# Medtronic plc (MDT) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Medtronic plc's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1613103/000161310323000040/mdt-20230428.htm
Accession: 0001613103-23-000040
Filing date: 2023-06-22
Report date: 2023-04-28
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MDT/
All MD&A years: /company/MDT/mda/
Previous year: /company/MDT/mda/fy2022/ (FY 2022)
Next year: /company/MDT/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

UNDERSTANDING OUR FINANCIAL INFORMATION

The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of the Company. The discussion focuses on our financial results for the fiscal year ended April 28, 2023 (fiscal year 2023) and the fiscal year ended April 29, 2022 (fiscal year 2022). A discussion on our results of operations for fiscal year 2022 as compared to the year ended April 30, 2021 (fiscal year 2021) is included in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended April 29, 2022, filed with the SEC on June 23, 2022, and is incorporated by reference into this Form 10-K. You should read this discussion and analysis along with our consolidated financial statements and related notes thereto at April 28, 2023 and April 29, 2022 and for fiscal years 2023, 2022, and 2021, which are presented within "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. Amounts reported in millions within this annual report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in millions due to rounding. Additionally, certain columns and rows within tables may not sum due to rounding.

Financial Trends

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

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

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

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

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

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EXECUTIVE LEVEL OVERVIEW

The following is a summary of revenue, diluted earnings per share, and cash flow for fiscal years 2023 and 2022:

GAAP to Non-GAAP Reconciliations

The tables below present reconciliations of our Non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with U.S. GAAP for fiscal years 2023 and 2022.

[[GREPCENT_TABLE]]
[["","Fiscal year ended April 28, 2023"],["(in millions, except per share data)","Income Before Income Taxes","","Income Tax Provision (Benefit)","","Net Income Attributable to Medtronic","","Diluted EPS","","Effective Tax Rate"],["GAAP","$","5,364","","","$","1,580","","","$","3,758","","","$","2.82","","","29.5","%"],["Non-GAAP Adjustments:"],["Amortization of intangible assets","1,698","","","255","","","1,443","","","1.08","","","15.0"],["Restructuring and associated costs (1)","647","","","139","","","507","","","0.38","","","21.5"],["Acquisition-related items (2)","110","","","21","","","89","","","0.07","","","19.1"],["Divestiture and separation-related items (3)","235","","","8","","","227","","","0.17","","","3.4"],["Certain litigation charges, net (4)","(30)","","","(8)","","","(23)","","","(0.02)","","","26.7"],["(Gain)/loss on minority investments (5)","(33)","","","2","","","(29)","","","(0.02)","","","(6.1)"],["Medical device regulations (6)","150","","","30","","","120","","","0.09","","","20.0"],["Debt redemption premium and other charges (7)","53","","","11","","","42","","","0.03","","","20.8"],["Certain tax adjustments, net (8)","\u2014","","","(910)","","","910","","","0.68","","","\u2014"],["Non-GAAP","$","8,194","","","$","1,128","","","$","7,045","","","$","5.29","","","13.8","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Fiscal year ended April 29, 2022"],["(in millions, except per share data)","Income Before Income Taxes","","Income Tax Provision (Benefit)","","Net Income Attributable to Medtronic","","Diluted EPS","","Effective Tax Rate"],["GAAP","$","5,517","","","$","456","","","$","5,039","","","$","3.73","","","8.3","%"],["Non-GAAP Adjustments:"],["Amortization of intangible assets","1,733","","","266","","","1,467","","","1.09","","","15.3"],["Restructuring and associated costs (1)","335","","","54","","","281","","","0.21","","","16.1"],["Acquisition-related items (2)","(43)","","","5","","","(48)","","","(0.04)","","","(11.6)"],["Certain litigation charges","95","","","17","","","78","","","0.06","","","17.9"],["(Gain)/loss on minority investments (5)","(12)","","","\u2014","","","(9)","","","(0.01)","","","\u2014"],["Medical device regulations (6)","102","","","16","","","86","","","0.06","","","15.7"],["MCS impairment / costs (9)","881","","","220","","","661","","","0.49","","","25.0"],["Certain tax adjustments, net (10)","\u2014","","","50","","","(50)","","","(0.04)","","","\u2014"],["Non-GAAP","$","8,609","","","$","1,084","","","$","7,505","","","$","5.55","","","12.6","%"]]
[[/GREPCENT_TABLE]]

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

(2)The charges primarily include business combination costs and changes in fair value of contingent consideration.

(3)The charges predominantly include non-cash pre-tax impairments, primarily related to goodwill, changes in the carrying value of the disposal group, and other associated costs, as a result of the April 1, 2023 sale of half of the Company's Renal Care Solutions (RCS) business; charges related to the impending separation of the Patient Monitoring and Respiratory Interventions businesses within our Medical Surgical Portfolio in the fourth quarter of fiscal year 2023; and charges related to an exit of a business which are primarily comprised of inventory write-downs.

(4)Certain litigation includes $35 million income related to the one-time payment received as a result of the Intellectual Property Agreement entered into with Edwards Lifesciences on April 12, 2023.

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

(6)The charges represent estimated incremental costs of complying with the new European Union medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses. We consider these costs to be duplicative of previously incurred costs and /or one-time costs, which are limited to a specific period.

(7)The charges relate to the early redemption of approximately $2.3 billion of debt and were recorded within interest expense, net within the consolidated statements of income.

(8)The charge primarily relates to a $764 million reserve adjustment that was a direct result of the U.S. Tax Court opinion, issued on August 18, 2022, on the previously disclosed litigation regarding the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico. Additional charges relate to the reduction of deferred tax assets due to the disallowance of certain interest deductions and the change in the reporting currency for certain carryover attributes, and the amortization on previously established deferred tax assets from intercompany intellectual property transactions.

(9)The charges relate to the Company’s June 2021 decision to stop the distribution and sale of the Medtronic HVAD System within the Mechanical Circulatory Support Operating Unit (MCS). The charges included $515 million of non-cash impairments, primarily related to $409 million of intangible asset impairments, as well as $366 million for commitments and obligations in connection with the decision, including patient support obligations, restructuring, and other associated costs. Medtronic is committed to serving the needs of patients currently implanted with the HVAD System.

(10)The net benefit primarily relates to the deferred tax impact associated with a step up in tax basis for Swiss Cantonal purposes and a change in tax rates on deferred taxes associated with intellectual property, which are partially offset by the amortization on previously established deferred tax assets from intercompany intellectual property transactions and a charge related to a change in the Company's permanent reinvestment assertion on certain historical earnings.

