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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.
For the fiscal year ended April 29, 2016.
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from __________ to __________
Commission File No. 1-36820
MEDTRONIC PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
Ireland 98-1183488
(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
20 On Hatch, Lower Hatch Street
Dublin 2, Ireland
(Address of principal executive office)
+353 1 438-1700
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Ordinary shares, par value $0.0001 per share New York Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Aggregate market value of voting and non-voting common equity of Medtronic PLC held by non-affiliates of the registrant as of October
30, 2015, based on the closing price of $73.92, as reported on the New York Stock Exchange: approximately $104.2 billion. Number of
Ordinary Shares outstanding on June 20, 2016: 1,394,731,892
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant’s Proxy Statement for its 2016 Annual General Meeting are incorporated by reference into Part III hereto.

Table of contents

  • Page 1
    ...Rule 12b-2 of the Exchange Act). Yes Aggregate market value of voting and non-voting common equity of Medtronic PLC held by non-affiliates of the registrant as of October 30, 2015, based on the closing price of $73.92, as reported on the New York Stock Exchange: approximately $104.2 billion. Number...

  • Page 2
    ... Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures PART II Market for Medtronic's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of...

  • Page 3
    Table of Contents Investor Information Annual Meeting and Record Dates Medtronic Public Limited Company, organized under the laws of Ireland (Medtronic plc, Medtronic, the Company, or we, us, or our) will hold its 2016 Annual General Meeting of Shareholders (2016 Annual Meeting) on Friday, December...

  • Page 4
    ... health care programs and group purchasing organizations (GPOs). On January 26, 2015 (Acquisition Date), Medtronic completed the acquisition of Covidien plc, a public limited company organized under the laws of Ireland (Covidien) in a cash and stock transaction valued at $50.0 billion. In connection...

  • Page 5
    ...Group (Fiscal year 2016 net sales of $1.9 billion) • Intensive Insulin Management • Non-Intensive Diabetes Therapies • Diabetes Service & Solutions CARDIAC AND VASCULAR GROUP Cardiac Rhythm & Heart Failure Disease Management (CRHF) Our CRHF division develops, manufactures, and markets products...

  • Page 6
    ...oxygen supply, and body temperature during arrested heart surgery. Additionally, we offer surgical ablation systems and positioning and stabilization technologies. Aortic & Peripheral Vascular Disease Management (APV) Our APV division is comprised of a comprehensive line of products and therapies to...

  • Page 7
    ... GROUP Spine Our Spine division develops, manufactures, and markets a comprehensive line of medical devices and implants used in the treatment of the spine and musculoskeletal system. Our products and therapies treat a variety of conditions affecting the spine, including degenerative disc disease...

  • Page 8
    ... Technologies Our Surgical Technologies division develops, manufactures, and markets products and therapies to treat diseases and conditions of the ear, nose, and throat (ENT) and certain neurological disorders. In addition, the division develops, manufactures, and markets image-guided surgery...

  • Page 9
    ... CareLink Personal software for patients and CareLink Pro software for healthcare professionals, to help patients and their health care providers control their diabetes. CUSTOMERS AND COMPETITORS Cardiac and Vascular Group The primary medical specialists who use our Cardiac and Vascular products...

  • Page 10
    ... goodwill. Fiscal Year 2016 Acquisitions Twelve, Inc. On October 2, 2015, the Company's Coronary & Structural Heart division acquired Twelve, Inc. (Twelve), a privately-held medical device company focused on the development of a transcatheter mitral valve replacement device. Total consideration for...

  • Page 11
    ... financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. Markets and Distribution Methods We sell most of our medical devices and therapies through direct sales representatives in the U.S. and a combination of direct sales representatives...

  • Page 12
    ...a highly competitive labor market due to our competitive compensation and benefits, and our rewarding work environment. Seasonality Worldwide sales, including U.S. sales, do not reflect a significant degree of seasonality; however, the number of medical procedures incorporating Medtronic products is...

  • Page 13
    ...new medical device or technology. Modifications to cleared medical devices or technologies can be made without using the 510(k) process if the changes do not significantly affect safety or effectiveness. Minimally Invasive Therapies Group products are generally subject to the pre-market notification...

  • Page 14
    ... Federal Trade Commission, the Office of the Inspector General of the Department of Health and Human Services, the U. S. Department of Justice, and various state Attorneys General) monitor the manner in which we promote and advertise our products. Although surgeons are permitted to use their medical...

  • Page 15
    ... our Diabetes business, Medtronic Monitoring, Inc. and our health insurance plans. Medtronic only operates as a Business Associate to Covered Entities in a limited number of instances. In those cases, the patient data that we receive and analyze may include protected health information. A number of...

  • Page 16
    ... we do business, including the U.S. These changes are causing the marketplace to put increased emphasis on the delivery of more cost-effective medical devices and therapies. Government programs, including Medicare and Medicaid, private health care insurance, and managed-care plans have attempted...

  • Page 17
    ... and health care goods and services could adversely affect our reputation, business, financial condition and cash flows. Our profitability and operations are subject to risks relating to changes in legislative, regulatory and reimbursement policies and decisions as well as changes to private payer...

