Medtronic(MDT) - 2026 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Medtronic's unaudited consolidated financial statements, covering income, balance sheets, equity, and cash flows, are presented with detailed accounting notes Consolidated Statements of Income Consolidated Statements of Income (Three months ended): | Metric (in millions) | July 25, 2025 | July 26, 2024 | | :------------------- | :------------ | :------------ | | Net sales | $8,578 | $7,915 | | Operating profit | $1,445 | $1,278 | | Income before income taxes | $1,302 | $1,268 | | Net income | $1,047 | $1,049 | | Net income attributable to Medtronic | $1,040 | $1,042 | | Basic earnings per share | $0.81 | $0.81 | | Diluted earnings per share | $0.81 | $0.80 | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (Three months ended): | Metric (in millions) | July 25, 2025 | July 26, 2024 | | :------------------- | :------------ | :------------ | | Net income | $1,047 | $1,049 | | Other comprehensive loss | $(318) | $(92) | | Comprehensive income attributable to Medtronic | $720 | $950 | Consolidated Balance Sheets Consolidated Balance Sheets (as of): | Metric (in millions) | July 25, 2025 | April 25, 2025 | | :------------------- | :------------ | :------------- | | Total current assets | $23,223 | $23,814 | | Total assets | $90,972 | $91,680 | | Total current liabilities | $11,530 | $12,879 | | Total liabilities | $42,839 | $43,424 | | Total equity | $48,133 | $48,256 | Consolidated Statements of Equity Consolidated Statements of Equity (Three months ended July 25, 2025, in millions): | Metric | April 25, 2025 | Net Income | Other Comprehensive (Loss) Income | Dividends | Issuance of Shares | Repurchase of Shares | Stock-based Compensation | July 25, 2025 | | :------------------- | :------------- | :--------- | :-------------------------------- | :-------- | :----------------- | :------------------- | :----------------------- | :------------ | | Total Shareholders' Equity | $48,024 | $1,040 | $(319) | $(910) | $93 | $(120) | $86 | $47,893 | Consolidated Statements of Equity (Three months ended July 26, 2024, in millions): | Metric | April 26, 2024 | Net Income | Other Comprehensive Loss | Dividends | Issuance of Shares | Repurchase of Shares | Stock-based Compensation | July 26, 2024 | | :------------------- | :------------- | :--------- | :----------------------- | :-------- | :----------------- | :------------------- | :----------------------- | :------------ | | Total Shareholders' Equity | $50,214 | $1,042 | $(92) | $(898) | $87 | $(2,489) | $83 | $47,947 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Three months ended): | Activity (in millions) | July 25, 2025 | July 26, 2024 | | :--------------------- | :------------ | :------------ | | Net cash provided by operating activities | $1,088 | $986 | | Net cash used in investing activities | $(719) | $(259) | | Net cash used in financing activities | $(1,381) | $(731) | | Net change in cash and cash equivalents | $(945) | $27 | | Cash and cash equivalents at end of period | $1,273 | $1,311 | Notes to Consolidated Financial Statements 1. Basis of Presentation - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and include all necessary adjustments for fair statement, with interim operating results not necessarily indicative of full fiscal year results[18][19] - Medtronic announced its intent to separate the Diabetes business into a new independent, publicly traded company, expected to be completed within 18 months of the May 2025 announcement[22] 2. New Accounting Pronouncements - No newly adopted accounting pronouncements materially impacted the consolidated financial statements for the three months ended July 25, 2025[23] - The Company will adopt ASU 2023-09 (Improvements to Income Tax Disclosures) in Q4 FY2026 and ASU 2024-03 (Disaggregation of Income Statement Expenses) in Q4 FY2028 for annual reports, with interim periods starting in FY2029, and evaluation of potential effects is ongoing[24][25] 3. Revenue - Medtronic's revenues are primarily derived from device-based medical therapies and services across various medical conditions, with primary customers including healthcare systems, clinics, and distributors[26] Net Sales by Segment and Geography (Three months ended): | Segment (in millions) | July 25, 2025 | July 26, 2024 | % Change | | :-------------------- | :------------ | :------------ | :------- | | Cardiovascular | $3,285 | $3,007 | 9% | | Neuroscience | $2,416 | $2,317 | 4% | | Medical Surgical | $2,083 | $1,996 | 4% | | Diabetes | $721 | $647 | 12% | | Total Net Sales | $8,578 | $7,915 | 8% | | Geography (in millions) | July 25, 2025 | July 26, 2024 | % Change | | :---------------------- | :------------ | :------------ | :------- | | U.S. | $4,224 | $4,082 | 4% | | International | $4,354 | $3,832 | 14% | | Total Net Sales | $8,578 | $7,915 | 8% | - The Company decreased its accrual for the Italian payback by $39 million in Q1 FY2026, increasing net sales, which contrasts with a $90 million increase in accruals (reduction to net sales) in Q1 FY2025 due to Constitutional Court rulings[30] Deferred Revenue and Remaining Performance Obligations (in millions): | Metric | July 25, 2025 | April 25, 2025 | | :----- | :------------ | :------------- | | Deferred revenue | $442 | $446 | | Revenue recognized from prior deferred revenue (Q1) | $135 | $108 (Q1 FY25) | | Estimated revenue from unsatisfied performance obligations (original duration ≥ 1 year) | ~$0.4 billion | N/A | 4. Acquisitions, Dispositions, and Funded Research and Development Arrangements - No acquisitions accounted for as business combinations occurred during the three months ended July 25, 2025[33] - Medtronic recognized $36 million in income from funded R&D arrangements with Blackstone during the three months ended July 25, 2025, and is eligible to receive an additional $355 million[35] 5. Restructuring Charges Restructuring, Associated, and Other Costs (Three months ended, in millions): | Metric | July 25, 2025 | July 26, 2024 | | :----- | :------------ | :------------ | | Total costs | $67 | $62 | | Classified as: | | | | Cost of products sold | $16 | $9 | | Selling, general, and administrative expenses | $5 | $5 | | Restructuring charges, net | $45 | $47 | Restructuring Accrual Activity (Three months ended July 25, 2025, in millions): | Metric | Employee Termination Benefits | Associated and Other Costs | Total | | :----- | :---------------------------- | :------------------------- | :---- | | April 25, 2025 | $132 | $18 | $150 | | Charges | $52 | $21 | $73 | | Cash payments | $(70) | $(25) | $(95) | | July 25, 2025 | $107 | $12 | $119 | 6. Financial Instruments Available-for-Sale Debt Securities Fair Value (in millions): | Category | July 25, 2025 Fair Value | April 25, 2025 Fair Value | | :------- | :----------------------- | :------------------------ | | Level 1 | $469 | $410 | | Level 2 | $6,357 | $6,308 | | Level 3 | $34 | $33 | | Total | $6,860 | $6,752 | - Proceeds from sales of available-for-sale debt securities were $2.0 billion for the three months ended July 25, 2025, and $2.2 billion for the corresponding period in the prior fiscal year[41] Equity and Other Investments (in millions): | Category | July 25, 2025 | April 25, 2025 | | :------- | :------------ | :------------- | | Marketable equity securities | $20 | $17 | | Investments with fair value option | $50 | $140 | | Investments without readily determinable fair values | $697 | $705 | | Equity method and other investments | $83 | $89 | | Total | $850 | $951 | - The Company recognized a $90 million loss on its 50% non-controlling equity interest in Mozarc Medical for the three months ended July 25, 2025, primarily due to historical financial results and future cash flow projections[46][47] 7. Financing Arrangements - Commercial paper outstanding at July 25, 2025, was $649 million, with a weighted average original maturity of 13 days and an interest rate of 4.43%, with no commercial paper outstanding at April 25, 2025[48] - Medtronic maintains a $3.5 billion five-year unsecured revolving credit facility, with no amounts outstanding at July 25, 2025, or April 25, 2025[49] Debt Obligations (in millions): | Category | July 25, 2025 | April 25, 2025 | | :------- | :------------ | :------------- | | Current debt obligations | $2,430 | $2,874 | | Long-term debt | $26,179 | $25,642 | | Total Debt | $28,609 | $28,516 | - Interest expense, net, was $217 million for both the three months ended July 25, 2025, and July 26, 2024[51] 8. Derivatives and Currency Exchange Risk Management - Medtronic uses derivative instruments and foreign currency denominated debt to manage currency exchange rate and interest rate risks, not for speculative purposes[55] - The Company had $276 million in after-tax unrealized losses associated with cash flow hedging instruments recorded in AOCI at July 25, 2025, expecting $154 million of these losses to be recognized in income over the next 12 months[60] Contractual Amounts of Outstanding Instruments (in billions): | Instrument Type | Designation | July 25, 2025 | April 