
|
|
(1,704
|
)
|
|
—
|
|
|
5,816
|
|
|
—
|
|
Income (loss) from operations before income taxes
|
2,040
|
|
|
1,944
|
|
|
2,013
|
|
|
2,019
|
|
|
(5,816
|
)
|
|
2,200
|
|
Provision (benefit) for income taxes
|
(4
|
)
|
|
50
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
160
|
|
Net income (loss)
|
2,044
|
|
|
1,894
|
|
|
2,013
|
|
|
1,905
|
|
|
(5,816
|
)
|
|
2,040
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Net income attributable to Medtronic
|
2,044
|
|
|
1,894
|
|
|
2,013
|
|
|
1,909
|
|
|
(5,816
|
)
|
|
2,044
|
|
Other comprehensive income (loss), net of tax
|
(460
|
)
|
|
142
|
|
|
(460
|
)
|
|
(500
|
)
|
|
818
|
|
|
(460
|
)
|
Total comprehensive income
|
$
|
1,584
|
|
|
$
|
2,036
|
|
|
$
|
1,553
|
|
|
$
|
1,409
|
|
|
$
|
(4,998
|
)
|
|
$
|
1,584
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Three Months Ended
October 30, 2015
Medtronic Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (Medtronic, Inc.)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Net sales
|
$
|
—
|
|
|
$
|
362
|
|
|
$
|
—
|
|
|
$
|
7,058
|
|
|
$
|
(362
|
)
|
|
$
|
7,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
252
|
|
|
—
|
|
|
2,289
|
|
|
(359
|
)
|
|
2,182
|
|
Research and development expense
|
—
|
|
|
153
|
|
|
—
|
|
|
392
|
|
|
—
|
|
|
545
|
|
Selling, general, and administrative expense
|
2
|
|
|
264
|
|
|
—
|
|
|
2,077
|
|
|
—
|
|
|
2,343
|
|
Restructuring charges, net
|
—
|
|
|
5
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
73
|
|
Certain litigation charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
Acquisition-related items
|
—
|
|
|
55
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
49
|
|
Amortization of intangible assets
|
—
|
|
|
3
|
|
|
—
|
|
|
480
|
|
|
—
|
|
|
483
|
|
Other (income) expense, net
|
(68
|
)
|
|
(541
|
)
|
|
—
|
|
|
666
|
|
|
—
|
|
|
57
|
|
Operating profit (loss)
|
66
|
|
|
171
|
|
|
—
|
|
|
1,066
|
|
|
(3
|
)
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
(57
|
)
|
|
(173
|
)
|
|
(110
|
)
|
|
233
|
|
|
(107
|
)
|
Interest expense
|
4
|
|
|
455
|
|
|
2
|
|
|
96
|
|
|
(233
|
)
|
|
324
|
|
Interest expense (income), net
|
4
|
|
|
398
|
|
|
(171
|
)
|
|
(14
|
)
|
|
—
|
|
|
217
|
|
Equity in net (income) loss of subsidiaries
|
(456
|
)
|
|
(1,184
|
)
|
|
(285
|
)
|
|
—
|
|
|
1,925
|
|
|
—
|
|
Income from operations before income taxes
|
518
|
|
|
957
|
|
|
456
|
|
|
1,080
|
|
|
(1,928
|
)
|
|
1,083
|
|
Provision (benefit) for income taxes
|
(2
|
)
|
|
3
|
|
|
—
|
|
|
562
|
|
|
—
|
|
|
563
|
|
Net income
|
520
|
|
|
954
|
|
|
456
|
|
|
518
|
|
|
(1,928
|
)
|
|
520
|
|
Other comprehensive income (loss), net of tax
|
(115
|
)
|
|
(103
|
)
|
|
(115
|
)
|
|
(148
|
)
|
|
366
|
|
|
(115
|
)
|
Total comprehensive income
|
$
|
405
|
|
|
$
|
851
|
|
|
$
|
341
|
|
|
$
|
370
|
|
|
$
|
(1,562
|
)
|
|
$
|
405
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Six Months Ended
October 30, 2015
Medtronic Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (Medtronic, Inc.)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Net sales
|
$
|
—
|
|
|
$
|
736
|
|
|
$
|
—
|
|
|
$
|
14,331
|
|
|
$
|
(735
|
)
|
|
$
|
14,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
508
|
|
|
—
|
|
|
4,830
|
|
|
(700
|
)
|
|
4,638
|
|
Research and development expense
|
—
|
|
|
315
|
|
|
—
|
|
|
788
|
|
|
—
|
|
|
1,103
|
|
Selling, general, and administrative expense
|
4
|
|
|
511
|
|
|
—
|
|
|
4,277
|
|
|
—
|
|
|
4,792
|
|
Restructuring charges, net
|
—
|
|
|
5
|
|
|
—
|
|
|
135
|
|
|
—
|
|
|
140
|
|
Certain litigation charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
Acquisition-related items
|
—
|
|
|
55
|
|
|
—
|
|
|
65
|
|
|
—
|
|
|
120
|
|
Amortization of intangible assets
|
—
|
|
|
6
|
|
|
—
|
|
|
958
|
|
|
—
|
|
|
964
|
|
Other (income) expense, net
|
(85
|
)
|
|
(928
|
)
|
|
—
|
|
|
1,131
|
|
|
—
|
|
|
118
|
|
Operating profit (loss)
|
81
|
|
|
264
|
|
|
—
|
|
|
2,121
|
|
|
(35
|
)
|
|
2,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
(121
|
)
|
|
(358
|
)
|
|
(222
|
)
|
|
479
|
|
|
(222
|
)
|
Interest expense
|
5
|
|
|
899
|
|
|
3
|
|
|
202
|
|
|
(479
|
)
|
|
630
|
|
Interest (income) expense, net
|
5
|
|
|
778
|
|
|
(355
|
)
|
|
(20
|
)
|
|
—
|
|
|
408
|
|
Equity in net income of subsidiaries
|
(1,256
|
)
|
|
(2,126
|
)
|
|
(901
|
)
|
|
—
|
|
|
4,283
|
|
|
—
|
|
Income from operations before income taxes
|
1,332
|
|
|
1,612
|
|
|
1,256
|
|
|
2,141
|
|
|
(4,318
|
)
|
|
2,023
|
|
Provision (benefit) for income taxes
|
(8
|
)
|
|
(159
|
)
|
|
—
|
|
|
850
|
|
|
—
|
|
|
683
|
|
Net income
|
1,340
|
|
|
1,771
|
|
|
1,256
|
|
|
1,291
|
|
|
(4,318
|
)
|
|
1,340
|
|
Other comprehensive income (loss), net of tax
|
(287
|
)
|
|
(256
|
)
|
|
(287
|
)
|
|
(367
|
)
|
|
910
|
|
|
(287
|
)
|
Total comprehensive income
|
$
|
1,053
|
|
|
$
|
1,515
|
|
|
$
|
969
|
|
|
$
|
924
|
|
|
$
|
(3,408
|
)
|
|
$
|
1,053
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
October 28, 2016
Medtronic Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (Medtronic, Inc.)