  • Page 18
    ... period covered by the report. As a global medical device company, Medtronic conducts business throughout the world, including supplying life enhancing medical products for patient use in Iran in accordance with authorizations issued by the U.S. Department of the Treasury's Office of Foreign Assets...

  • Page 19
    ... and Business Development of the Company beginning in January 2015 and of Medtronic, Inc. beginning in August 2011. Prior to that, he served as Managing Director of Business Development at GE Healthcare from April 2007 to July 2011; General Manager for GE Capital Technology Finance Services from...

  • Page 20
    ... product reliability, product performance, product technology, product quality, breadth of product lines, product services, customer support, price, and reimbursement approval from health care insurance providers. We also face competition for marketing, distribution, and collaborative development...

  • Page 21
    ... medical devices, order a recall, repair, replacement, or refund of such devices, refuse to grant pending pre-market approval applications or require certificates of non-U.S governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable...

  • Page 22
    ... devices, products and therapies are purchased principally by hospitals or physicians that typically bill various third-party payers, such as governmental programs (e.g., Medicare, Medicaid and comparable non-U.S. programs), private insurance plans and managed care plans, for the healthcare services...

  • Page 23
    ..., it could have a material adverse effect on our business, financial condition or results of operations. Quality problems with, and product liability claims in connection with, our processes, goods, and services, could lead to recalls or safety alerts, harm our reputation and have a material adverse...

  • Page 24
    ...decreasing prices for our goods and services due to pricing pressure experienced by our customers from managed care organizations and other third-party payers, increased market power of our customers as the medical device industry consolidates, and increased competition among medical engineering and...

  • Page 25
    ... results. Although our stock is traded on the New York Stock Exchange, we are a global company. Operations in countries outside of the U.S., which account for approximately 43 percent of our net sales for the fiscal year ended April 29, 2016, are accompanied by certain financial and other risks that...

  • Page 26
    ... care providers to whom our customers supply medical devices, rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all of the cost of the procedures in which medical devices that incorporate components we manufacture or assemble are used...

  • Page 27
    ... working relationships with health care professionals. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing, and sale of our products. Physicians assist us as researchers, marketing and product consultants, inventors, and public...

  • Page 28
    ... and develop new systems to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing need to protect patient and customer information, and the information technology needs associated with our changing products and services. There...

  • Page 29
    ... price increases, our ability to retain key employees, and the ability of the combined company to achieve synergies among its constituent companies, such as increasing sales of the combined company's products, achieving cost savings, and effectively combining technologies to develop new products...

  • Page 30
    ...other requests for information from state and federal governmental agencies, including, among others, the U.S. Department of Justice and the Office of Inspector General of HHS. These investigations typically relate primarily to financial arrangements with health care providers, regulatory compliance...

  • Page 31
    ...a material adverse effect on our business, results of operations, financial condition and cash flows. If the distribution of Mallinckrodt ordinary shares to Covidien shareholders in 2013, or certain internal transactions undertaken in anticipation of the 2013 separation, are determined to be taxable...

  • Page 32
    ... the higher of the price paid or the market value of the shares acquired). Payment of Irish stamp duty is generally a legal obligation of the transferee. The potential for stamp duty could adversely affect the price of your shares. In certain limited circumstances, dividends we pay may be subject to...

  • Page 33
    ... result in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy, which could materially impact our business, financial condition and results of operations. In addition, even if the operations of the businesses of Medtronic, Inc. and Covidien are...

  • Page 34
    ... have on our business. The Transaction may not allow us to maintain competitive global cash management and a competitive effective corporate tax rate. While we believe that being incorporated in Ireland should help us maintain a competitive worldwide effective corporate tax rate and provide flexible...

  • Page 35
    ... space to develop, manufacture, and market our products. Our facilities are in good operating condition, suitable for their respective uses, and adequate for current needs. Item 3. Legal Proceedings A discussion of the Company's legal proceedings is contained in Note 15 to the consolidated financial...

  • Page 36
    Table of Contents PART II Item 5. Market for Medtronic's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities The Company's ordinary shares are listed on the New York Stock Exchange under the symbol "MDT." In January 2015, the Company's Board of Directors authorized...

  • Page 37
    ... invested at market close on April 29, 2011 in Medtronic's ordinary shares, the S&P 500 Index, and the S&P 500 Health Care Equipment Index and that all dividends were reinvested. Company/Index April 2011 April 2012 April 2013 April 2014 April 2015 April 2016 Medtronic, Inc. / Medtronic plc...

  • Page 38
    ... hold Medtronic shares through a branch or agency in Ireland through which a trade is carried on generally will not have any Irish income tax liability on a dividend paid by Medtronic. In addition, if a U.S. shareholder is subject to the dividend withholding tax, the withholding payment discharges...

  • Page 39
    ... Financial Data (in millions, except per share data and additional information) Fiscal Year 2016 2015 (1) 2014 2013 2012 Operating Results for the Fiscal Year: Net sales $ 28,833 $ 20,261 $ 17,005 $ 16,590 $ 16,184 Cost of products sold 9,142 6,309 4,333 4,126 3,889 Research and development...