25, 2025 | | :-------------- | :---------- | :------------ | :------------- | | Currency exchange rate contracts | Cash flow hedge | $10.4 | $10.6 | | Currency exchange rate contracts | Net investment hedge | $6.6 | $8.0 | | Foreign currency-denominated debt | Net investment hedge | $21.1 | $20.6 | | Currency exchange rate contracts | Undesignated | $4.2 | $3.9 | Fair Value of Derivative Instruments (in millions): | Category | July 25, 2025 Assets | July 25, 2025 Liabilities | April 25, 2025 Assets | April 25, 2025 Liabilities | | :------- | :------------------- | :------------------------ | :-------------------- | :------------------------- | | Designated as hedging instruments | $293 | $516 | $326 | $396 | | Not designated as hedging instruments | $43 | $7 | $7 | $21 | | Total Derivatives | $335 | $523 | $334 | $417 | 9. Inventories Inventory Balances (in millions): | Category | July 25, 2025 | April 25, 2025 | | :------- | :------------ | :------------- | | Finished goods | $4,022 | $3,779 | | Work-in-process | $792 | $744 | | Raw materials | $1,072 | $953 | | Total | $5,886 | $5,476 | 10. Goodwill and Other Intangible Assets Goodwill by Segment (in millions): | Segment | April 25, 2025 | Currency Translation | July 25, 2025 | | :------ | :------------- | :------------------- | :------------ | | Cardiovascular | $8,017 | $28 | $8,045 | | Neuroscience | $11,716 | $38 | $11,754 | | Medical Surgical | $19,748 | $203 | $19,952 | | Diabetes | $2,255 | $0 | $2,255 | | Total | $41,737 | $269 | $42,007 | - No goodwill impairment was recognized during the three months ended July 25, 2025, and July 26, 2024[76] Intangible Assets (in millions): | Category | July 25, 2025 Gross Carrying Amount | July 25, 2025 Accumulated Amortization | April 25, 2025 Gross Carrying Amount | April 25, 2025 Accumulated Amortization | | :------- | :---------------------------------- | :------------------------------------- | :----------------------------------- | :-------------------------------------- | | Definite-lived | $28,954 | $(18,021) | $28,925 | $(17,547) | | Indefinite-lived (IPR&D) | $290 | $0 | $289 | $0 | - Intangible asset amortization expense was $459 million for the three months ended July 25, 2025, including $45 million of accelerated amortization in the Cardiovascular Portfolio, compared to $414 million in the prior year[78] 11. Income Taxes - The U.S. Government enacted The One Big Beautiful Bill Act of 2025, effective for Medtronic in fiscal year 2026, with no significant impact for the three months ended July 25, 2025[79] - The Company's effective tax rate increased to 19.6% for the three months ended July 25, 2025, from 17.4% in the prior year, primarily due to the Pillar Two global minimum tax impact and changes in operational results by jurisdiction[81] - Gross unrecognized tax benefits remained at $2.9 billion at July 25, 2025, with approximately $2.7 billion impacting the effective tax rate if recognized[82] 12. Earnings Per Share Earnings Per Share (Three months ended): | Metric (in millions, except per share data) | July 25, 2025 | July 26, 2024 | | :---------------------------------------- | :------------ | :------------ | | Net income attributable to ordinary shareholders | $1,040 | $1,042 | | Basic weighted average shares outstanding | 1,281.6 | 1,293.3 | | Diluted weighted average shares outstanding | 1,287.1 | 1,296.5 | | Basic earnings per share | $0.81 | $0.81 | | Diluted earnings per share | $0.81 | $0.80 | - Approximately 24 million and 27 million ordinary shares were excluded from diluted EPS calculations for the three months ended July 25, 2025, and July 26, 2024, respectively, as their effect would have been anti-dilutive[86] 13. Stock-Based Compensation Stock-Based Compensation Expense (Three months ended, in millions): | Component | July 25, 2025 | July 26, 2024 | | :-------- | :------------ | :------------ | | Stock options | $10 | $13 | | Restricted stock | $49 | $43 | | Performance share units | $16 | $15 | | Employee stock purchase plan | $11 | $12 | | Total stock-based compensation expense | $86 | $83 | | Classification | July 25, 2025 | July 26, 2024 | | :------------- | :------------ | :------------ | | Cost of products sold | $10 | $9 | | Research and development expense | $11 | $10 | | Selling, general, and administrative expense | $65 | $64 | 14. Retirement Benefit Plans Net Periodic Benefit (Credit) Cost for Defined Benefit Pension Plans (Three months ended, in millions): | Component | U.S. (July 25, 2025) | U.S. (July 26, 2024) | Non-U.S. (July 25, 