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Free Cash Flow

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

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["(in millions)","2023","","2022"],["Net cash provided by operating activities","$","6,039","","","$","7,346"],["Additions to property, plant, and equipment","(1,459)","","","(1,368)"],["Free cash flow","$","4,580","","","$","5,978"]]
[[/GREPCENT_TABLE]]

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

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NET SALES

Segment and Division

The charts below illustrate the percent of net sales by segment for fiscal years 2023 and 2022:

The table below includes net sales by segment and division for fiscal years 2023 and 2022:

[[GREPCENT_TABLE]]
[["","Net Sales by Fiscal Year","","Percent Change"],["(in millions)","2023","","2022"],["Cardiac Rhythm & Heart Failure","$","5,835","","","$","5,908","","","(1)","%"],["Structural Heart & Aortic","3,363","","","3,055","","","10"],["Coronary & Peripheral Vascular","2,375","","","2,460","","","(3)"],["Cardiovascular","11,573","","","11,423","","","1"],["Surgical Innovations","5,663","","","6,060","","","(7)"],["Respiratory, Gastrointestinal, & Renal","2,770","","","3,081","","","(10)"],["Medical Surgical","8,433","","","9,141","","","(8)"],["Cranial & Spinal Technologies","4,451","","","4,456","","","\u2014"],["Specialty Therapies","2,815","","","2,592","","","9"],["Neuromodulation","1,693","","","1,735","","","(2)"],["Neuroscience","8,959","","","8,784","","","2"],["Diabetes","2,262","","","2,338","","","(3)"],["Total","$","31,227","","","$","31,686","","","(1)","%"]]
[[/GREPCENT_TABLE]]

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Segment and Market Geography

The charts below illustrate the percent of net sales by market geography for fiscal years 2023 and 2022:

The table below includes net sales by market geography for each of our segments for fiscal years 2023 and 2022:

[[GREPCENT_TABLE]]
[["","U.S.(1)","","Non-U.S. Developed Markets(2)","","Emerging Markets(3)"],["(in millions)","Fiscal Year 2023","","Fiscal Year 2022","","% Change","","Fiscal Year 2023","","Fiscal Year 2022","","% Change","","Fiscal Year 2023","","Fiscal Year 2022","","% Change"],["Cardiovascular","$","5,848","","","$","5,545","","","5","%","","$","3,564","","","$","3,866","","","(8)","%","","$","2,161","","","$","2,012","","","7","%"],["Medical Surgical","3,658","","","3,862","","","(5)","","","3,080","","","3,373","","","(9)","","","1,694","","","1,905","","","(11)"],["Neuroscience","6,018","","","5,753","","","5","","","1,658","","","1,801","","","(8)","","","1,283","","","1,229","","","4"],["Diabetes","849","","","974","","","(13)","","","1,106","","","1,085","","","2","","","307","","","279","","","10"],["Total","$","16,373","","","$","16,135","","","1","%","","$","9,408","","","$","10,126","","","(7)","%","","$","5,446","","","$","5,426","","","\u2014","%"]]
[[/GREPCENT_TABLE]]

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

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

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

The decline in net sales for fiscal year 2023 was primarily driven by unfavorable currency impacts, impact of volume-based procurement tenders and COVID-19 resurgence in China, as well as supply chain challenges in certain businesses, particularly in the first quarter of fiscal year 2023. Currency had an unfavorable impact of $1.2 billion on non-U.S. developed markets and $262 million on emerging markets. The decline in net sales was partially offset by growth in certain product lines and businesses, including Micra, Transcatheter Aortic Valve replacements (TAVR), hemorrhagic and ischemic stroke, and ENT, in addition to the $265 million one-time payment received as a result of the Intellectual Property Agreement entered into with Edwards Lifesciences, as further discussed in the Cardiovascular net sales section below.

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Looking ahead, a number of macro-economic and geopolitical factors could negatively impact our business, including without limitation:

•Competitive product launches and pricing pressure, geographic macro-economic risks including fluctuations in currency exchange rates, general price inflation, rising interest rates, reimbursement challenges, impacts from changes in the mix of our product offerings, delays in product registration approvals, and replacement cycle challenges;

•National and provincial/state tender decisions, including around pricing, for certain products, particularly in China;

•The uncertain and uneven impact of COVID-19 on future procedural volumes, supply constraints including certain electronic components and semiconductors, healthcare staffing in certain regions, and resulting impacts on demand for our products and therapies; and

•The sanctions and other measures being imposed in response to the Russia-Ukraine conflict are having, and could continue to have impacts on revenue and supply chain. The financial impact of the conflict in fiscal year 2023, including on accounts receivable and inventory reserves, was not material, and for fiscal year 2023, the business of the Company in these countries represented less than 1% of the Company's consolidated revenues and assets. Although the implications of this conflict are difficult to predict at this time, the ongoing conflict may increase pressure on the global economy and supply chains, resulting in increased future volatility risk for our business operations and performance.

Cardiovascular

Cardiovascular products include pacemakers, insertable cardiac monitors, cardiac resynchronization therapy devices, implantable cardioverter defibrillators (ICD), leads and delivery systems, electrophysiology catheters, products for the treatment of atrial fibrillation, information systems for the management of patients with Cardiac Rhythm & Heart Failure devices, products designed to reduce surgical site infections, coronary and peripheral stents and related delivery systems, balloons and related delivery systems, endovascular stent graft systems, heart valve replacement technologies, cardiac tissue ablation systems, and open heart and coronary bypass grafting surgical products. Cardiovascular also includes Care Management Services and Cath Lab Managed Services (CLMS) within the Cardiac Rhythm & Heart Failure division. Cardiovascular net sales for fiscal year 2023 were $11.6 billion, an increase of 1 percent as compared to fiscal year 2022. The net sales increase was primarily due to the strong performance of Micra, TAVR, and Diagnostics, partially offset by unfavorable currency impact of $569 million and supply chain challenges in certain businesses.

The charts below illustrate the percent of Cardiovascular net sales by division for fiscal years 2023 and 2022:

Cardiac Rhythm & Heart Failure (CRHF) net sales decreased 1 percent in fiscal year 2023 as compared to fiscal year 2022. The decrease was driven by Cardiac Ablation Solutions experiencing competitive pressures in Western Europe, as well as the pending volume-based procurement (VBP) tenders in China, offset by continued adoption of Micra AV, TYRX antibacterial envelopes, LINQ II implants, and growth from Arctic Front cryoblation catheters in the U.S.

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Structural Heart & Aortic (SHA) net sales increased 10 percent in fiscal year 2023 as compared to fiscal year 2022. The increase was led by growth in transcatheter aortic valve replacement (TAVR), including the U.S. and Japan. Results include $265 million of revenue from a one-time payment received as a result of the Intellectual Property Agreement (agreement) entered into with Edwards Lifesciences (Edwards) on April 12, 2023. As part of this agreement, Edwards will also pay the Company royalty payments tied to future net sales of certain Edwards products. Net sales growth was negatively impacted by a field corrective action with the Harmony Transcatheter Pulmonary Valve and Delivery Catheter System.