  • Page 40
    ... and Investments - Acquisition of Covidien plc in Fiscal Year 2015" contained in "Item 1. Business" and Note 2 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. Organization of Financial Information Management...

  • Page 41
    .... Fiscal year 2016 was a 53-week year, with the additional week occurring in the first quarter. Fiscal years 2015 and 2014 were 52week years. Executive Level Overview Medtronic is among the world's largest medical technology, services, and solutions companies - alleviating pain, restoring health...

  • Page 42
    ... presented. Management uses these non-GAAP financial measures to facilitate management's review of the operational performance of the Company and as a basis for strategic planning. Management believes that the resulting non-GAAP financial measures provide useful information to investors regarding...

  • Page 43
    ... carrying values of assets and liabilities that are not readily apparent from other sources. See also Note 1 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K, which discusses our significant accounting policies. 40

  • Page 44
    ...: Revenue Recognition Based upon the lag time between the original sale to distributors at list price and the related distributor rebate earned at time of sale to the end customer and the judgments involved in estimating such rebates, we consider certain Minimally Invasive Therapies Group price...

  • Page 45
    ...) 2016 2015 % Change 2015 Net Sales Fiscal Year 2014 % Change Cardiac Rhythm & Heart Failure Coronary & Structural Heart Aortic & Peripheral Vascular (1) Total Cardiac and Vascular Group Surgical Solutions (1) Patient Monitoring & Recovery (1) Total Minimally Invasive Therapies Group (1) Spine...

  • Page 46
    ... markets, and the international launch of the Resolute Onyx drug-eluting stent in November 2014. Net sales were partially offset by continued pricing pressures in the U.S., Western Europe, Japan, and India in our Coronary business. Aortic & Peripheral Vascular net sales for fiscal year 2015...

  • Page 47
    ... rates to CRT-D therapy by preserving the patients' normal heart rhythms and continually adapts to individual patient needs. Paired with Viva/Brava Quad CRT-D, Attain Performa leads provide additional options for physicians to optimize patient therapy. In the second quarter of fiscal year 2015...

  • Page 48
    ... airway products, sensors, monitors, compression and dialysis products, enteral feeding, wound care, and medical surgical products (including operating room supply products, electrodes, needles, syringes, and sharps disposals). The Minimally Invasive Therapies Group's net sales for fiscal year 2016...

  • Page 49
    ...investing in vascular creation and maintenance technologies. Our ability to successfully integrate Bellco into Medtronic. Bellco is a pioneer in hemodialysis treatment solutions that we acquired in February 2016. Continued growth due to cross-selling initiatives of Minimally Invasive Therapies Group...

  • Page 50
    ... surgical instruments. Additionally, this group manufactures and sells image-guided surgery and intra-operative imaging systems. With the addition of the Neurovascular division through the January 2015 Covidien acquisition, the group manufactures and markets products and therapies to treat diseases...

  • Page 51
    ... the Restorative Therapies group and market acceptance of our new integrated solutions through the Surgical Synergy program, which integrates our spinal implants and Surgical Technologies' imaging and navigation equipment. Market acceptance and continued adoption of innovative new products, such as...

  • Page 52
    ...Non-Intensive Diabetes Therapies (NDT) and Diabetes Service & Solutions (DSS) divisions. The Diabetes Group products include insulin pumps, continuous glucose monitoring (CGM) systems, insulin pump consumables, and therapy management software. The Diabetes Group's net sales for fiscal year 2016 were...

  • Page 53
    ... for fiscal years 2016 and 2015: Fiscal Year 2016 Non-U.S. Developed Markets Emerging Markets Fiscal Year 2015 Non-U.S. Developed Markets Emerging Markets (in millions) U.S. U.S. Cardiac and Vascular Group Minimally Invasive Therapies Group Restorative Therapies Group Diabetes Group Total...

  • Page 54
    ... on expanding access to quality healthcare. During fiscal year 2016, we continued to invest in new technologies to support our mission with several new acquisitions, as well as, continued product growth within our business units. Research and development expense for fiscal year 2016, 2015, and 2014...

  • Page 55
    ... gain on the sale of a product line in the Surgical Technologies division, and a $97 million gain on the sale of an equity method investment. During fiscal year 2015 and 2014, consistent with our commitment to improving the health of people and communities throughout the world, we made charitable...

  • Page 56
    ... of professional services and integration costs and $58 million of accelerated or incremental stock compensation expense. During fiscal year 2015, we recorded charges from acquisition-related items of $550 million, primarily related to costs incurred in connection with the Covidien acquisition. The...

  • Page 57
    ... the Covidien acquisition, operational tax benefits, and year-over-year changes in operational results by jurisdiction. During fiscal year 2016, we recorded $97 million in operational tax benefits. The retroactive renewal and extension of the U.S. federal research and development tax credit resulted...

  • Page 58
    ... income for fiscal year 2015. In fiscal year 2014, we recorded a $63 million certain tax benefit associated with the resolution of certain issues in the fourth quarter of fiscal year 2014 with the IRS relating to their review of our fiscal year 2009 through 2011 domestic income tax returns. The $63...