|
|
Subsidiary Guarantors
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
71
|
|
|
$
|
108
|
|
|
$
|
2,775
|
|
|
$
|
—
|
|
|
$
|
2,954
|
|
Investments
|
—
|
|
|
—
|
|
|
—
|
|
|
8,303
|
|
|
—
|
|
|
8,303
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
—
|
|
|
5,661
|
|
|
—
|
|
|
5,661
|
|
Inventories
|
—
|
|
|
163
|
|
|
—
|
|
|
3,857
|
|
|
(303
|
)
|
|
3,717
|
|
Intercompany receivable
|
219
|
|
|
—
|
|
|
—
|
|
|
14,039
|
|
|
(14,258
|
)
|
|
—
|
|
Other current assets
|
8
|
|
|
173
|
|
|
—
|
|
|
1,710
|
|
|
—
|
|
|
1,891
|
|
Total current assets
|
227
|
|
|
407
|
|
|
108
|
|
|
36,345
|
|
|
(14,561
|
)
|
|
22,526
|
|
Property, plant, and equipment, net
|
—
|
|
|
1,205
|
|
|
—
|
|
|
3,686
|
|
|
—
|
|
|
4,891
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
41,707
|
|
|
—
|
|
|
41,707
|
|
Other intangible assets, net
|
—
|
|
|
25
|
|
|
—
|
|
|
26,714
|
|
|
—
|
|
|
26,739
|
|
Tax assets
|
—
|
|
|
700
|
|
|
—
|
|
|
550
|
|
|
—
|
|
|
1,250
|
|
Investment in subsidiaries
|
54,009
|
|
|
72,452
|
|
|
40,933
|
|
|
—
|
|
|
(167,394
|
)
|
|
—
|
|
Intercompany loans receivable
|
3,000
|
|
|
8,388
|
|
|
22,320
|
|
|
29,995
|
|
|
(63,703
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
448
|
|
|
—
|
|
|
845
|
|
|
—
|
|
|
1,293
|
|
Total assets
|
$
|
57,236
|
|
|
$
|
83,625
|
|
|
$
|
63,361
|
|
|
$
|
139,842
|
|
|
$
|
(245,658
|
)
|
|
$
|
98,406
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current debt obligations
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
1,130
|
|
|
$
|
1,737
|
|
|
$
|
—
|
|
|
$
|
3,367
|
|
Accounts payable
|
—
|
|
|
270
|
|
|
—
|
|
|
1,389
|
|
|
—
|
|
|
1,659
|
|
Intercompany payable
|
24
|
|
|
11,716
|
|
|
—
|
|
|
2,518
|
|
|
(14,258
|
)
|
|
—
|
|
Accrued compensation
|
4
|
|
|
590
|
|
|
—
|
|
|
883
|
|
|
—
|
|
|
1,477
|
|
Other accrued expenses
|
11
|
|
|
443
|
|
|
—
|
|
|
2,644
|
|
|
—
|
|
|
3,098
|
|
Total current liabilities
|
39
|
|
|
13,519
|
|
|
1,130
|
|
|
9,171
|
|
|
(14,258
|
)
|
|
9,601
|
|
Long-term debt
|
—
|
|
|
26,650
|
|
|
—
|
|
|
2,360
|
|
|
—
|
|
|
29,010
|
|
Accrued compensation and retirement benefits
|
—
|
|
|
1,323
|
|
|
—
|
|
|
445
|
|
|
—
|
|
|
1,768
|
|
Accrued income taxes
|
10
|
|
|
1,578
|
|
|
—
|
|
|
793
|
|
|
—
|
|
|
2,381
|
|
Long-term intercompany loans payable
|
7,001
|
|
|
10,236
|
|
|
15,225
|
|
|
31,241
|
|
|
(63,703
|
)
|
|
—
|
|
Deferred tax liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
3,754
|
|
|
—
|
|
|
3,754
|
|
Other liabilities
|
—
|
|
|
216
|
|
|
—
|
|
|
1,383
|
|
|
—
|
|
|
1,599
|
|
Total liabilities
|
7,050
|
|
|
53,522
|
|
|
16,355
|
|
|
49,147
|
|
|
(77,961
|
)
|
|
48,113
|
|
Shareholders’ equity
|
50,186
|
|
|
30,103
|
|
|
47,006
|
|
|
90,588
|
|
|
(167,697
|
)
|
|
50,186
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
107
|
|
|
—
|
|
|
107
|
|
Total equity
|
50,186
|
|
|
30,103
|
|
|
47,006
|
|
|
90,695
|
|
|
(167,697
|
)
|
|
50,293
|
|
Total liabilities and equity
|
$
|
57,236
|
|
|
$
|
83,625
|
|
|
$
|
63,361
|
|
|
$
|
139,842
|
|
|
$
|
(245,658
|
)
|
|
$
|
98,406
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
April 29, 2016
Medtronic Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (Medtronic, Inc.)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
2,821
|
|
|
$
|
—
|
|
|
$
|
2,876
|
|
Investments
|
—
|
|
|
—
|
|
|
—
|
|
|
9,758
|
|
|
—
|
|
|
9,758
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
—
|
|
|
5,562
|
|
|
—
|
|
|
5,562
|
|
Inventories
|
—
|
|
|
162
|
|
|
—
|
|
|
3,511
|
|
|
(200
|
)
|
|
3,473
|
|
Intercompany receivable
|
403
|
|
|
141,368
|
|
|
—
|
|
|
162,278
|
|
|
(304,049
|
)
|
|
—
|
|
Other current assets
|
24
|
|
|
271
|
|
|
—
|
|
|
1,636
|
|
|
—
|
|
|
1,931
|
|
Total current assets
|
427
|
|
|
141,856
|
|
|
—
|
|
|
185,566
|
|
|
(304,249
|
)
|
|
23,600
|
|
Property, plant, and equipment, net
|
—
|
|
|
1,139
|
|
|
—
|
|
|
3,702
|
|
|
—
|
|
|
4,841
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
41,500
|
|
|
—
|
|
|
41,500
|
|
Other intangible assets, net
|
—
|
|
|
31
|
|
|
—
|
|
|
26,868
|
|
|
—
|
|
|
26,899
|
|
Tax assets
|
—
|
|
|
690
|
|
|
—
|
|
|
693
|
|
|
—
|
|
|
1,383
|
|
Investment in subsidiaries
|
52,608
|
|
|
68,906
|
|
|
49,698
|
|
|
—
|
|
|
(171,212
|
)
|
|
—
|
|
Intercompany loans receivable
|
3,000
|
|
|
8,884
|
|
|
10,203
|
|
|
18,140
|
|
|
(40,227
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
506
|
|
|
—
|
|
|
915
|
|
|
—
|
|
|
1,421
|
|
Total assets
|
$
|
56,035
|
|
|
$
|
222,012
|
|
|
$
|
59,901
|