2025) | Non-U.S. (July 26, 2024) | | :-------- | :------------------- | :------------------- | :----------------------- | :----------------------- | | Service cost | $12 | $13 | $11 | $11 | | Interest cost | $42 | $43 | $12 | $13 | | Expected return on plan assets | $(64) | $(66) | $(18) | $(17) | | Amortization of prior service cost | $(1) | $(1) | $0 | $0 | | Amortization of net actuarial loss | $5 | $4 | $1 | $0 | | Net periodic benefit (credit) cost | $(6) | $(7) | $6 | $7 | 15. Accumulated Other Comprehensive Loss Changes in Accumulated Other Comprehensive Loss (AOCI), Net of Tax (in millions): | Component | April 25, 2025 | Other Comprehensive Income (Loss) before Reclassifications | Reclassifications | July 25, 2025 | | :-------- | :------------- | :--------------------------------------------------------- | :---------------- | :------------ | | Unrealized (Loss) Gain on Investment Securities | $(63) | $18 | $1 | $(44) | | Cumulative Translation Adjustments | $(2,835) | $348 | $0 | $(2,487) | | Net Investment Hedges | $(597) | $(559) | $0 | $(1,156) | | Net Change in Retirement Obligations | $(640) | $(1) | $2 | $(641) | | Unrealized (Loss) Gain on Cash Flow Hedges | $(149) | $(134) | $5 | $(276) | | Total Accumulated Other Comprehensive (Loss) Income | $(4,284) | $(327) | $8 | $(4,604) | 16. Commitments and Contingencies - Medtronic is involved in various legal actions, including product liability, intellectual property, commercial disputes, and governmental proceedings, recognizing $27 million in certain litigation charges for the three months ended July 25, 2025, compared to $81 million in the prior year[93][94] - Accrued litigation was approximately $0.2 billion at July 25, 2025, down from $0.4 billion at April 25, 2025[94] - The U.S. Court of Appeals for the Federal Circuit ruled in favor of Medtronic on July 18, 2025, reversing a lower court verdict and ruling that Medtronic did not infringe the Colibri patent[95] - The Company decreased its Italian payback liability by $39 million in Q1 FY2026 due to a legislative decree, following a $90 million increase in Q1 FY2025[106] - The IRS audit report for fiscal years 2005 and 2006 regarding income allocation with its Puerto Rico subsidiary is still ongoing, with oral arguments for the appeal occurring in May 2025[109] 17. Segment and Geographic Information - Medtronic operates four reportable segments: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio, and Diabetes Operating Unit, with performance evaluated based on net sales and segment operating profit[115][116] - Segment operating profit now includes allocations of certain corporate expenses, stock-based compensation, and centralized distribution expenses, with prior period information recast for comparability[117] Reportable Segment Operating Profit (Three months ended July 25, 2025, in millions): | Segment | Net Sales | Cost of Products Sold | R&D Expense | SG&A Expense | Other Segment Items | Operating Profit | | :------ | :-------- | :-------------------- | :---------- | :----------- | :------------------ | :--------------- | | Cardiovascular | $3,285 | $1,132 | $280 | $1,060 | $(15) | $828 | | Neuroscience | $2,416 | $721 | $157 | $831 | $2 | $705 | | Medical Surgical | $2,083 | $814 | $169 | $605 | $1 | $494 | | Diabetes | $721 | $304 | $120 | $274 | $(3) | $26 | | Total Reportable Segments | $8,506 | $2,972 | $725 | $2,771 | $(15) | $2,053 | Total Assets by Segment (in millions): | Segment | July 25, 2025 | April 25, 2025 | | :------ | :------------ | :------------- | | Cardiovascular | $16,573 | $16,548 | | Neuroscience | $18,433 | $18,476 | | Medical Surgical | $33,326 | $33,317 | | Diabetes | $4,209 | $4,136 | | Total Reportable Segments | $72,542 | $72,476 | Net Sales by Geography (Three months ended, in millions): | Country | July 25, 2025 | July 26, 2024 | | :------ | :------------ | :------------ | | Ireland | $33 | $30 | | United States | $4,224 | $4,082 | | Rest of world | $4,321 | $3,803 | | Total | $8,578 | $7,915 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Medtronic's financial condition and operational results, covering key metrics, trends, segment performance, and liquidity Understanding Our Financial Information - The discussion includes non-GAAP financial measures to supplement U.S. GAAP, providing insights into underlying operational performance and trends, excluding certain charges or benefits that may not recur[129][130] - Free cash flow is a non-GAAP measure calculated by subtracting property, plant, and equipment additions from operating