  • Page 59
    ... a material impairment loss. For the fiscal year ended April 29, 2016, the total other-than-temporary impairment losses on available-for-sale debt securities were not significant. Based on our assessment of the credit quality of the underlying collateral and credit support available to each of the...

  • Page 60
    ... 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. Summary of Cash Flows Fiscal Year (in millions) 2016 2015 2014 Cash provided by (used in): Operating activities Investing...

  • Page 61
    ..., the adoption of the existing Medtronic, Inc. share redemption program. During fiscal years 2016 and 2015, we repurchased a total of 38 million and 30 million shares at an average price of $74.92 and $64.53, respectively. In June 2015, the Company's Board of Directors authorized, subject to the...

  • Page 62
    ... financing needs. We use the net proceeds from the sale of the Senior Notes primarily for working capital and general corporate purposes and in the case of Senior Notes issued on December 10, 2014, to finance the Covidien acquisition and related expenses. Long-term debt as of April 29, 2016 was $30...

  • Page 63
    ... rate swap agreements. See Note 7 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 our debt agreements. (4) We have included inventory purchase commitments which are legally...

  • Page 64
    ...-looking statements generally relate to our growth and growth strategies, developments in the markets for our products, financial results, product development launches and effectiveness, research and development strategy, regulatory approvals, competitive strengths, restructuring and cost-saving...

  • Page 65
    ..." in this Annual Report on Form 10-K, as well as those related to competition in the medical device industry, reduction or interruption in our supply, quality problems, liquidity shortfalls, decreasing prices and pricing pressure, fluctuations in currency exchange rates, changes in applicable tax...

  • Page 66
    ... section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K. For additional discussion of market risk, see Notes 5 and 8 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data...

  • Page 67
    ... ended April 29, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(1) presents fairly, in all material respects, the information set forth...

  • Page 68
    ...Medtronic plc Consolidated Statements of Income Fiscal Year (in millions, except per share data) 2016 2015 2014 Net sales Costs and expenses: Cost of products sold Research and development expense Selling, general... notes are an integral part of these consolidated financial statements. 65

  • Page 69
    Table of Contents Medtronic plc Consolidated Statements of Comprehensive Income Fiscal Year (in millions) 2016 2015 2014 Net income Other comprehensive loss, net of tax: Unrealized (loss) gain on available-for-sale securities, net of tax (benefit) expense of $(102), $11, and $(58), respectively ...

  • Page 70
    ... Total current liabilities Long-term debt Long-term accrued compensation and retirement benefits Long-term accrued income taxes Long-term deferred tax liabilities Other long-term liabilities Total liabilities Commitments and contingencies (Notes 2, 13, and 15) Shareholders' equity: Ordinary shares...

  • Page 71
    ...shares issued in connection with the Covidien plc acquisition, net of taxes Result of contribution of Medtronic, Inc. to Medtronic plc Dividends to shareholders Issuance of shares under stock purchase and award plans Repurchase of ordinary shares Tax benefit from exercise of stock-based awards Stock...

  • Page 72
    ... (maturities greater than 90 days) Issuance of long-term debt Payments on long-term debt Dividends to shareholders Issuance of ordinary shares Repurchase of ordinary shares Other financing activities Net cash (used in) provided by financing activities Effect of exchange rate changes on cash and cash...

  • Page 73
    ... Policies Nature of Operations Medtronic plc (Medtronic or the Company) is the global leader in medical technology - alleviating pain, restoring health, and extending life for millions of people around the world. The Company provides innovative products and therapies to serve hospitals, physicians...

  • Page 74
    ...Medtronic plc Notes to Consolidated Financial Statements (Continued) April 29, 2016 April 24, 2015 (in millions) Finished goods Work in-process Raw materials Total $ $ 2,242 499 732 3,473 $ $ 2,268 509 686 3,463 Property, Plant, and Equipment Property, plant, and equipment is stated at cost...

  • Page 75
    ...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...

  • Page 76
    Table of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) expense, net, and are offset by changes in the fair value of the underlying debt instrument. The gains (losses) from terminated interest rate swap agreements are recorded in long-term debt, increasing (decreasing...

  • Page 77
    ... compensation rate increases, and the expected return on plan assets. Post-retirement benefit costs include assumptions for the discount rate, retirement age, expected return on plan assets, and health care cost trend rate assumptions. The Company changed the methodology used to estimate the service...

  • Page 78
    ... million in fiscal years 2016, 2015, and 2014, respectively, and are included in selling, general, and administrative expense in the consolidated statements of income. Research and Development Research and development costs are expensed when incurred. Research and development costs include costs of...

  • Page 79
    ... plc Notes to Consolidated Financial Statements (Continued) 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...

  • Page 80
    ...each company was acquired. Acquisition of Covidien public limited company in Fiscal Year 2015 On January 26, 2015 (Acquisition Date), pursuant to the transaction agreement, dated as of June 15, 2014 (the Transaction Agreement), the Company acquired Covidien plc (Covidien), and Covidien and Medtronic...

  • Page 81
    ... shares after giving effect to the acquisition. Covidien is a global leader in the development, manufacture, and sale of healthcare products for use in clinical and home settings. The operating results for Covidien are included in the Minimally Invasive Therapies Group, Cardiac and Vascular Group...