|
|
$
|
277,384
|
|
|
$
|
(515,688
|
)
|
|
$
|
99,644
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current debt obligations
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
493
|
|
|
$
|
—
|
|
|
$
|
993
|
|
Accounts payable
|
—
|
|
|
288
|
|
|
—
|
|
|
1,421
|
|
|
—
|
|
|
1,709
|
|
Intercompany payable
|
—
|
|
|
151,687
|
|
|
—
|
|
|
152,362
|
|
|
(304,049
|
)
|
|
—
|
|
Accrued compensation
|
32
|
|
|
616
|
|
|
—
|
|
|
1,064
|
|
|
—
|
|
|
1,712
|
|
Other accrued expenses
|
12
|
|
|
243
|
|
|
—
|
|
|
2,496
|
|
|
—
|
|
|
2,751
|
|
Total current liabilities
|
44
|
|
|
153,334
|
|
|
—
|
|
|
157,836
|
|
|
(304,049
|
)
|
|
7,165
|
|
Long-term debt
|
—
|
|
|
26,646
|
|
|
—
|
|
|
3,463
|
|
|
—
|
|
|
30,109
|
|
Accrued compensation and retirement benefits
|
—
|
|
|
1,258
|
|
|
—
|
|
|
501
|
|
|
—
|
|
|
1,759
|
|
Accrued income taxes
|
10
|
|
|
1,422
|
|
|
—
|
|
|
1,471
|
|
|
—
|
|
|
2,903
|
|
Long-term intercompany loans payable
|
3,918
|
|
|
10,128
|
|
|
14,297
|
|
|
11,884
|
|
|
(40,227
|
)
|
|
—
|
|
Deferred tax liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
3,729
|
|
|
—
|
|
|
3,729
|
|
Other liabilities
|
—
|
|
|
202
|
|
|
—
|
|
|
1,714
|
|
|
—
|
|
|
1,916
|
|
Total liabilities
|
3,972
|
|
|
192,990
|
|
|
14,297
|
|
|
180,598
|
|
|
(344,276
|
)
|
|
47,581
|
|
Total shareholders' equity
|
52,063
|
|
|
29,022
|
|
|
45,604
|
|
|
96,786
|
|
|
(171,412
|
)
|
|
52,063
|
|
Total liabilities and shareholders' equity
|
$
|
56,035
|
|
|
$
|
222,012
|
|
|
$
|
59,901
|
|
|
$
|
277,384
|
|
|
$
|
(515,688
|
)
|
|
$
|
99,644
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended
October 28, 2016
Medtronic Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (Medtronic, Inc.)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
644
|
|
|
$
|
513
|
|
|
$
|
163
|
|
|
$
|
1,702
|
|
|
$
|
—
|
|
|
$
|
3,022
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
(918
|
)
|
|
—
|
|
|
(388
|
)
|
|
—
|
|
|
(1,306
|
)
|
Additions to property, plant, and equipment
|
—
|
|
|
(161
|
)
|
|
—
|
|
|
(437
|
)
|
|
—
|
|
|
(598
|
)
|
Purchases of investments
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,272
|
)
|
|
162
|
|
|
(2,110
|
)
|
Sales and maturities of investments
|
—
|
|
|
210
|
|
|
—
|
|
|
3,577
|
|
|
(162
|
)
|
|
3,625
|
|
Net (increase) decrease in intercompany loans
|
—
|
|
|
496
|
|
|
(2,117
|
)
|
|
(1,855
|
)
|
|
3,476
|
|
|
—
|
|
Capital contribution paid
|
—
|
|
|
(233
|
)
|
|
—
|
|
|
—
|
|
|
233
|
|
|
—
|
|
Other investing activities, net
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
32
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(606
|
)
|
|
(2,117
|
)
|
|
(1,343
|
)
|
|
3,709
|
|
|
(357
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration
|
—
|
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
(36
|
)
|
Change in current debt obligations, net
|
—
|
|
|
—
|
|
|
1,130
|
|
|
24
|
|
|
—
|
|
|
1,154
|
|
Proceeds from current debt obligations (maturities greater than 90 days)
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Issuance of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
131
|
|
|
—
|
|
|
131
|
|
Payments on long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(252
|
)
|
|
—
|
|
|
(252
|
)
|
Dividends to shareholders
|
(1,192
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,192
|
)
|
Issuance of ordinary shares
|
260
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
260
|
|
Repurchase of ordinary shares
|
(2,794
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,794
|
)
|
Net intercompany loan borrowings (repayments)
|
3,082
|
|
|
109
|
|
|
928
|
|
|
(643
|
)
|
|
(3,476
|
)
|
|
—
|
|
Capital contribution
|
—
|
|
|
—
|
|
|
—
|
|
|
233
|
|
|
(233
|
)
|
|
—
|
|
Other financing activities
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
—
|
|
|
74
|
|
Net cash provided by (used in) financing activities
|
(644
|
)
|
|
109
|
|
|
2,062
|
|
|
(469
|
)
|
|
(3,709
|
)
|
|
(2,651
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
64
|
|
|
—
|
|
|
64
|
|
Net change in cash and cash equivalents
|
—
|
|
|
16
|
|
|
108
|
|
|
(46
|
)
|
|
—
|
|
|
78
|
|
Cash and cash equivalents at beginning of period
|
—
|
|
|
55
|
|
|
—
|
|
|
2,821
|
|
|
—
|
|
|
2,876
|
|
Cash and cash equivalents at end of period
|
$
|
—
|
|
|
$
|
71
|
|
|
$
|
108
|
|
|
$
|
2,775
|
|
|
$
|
—
|
|
|
$
|
2,954
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended
October 30, 2015