cash flows[132] Executive Level Overview - Medtronic is a leading global healthcare technology company focused on alleviating pain, restoring health, and extending life through products for cardiac rhythm disorders, cardiovascular disease, neurological disorders, spinal conditions, and diabetes[133] Key Financial Summary (Three months ended): | Metric | July 25, 2025 | July 26, 2024 | | :----- | :------------ | :------------ | | Net sales | $8,578 million | $7,915 million | | Diluted earnings per share | $0.81 | $0.80 | | Operating cash flow | $1,088 million | $986 million | GAAP to Non-GAAP Reconciliations GAAP to Non-GAAP Reconciliation (Three months ended July 25, 2025, in millions, except per share data): | Metric | GAAP | Non-GAAP Adjustments | Non-GAAP | | :----- | :--- | :------------------- | :------- | | Income Before Income Taxes | $1,302 | $685 | $1,987 | | Income Tax Provision (Benefit) | $255 | $99 | $354 | | Net Income Attributable to Medtronic | $1,040 | $586 | $1,626 | | Diluted EPS | $0.81 | $0.45 | $1.26 | | Effective Tax Rate | 19.6% | | 17.8% | GAAP to Non-GAAP Reconciliation (Three months ended July 26, 2024, in millions, except per share data): | Metric | GAAP | Non-GAAP Adjustments | Non-GAAP | | :----- | :--- | :------------------- | :------- | | Income Before Income Taxes | $1,268 | $657 | $1,925 | | Income Tax Provision (Benefit) | $220 | $107 | $327 | | Net Income Attributable to Medtronic | $1,042 | $550 | $1,592 | | Diluted EPS | $0.80 | $0.43 | $1.23 | | Effective Tax Rate | 17.4% | | 17.0% | Free Cash Flow Free Cash Flow (Three months ended, in millions): | Metric | July 25, 2025 | July 26, 2024 | | :----- | :------------ | :------------ | | Net cash provided by operating activities | $1,088 | $986 | | Additions to property, plant, and equipment | $(504) | $(520) | | Free cash flow | $584 | $466 | - Free cash flow increased by $118 million, from $466 million in the prior year to $584 million, primarily driven by increased operating cash flows[141] Macroeconomic Trends - Macroeconomic and geopolitical factors, including competitive product launches, pricing pressure, currency fluctuations, inflation, interest rate changes, and supply chain challenges, could negatively impact Medtronic's business[142] - The estimated pre-tax net tariff impact for fiscal year 2026 is $185 million, with the majority expected in the second half of the fiscal year, due to global trade policy developments[142] - The financial and operational impact of the Russia-Ukraine and Israel conflicts was not material for the three months ended July 25, 2025, representing less than 1% of consolidated revenues and assets[142] Net Sales Total Net Sales (Three months ended, in millions): | Metric | July 25, 2025 | July 26, 2024 | % Change | | :----- | :------------ | :------------ | :------- | | Total net sales | $8,578 | $7,915 | 8% | - The 8% increase in net sales was driven by growth in most businesses, particularly Cardiac Ablation Solutions, TAVR, Neuromodulation, Diabetes, and Cardiac Pacing Therapies, along with foreign currency fluctuations and a $39 million positive adjustment from Italian payback accruals[146] Cardiovascular - Cardiovascular net sales increased 9% to $3.3 billion, driven by growth across most businesses and foreign currency fluctuations[147][148] - Cardiac Rhythm & Heart Failure (CRHF) net sales increased 12%, with strong growth in Cardiac Ablation Solutions (PulseSelect, Affera Sphere-9) and Cardiac Rhythm Management (Micra leadless pacemakers, Aurora EV-ICD)[150] - Structural Heart & Aortic (SHA) net sales increased 9%, driven by Evolut FX+ TAVR system and growth in Perfusion and Surgical Valves[151] - Coronary & Peripheral Vascular (CPV) net sales increased 5%, with growth in Symplicity Spyral renal denervation system, guide catheters, balloons, and endovenous products[152] Neuroscience - Neuroscience net sales increased 4% to $2.4 billion, driven by growth in Neuromodulation, Core Spine, and Neurosurgery, along with foreign currency fluctuations[155] - Cranial & Spinal Technologies (CST) net sales increased 6% due to continued adoption of the AiBLE ecosystem of spine implants and enabling technology[159] - Specialty Therapies net sales decreased 2% due to tender pricing in China and the Pipeline Vantage recall for Neurovascular, partially offset by international growth in ENT[160] - Neuromodulation (NM) net sales increased 10%, driven by the Inceptiv closed-loop spinal cord stimulator, Percept RC deep brain neurostimulator, and Interventional products[161] Medical