  • Page 82
    ... pro forma information gives effect to Medtronic's acquisition of Covidien as if the acquisition had occurred on April 27, 2013, the first day of fiscal year 2014, and had been included in the Company's consolidated statements of income for fiscal years 2015 and 2014. (in millions) 2015 2014 Pro...

  • Page 83
    ...'s Coronary & Structural Heart division acquired Twelve, Inc. (Twelve), a privately-held medical device company focused on the development of a transcatheter mitral valve replacement device. Total consideration for the transaction was approximately $472 million, which included an upfront payment of...

  • Page 84
    ... of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) Fiscal Year 2015 The fair values of the assets acquired and liabilities assumed from acquisitions during fiscal year 2015, other than the Covidien acquisition, are as follows: (in millions) NGC Medical S.p.A. Sapiens...

  • Page 85
    ... professional services and integration costs and $58 million of accelerated or incremental stock compensation expense. During fiscal year 2015, the Company recorded charges from acquisition-related items of $550 million, primarily related to costs incurred in connection with the Covidien acquisition...

  • Page 86
    ... Medtronic plc Notes to Consolidated Financial Statements (Continued) operating conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels or achieving product development...

  • Page 87
    ...program consists of reducing corporate expenses, expanding shared services, consolidating manufacturing locations, and optimizing distribution centers. The Covidien restructuring initiative is scheduled to be substantially complete by the end of fiscal year 2018. At the Acquisition Date, the Company...

  • Page 88
    Table of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) A summary of the activity related to the Covidien initiative is presented below: Covidien Initiative Employee Termination Costs Other Costs (in millions) Total Balance as of January 26, 2015 (Acquisition Date)...

  • Page 89
    ...securities Debt funds Total Level 2 Level 3: Corporate debt securities Auction rate securities Total Level 3 Total available-for-sale securities Trading securities: Level 1: Exchange-traded funds Total Level 1: Total trading securities Cost method, equity method, and other investments: Level 3: Cost...

  • Page 90
    ... securities Debt funds Total Level 2 Level 3: Corporate debt securities Auction rate securities Total Level 3 Total available-for-sale securities Trading securities: Level 1: Exchange-traded funds Total Level 1 Total trading securities Cost method, equity method, and other investments: Level 3: Cost...

  • Page 91
    Table of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) Marketable Debt and Equity Securities: The following tables show the gross unrealized losses and fair values of the Company's available-for-sale securities that have been in a continuous unrealized loss position ...

  • Page 92
    ...45 Total Level 3 Investments $ 1 $ 44 Auction rate securities Corporate debt securities $ 106 $ 9 $ 97 - 8 - 105 $ (5) 10 (5) 106 $ (5) 2 (5) 1 $ Fiscal Year 2016 (in millions) Debt (1) 2015 Equity (2) 2014 Equity (2)(3) Debt (1) Debt (1) Equity(2)(3) Proceeds from sales Gross...

  • Page 93
    ... are privately-held entities without quoted market prices. To determine the fair value of these investments, the Company used all pertinent financial information available related to the entities, including financial statements and market participant valuations from recent and proposed equity...

  • Page 94
    ... amount of goodwill for fiscal years 2016 and 2015 are as follows: Minimally Invasive Therapies Group (in millions) Cardiac and Vascular Group Restorative Therapies Group Diabetes Group Total Balance as of April 25, 2014 Goodwill as a result of Covidien acquisition Goodwill as a result of...

  • Page 95
    ...did not record any intangible asset impairments during fiscal year 2016 and 2015. During fiscal year 2014, the Company determined that a change in events and circumstances indicated that the carrying amount of certain definite-lived intangible assets, representing less than five percent of the total...

  • Page 96
    ... Medtronic plc Notes to Consolidated Financial Statements (Continued) 7. Financing Arrangements Short-term debt consisted of the following: (in millions) April 29, 2016 April 24, 2015 Capital lease obligations Bank borrowings Floating rate three-year 2014 senior notes 0.875 percent three-year 2014...

  • Page 97
    ...Medtronic plc Notes to Consolidated Financial Statements (Continued) Long-term debt consisted of the following: April 29, 2016 Maturity by Fiscal Year Effective Interest Rate April 24, 2015 Effective Interest Rate (in millions, except interest rates) Payable Payable Floating rate three-year 2014...

  • Page 98
    ... 2011 Senior Notes, which were due during fiscal year 2016. For additional information regarding the interest rate swap agreements, refer to Note 8. Term Loan On January 26, 2015, Medtronic, Inc. borrowed $3.0 billion for a term of three years under that certain Senior Unsecured Term Loan Credit...

  • Page 99
    ... exchange rate gains (losses) were $314 million, $131 million, and $(1) million, in fiscal years 2016, 2015, and 2014, respectively. The information that follows explains the various types of derivatives and financial instruments used by the Company, how and why the Company uses such instruments...

  • Page 100
    Table of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) The amount and location of the gains in the consolidated statements of income related to derivative instruments, not designated as hedging instruments, for fiscal years 2016, 2015, and 2014 are as follows: (in ...