Medtronic Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (Medtronic, Inc.)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
(24
|
)
|
|
$
|
502
|
|
|
$
|
(1,164
|
)
|
|
$
|
2,781
|
|
|
$
|
—
|
|
|
$
|
2,095
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
—
|
|
|
—
|
|
|
(997
|
)
|
|
—
|
|
|
(997
|
)
|
Additions to property, plant, and equipment
|
—
|
|
|
(129
|
)
|
|
—
|
|
|
(317
|
)
|
|
—
|
|
|
(446
|
)
|
Purchases of investments
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,370
|
)
|
|
—
|
|
|
(3,370
|
)
|
Sales and maturities of investments
|
—
|
|
|
—
|
|
|
—
|
|
|
2,752
|
|
|
—
|
|
|
2,752
|
|
Net (increase) decrease in intercompany loans
|
—
|
|
|
(562
|
)
|
|
(330
|
)
|
|
(1,657
|
)
|
|
2,549
|
|
|
—
|
|
Other investing activities, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(691
|
)
|
|
(330
|
)
|
|
(3,602
|
)
|
|
2,549
|
|
|
(2,074
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
Change in current debt obligations, net
|
—
|
|
|
—
|
|
|
1,277
|
|
|
—
|
|
|
—
|
|
|
1,277
|
|
Proceeds from current debt obligations (maturities greater than 90 days)
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Issuance of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Payments on long-term debt
|
—
|
|
|
(600
|
)
|
|
—
|
|
|
(1,008
|
)
|
|
—
|
|
|
(1,608
|
)
|
Dividends to shareholders
|
(1,075
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,075
|
)
|
Issuance of ordinary shares
|
263
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
263
|
|
Repurchase of ordinary shares
|
(1,460
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,460
|
)
|
Net intercompany loan borrowings (repayments)
|
1,985
|
|
|
3
|
|
|
—
|
|
|
561
|
|
|
(2,549
|
)
|
|
—
|
|
Other financing activities
|
49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
Net cash (used in) provided by financing activities
|
(238
|
)
|
|
(597
|
)
|
|
1,325
|
|
|
(466
|
)
|
|
(2,549
|
)
|
|
(2,525
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
—
|
|
|
39
|
|
Net change in cash and cash equivalents
|
(262
|
)
|
|
(786
|
)
|
|
(169
|
)
|
|
(1,248
|
)
|
|
—
|
|
|
(2,465
|
)
|
Cash and cash equivalents at beginning of period
|
263
|
|
|
1,071
|
|
|
170
|
|
|
3,339
|
|
|
—
|
|
|
4,843
|
|
Cash and cash equivalents at end of period
|
$
|
1
|
|
|
$
|
285
|
|
|
$
|
1
|
|
|
$
|
2,091
|
|
|
$
|
—
|
|
|
$
|
2,378
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Three Months Ended
October 28, 2016
CIFSA Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (CIFSA)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,345
|
|
|
$
|
—
|
|
|
$
|
7,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
—
|
|
|
—
|
|
|
2,326
|
|
|
—
|
|
|
2,326
|
|
Research and development expense
|
—
|
|
|
—
|
|
|
—
|
|
|
554
|
|
|
—
|
|
|
554
|
|
Selling, general, and administrative expense
|
3
|
|
|
—
|
|
|
1
|
|
|
2,412
|
|
|
—
|
|
|
2,416
|
|
Restructuring charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
—
|
|
|
47
|
|
Certain litigation charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition-related items
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
28
|
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
500
|
|
Other expense, net
|
(86
|
)
|
|
—
|
|
|
—
|
|
|
175
|
|
|
—
|
|
|
89
|
|
Operating profit (loss)
|
83
|
|
|
—
|
|
|
(1
|
)
|
|
1,303
|
|
|
—
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
(18
|
)
|
|
(166
|
)
|
|
(102
|
)
|
|
195
|
|
|
(91
|
)
|
Interest expense
|
25
|
|
|
23
|
|
|
11
|
|
|
400
|
|
|
(195
|
)
|
|
264
|
|
Interest expense (income), net
|
25
|
|
|
5
|
|
|
(155
|
)
|
|
298
|
|
|
—
|
|
|
173
|
|
Equity in net (income) loss of subsidiaries
|
(1,055
|
)
|
|
(440
|
)
|
|
(901
|
)
|
|
—
|
|
|
2,396
|
|
|
—
|
|
Income from operations before income taxes
|
1,113
|
|
|
435
|
|
|
1,055
|
|
|
1,005
|
|
|
(2,396
|
)
|
|
1,212
|
|
Provision (benefit) for income taxes
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
103
|
|
|
—
|
|
|
101
|
|
Net income
|
1,115
|
|
|
435
|
|
|
1,055
|
|
|
902
|
|
|
(2,396
|
)
|
|
1,111
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Net income attributable to Medtronic
|
1,115
|
|
|
435
|
|
|
1,055
|
|
|
906
|
|
|
(2,396
|
)
|
|
1,115
|
|
Other comprehensive income (loss), net of tax
|
(304
|
)
|
|
(23
|
)
|
|
(304
|
)
|
|
(304
|
)
|
|
631
|
|
|
(304
|
)
|
Total comprehensive income
|
$
|
811
|
|
|
$
|
412
|
|
|
$
|
751
|
|
|
$
|
602
|
|
|
$
|
(1,765
|
)
|
|
$
|
811
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Six Months Ended
October 28, 2016