Coronary & Peripheral Vascular (CPV) net sales decreased 3 percent in fiscal year 2023 as compared to fiscal year 2022. The net sales declines were driven by market procedural volumes in Coronary remaining below pre-COVID levels in several major markets, headwinds related to U.S. hospital contrast shortages early in fiscal year 2023, and declines in Peripheral Vascular Health due to competitors re-entering the market and supply chain challenges. Net sales declines were partially offset by strong demand combined with improved product availability of the SpiderFX embolic protection device (EPD) and strong performance of our superficial venous product portfolio, including the VenaSeal system.

In addition to the macro-economic and geopolitical factors described in the Net Sales section, looking ahead, we expect Cardiovascular could be affected by the following:

•Continued growth of our Micra transcatheter pacing system. Our portfolio consists of Micra VR and Micra AV, which offer leadless pacing therapy to approximately 45 percent of pacemaker patients. We expect the launch of next generation Micra AV2/VR2 in the first quarter of fiscal year 2024 will continue to support adoption of leadless pacing, as it extends the capability of the Micra portfolio by adding significant battery longevity and programming simplicity.

•Continued acceptance and growth from the Azure XT and S SureScan pacing systems and the 3830 lead. Azure pacemakers feature Medtronic-exclusive BlueSync technology, which enables automatic, secure wireless remote monitoring with increased device longevity. The 3830 lead, previously labeled for His-bundle pacing, has now been expanded to include left bundle branch area pacing.

•Growth of the Cobalt and Crome portfolio of ICDs and CRT-Ds.

•Growth of the CRT-P quadripolar pacing system.

•Continued growth, adoption, and utilization of the TYRX Envelope for implantable devices.

•Continued acceptance and expansion of the LINQ II cardiac monitor. During the third quarter of fiscal year 2022, we launched two AccuRhythm AI algorithms on the LINQ II platform to significantly reduce false positive alerts for Atrial Fibrillation and pause episodes while retaining sensitivity for true positive detection and reduce clinic workload and burden. AccuRhythm AI launched in Europe during the first quarter of fiscal year 2023.

•Continued growth of Arctic Front cryoablation for treatment of atrial fibrillation.

•Acceptance and growth of the Affera Mapping/Navigation System and Sphere 9 mapping/ablation catheter. The system was launched under a limited market release in the fourth quarter of fiscal year 2023 in Western Europe.

•Continued acceptance and growth of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform. This includes Evolut PRO which provides enhanced hemodynamics, reliable delivery, enhanced durability, advanced sealing, and Evolut FX, a system designed to improve the overall procedural experience through enhancements in deliverability, implant visibility, and deployment stability.

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

•Continued acceptance and growth of the Onyx Frontier DES platform. The platform launched in the U.S. in the first quarter of fiscal year 2023 and in select international countries in the second quarter of fiscal year 2023. Onyx Frontier is a drug-eluding stent (DES) that introduces an enhanced delivery system and is used for complex percutaneous coronary intervention (PCI).

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

•Acceptance and growth of IN.PACT 018 drug-coated balloon (DCB). The product was launched in the U.S. under limited market release in the first quarter of fiscal year 2023 with full market release in the third quarter of fiscal year 2023. IN.PACT 018 adds to the existing IN.PACT Admiral DCB portfolio and is used to treat femoropopliteal disease.

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•Market and competitive pressure on sales of the Abre venous self-expanding stent system. Abre is designed for the unique challenges of venous disease. Now backed by 36 months of data, it offers easy deployment and delivers demonstrated endurance, to give patients freedom of movement.

•Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include, but are not limited to, the Symplicity Spyral Multi-Electrode Renal Denervation Catheter, Pulse Field Ablation, a novel energy source that is non-thermal, and Aurora Extravascular ICD.

Medical Surgical

Medical Surgical’s products span the entire continuum of patient care from diagnosis to recovery, with a focus on diseases of the gastrointestinal tract, lungs, pelvic region, kidneys, obesity, and preventable complications. The products include those for advanced and general surgical products, surgical stapling devices, vessel sealing instruments, wound closure, electrosurgery products, hernia mechanical devices, mesh implants, advanced ablation, interventional lung, ventilators, airway products, renal care products, and sensors and monitors for pulse oximetry, capnography, level of consciousness and cerebral oximetry. Medical Surgical’s net sales for fiscal year 2023 were $8.4 billion, a decrease of 8 percent as compared to fiscal year 2022. The net sales decrease was primarily driven by unfavorable currency impact of $454 million, provincial volume-based procurement (VBP) stapling tenders in China, and a decline in ventilator sales due to the high COVID-19 demand in the corresponding period in the prior fiscal year. Supply chain disruptions, particularly in Surgical Innovations, also contributed to the net sales decrease for fiscal year 2023.

The charts below illustrate the percent of Medical Surgical net sales by division for fiscal years 2023 and 2022:

Surgical Innovations net sales for fiscal year 2023 decreased 7 percent as compared to fiscal year 2022. The net sales decline was led by Advanced Surgical instruments, driven by global supply chain challenges, including resins, semiconductors, and packaging trays, which impacted energy and stapling products, and provincial VBP stapling tenders and COVID-19 lockdowns in China. These declines were partially offset by growth in Advanced Energy in the fourth quarter of fiscal year 2023.

Respiratory, Gastrointestinal, & Renal (RGR) net sales for fiscal year 2023 decreased 10 percent as compared to fiscal year 2022. RGR net sales declines were largely due to declines in ventilator demand when compared to the corresponding period in the prior fiscal year as demand dropped below pre-pandemic levels, as well as declines in RCS driven by product availability challenges in the first three quarters of fiscal year 2023, and only two months of sales in the fourth quarter of fiscal year 2023 as a result of the April 1, 2023 contribution of half of the Company's RCS business to form Mozarc Medical. These declines were partially offset by growth in Gastrointestinal driven by strength in sales of GI Genius.

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In addition to the macro-economic and geopolitical factors described in the Net Sales section, looking ahead we expect Medical Surgical could be affected by the following:

•The pending separation of the combined Patient Monitoring and Respiratory Interventions businesses from the Medical Surgical Portfolio. The Company announced its intention to pursue a separation in October 2022 and expects to complete the separation 18 to 24 months from the announcement date.

•Acceptance and continued growth of Open-to-MIS (minimally invasive surgery) techniques and tools through our efforts to transition open surgery to MIS. Open-to-MIS initiative focuses on capturing the market opportunity that exists in transitioning open procedures to MIS, whether through traditional MIS, advanced instrumentation, or robotics. Through our approach, in parallel, we also expand our presence and optimize open surgery in current open surgery markets.

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

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

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

•Acceptance of less invasive standards of care in gastrointestinal and hepatology products, including products that span the care continuum from diagnostics to therapeutics. Recently launched products include GI Genius and PillCam capsule endoscopy.