  • Page 101
    ... 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 fiscal years 2016, 2015, or 2014. No components...

  • Page 102
    ... of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) Balance Sheet Presentation The following tables summarize the location and fair value amounts of derivative instruments reported in the consolidated balance sheets as of April 29, 2016 and April 24, 2015. The fair...

  • Page 103
    ... of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) The following table provides information by level for the derivative assets and liabilities that are measured at fair value on a recurring basis as of April 29, 2016 and April 24, 2015: April 29, 2016 (in millions...

  • Page 104
    ... balance sheets. Global concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across many geographic areas. The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal...

  • Page 105
    ... Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) Ordinary Share Repurchase Program Shares are repurchased from time to time to support the Company's stock-based compensation programs and to return capital to shareholders. During fiscal years 2016 and 2015, the Company...

  • Page 106
    ...Financial Statements (Continued) The following table provides the weighted average fair value of options granted to employees and the related assumptions used in the Black-Scholes model: Fiscal Year 2016 2015 2014 Weighted average fair value of options granted Assumptions used: Expected life (years...

  • Page 107
    ..., 2015, and 2014: Fiscal Year (in millions) 2016 2015 2014 Stock options Restricted stock awards Employees stock purchase plan Total stock-based compensation expense Cost of products sold Research and development expense Selling, general, and administrative expense Restructuring charges Acquisition...

  • Page 108
    ... grant date fair value of restricted stock awards granted, total fair value of restricted stock awards vested and related tax benefit during fiscal years 2016, 2015, and 2014: Fiscal Year (in millions, except per share data) 2016 2015 2014 Weighted-average grant-date fair value per restricted stock...

  • Page 109
    ... is not likely to support the use of the deduction or credit. Deferred tax liabilities generally represent tax expense recognized in the consolidated financial statements for which payment has been deferred or expense has already been taken as a deduction on the Company's tax return but has not yet...

  • Page 110
    ...the U.S. federal statutory tax rate as follows: Fiscal Year 2016 2015 2014 U.S. federal statutory tax rate Increase (decrease) in tax rate resulting from: U.S. state taxes, net of federal tax benefit Research and development credit Domestic production activities International Puerto Rico Excise Tax...

  • Page 111
    ...In fiscal year 2014, the Company recorded a $71 million net tax benefit associated with the reversal of excess tax accruals. This net tax benefit included $63 million related to the settlement of certain issues reached with the IRS involving the review of the Company's fiscal years 2009 through 2011...

  • Page 112
    ... medical plans (post-retirement benefits), defined contribution savings plans, and termination indemnity plans, covering substantially all U.S. employees and many employees outside the U.S. The expense related to these plans was $584 million, $433 million, and $419 million in fiscal years 2016, 2015...

  • Page 113
    ... 2015 2016 Non-U.S. Pension Benefits Fiscal Year 2015 Accumulated benefit obligation at end of year: Change in projected benefit obligation: Projected benefit obligation at beginning of year Service cost Interest cost Benefit obligations assumed in Covidien acquisition Employee contributions Plan...

  • Page 114
    ...The net periodic benefit cost of the plans include the following components: U.S. Pension Benefits Fiscal Year (in millions) 2016 2015 2014 $ 4,362 3,009 $ 4,319 3,086 Non-U.S. Pension Benefits Fiscal Year 2016 2015 2014 Service cost Interest cost Expected return on plan assets Amortization of...

  • Page 115
    ... benefit payments. The Plan Committee also oversees the investment allocation process, selects the investment managers, and monitors asset performance. As pension liabilities are long-term in nature, the Company employs a long-term total return approach to maximize the long-term rate of return...

  • Page 116
    ... Other Total 34% 27 39 100% 35% 29 36 100% Retirement Benefit Plan Asset Fair Values The following is a description of the valuation methodologies used for retirement benefit plan assets measured at fair value. Short-term investments: Valued at the closing price reported in the active markets in...

  • Page 117
    ... of certain financial instruments could result in a different fair value measurement at the reporting date. There were no transfers between Level 1, Level 2, or Level 3 during fiscal years 2016, 2015, or 2014. The following tables provide information by level for the retirement benefit plan assets...

  • Page 118
    ... that used significant unobservable inputs (Level 3): Total Level 3 Investments Insurance Contracts Partnership Units (in millions) Balance as of April 24, 2015 Total unrealized gains included in accumulated other comprehensive (loss) income Purchases and sales, net Currency exchange rate changes...

  • Page 119
    ...and sales, net Currency exchange rate changes Balance as of April 24, 2015 $ 21 1 63 (9) $ 11 (1) 56 (6) $ 10 2 7 (3) $ 76 $ 60 $ 16 Retirement Benefit Plan Funding It is the Company's policy to fund retirement costs within the limits of allowable tax deductions. During fiscal year 2016...

  • Page 120
    ...U.S. Pension Benefits in the tables presented earlier. The defined contribution cost associated with the MCC was approximately $12 million in fiscal year 2016. 13. Leases The Company leases office, manufacturing, and research facilities and warehouses, as well as transportation, data processing, and...