CIFSA Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (CIFSA)
|
|
Subsidiary Guarantors
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,511
|
|
|
$
|
—
|
|
|
$
|
14,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
—
|
|
|
—
|
|
|
4,587
|
|
|
—
|
|
|
4,587
|
|
Research and development expense
|
—
|
|
|
—
|
|
|
—
|
|
|
1,110
|
|
|
—
|
|
|
1,110
|
|
Selling, general, and administrative expense
|
6
|
|
|
—
|
|
|
1
|
|
|
4,837
|
|
|
—
|
|
|
4,844
|
|
Restructuring charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
141
|
|
|
—
|
|
|
141
|
|
Certain litigation charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
82
|
|
|
—
|
|
|
82
|
|
Acquisition-related items
|
—
|
|
|
—
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
80
|
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
987
|
|
|
—
|
|
|
987
|
|
Other (income) expense, net
|
(74
|
)
|
|
—
|
|
|
—
|
|
|
202
|
|
|
—
|
|
|
128
|
|
Operating profit (loss)
|
68
|
|
|
—
|
|
|
(1
|
)
|
|
2,485
|
|
|
—
|
|
|
2,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
(47
|
)
|
|
(324
|
)
|
|
(207
|
)
|
|
394
|
|
|
(184
|
)
|
Interest expense
|
41
|
|
|
56
|
|
|
13
|
|
|
820
|
|
|
(394
|
)
|
|
536
|
|
Interest expense (income), net
|
41
|
|
|
9
|
|
|
(311
|
)
|
|
613
|
|
|
—
|
|
|
352
|
|
Equity in net (income) loss of subsidiaries
|
(2,013
|
)
|
|
(1,245
|
)
|
|
(1,703
|
)
|
|
—
|
|
|
4,961
|
|
|
—
|
|
Income from operations before income taxes
|
2,040
|
|
|
1,236
|
|
|
2,013
|
|
|
1,872
|
|
|
(4,961
|
)
|
|
2,200
|
|
Provision (benefit) for income taxes
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
164
|
|
|
—
|
|
|
160
|
|
Net income
|
2,044
|
|
|
1,236
|
|
|
2,013
|
|
|
1,708
|
|
|
(4,961
|
)
|
|
2,040
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Net income attributable to Medtronic
|
2,044
|
|
|
1,236
|
|
|
2,013
|
|
|
1,712
|
|
|
(4,961
|
)
|
|
2,044
|
|
Other comprehensive loss, net of tax
|
(460
|
)
|
|
19
|
|
|
(460
|
)
|
|
(460
|
)
|
|
901
|
|
|
(460
|
)
|
Total comprehensive income (loss)
|
$
|
1,584
|
|
|
$
|
1,255
|
|
|
$
|
1,553
|
|
|
$
|
1,252
|
|
|
$
|
(4,060
|
)
|
|
$
|
1,584
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Three Months Ended
October 30, 2015
CIFSA Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (CIFSA)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,058
|
|
|
$
|
—
|
|
|
$
|
7,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
—
|
|
|
—
|
|
|
2,182
|
|
|
—
|
|
|
2,182
|
|
Research and development expense
|
—
|
|
|
—
|
|
|
—
|
|
|
545
|
|
|
—
|
|
|
545
|
|
Selling, general, and administrative expense
|
2
|
|
|
—
|
|
|
—
|
|
|
2,341
|
|
|
—
|
|
|
2,343
|
|
Restructuring charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
73
|
|
Certain litigation charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
Acquisition-related items
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
49
|
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
483
|
|
|
—
|
|
|
483
|
|
Other (income) expense, net
|
(68
|
)
|
|
—
|
|
|
12
|
|
|
113
|
|
|
—
|
|
|
57
|
|
Operating profit (loss)
|
66
|
|
|
—
|
|
|
(12
|
)
|
|
1,246
|
|
|
—
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
(153
|
)
|
|
(174
|
)
|
|
(109
|
)
|
|
329
|
|
|
(107
|
)
|
Interest expense
|
4
|
|
|
31
|
|
|
2
|
|
|
616
|
|
|
(329
|
)
|
|
324
|
|
Interest expense (income), net
|
4
|
|
|
(122
|
)
|
|
(172
|
)
|
|
507
|
|
|
—
|
|
|
217
|
|
Equity in net (income) loss of subsidiaries
|
(456
|
)
|
|
109
|
|
|
(296
|
)
|
|
—
|
|
|
643
|
|
|
—
|
|
Income from operations before income taxes
|
518
|
|
|
13
|
|
|
456
|
|
|
739
|
|
|
(643
|
)
|
|
1,083
|
|
Provision (benefit) for income taxes
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
565
|
|
|
—
|
|
|
563
|
|
Net income
|
520
|
|
|
13
|
|
|
456
|
|
|
174
|
|
|
(643
|
)
|
|
520
|
|
Other comprehensive income (loss), net of tax
|
(115
|
)
|
|
(6
|
)
|
|
(115
|
)
|
|
(115
|
)
|
|
236
|
|
|
(115
|
)
|
Total comprehensive income
|
405
|
|
|
7
|
|
|
341
|
|
|
59
|
|
|
(407
|
)
|
|
405
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Consolidating Statement of Comprehensive Income
Six Months Ended
October 30, 2015
CIFSA Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (CIFSA)
|
|
Subsidiary Guarantor
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,332
|
|
|
$
|
—
|
|
|
$
|
14,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
—
|
|
|
—
|
|
|
4,638
|
|
|
—
|
|
|
4,638
|
|
Research and development expense
|
—
|
|
|
—
|
|
|
—
|
|
|
1,103
|