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

•Global adoption of robotic-assisted surgery and installations of Hugo robotic assisted surgery (RAS) system for urologic, bariatric, gynecologic, and general surgery procedures. This includes continued integration and adoption of Touch Surgery Enterprise with the first artificial intelligence powered surgical videos and analytics platform to make it easier to train and discover new techniques within the robotics platform. The Hugo RAS system, which received CE Mark in October 2021, as well as secured additional regulatory approvals outside the U.S., is designed to help reduce unwanted variability, improve patient outcomes, and, by extension, lower per procedure cost.

•Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include, but are not limited to, our Hugo RAS system in the U.S., Signia power stapling devices, and our next-gen Ligasure and Sonicision vessel sealing devices.

Neuroscience

Neuroscience's products include various spinal implants, bone graft substitutes, biologic products, image-guided surgery and intra-operative imaging systems, robotic guidance systems used in the robot-assisted spine procedures, and systems that incorporate advanced energy surgical instruments. Neuroscience's products also focus on therapies to treat the diseases of the vasculature in and around the brain, including coils, neurovascular stents, and flow diversion products, as well as products to treat ear, nose, and throat (ENT), and the treatment of overactive bladder, urinary retention, fecal incontinence. Neuroscience also manufactures products related to implantable neurostimulation therapies and drug delivery systems for the treatment of chronic pain, movement disorders, and epilepsy. Neuroscience’s net sales for fiscal year 2023 were $9.0 billion, an increase of 2 percent as compared to fiscal year 2022. The net sales increase was primarily due to growth in U.S. Core Spine, Neurovascular, ENT, and continued supply risk mitigation, partially offset by unfavorable currency impact of $281 million and supply chain challenges in certain businesses.

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The graphs below illustrate the percent of Neuroscience net sales by division for fiscal years 2023 and 2022:

Cranial & Spinal Technologies (CST) net sales for fiscal year 2023 were flat as compared to fiscal year 2022 as growth within U.S. Core Spine was offset by net sales declines in Biologics and unfavorable currency impact. The growth in U.S. Core Spine products was driven by the continued adoption of the Aible ecosystem of spine products. The net sales increase was also attributable to strong sales of StealthStation Navigation and Midas Rex powered surgical instruments. The decline in net sales in Biologics was due to supply chain challenges throughout the year.

Specialty Therapies (Specialty) net sales for fiscal year 2023 increased 9 percent as compared to fiscal year 2022. The increase was driven by growth in hemorrhagic and ischemic stroke, flow diversion and access delivery products. The net sales increase was also driven by benefits from the May 2022 acquisition of Intersect ENT.

Neuromodulation (NM) net sales for fiscal year 2023 decreased 2 percent as compared to fiscal year 2022. The decline in net sales was largely due to declines of Brain Modulation replacement devices and supply chain challenges in Interventional, which has recently seen improvements in product availability. The decline was partially offset by growth within Pain Stim and to a lesser extent, Targeted Drug Delivery.

In addition to the macro-economic and geopolitical factors described in the Net Sales section, looking ahead we expect Neuroscience could be affected by the following:

•Continued adoption and growth of our integrated solutions through the Aible offering, which integrates spinal implants with enabling technologies (StealthStation, O-arm Imaging Systems, and Midas), Mazor robotics, and UNiD Adaptive Spine Intelligence AI-driven technology for surgical planning and personalized spinal implants.

•Market acceptance and continued global adoption of innovative new spine products and procedural solutions within our CST operating unit, such as Catalyft PL, ModuLeX, CD Horizon Voyager System, and our Infinity OCT System, as well as continued growth from Titan spine titanium interbody implants with Nanolock technology.

•Continued growth of Pipeline Embolization Devices, endovascular treatments for large or giant wide-necked brain aneurysms.

•Continued acceptance and growth of the Solitaire X revascularization device for treatment of acute ischemic stroke and our React Catheter and Riptide aspiration system.

•Strengthening our position in the ENT market as a result of the May 2022 acquisition of Intersect ENT, a global ENT medical technology leader. The acquisition expands Neuroscience's portfolio of products used during ENT procedures and combined with the Company's navigation, powered instruments, and existing tissue health products, offers a broader suite of solutions to assist surgeons treating patients who suffer from chronic rhinosinusitis (CRS).

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•Continued acceptance and growth of our Pelvic Health and ENT therapies, including our InterStim therapy with InterStim X and InterStim II recharge-free neurostimulators and InterStim Micro rechargeable neurostimulator for patients suffering from overactive bladder, (non-obtrusive) urinary retention, and chronic fecal incontinence, and capital equipment sales of the Stealth Station ENT surgical navigation system and intraoperative NIM nerve monitoring system.

•Market acceptance and growth from SCS therapy for treating chronic pain and Diabetic Peripheral Neuropathy (DPN) on the Intellis rechargeable neurostimulator and Vanta recharge-free neurostimulator.

•Continued acceptance and growth of our Percept family of DBS devices with proprietary BrainSense technology for objectifying and personalizing the treatment of Parkinson's Disease, epilepsy, and other movement disorders.

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

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

Diabetes

Diabetes' products include insulin pumps, continuous glucose monitoring (CGM) systems, consumables, and smart insulin pen systems. Diabetes' sales for fiscal year 2023 were $2.3 billion, a decrease of 3 percent as compared to fiscal year 2022. The decrease in net sales was primarily driven by unfavorable currency impact of $133 million and declines in the U.S. The net sales declines were partially offset by strong international growth primarily driven by the continued international expansion of the MiniMed 780G insulin pump system and integrated CGM. During April 2023, the U.S. FDA lifted the warning letter received in December 2021.

In addition to the macro-economic and geopolitical factors described in the Net Sales section, looking ahead we expect Diabetes could be affected by the following:

•Continued acceptance and growth for the MiniMed 780G insulin pump system, which is powered by SmartGuard technology and features the added benefits of meal detection technology that automatically adjusts and corrects sugar level levels every five minutes. The global adoption of sensor-augmented insulin pump systems has resulted in strong sensor attachment rates. The MiniMed 780G insulin pump system with the Guardian 4 Sensor was approved by the U.S. FDA in late April 2023.

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

•Market acceptance and growth of our InPen smart pen system, which allows users to have their Medtronic CGM readings in real-time alongside insulin dose information, all in one view.

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

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

•Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, including our next-generation sensor Simplera, which has been submitted to the U.S. FDA.

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COSTS AND EXPENSES

The following is a summary of cost of products sold, research and development, and selling, general, and administrative expenses as a percent of net sales:

Cost of Products Sold Cost of products sold for fiscal year 2023 was $10.7 billion as compared to $10.1 billion for fiscal year 2022. The increase in cost of products sold as a percentage of net sales was primarily attributable to increased labor and direct material manufacturing costs, predominantly due to inflationary pressures and supply chain challenges, increased freight due to higher fuel costs and expedited shipments for backorders resulting from supply chain challenges, as well as increased inventory reserves. Fiscal year 2022 included $58 million of inventory write-downs associated with our June 2021 decision to stop the distribution and sale of Medtronic's HVAD System (MCS charges). Looking forward, our cost of products sold likely will be further negatively impacted by inflation and higher labor and direct material costs. We continue to focus on reducing our costs of production through supplier management, manufacturing improvements, and optimizing our manufacturing network.