Surgical - Medical Surgical net sales increased 4% to $2.1 billion, driven by growth in Advanced Energy, General Surgical Technologies, Acute Care & Monitoring, and Endoscopy, along with foreign currency fluctuations[162] - Surgical & Endoscopy (SE) net sales increased 4% due to adoption of LigaSure vessel sealing technology, ProGrip mesh, Electrosurgery, and Esophageal products, partially offset by pressures on U.S. bariatric segment and shifts to robotic surgery[166] - Acute Care & Monitoring (ACM) net sales increased 4%, primarily due to growth in Nellcor pulse oximetry[167] - The Hugo RAS system received CE Mark for LigaSure RAS vessel-sealing technology in July 2025, expanding its capabilities for gynecologic, general, and urologic procedures[168] Diabetes - Diabetes net sales increased 12% to $721 million, driven by strong international growth from the MiniMed 780G AID system, including Simplera Sync and Guardian 4 CGM sensors, and foreign currency fluctuations[170] - The Company announced its intent to separate the Diabetes Operating Unit into a new standalone company, expected within 18 months of the May 2025 announcement[171] - The MiniMed 780G insulin pump system with Simplera Sync received U.S. FDA approval in April 2025 and CE Mark in early January 2024, while the Simplera sensor received U.S FDA approval in August 2024 and CE Mark in September 2023[171] Costs and Expenses Summary of Costs and Expenses (as % of Net Sales, Three months ended): | Metric | July 25, 2025 | July 26, 2024 | | :----- | :------------ | :------------ | | Cost of products sold, excluding amortization of intangible assets | 35.0% | 34.9% | | Research and development expense | 8.5% | 8.5% | | Selling, general, and administrative expense | 32.7% | 33.5% | Cost of Products Sold - Cost of products sold increased to $3.0 billion from $2.8 billion, with a slight increase as a percentage of net sales due to changes in product mix, partially offset by Italian payback accrual adjustments[174] Research and Development Expense - Research and development expense increased to $726 million from $676 million, reflecting continued commitment to innovation[175] Selling, General, and Administrative Expense - Selling, general, and administrative expense increased to $2.8 billion from $2.7 billion, primarily due to new product launches and commercialization activities[176] Other Costs and Expenses (Income) Other Costs and Expenses (Income) (Three months ended, in millions): | Metric | July 25, 2025 | July 26, 2024 | | :----- | :------------ | :------------ | | Amortization of intangible assets | $459 | $414 | | Restructuring charges, net | $45 | $47 | | Certain litigation charges, net | $27 | $81 | | Other operating expense, net | $70 | $1 | | Other non-operating income, net | $(33) | $(157) | | Interest expense, net | $176 | $167 | - Other operating expense, net, increased significantly to $70 million from $1 million, largely due to a net loss of $62 million from currency remeasurement and hedging programs, compared to a $6 million net loss in the prior year[182] - Other non-operating income, net, decreased from $(157) million to $(33) million, primarily due to net losses on minority investments of $113 million in the current period, compared to net gains of $17 million in the prior year[183][184] Income Taxes Income Tax Summary (Three months ended): | Metric | July 25, 2025 | July 26, 2024 | | :----- | :------------ | :------------ | | Income tax provision | $255 | $220 | | Income before income taxes | $1,302 | $1,268 | | Effective tax rate | 19.6% | 17.4% | | Non-GAAP income tax provision | $354 | $327 | | Non-GAAP income before income taxes | $1,987 | $1,925 | | Non-GAAP Nominal Tax Rate | 17.8% | 17.0% | - The effective tax rate increased to 19.6% from 17.4%, and the Non-GAAP Nominal Tax Rate increased to 17.8% from 17.0%, primarily due to the impact of the Pillar Two global minimum tax and year-over-year changes in operational results by jurisdiction[188][189] Liquidity and Capital Resources - Medtronic is in a strong financial position, with sufficient cash, cash equivalents, current investments, and credit facilities to meet foreseeable operating needs[190] Summary of Cash Flows Summary of Cash Flows (Three months ended, in millions): | Activity | July 25, 2025 | July 26, 2024 | | :------- | :------------ | :------------ | | Operating activities | $1,088 | $986 | | Investing activities | $(719) | $(259) | | Financing activities | $(1,381) | $(731) | | Effect of exchange rate changes on cash and cash