|
|
—
|
|
|
1,103
|
|
Selling, general, and administrative expense
|
4
|
|
|
1
|
|
|
—
|
|
|
4,787
|
|
|
—
|
|
|
4,792
|
|
Restructuring charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
140
|
|
|
—
|
|
|
140
|
|
Certain litigation charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
Acquisition-related items
|
—
|
|
|
—
|
|
|
—
|
|
|
120
|
|
|
—
|
|
|
120
|
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
964
|
|
|
—
|
|
|
964
|
|
Other (income) expense, net
|
(85
|
)
|
|
—
|
|
|
12
|
|
|
191
|
|
|
—
|
|
|
118
|
|
Operating profit (loss)
|
81
|
|
|
(1
|
)
|
|
(12
|
)
|
|
2,363
|
|
|
—
|
|
|
2,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
(317
|
)
|
|
(358
|
)
|
|
(226
|
)
|
|
679
|
|
|
(222
|
)
|
Interest expense
|
5
|
|
|
66
|
|
|
3
|
|
|
1,235
|
|
|
(679
|
)
|
|
630
|
|
Interest expense (income), net
|
5
|
|
|
(251
|
)
|
|
(355
|
)
|
|
1,009
|
|
|
—
|
|
|
408
|
|
Equity in net (income) loss of subsidiaries
|
(1,256
|
)
|
|
33
|
|
|
(913
|
)
|
|
—
|
|
|
2,136
|
|
|
—
|
|
Income from operations before income taxes
|
1,332
|
|
|
217
|
|
|
1,256
|
|
|
1,354
|
|
|
(2,136
|
)
|
|
2,023
|
|
Provision (benefit) for income taxes
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
691
|
|
|
—
|
|
|
683
|
|
Net income
|
1,340
|
|
|
217
|
|
|
1,256
|
|
|
663
|
|
|
(2,136
|
)
|
|
1,340
|
|
Other comprehensive income (loss), net of tax
|
(287
|
)
|
|
828
|
|
|
(287
|
)
|
|
(287
|
)
|
|
(254
|
)
|
|
(287
|
)
|
Total comprehensive income
|
1,053
|
|
|
1,045
|
|
|
969
|
|
|
376
|
|
|
(2,390
|
)
|
|
1,053
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
October 28, 2016
CIFSA Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (CIFSA)
|
|
Subsidiary Guarantors
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
326
|
|
|
$
|
108
|
|
|
$
|
2,520
|
|
|
$
|
—
|
|
|
$
|
2,954
|
|
Investments
|
—
|
|
|
—
|
|
|
—
|
|
|
8,303
|
|
|
—
|
|
|
8,303
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
—
|
|
|
5,661
|
|
|
—
|
|
|
5,661
|
|
Inventories
|
—
|
|
|
—
|
|
|
—
|
|
|
3,717
|
|
|
—
|
|
|
3,717
|
|
Intercompany receivable
|
219
|
|
|
—
|
|
|
60
|
|
|
24
|
|
|
(303
|
)
|
|
—
|
|
Other current assets
|
8
|
|
|
—
|
|
|
—
|
|
|
1,883
|
|
|
—
|
|
|
1,891
|
|
Total current assets
|
227
|
|
|
326
|
|
|
168
|
|
|
22,108
|
|
|
(303
|
)
|
|
22,526
|
|
Property, plant, and equipment, net
|
—
|
|
|
—
|
|
|
—
|
|
|
4,891
|
|
|
—
|
|
|
4,891
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
41,707
|
|
|
—
|
|
|
41,707
|
|
Other intangible assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
26,739
|
|
|
—
|
|
|
26,739
|
|
Tax assets
|
—
|
|
|
—
|
|
|
—
|
|
|
1,250
|
|
|
—
|
|
|
1,250
|
|
Investment in subsidiaries
|
54,009
|
|
|
20,775
|
|
|
39,609
|
|
|
—
|
|
|
(114,393
|
)
|
|
—
|
|
Intercompany loans receivable
|
3,000
|
|
|
5,055
|
|
|
23,585
|
|
|
18,513
|
|
|
(50,153
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
—
|
|
|
—
|
|
|
1,293
|
|
|
—
|
|
|
1,293
|
|
Total assets
|
$
|
57,236
|
|
|
$
|
26,156
|
|
|
$
|
63,362
|
|
|
$
|
116,501
|
|
|
$
|
(164,849
|
)
|
|
$
|
98,406
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current debt obligations
|
$
|
—
|
|
|
$
|
1,201
|
|
|
$
|
1,130
|
|
|
$
|
1,036
|
|
|
$
|
—
|
|
|
$
|
3,367
|
|
Accounts payable
|
—
|
|
|
—
|
|
|
—
|
|
|
1,659
|
|
|
—
|
|
|
1,659
|
|
Intercompany payable
|
24
|
|
|
—
|
|
|
—
|
|
|
279
|
|
|
(303
|
)
|
|
—
|
|
Accrued compensation
|
4
|
|
|
—
|
|
|
—
|
|
|
1,473
|
|
|
—
|
|
|
1,477
|
|
Other accrued expenses
|
11
|
|
|
23
|
|
|
—
|
|
|
3,064
|
|
|
—
|
|
|
3,098
|
|
Total current liabilities
|
39
|
|
|
1,224
|
|
|
1,130
|
|
|
7,511
|
|
|
(303
|
)
|
|
9,601
|
|
Long-term debt
|
—
|
|
|
2,145
|
|
|
—
|
|
|
26,865
|
|
|
—
|
|
|
29,010
|
|
Accrued compensation and retirement benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
1,768
|
|
|
—
|
|
|
1,768
|
|
Accrued income taxes
|
10
|
|
|
—
|
|
|
—
|
|
|
2,371
|
|
|
—
|
|
|
2,381
|
|
Long-term intercompany loans payable
|
7,001
|
|
|
4,553
|
|
|
15,226
|
|
|
23,373
|
|
|
(50,153
|
)
|
|
—
|
|
Deferred tax liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
3,754
|
|
|
—
|
|
|
3,754
|
|
Other liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
1,599
|
|
|
—
|
|
|
1,599
|
|
Total liabilities
|
7,050
|
|
|
7,922
|
|
|
16,356
|
|
|
67,241
|
|
|
(50,456
|
)
|
|
48,113
|
|
Shareholders’ equity
|
50,186
|
|
|
18,234
|
|
|
47,006
|
|
|
49,153
|
|
|
(114,393
|
)
|
|
50,186
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
107
|