  • Page 121
    ..., net or cost of products sold and forward starting interest rate derivative instruments that were reclassified from AOCI to interest expense, net (see Note 8). 15. Commitments and Contingencies The Company and its affiliates are involved in a number of legal actions involving product liability...

  • Page 122
    ... 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. The $121 million settlement was recorded as an opening balance sheet adjustment related to the Covidien acquisition in the first quarter of fiscal year 2016. That...

  • Page 123
    ... 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...

  • Page 124
    ... 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 recorded an expense related to damages in connection with these...

  • Page 125
    ... Financial Statements (Continued) 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...

  • Page 126
    ... 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...

  • Page 127
    ... are surgeons and specialists and the regulatory approval process for the Cardiac and Vascular Group is similar across all components. The Company's Minimally Invasive Therapies Group consists of two divisions: Surgical Solutions and Patient Monitoring & Recovery. The primary products sold by this...

  • Page 128
    ...products each reportable segment develops and manufactures or distributes. Net sales and income before income taxes by reportable segment are as follows: Fiscal Year (in millions) 2016 2015 2014 Cardiac and Vascular Group Minimally Invasive Therapies Group Restorative Therapies Group Diabetes Group...

  • Page 129
    ... Medtronic plc Notes to Consolidated Financial Statements (Continued) The following table presents the Company's assets by reportable segment: (in millions) April 29, 2016 April 24, 2015 Cardiac and Vascular Group Minimally Invasive Therapies Group Restorative Therapies Group Diabetes Group Total...

  • Page 130
    ... products will expand and strengthen Medtronic's heart failure product offerings and will further complement its existing global cardiac rhythm and heart failure business. The acquisition is expected to close in fiscal year 2017. 19. Guarantor Financial Information On January 26, 2015, Medtronic plc...

  • Page 131
    ... previously presented in Note 19 in the Company's Annual Report on Form 10-K for the years ended April 24, 2015 and April 25, 2014. There is no impact to the consolidated financial statements of Medtronic plc as previously filed in the 2015 Annual Report on Form 10-K or Quarterly Reports on Form 10...

  • Page 132
    ... Senior Notes Parent Company Guarantor (Medtronic plc) (in millions) Subsidiary Issuer (Medtronic, Inc.) Subsidiary Guarantors Subsidiary Nonguarantors Consolidating Adjustments Total Net sales Costs and expenses: Cost of products sold Research and development expense Selling, general, and...

  • Page 133
    ... Ended April 24, 2015 Medtronic Senior Notes Parent Company Guarantor (Medtronic plc) (in millions) Subsidiary Issuer (Medtronic, Inc.) Subsidiary Guarantors Subsidiary Nonguarantors Consolidating Adjustments Total Net sales Costs and expenses: Cost of products sold Research and development...

  • Page 134
    ... Ended April 25, 2014 Medtronic Senior Notes Parent Company Guarantor (Medtronic plc) (in millions) Subsidiary Issuer (Medtronic, Inc.) Subsidiary Guarantors Subsidiary Nonguarantors Consolidating Adjustments Total Net sales Costs and expenses: Cost of products sold Research and development...

  • Page 135
    ... SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings Accounts payable Intercompany payable Accrued compensation Accrued income taxes Deferred tax liabilities Other accrued expenses Total current liabilities Long-term debt Long-term accrued compensation and retirement benefits Long-term...

  • Page 136
    ... SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings Accounts payable Intercompany payable Accrued compensation Accrued income taxes Deferred tax liabilities Other accrued expenses Total current liabilities Long-term debt Long-term accrued compensation and retirement benefits Long-term...

  • Page 137
    ...Acquisition-related contingent consideration Change in short-term borrowings, net Repayment of short-term borrowings (maturities greater than 90 days) Proceeds from short-term borrowings (maturities greater than 90 days) Issuance of long-term debt Payments on long-term debt Dividends to shareholders...

  • Page 138
    Table of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) Condensed Consolidating Statement of Cash Flows Fiscal Year Ended April 24, 2015 Medtronic Senior Notes Parent Company Guarantor (Medtronic plc) Subsidiary Issuer (Medtronic, Inc.) (in millions) Subsidiary ...

  • Page 139
    Table of Contents Medtronic plc Notes to Consolidated Financial Statements (Continued) Condensed Consolidating Statement of Cash Flows Fiscal Year Ended April 25, 2014 Medtronic Senior Notes Parent Company Guarantor (Medtronic plc) Subsidiary Issuer (Medtronic, Inc.) (in millions) Subsidiary ...

  • Page 140
    ... Fiscal Year Ended April 29, 2016 CIFSA Senior Notes Parent Company Guarantor (Medtronic plc) (in millions) Subsidiary Issuer (CIFSA) Subsidiary Guarantors Subsidiary Nonguarantors Consolidating Adjustments Total Net sales Costs and expenses: Cost of products sold Research and development...

  • Page 141
    ... Fiscal Year Ended April 24, 2015 CIFSA Senior Notes Parent Company Guarantor (Medtronic plc) (in millions) Subsidiary Issuer (CIFSA) Subsidiary Guarantors Subsidiary Nonguarantors Consolidating Adjustments Total Net sales Costs and expenses: Cost of products sold Research and development...