equivalents | $67 | $31 | | Net change in cash and cash equivalents | $(945) | $27 | - Operating cash flow increased by $102 million, primarily due to increased cash collected from customers, partially offset by higher litigation payments and cash paid to suppliers[192] - Cash used in investing activities increased by $460 million, mainly due to a $368 million increase in net purchases of investments[193] - Net cash used in financing activities increased by $650 million, driven by the repayment of €1.0 billion of Senior Notes ($1.2 billion) and a $2.4 billion decrease in net share repurchases, partially offset by an increase in current debt obligations[194] Debt and Capital - Total debt increased slightly to $28.6 billion at July 25, 2025, from $28.5 billion at April 25, 2025, due to increased commercial paper and foreign exchange impacts, partially offset by Senior Notes repayment[196] - In June 2024, Medtronic Inc. issued €3.0 billion ($3.2 billion) in Euro-denominated Senior Notes with maturities ranging from fiscal year 2030 to 2054[197] - The Board authorized a $5.0 billion share repurchase program in March 2024, with approximately $2.0 billion remaining under this program as of July 25, 2025, and 1 million shares repurchased for $86.22 average price during the quarter[198] Liquidity - Liquidity sources at July 25, 2025, included $1.3 billion in cash and cash equivalents and $6.8 billion in current investments[200] - Medtronic has commercial paper programs with a maximum aggregate outstanding amount of $3.5 billion, with $649 million outstanding at July 25, 2025[202] - A $3.5 billion five-year syndicated credit facility, expiring in December 2029, provides backup funding for commercial paper and general corporate purposes, with no amounts outstanding at July 25, 2025[203] Agency Debt Ratings (as of): | Agency | July 25, 2025 | April 25, 2025 | | :----- | :------------ | :------------- | | Standard & Poor's (Long-term) | A | A | | Standard & Poor's (Short-term) | A-1 | A-1 | | Moody's (Long-term) | A3 | A3 | | Moody's (Short-term) | P-2 | P-2 | Acquisitions and Dispositions - In May 2025, Medtronic announced its intent to separate the Diabetes business into a new independent, publicly traded company, with completion expected within 18 months[207] Goodwill - Goodwill increased to $42,007 million at July 25, 2025, from $41,737 million at April 25, 2025, primarily due to currency translation adjustments[76] Critical Accounting Estimates - No material changes to critical accounting estimates were reported as of July 25, 2025[211] New Accounting Pronouncements - No newly adopted accounting pronouncements materially impacted the consolidated financial statements for the three months ended July 25, 2025, and the Company is evaluating the impact of ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Disaggregation of Income Statement Expenses) for future adoption[23][24][25][212] Supplemental Guarantor Financial Information - Medtronic plc, Medtronic Luxco, and Medtronic, Inc. provide full and unconditional guarantees for various Senior Notes, including Medtronic Senior Notes and Medtronic Luxco Senior Notes, while Medtronic plc, Medtronic Luxco, CIFSA, and CIFSA Subsidiary Guarantors guarantee CIFSA Senior Notes[213][215] Summarized Results of Operations (Three months ended July 25, 2025, in millions): | Metric | Medtronic & Medtronic Luxco Senior Notes Obligor Group | CIFSA Senior Notes Obligor Group | | :----- | :----------------------------------------------------- | :------------------------------- | | Net sales | $750 | $0 | | Operating profit (loss) | $93 | $(29) | | Loss before income taxes | $(20) | $(24) | | Net loss attributable to Medtronic | $(37) | $(20) | Summarized Balance Sheet Information (July 25, 2025, in millions): | Metric | Medtronic & Medtronic Luxco Senior Notes Obligor Group | CIFSA Senior Notes Obligor Group | | :----- | :----------------------------------------------------- | :------------------------------- | | Total current assets | $18,786 | $4,330 | | Total noncurrent assets | $14,839 | $8,307 | | Total current liabilities | $25,969 | $10,138 | | Total noncurrent liabilities | $38,361 | $26,033 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Medtronic's market risk exposure, including currency and interest rate fluctuations, and management strategies are detailed Currency Exchange Rate Risk - Medtronic is exposed to currency exchange rate changes, which can cause fluctuations in earnings and cash flows, particularly for unhedged exposures in emerging