Research and Development Expense We remain committed to deliver the best possible experiences for patients, physicians, and caregivers we serve; to create technologies that expand what’s possible across the human body to transform lives; to turn data and insights into real action to serve patient needs, improving care; and to expand healthcare access and deliver positive outcomes. Research and development expense for fiscal years 2023 and 2022 was $2.7 billion. Fiscal year 2022 included $101 million of expense related to acquisitions of, and license payments for, technology not approved by regulators, primarily in our Diabetes segment.

Selling, General, and Administrative Expense Our goal is to continue to leverage selling, general, and administrative expense initiatives. Selling, general, and administrative expense primarily consists of salaries and wages, other administrative costs, such as professional fees and marketing expenses, certain acquisition, divestiture and separation-related costs, and restructuring expenses. Selling, general, and administrative expense for fiscal year 2023 was $10.4 billion as compared to $10.3 billion for fiscal year 2022. The increase in selling, general, and administrative expense as a percentage of net sales was primarily driven by employee travel, and to a lesser extent by lower net sales, partially offset by a reduction in professional services.

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

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["(in millions)","2023","","2022"],["Amortization of intangible assets","$","1,698","","","$","1,733"],["Restructuring charges, net","375","","","60"],["Certain litigation charges, net","(30)","","","95"],["Other operating (income) expense, net","(131)","","","862"],["Other non-operating income, net","(515)","","","(318)"],["Interest expense, net","636","","","553"]]
[[/GREPCENT_TABLE]]

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

Restructuring Charges, Net

In fiscal years 2023 and 2022, restructuring costs primarily related to Enterprise Excellence and Simplification restructuring programs, both of which were substantially completed as of the end of this fiscal year.

In the fourth quarter of fiscal year 2023, we incurred $0.3 billion of restructuring charges primarily related to employee termination benefits to support cost reduction initiatives. These charges were incremental to charges incurred under our Enterprise Excellence and Simplification programs noted above.

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

For additional information about our restructuring programs, refer to Note 4 of the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

Certain Litigation Charges, Net We classify specified certain litigation charges and gains related to significant legal matters as certain litigation charges, net in the consolidated statements of income. For additional information, refer to Note 18 of the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Other Operating (Income) Expense, Net Other operating (income) expense, net primarily includes royalty expense, currency remeasurement and derivative gains and losses, Puerto Rico excise taxes, changes in the fair value of contingent consideration, MCS charges, RCS charges, impairment charges, income from funded research and development arrangements, and commitments to the Medtronic Foundation and Medtronic LABS.

The change in other operating (income) expense, net was primarily driven by MCS charges recorded in fiscal year 2022. The MCS charges of $823 million primarily included $409 million of intangible asset impairments and $366 million for commitments and obligations, including customer support obligations, restructuring, and other associated costs. Additionally, the change was driven by the net currency impact of remeasurement expense and our hedging programs, which resulted in a net gain of $466 million combined for fiscal year 2023 as compared to a net gain of $70 million for fiscal year 2022. During fiscal year 2023, the Company also recorded non-cash pre-tax charges of $136 million, primarily related to impairments of goodwill and changes in the carrying value of the disposal group, as a result of the April 1, 2023 sale of half of the Company's RCS business. Additional information regarding the MCS and RCS charges is described in Note 4 and Note 3, respectively, of the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

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

The increase in other non-operating income, net for fiscal year 2023 is primarily attributable to an increase in interest income driven by higher returns on investments and an increase in rates on our global liquidity structures. Interest income was $386 million and $186 million for fiscal year 2023 and 2022, respectively.

Interest Expense, Net Interest expense, net includes interest incurred on our outstanding borrowings, amortization of debt issuance costs and debt premiums or discounts, amortization of amounts excluded from the effectiveness assessment of certain net investment hedges, and charges recognized in connection with the early redemption of senior notes.

The increase in interest expense, net for fiscal year 2023 was primarily due to an increase in rates on our global liquidity structures, the issuance of four tranches of Euro-denominated Senior Notes with an aggregate principal of €3.5 billion in September 2022, and the $53 million charge incurred as a result of the early redemption of approximately $2.3 billion of senior notes during the first quarter of fiscal year 2023. The Company's commercial paper activity and the issuance of two tranches of USD-denominated Senior Notes with an aggregate principal of $2.0 billion in March 2023 also increased interest expense, net. Partially offsetting the increase for fiscal year 2023 was $107 million in after-tax unrealized gains representing amounts excluded from the effectiveness assessment of certain net investment hedges, and benefits from foreign exchange rates.

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INCOME TAXES

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["(in millions)","2023","","2022"],["Income tax provision","$","1,580","","","$","456"],["Income before income taxes","5,364","","","5,517"],["Effective tax rate","29.5","%","","8.3","%"],["Non-GAAP income tax provision","$","1,128","","","$","1,084"],["Non-GAAP income before income taxes","8,194","","","8,609"],["Non-GAAP Nominal Tax Rate","13.8","%","","12.6","%"],["Difference between the effective tax rate and Non-GAAP Nominal Tax Rate","(15.7)","%","","4.3","%"]]
[[/GREPCENT_TABLE]]

On August 18, 2022, the U.S. Tax Court (Tax Court) issued its opinion on the previously disclosed litigation regarding the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for fiscal years 2005 and 2006 (Opinion). While the Opinion rejected the IRS’s position and the Tax Court determined the methodology advanced by Medtronic was appropriate for purposes of determining the intercompany royalty rate between Puerto Rico and the U.S., it determined that the royalty rate should be higher, thereby increasing income allocated to the U.S. and consequently subject to U.S. tax. This case relates only to fiscal years 2005 and 2006. The Opinion remains subject to appeal by either or both parties. We have assumed the Tax Court findings will be applied for all years following fiscal year 2006. As a result, the Company recorded a $764 million net tax charge during the three months ended October 28, 2022 to recognize the estimated tax impact of the Tax Court Opinion.

Our effective tax rate for fiscal year 2023 was 29.5 percent, as compared to 8.3 percent in fiscal year 2022. The increase in our effective tax rate primarily relates to the certain tax adjustments discussed below and year-over-year changes in operational results by jurisdiction.

Our Non-GAAP Nominal Tax Rate for fiscal year 2023 was 13.8 percent, as compared to 12.6 percent in fiscal year 2022. The increase in our Non-GAAP Nominal Tax Rate primarily relates to year-over-year changes in operational results by jurisdiction.