  • Page 142
    ... SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings Accounts payable Intercompany payable Accrued compensation Accrued income taxes Deferred tax liabilities Other accrued expenses Total current liabilities Long-term debt Long-term accrued compensation and retirement benefits Long-term...

  • Page 143
    ... SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings Accounts payable Intercompany payable Accrued compensation Accrued income taxes Deferred tax liabilities Other accrued expenses Total current liabilities Long-term debt Long-term accrued compensation and retirement benefits Long-term...

  • Page 144
    ...Acquisition-related contingent consideration Change in short-term borrowings, net Repayment of short-term borrowings (maturities greater than 90 days) Proceeds from short-term borrowings (maturities greater than 90 days) Issuance of long-term debt Payments on long-term debt Dividends to shareholders...

  • Page 145
    ... Financial Statements (Continued) Condensed Consolidating Statement of Cash Flows Fiscal Year Ended April 24, 2015 CIFSA Senior Notes Parent Company Guarantor (Medtronic plc) (in millions) Subsidiary Issuer (CIFSA) Subsidiary Guarantors Subsidiary Nonguarantors Consolidating Adjustments Total...

  • Page 146
    ... Public Accounting Firm," which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of April 29, 2016, which is included in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. Changes in Internal...

  • Page 147
    Table of Contents PART III Part III of this Annual Report on Form 10-K incorporates information by reference from our 2016 definitive proxy statement, which will be filed no later than 120 days after April 29, 2016. Item 10. Directors, Executive Officers, and Corporate Governance The sections ...

  • Page 148
    ..., dated as of January 26, 2015, by and among Medtronic plc, Medtronic, Inc., Medtronic Global Holdings S.C.A. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to Medtronic plc's Current Report on Form 8-K12B, filed on January 27, 2015, File No. 001-36820). Form of...

  • Page 149
    ..., 2015, by and among Medtronic Global Holdings S.C.A. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.4 to Medtronic plc's Current Report on Form 8-K12B, filed on January 27, 2015, File No. 001-36820). Indenture, dated as of October 22, 2007, by and among Covidien...

  • Page 150
    ...plc's Current Report on Form 8-K filed on May 16, 2013, File No. 001-33259). Ninth Supplemental Indenture, dated as of January 26, 2015, by and among Medtronic plc, Medtronic Global Holdings S.C.A., Covidien public limited company, Covidien International Finance S.A., Covidien Ltd. and Deutsche Bank...

  • Page 151
    ... bank (incorporated by reference to Exhibit 10.2 to Medtronic plc's Form 10-Q for the quarter ended October 30, 2015, filed on December 9, 2015, File No. 001-36820). Amended and Restated Five-Year Senior Credit Agreement, dated as of May 23, 2014, among Covidien International Finance S.A., Covidien...

  • Page 152
    ...to Medtronic plc's Current Report on Form 8-K, filed on January 27, 2015, File No. 001-36820). Form of Initial Option Agreement under the 1998 Outside Director Stock Compensation Plan (incorporated by reference to Exhibit 10.17 to Medtronic, Inc.'s Annual Report on Form 10-K for the year ended April...

  • Page 153
    ... Report on Form 10-Q for the quarter ended October 26, 2007, filed on December 4, 2007, File No. 001-07707). Form of Non-Qualified Stock Option Agreement under 2003 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.39 to Medtronic, Inc.'s Annual Report on Form 10-K for the year ended...

  • Page 154
    ... Stock Option Agreement under Amended and Restated 2013 Stock Award and Incentive Plan (incorporated by reference to Exhibit 10.31 to Medtronic plc's Quarterly Report on Form 10-Q for the quarter ended January 23, 2015, filed on February 27, 2015, File No. 001-36820). Form of Non-Employee Director...

  • Page 155
    ...and Restated 2013 Stock Award and Incentive Plan (incorporated by reference to Exhibit 10.54 to Medtronic plc's Quarterly Report on Form 10-Q for the quarter ended January 23, 2015, filed on February 27, 2015, File No. 001-36820). Medtronic plc 2014 Amended and Restated Employees Stock Purchase Plan...

  • Page 156
    ... Exhibit 10.4 to Covidien plc's Form 10-Q for the quarter ended June 28, 2013, filed on August 5, 2013, File No. 001-33259). Form of Terms and Conditions of Option Award (incorporated by reference to Exhibit 10.2 to Covidien plc's Current Report on Form 8-K filed on September 23, 2014, File No. 001...

  • Page 157
    ... MEDTRONIC PLC AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in millions) Additions Balance at Beginning of Fiscal Year Charges to Other Accounts Deductions Other Changes (Debit) Credit Balance at End of Fiscal Year Charges to Income Allowance for doubtful accounts: Year ended...

  • Page 158
    ... and on the dates indicated. MEDTRONIC PUBLIC LIMITED COMPANY Dated: June 28, 2016 By: /s/ Omar Ishrak Omar Ishrak Chairman and Chief Executive Officer (Principal Executive Officer) By: /s/ Gary L. Ellis Gary L. Ellis Principal Financial and Accounting Officer Directors Richard H. Anderson* Craig...