markets[228] - The gross notional amount of all currency exchange rate derivative instruments outstanding was $21.2 billion at July 25, 2025, in a net unrealized loss position of $214 million[228] - A hypothetical 10% strengthening/weakening of the U.S. dollar would result in an approximate $1.6 billion increase/decrease in the fair value of these derivative contracts[229] Interest Rate Risk - Medtronic is subject to interest rate risk on its short-term investments and borrowings, with its debt portfolio primarily consisting of fixed-rate debt denominated in U.S. dollars and Euros[230] - A hypothetical 50 basis point change in interest rates would result in an approximate $82 million change in the fair value of interest rate-sensitive financial instruments at July 25, 2025[231] Item 4. Controls and Procedures Management confirms effective disclosure controls and procedures, noting changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of July 25, 2025[234] Changes in Internal Control Over Financial Reporting - During the three months ended July 25, 2025, Medtronic implemented a new financial close and consolidation system, updating controls accordingly, with no other material changes to internal control over financial reporting occurring[235] PART II — OTHER INFORMATION Item 1. Legal Proceedings Note 16 details legal proceedings and loss contingencies, with a $1 million disclosure threshold for environmental law matters - Medtronic has adopted a $1 million disclosure threshold for environmental law proceedings where a governmental authority is a party[236] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Medtronic's Q1 FY2026 share repurchase activities, including shares purchased and remaining authorization, are detailed Issuer Purchases of Equity Securities Issuer Purchases of Equity Securities (First Quarter Fiscal Year 2026): | Fiscal Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as a Part of Publicly Announced Program | Maximum Approximate Dollar Value of Shares that may yet be Purchased Under the Program | | :------------ | :------------------------------- | :--------------------------- | :--------------------------------------------------------------------- | :--------------------------------------------------------------------- | | 4/26/2025-5/23/2025 | 479,600 | $84.23 | 479,600 | $2,087,333,109 | | 5/24/2025-6/27/2025 | 534,800 | $85.70 | 534,800 | $2,041,501,300 | | 6/28/2025-7/25/2025 | 379,500 | $89.49 | 379,500 | $2,007,540,460 | | Total | 1,393,900 | $86.22 | 1,393,900 | $2,007,540,460 | - The Company's Board of Directors authorized a $5.0 billion share repurchase program in March 2024, with no specific time period, and approximately $2.0 billion remained under this authorization as of July 25, 2025[237] Item 5. Other Information Exchange Act disclosures cover regulatory activities with Russia's FSB and Rule 10b5-1 trading arrangements Exchange Act Section 3(r) Disclosure - Medtronic engaged in regulatory activities involving Russia's FSB for medical device imports with encryption functionality, as required by local law and expressly authorized by the U.S. Government under applicable economic sanctions regulations[238][239] - These activities did not directly result in any revenues or profits for Medtronic[239] Rule 10b5-1 Director and Officer Trading Arrangements - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended July 25, 2025[240] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[241] Signature This section contains the signature of Denise L. Blomquist, certifying the report filing on behalf of Medtronic plc - The report was signed by Denise L. Blomquist, Vice President, Global Controller and Chief Accounting Officer, on August 26, 2025[242] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This cautionary note highlights that forward-looking statements in the Form 10-Q are subject to known and unknown risks and uncertainties - All statements other than historical facts in the report are forward-looking and subject to known and unknown risks and uncertainties[225] - Key risks include competition, regulatory delays, supply interruption, failure of acquisitions/divestitures, adverse regulatory action, litigation, quality problems, healthcare policy changes, public health crises, cybersecurity incidents, international operations (including armed conflicts), and macroeconomic factors like currency fluctuations and inflation[226] - The Company intends to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 for its forward-looking statements[227]