During fiscal year 2023, we recognized $110 million of operational tax benefits. The operational tax benefits included an $11 million cost from the impact of stock-based compensation, and a $121 million benefit associated with the resolution of certain income tax audits, finalization of certain tax returns, changes to uncertain tax position reserves, and changes to certain deferred income tax balances.

During fiscal year 2022, we recognized $89 million of operational tax benefits. The operational tax benefits included a $46 million benefit from excess tax benefits associated with stock-based compensation, and a $43 million net benefit associated with the resolution of certain income tax audits, finalization of certain tax returns, changes to uncertain tax position reserves, and changes to certain deferred income tax balances.

An increase in our Non-GAAP Nominal Tax Rate of one percent would result in an additional income tax provision for fiscal years 2023 and 2022 of approximately $82 million and $86 million, respectively.

Certain Tax Adjustments

During fiscal year 2023, the net cost from certain tax adjustments of $910 million, recognized in income tax provision in the consolidated statement of income, included the following:

•A net cost of $764 million associated with a reserve adjustment that was a direct result of the U.S. Tax Court opinion, issued on August 18, 2022, on the previously disclosed litigation regarding the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico.

•A cost of $55 million related to the disallowance of certain interest deductions.

•A cost of $30 million related to the change in reporting currency for certain carryover attributes.

•A cost of $28 million associated with the amortization of the previously established deferred tax assets from intercompany intellectual property transactions.

•A net cost of $33 million primarily associated with the sale of half of the Company’s RCS business

During fiscal year 2022, the net benefit from certain tax adjustments of $50 million, recognized in income tax provision in the consolidated statement of income, included the following:

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•A benefit of $82 million associated with a step up in tax basis for Swiss Cantonal purposes.

•A benefit of $82 million related to a change in tax rates on intangible assets.

•A cost of $47 million associated with the amortization of the previously established deferred tax assets from intercompany intellectual property transactions.

•A cost of $41 million associated with a change in the Company’s permanent reinvestment assertion on certain historical earnings.

•A net cost of $26 million primarily associated with an intercompany sale of assets.

Certain tax adjustments will affect the comparability of our operating results between periods. Therefore, we consider these Non-GAAP Adjustments. Refer to the "Executive Level Overview" section of this Management's Discussion and Analysis for further discussion of these adjustments.

Subsequent to year-end, on June 1, 2023 the Israeli Central-Lod District Court issued its decision in Medtronic Ventor Technologies Ltd v. Kfar Saba Assessing Office. The court determined that there was a deemed taxable transfer of intellectual property. At this time, the Company is evaluating the impact of the decision and whether or not it will appeal. The Company has currently estimated a potential income tax charge, including interest, of approximately $200 million.

LIQUIDITY AND CAPITAL RESOURCES

We are currently in a strong financial position, and we believe our balance sheet and liquidity as of April 28, 2023 provide us with flexibility, and our cash, cash equivalents, and current investments, along with our credit facility and related commercial paper programs will satisfy our foreseeable operating needs.

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

Summary of Cash Flows

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

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["(in millions)","2023","","2022"],["Cash provided by (used in):"],["Operating activities","$","6,039","","","$","7,346"],["Investing activities","(3,493)","","","(1,659)"],["Financing activities","(4,960)","","","(5,336)"],["Effect of exchange rate changes on cash and cash equivalents","243","","","(231)"],["Net change in cash and cash equivalents","$","(2,171)","","","$","121"]]
[[/GREPCENT_TABLE]]

Operating Activities The $1.3 billion decrease in net cash provided was primarily driven by a decrease in cash collected from customers, an increase in cash paid for income taxes and an increase in spend on inventory. The decrease in net cash provided was partially offset by timing of payments to vendors. The decrease in cash collected from customers was primarily related to timing of sales, slower collections and supply chain challenges, as compared to the prior fiscal year. The increase in cash paid for income taxes was due to estimated income tax payments including a cash deposit associated with the U.S. Tax Court Opinion, and the increase in spend for inventory was due to inflationary impacts to direct labor and material costs. For more information about the tax cash deposit paid, refer to Note 13 of the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Investing Activities The $1.8 billion increase in net cash used was primarily attributable to an increase in cash paid for acquisitions of $1.8 billion as compared to fiscal year 2022. For more information on the acquisitions, refer to Note 3 of the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Financing Activities The $376 million decrease in net cash used as compared to fiscal year 2022 was primarily driven by a decrease of $1.9 billion in share repurchases, offset by debt transactions. In the fourth quarter of fiscal year 2023, the Company issued two tranches of USD-denominated Senior Notes resulting in cash proceeds of approximately $2.0 billion, net of discounts and issuance costs. The Company used the net proceeds to repay in full the ¥297 billion Fiscal 2023 Loan Agreement discussed below for $2.3 billion of total consideration. In the second quarter of fiscal year 2023, the Company issued four tranches of Euro-denominated Senior Notes for approximately

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$3.4 billion. The Company used a portion of the net proceeds to repay at maturity €750 million of Medtronic Luxco Senior Notes for $772 million of total consideration in December 2022 and €2.8 billion of Medtronic Luxco Senior Notes for $2.9 billion of total consideration in March 2023. In the first quarter of fiscal year 2023, the Company issued short-term borrowings of approximately $2.3 billion under the Fiscal 2023 Loan Agreement and used the proceeds to fund the early redemption of senior notes for total consideration of $2.3 billion. For more information on the issuance and redemption of senior notes and the Term Loan, refer to the Debt and Capital section.

Debt and Capital

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

Total debt at April 28, 2023 was $24.4 billion, as compared to $24.1 billion at April 29, 2022. The increase in total debt was driven by issuance of Euro-denominated and USD-denominated Senior Notes, and fluctuations in exchange rates, offset by repayment of Euro-denominated and USD-denominated Senior Notes.

In May 2022, we entered into a term loan agreement (Fiscal 2023 Loan Agreement) with Mizuho Bank, Ltd. for an aggregate principal amount of up to ¥300 billion with a term of 364 days. In May and June 2022, Medtronic Luxco borrowed an aggregate of ¥297 billion, or approximately $2.3 billion, of the term loan, under the Fiscal 2023 Loan Agreement. The Company used the net proceeds of the borrowings to fund the early redemption of $1.9 billion of Medtronic Inc. Senior Notes for $1.9 billion of total consideration, and $368 million of Medtronic Luxco Senior Notes for $376 million of total consideration. The Company recognized a total loss on debt extinguishment of $53 million within interest expense, net in the consolidated statements of income during fiscal year 2023, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. During the fourth quarter of fiscal year 2023, the Company repaid the term loan in full, including interest.

In September 2022, we issued four tranches of Euro-denominated Senior Notes with an aggregate principal of €3.5 billion, with maturities ranging from fiscal year 2026 to 2035, resulting in cash proceeds of approximately $3.4 billion, net of discounts and issuance costs. The Company used the net proceeds to repay at maturity €750 million of 0.000% Medtronic Luxco Senior Notes for $772 million of total consideration in December 2022 and €1.5 billion of 0.375% Medtronic Luxco Senior Notes and €1.25 billion of 0.000% Medtronic Luxco Senior Notes for $2.9 billion of total consideration in March 2023.