|
|
—
|
|
|
107
|
|
Total equity
|
50,186
|
|
|
18,234
|
|
|
47,006
|
|
|
49,260
|
|
|
(114,393
|
)
|
|
50,293
|
|
Total liabilities and equity
|
$
|
57,236
|
|
|
$
|
26,156
|
|
|
$
|
63,362
|
|
|
$
|
116,501
|
|
|
$
|
(164,849
|
)
|
|
$
|
98,406
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
April 29, 2016
CIFSA Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (CIFSA)
|
|
Subsidiary Guarantors
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
208
|
|
|
$
|
—
|
|
|
$
|
2,668
|
|
|
$
|
—
|
|
|
$
|
2,876
|
|
Investments
|
—
|
|
|
—
|
|
|
—
|
|
|
9,758
|
|
|
—
|
|
|
9,758
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
—
|
|
|
5,562
|
|
|
—
|
|
|
5,562
|
|
Inventories
|
—
|
|
|
—
|
|
|
—
|
|
|
3,473
|
|
|
—
|
|
|
3,473
|
|
Intercompany receivable
|
403
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
(464
|
)
|
|
—
|
|
Other current assets
|
24
|
|
|
—
|
|
|
—
|
|
|
1,907
|
|
|
—
|
|
|
1,931
|
|
Total current assets
|
427
|
|
|
208
|
|
|
61
|
|
|
23,368
|
|
|
(464
|
)
|
|
23,600
|
|
Property, plant, and equipment, net
|
—
|
|
|
—
|
|
|
1
|
|
|
4,840
|
|
|
—
|
|
|
4,841
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
41,500
|
|
|
—
|
|
|
41,500
|
|
Other intangible assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
26,899
|
|
|
—
|
|
|
26,899
|
|
Tax assets
|
—
|
|
|
—
|
|
|
—
|
|
|
1,383
|
|
|
—
|
|
|
1,383
|
|
Investment in subsidiaries
|
52,608
|
|
|
36,473
|
|
|
48,375
|
|
|
—
|
|
|
(137,456
|
)
|
|
—
|
|
Intercompany loans receivable
|
3,000
|
|
|
8,253
|
|
|
11,465
|
|
|
27,724
|
|
|
(50,442
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
—
|
|
|
—
|
|
|
1,421
|
|
|
—
|
|
|
1,421
|
|
Total assets
|
$
|
56,035
|
|
|
$
|
44,934
|
|
|
$
|
59,902
|
|
|
$
|
127,135
|
|
|
$
|
(188,362
|
)
|
|
$
|
99,644
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current debt obligations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
993
|
|
|
$
|
—
|
|
|
$
|
993
|
|
Accounts payable
|
—
|
|
|
—
|
|
|
—
|
|
|
1,709
|
|
|
—
|
|
|
1,709
|
|
Intercompany payable
|
—
|
|
|
—
|
|
|
—
|
|
|
464
|
|
|
(464
|
)
|
|
—
|
|
Accrued compensation
|
32
|
|
|
—
|
|
|
—
|
|
|
1,680
|
|
|
—
|
|
|
1,712
|
|
Other accrued expenses
|
12
|
|
|
24
|
|
|
—
|
|
|
2,715
|
|
|
—
|
|
|
2,751
|
|
Total current liabilities
|
44
|
|
|
24
|
|
|
—
|
|
|
7,561
|
|
|
(464
|
)
|
|
7,165
|
|
Long-term debt
|
—
|
|
|
3,382
|
|
|
—
|
|
|
26,727
|
|
|
—
|
|
|
30,109
|
|
Accrued compensation and retirement benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
1,759
|
|
|
—
|
|
|
1,759
|
|
Accrued income taxes
|
10
|
|
|
—
|
|
|
—
|
|
|
2,893
|
|
|
—
|
|
|
2,903
|
|
Long-term intercompany loans payable
|
3,918
|
|
|
14,689
|
|
|
14,298
|
|
|
17,537
|
|
|
(50,442
|
)
|
|
—
|
|
Deferred tax liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
3,729
|
|
|
—
|
|
|
3,729
|
|
Other liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
1,916
|
|
|
—
|
|
|
1,916
|
|
Total liabilities
|
3,972
|
|
|
18,095
|
|
|
14,298
|
|
|
62,122
|
|
|
(50,906
|
)
|
|
47,581
|
|
Total shareholders' equity
|
52,063
|
|
|
26,839
|
|
|
45,604
|
|
|
65,013
|
|
|
(137,456
|
)
|
|
52,063
|
|
Total liabilities and shareholders' equity
|
$
|
56,035
|
|
|
$
|
44,934
|
|
|
$
|
59,902
|
|
|
$
|
127,135
|
|
|
$
|
(188,362
|
)
|
|
$
|
99,644
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended
October 28, 2016
CIFSA Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (CIFSA)
|
|
Subsidiary Guarantors
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
644
|
|
|
$
|
(41
|
)
|
|
$
|
162
|
|
|
$
|
2,257
|
|
|
$
|
—
|
|
|
$
|
3,022
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,306
|
)
|
|
—
|
|
|
(1,306
|
)
|
Additions to property, plant, and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(598
|
)
|
|
—
|
|
|
(598
|
)
|
Purchases of investments
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,110
|
)
|
|
—
|
|
|
(2,110
|
)
|
Sales and maturities of investments
|
—
|
|
|
—
|
|
|
—
|
|
|
3,625
|
|
|
—
|
|
|
3,625
|
|
Net (increase) decrease in intercompany loans receivable
|
—
|
|
|
3,198
|
|
|
(2,117
|
)
|
|
2,707
|
|
|
(3,788
|
)
|
|
—
|
|
Intercompany dividend received
|
—
|
|
|
920
|
|
|
—
|
|
|
—
|
|
|
(920
|
)
|
|
—
|
|
Capital contributions paid
|
—
|
|
|
(325
|
)
|
|
—
|
|
|
—
|
|
|
325
|
|
|
—
|
|
Other investing activities, net
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
32
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
3,793
|
|
|
(2,117
|
)
|
|
2,350
|
|
|
(4,383
|
)
|
|
(357
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration
|
—
|
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
(36
|
)
|
Change in current debt obligations, net
|
—
|
|
|
—
|
|
|
1,130
|
|
|
24
|
|
|
—
|
|
|
1,154
|
|
Proceeds from current debt obligations (maturities greater than 90 days)
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Issuance of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
131
|
|
|
—
|
|
|
131
|
|
Payments on long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(252
|
)
|
|
—
|
|
|
(252
|
)
|
Dividends to shareholders
|
(1,192
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,192
|
)
|
Issuance of ordinary shares
|
260
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
260
|
|
Repurchase of ordinary shares
|
(2,794
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,794
|
)
|
Net intercompany loan borrowings (repayments)
|
3,082
|
|
|
(3,634
|
)
|
|
929
|
|
|
(4,165
|
)
|
|
3,788
|
|
|
—
|
|
Intercompany dividend paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(920
|
)
|
|
920
|
|
|
—
|
|
Capital contributions received
|
—
|
|
|
—
|
|
|
—
|
|
|
325
|
|
|
(325
|
)
|
|
—
|
|
Other financing activities
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
—
|
|
|
74
|
|
Net cash provided by (used in) financing activities
|
(644
|
)
|
|
(3,634
|
)
|
|
2,063
|
|
|
(4,819
|
)
|
|
4,383
|
|
|
(2,651
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
64
|
|
|
—
|
|
|
64
|
|
Net change in cash and cash equivalents
|
—
|
|
|
118
|
|
|
108
|
|
|
(148
|
)
|
|
—
|
|
|
78
|
|
Cash and cash equivalents at beginning of period
|
—
|
|
|
208
|
|
|
—
|
|
|
2,668
|
|
|
—
|
|
|
2,876
|
|
Cash and cash equivalents at end of period
|
$
|
—
|
|
|
$
|
326
|
|
|
$
|
108
|
|
|
$
|
2,520
|
|
|
$
|
—
|
|
|
$
|
2,954
|
|
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended
October 30, 2015
CIFSA Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent Company Guarantor (Medtronic plc)
|
|
Subsidiary Issuer (CIFSA)
|
|
Subsidiary Guarantors
|
|
Subsidiary Non-guarantors
|
|
Consolidating
Adjustments
|
|
Total
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
(24
|
)
|
|
$
|
2,653
|
|
|
$
|
(968
|
)
|
|
$
|
2,984
|
|
|
$
|
(2,550
|
)
|
|
$
|
2,095
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
—
|
|
|
—
|
|
|
(997
|
)
|
|
—
|
|
|
(997
|
)
|
Additions to property, plant, and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(446
|
)
|
|
—
|
|
|
(446
|
)
|
Purchases of investments
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,370
|
)
|
|
—
|
|
|
(3,370
|
)
|
Sales and maturities of investments
|
—
|
|
|
—
|
|
|
—
|
|
|
2,752
|
|
|
—
|
|
|
2,752
|
|
Net (increase) decrease in intercompany loans receivable
|
—
|
|
|
(1,774
|
)
|
|
(524
|
)
|
|
(49
|
)
|
|
2,347
|
|
|
—
|
|
Other investing activities, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(1,774
|
)
|
|
(524
|
)
|
|
(2,123
|
)
|
|
2,347
|
|
|
(2,074
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
Change in current debt obligations, net
|
—
|
|
|
—
|
|
|
1,277
|
|
|
—
|
|
|
—
|
|
|
1,277
|
|
Proceeds from current debt obligations (maturities greater than 90 days)
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Payments on long-term debt
|
—
|
|
|
(1,000
|
)
|
|
—
|
|
|
(608
|
)
|
|
—
|
|
|
(1,608
|
)
|
Dividends to shareholders
|
(1,075
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,075
|
)
|
Issuance of ordinary shares
|
263
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
263
|
|
Repurchase of ordinary shares
|
(1,460
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,460
|
)
|
Net intercompany loan borrowings (repayments)
|
1,985
|
|
|
(467
|
)
|
|
(2
|
)
|
|
831
|
|
|
(2,347
|
)
|
|
—
|
|
Intercompany dividend paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,550
|
)
|
|
2,550
|
|
|
—
|
|
Other financing activities
|
49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
Net cash provided by (used in) financing activities
|
(238
|
)
|
|
(1,467
|
)
|
|
1,323
|
|
|
(2,346
|
)
|
|
203
|
|
|
(2,525
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
—
|
|
|
39
|
|
Net change in cash and cash equivalents
|
(262
|
)
|
|
(588
|
)
|
|
(169
|
)
|
|
(1,446
|
)
|
|
—
|
|
|
(2,465
|
)
|
Cash and cash equivalents at beginning of period
|
263
|
|
|
728
|
|
|
170
|
|
|
3,682
|
|
|
—
|
|
|
4,843
|
|
Cash and cash equivalents at end of period
|
$
|
1
|
|
|
$
|
140
|
|
|
$
|
1
|
|
|
$
|
2,236
|
|
|
$
|
—
|
|
|
$
|
2,378
|
|