In March 2023, Medtronic Luxco issued two tranches of USD-denominated Senior Notes with an aggregate principal of $2.0 billion, with maturities ranging from 2028 to 2033, resulting in cash proceeds of approximately $2.0 billion, net of discounts and issuance costs. The Company used the net proceeds supplemented by additional cash to repay the ¥297 billion Fiscal 2023 Loan Agreement discussed above for $2.3 billion of total consideration.

We repurchase our ordinary shares on occasion as part of our focus on returning value to our shareholders. In March 2019, the Company's Board of Directors authorized the repurchase of $6.0 billion of the Company's ordinary shares. There is no specific time period associated with these repurchase authorizations. During fiscal years 2023 and 2022, we repurchased a total of 6 million and 22 million shares, respectively, under these programs at an average price of $91.31 and $113.11, respectively. At April 28, 2023, we had approximately $2.4 billion remaining under the share repurchase program authorized by our Board of Directors.

For more information on credit arrangements, see Note 6 of the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Liquidity

Our liquidity sources at April 28, 2023 included $1.5 billion of cash and cash equivalents and $6.4 billion of current investments. Additionally, we maintain commercial paper programs and a Credit Facility.

Our investments primarily include available-for-sale debt securities, including U.S. and non-U.S. government and agency securities, corporate debt securities, mortgage-backed securities, certificates of deposit, and other asset-backed securities. See Note 5 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for additional information regarding fair value measurements.

We maintain multicurrency commercial paper programs for short-term financing, which allow us to issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $3.5 billion. At both April 28, 2023 and April 29, 2022, we had no commercial paper outstanding. The issuance of commercial paper reduces the amount of credit available under our existing line of credit, as explained below.

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We also have a $3.5 billion five-year syndicated credit facility (Credit Facility), which expires in December 2027. At each anniversary date of the Credit Facility, we can request a one-year extension of the maturity date. The Credit Facility provides backup funding for the commercial paper programs and may also be used for general corporate purposes. The Credit Facility provides us with the ability to increase our borrowing capacity by an additional $1.0 billion at any time during the term of the agreement. At April 28, 2023 and April 29, 2022, no amounts were outstanding under the Credit Facility.

Interest rates on advances of our Credit Facility are determined by a pricing matrix based on our long-term debt ratings assigned by Standard & Poor's Ratings Services (S&P) and Moody's Investors Service (Moody’s). Facility fees are payable on the Credit Facility and are determined in the same manner as the interest rates. We are in compliance with all covenants related to the Credit Facility.

The following table is a summary of our S&P and Moody's long-term debt ratings and short-term debt ratings:

[[GREPCENT_TABLE]]
[["","","Agency Rating (1)"],["","","April 28, 2023","","April 29, 2022"],["Standard & Poor's Ratings Services"],["Long-term debt","","A","","A"],["Short-term debt","","A-1","","A-1"],["Moody's Investors Service"],["Long-term debt","","A3","","A3"],["Short-term debt","","P-2","","P-2"]]
[[/GREPCENT_TABLE]]

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

S&P and Moody's long-term debt ratings and short-term debt ratings at April 28, 2023 were unchanged as compared to the ratings at April 29, 2022. We do not expect the S&P and Moody's ratings to have a significant impact on our liquidity or future flexibility to access additional liquidity given our balance sheet, Credit Facility, and related commercial paper programs.

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Contractual Obligations and Cash Requirements

We have future contractual obligations and other minimum commercial commitments that are entered into in the normal course of business, some of which are recorded in our consolidated balance sheet. We believe our off-balance sheet arrangements do not have a material current or anticipated future effect on our consolidated earnings, financial position, and/or cash flows.

Presented below is a summary of our off-balance sheet contractual obligations and other minimum commercial commitments at April 28, 2023, as well as long-term contractual obligations reflected in the balance sheet at April 28, 2023.

[[GREPCENT_TABLE]]
[["","","Maturity by Fiscal Year"],["(in millions)","","Total","","2024","","2025","","2026","","2027","","2028","","Thereafter"],["Contractual obligations related to off-balance sheet arrangements:"],["Commitments to fund minority investments, milestone payments, and royalty obligations(1)","","$","397","","","$","155","","","$","91","","","$","93","","","$","38","","","$","18","","","$","3"],["Interest payments(2)","","7,476","","","531","","","522","","","522","","","505","","","487","","","4,908"],["Other(3)","","2,022","","","688","","","396","","","300","","","278","","","239","","","122"],["Contractual obligations reflected in the balance sheet(4):"],["Debt obligations(5)","","$","24,553","","","$","20","","","$","7","","","$","2,750","","","$","1,652","","","$","1,005","","","$","19,119"],["Operating leases","","1,160","","","204","","","171","","","144","","","121","","","94","","","426"],["Contingent consideration(6)","","206","","","28","","","49","","","73","","","56","","","\u2014","","","\u2014"],["Tax obligations(7)","","1,320","","","330","","","440","","","550","","","\u2014","","","\u2014","","","\u2014"]]
[[/GREPCENT_TABLE]]

(1)Includes commitments related to the funding of minority investments, estimated milestone payments, and royalty obligations. While it is not certain if and/or when payments will be made, the maturity dates included in the table reflect our best estimates.

(2)Includes the contractual interest payments on our outstanding debt and excludes the impacts of debt premium and discount amortization. See Note 6 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information on our debt agreements.

(3)Includes inventory purchase commitments, research and development, and other arrangements that are legally binding and specify minimum purchase quantities or spending amounts. These purchase commitments do not exceed our projected requirements and are in the normal course of business. Excludes open purchase orders with a remaining term of less than one year.

(4)Excludes defined benefit plan obligations, guarantee obligations, uncertain tax positions, non-current tax liabilities, and litigation settlements for which we cannot make a reliable estimate of the period of cash settlement. For further information, see Notes 13, 15, and 18 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

(5)Includes the current and non-current portion of our Senior Notes and bank borrowings. Excludes debt premium and discounts and commercial paper. See Note 6 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information on our debt agreements.

(6)Includes the fair value of our current and non-current portions of contingent consideration. While it is not certain if and/or when payments will be made, the maturity dates included in this table reflect our best estimates.

(7)Represents the tax obligations associated with the transition tax that resulted from U.S. Tax Reform. The transition tax will be paid over an eight-year period and will not accrue interest. See Note 13 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further information.

In the normal course of business, we periodically enter into agreements that require us to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising as a result of our products or the negligence of our personnel or claims alleging that our products infringe third-party patents or other intellectual property. Our maximum exposure under these indemnification provisions is unable to be estimated, and we have not accrued any liabilities within our consolidated financial statements or included any indemnification provisions in the table above. Historically, we have not experienced significant losses on these types of indemnification agreements.

Note 18 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K provides information regarding amounts we have accrued related to legal matters. In accordance with U.S. GAAP, we record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Actual settlements may be different than estimated and could have a material effect on our consolidated earnings, financial position, and/or cash flows.

We record tax liabilities in our consolidated financial statements for amounts that we expect to repatriate from subsidiaries (to the extent the repatriation would be subject to tax); however, no tax liabilities are recorded for amounts we consider to be permanently reinvested. We expect to have access to the majority of our cash flows in the future. In addition, we continue to evaluate our legal entity structure supporting our business operations, and to the extent such evaluation results in a change to our overall business structure, we may be required to accrue for additional tax obligations.

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Beyond the contractual obligations and other minimum commercial commitments outlined above, we have recurring cash requirements arising from the normal operation of our business that include capital expenditures, research and developments costs, and other operational costs.

We believe our balance sheet and liquidity provide us with flexibility, and our cash, cash equivalents, current investments, Credit Facility and related commercial paper programs, as well as our ability to generate operating cash flows, will satisfy our current and future contractual obligations and cash requirements. We regularly review our capital needs and consider various investing and financing alternatives to support our requirements.

ACQUISITIONS

EOFlow Co. Ltd Acquisition

Subsequent to fiscal year 2023, on May 25, 2023, the Company entered into a set of definitive agreements to acquire EOFlow Co. Ltd. (EOFlow), manufacturer of the EOPatch device – a tubeless, wearable and fully disposable insulin delivery device. The acquisition expands the Diabetes segment portfolio of products. To the extent that all the public shares participate in the tender offer, the total consideration for the acquisition of the shares in EOFlow would be KRW 971 billion, or $738 million, at exchange rates on May 25, 2023. The acquisition is expected to close in the second half of calendar year 2023 subject to the satisfaction of the minimum tender condition and certain customary closing conditions, including receipt of required regulatory clearances.

Additional information regarding acquisitions is included in Note 3 of the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" within this Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

We have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 1 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

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

Our critical accounting estimates include the following:

Revenue Recognition The Company sells its products through direct sales representatives and independent distributors. Additionally, a portion of the Company's revenue is generated from consignment inventory maintained at hospitals and royalty and intellectual property arrangements. The Company recognizes revenue when control is transferred to the customer. For products sold through direct sales representatives and independent distributors, control is transferred upon shipment or upon delivery, based on the contract terms and legal requirements. For consignment inventory, control is transferred when the product is used or implanted. Payment terms vary depending on the country of sale, type of customer, and type of product.

The amount of revenue recognized reflects sales rebates and returns, which are estimated based on sales terms, historical experience, and trend analysis. In estimating rebates, the Company considers the lag time between the point of sale and the payment of the rebate claim, the stated rebate rates, and other relevant information. The Company records adjustments to rebates and returns reserves as increases or decreases of revenue.

Litigation Contingencies We are involved in a number of legal actions involving product liability, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, tax disputes, and governmental proceedings and investigations. The outcomes of these legal actions are not completely within our control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies (including injunctions barring the sale of products that are the subject of the proceeding), that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions. Estimating probable losses from our litigation and governmental proceedings is inherently difficult, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, or punitive damages; or could result in a change in business practice. The Company records a liability in the consolidated financial statements for loss contingencies when a loss is known or considered probable, and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. Our significant legal proceedings

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are discussed in Note 18 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

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

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

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

We also test definite-lived intangible assets for impairment when an event occurs or circumstances change that would indicate the carrying amount of the assets or asset group may be impaired. We assess the impairment of indefinite-lived intangible assets annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired.

Our tests for goodwill and intangible assets are based on future cash flows that require significant judgment with respect to future revenue and expense growth rates, appropriate discount rates, asset groupings, and other assumptions and estimates. We use estimates that are consistent with the highest and best use of the assets based on a market participant's view of the assets being evaluated. Actual results may differ from our estimates due to a number of factors including, among others, changes in competitive conditions, timing of regulatory approval, results of clinical trials, changes in worldwide economic conditions, and fluctuations in currency exchange rates.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 1 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

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SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

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

Guarantees of Medtronic Senior Notes

•Parent Company Guarantor - Medtronic plc

•Subsidiary Issuer - Medtronic, Inc.

•Subsidiary Guarantor - Medtronic Luxco

Guarantees of Medtronic Luxco Senior Notes

•Parent Company Guarantor - Medtronic plc

•Subsidiary Issuer - Medtronic Luxco

•Subsidiary Guarantor - Medtronic, Inc.

Guarantees of CIFSA Senior Notes

•Parent Company Guarantor - Medtronic plc

•Subsidiary Issuer - CIFSA

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

The following tables present summarized financial information for the fiscal year ended April 28, 2023 for the obligor groups of Medtronic and Medtronic Luxco Senior Notes, and CIFSA Senior Notes. The obligor group consists of the parent company guarantor, subsidiary issuer, and subsidiary guarantors for the applicable senior notes. The summarized financial information is presented after elimination of (i) intercompany transactions and balances among the guarantors and issuers and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor or issuer.

The summarized results of operations information for the fiscal year ended April 28, 2023 was as follows:

[[GREPCENT_TABLE]]
[["(in millions)","Medtronic & Medtronic Luxco Senior Notes (1)","","CIFSA Senior Notes (2)"],["Net sales","$","2,847","","","$","\u2014"],["Operating profit (loss)","608","","","(407)"],["Loss before income taxes","(913)","","","(1,868)"],["Net loss attributable to Medtronic","(1,705)","","","(1,861)"]]
[[/GREPCENT_TABLE]]

The summarized balance sheet information for the fiscal year ended April 28, 2023 was as follows:

[[GREPCENT_TABLE]]
[["(in millions)","Medtronic & Medtronic Luxco Senior Notes (1)","","CIFSA Senior Notes (2)"],["Total current assets(3)","$","23,198","","","$","8,344"],["Total noncurrent assets(4)","5,897","","","3"],["Total current liabilities(5)","33,854","","","25,184"],["Total noncurrent liabilities(6)","59,624","","","66,449"],["Noncontrolling interests","182","","","182"]]
[[/GREPCENT_TABLE]]

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

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

(3)Includes receivables due from non-guarantor subsidiaries of $22.5 billion and $8.3 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(4)Includes loans receivable due from non-guarantor subsidiaries of $20 million for Medtronic & Medtronic Luxco Senior Notes. No loans receivable due from non-guarantor subsidiaries for CIFSA Senior Notes.

(5)Includes payables due to non-guarantor subsidiaries of $31.8 billion and $25.0 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

(6)Includes loans payable due to non-guarantor subsidiaries of $33.1 billion and $46.7 billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.

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