MEDTRONIC PLC 
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 ofMedtronic plc and its subsidiaries (Medtronic plc , Medtronic, or the Company, or we, us, or our). For a full understanding of financial condition and results of operations, you should read this discussion along with Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year endedApril 30, 2021 . In addition, you should read this discussion along with our consolidated financial statements and related notes thereto at and for the three and nine months endedJanuary 28, 2022 . Amounts reported in millions within this quarterly report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in millions due to rounding. Additionally, certain columns and rows within tables may not sum due to rounding. Financial Trends Throughout this Management's Discussion and Analysis, we present certain financial measures that we use to evaluate the operational performance of the Company and as a basis for strategic planning; however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted inthe 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 withU.S. GAAP. We generally use non-GAAP financial measures to facilitate management's review of the operational performance of the Company and as a basis for strategic planning. We believe that non-GAAP financial measures provide information useful to investors in understanding the Company's underlying operational performance and trends and may facilitate comparisons with the performance of other companies in the medical technologies industry. As presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measures exclude the impact of certain charges or benefits that contribute to or reduce earnings and that may affect financial trends and include certain charges or benefits that result from transactions or events that we believe may or may not recur with similar materiality or impact to our operations in future periods (Non-GAAP Adjustments). In the event there is a Non-GAAP Adjustment recognized in our operating results, the tax cost or benefit attributable to that item is separately calculated and reported. Because the effective rate can be significantly impacted by the Non-GAAP Adjustments that take place during the period, we often refer to our tax rate using both the effective rate and the non-GAAP nominal tax rate (Non-GAAP Nominal Tax Rate). The Non-GAAP Nominal Tax Rate is calculated as the income tax provision, adjusted for the impact of Non-GAAP Adjustments, as a percentage of income before income taxes, excluding Non-GAAP Adjustments.
Free cash flow is a non-GAAP financial measure calculated by subtracting property, plant, and equipment additions from operating cash flows.
Refer to the "GAAP to Non-GAAP Reconciliations," "Income Taxes," and "Free Cash Flow" sections for reconciliations of the non-GAAP financial measures to their most directly comparable financial measures prepared in accordance withU.S. GAAP. EXECUTIVE LEVEL OVERVIEW Medtronic is the leading global healthcare technology company - alleviating pain, restoring health, and extending life for millions of people around the world. Our primary products include those for cardiac rhythm disorders, cardiovascular disease, advanced and general surgical care, respiratory and monitoring solutions, renal care, neurological disorders, spinal conditions and musculoskeletal trauma, urological and digestive disorders, and ear, nose, and throat, and diabetes conditions. The global healthcare system is continuing to respond to the unprecedented challenge posed by the COVID-19 pandemic ("COVID-19" or the "pandemic"). Most of our businesses were affected by a decline in global procedural volumes during fiscal year 2021, particularly in the first and second quarters. During the first quarter of fiscal year 2022, most of our businesses performed at or above pre-COVID-19 levels, while also experiencing a slowdown in elective procedures in certain businesses and geographies in the final weeks of the quarter as a result of the Delta variant of COVID-19. In the second quarter of fiscal year 2022, certain international markets saw procedural recovery from the resurgence experienced in prior quarters. However, particularly in theU.S. , the COVID-19 resurgence as well as healthcare system staffing shortages impacted our revenue results for the three months endedOctober 29, 2021 . During the third quarter of fiscal year 2022, the Omicron variant surge of COVID-19 impacted our hospital procedure volumes, particularly in theU.S. , as well as created acute absenteeism with our customers, suppliers, and in our own operations and field teams. We cannot predict with confidence the duration and severity of the pandemic and its impact on global procedure volumes. We expect medical procedure rates may continue to vary by therapy and country and to be impacted by regional COVID-19 case volumes, vaccine and booster immunization rates, and new COVID-19 variants. Additionally, we cannot predict the impact healthcare system staffing shortages may have on procedural volumes, and supply chain disruptions may have on the business. 30 -------------------------------------------------------------------------------- The following is a summary of revenue and diluted earnings per share for the three months endedJanuary 28, 2022 andJanuary 29, 2021 , and operating cash flow for the nine months endedJanuary 28, 2022 andJanuary 29, 2021 :
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GAAP to Non-GAAP Reconciliations The tables below present our GAAP to Non-GAAP
reconciliations for the three months ended January 28, 2022 and January 29,
2021 :
Three months ended January 28, 2022
Income Income Net Income
Before Tax Provision Attributable to Effective
(in millions, except per share data) Income Taxes (Benefit) Medtronic Diluted EPS Tax Rate GAAP$ 1,589 $ 106 $ 1,480$ 1.10 6.7 % Non-GAAP Adjustments: Restructuring and associated costs (1) 78 15 63 0.05 19.2 Acquisition-related items (2) (50) 2 (51) (0.04) (4.0) Certain litigation charges 35 9 27 0.02 25.7 (Gain)/loss on minority investments (3) 2 (1) 3 -
(50.0)
Medical device regulations (4) 25 5 20 0.01
20.0
Amortization of intangible assets 432 67 365 0.27
15.5
Certain tax adjustments, net (5) - 59 (59) (0.04) - Non-GAAP$ 2,112 $ 262 $ 1,846$ 1.37 12.4 % Three months ended January 29, 2021 Income Income Net Income Before Tax Provision Attributable to Effective (in millions, except per share data) Income Taxes (Benefit) Medtronic Diluted EPS Tax Rate GAAP$ 1,220 $ (59) $ 1,270$ 0.94 (4.8) % Non-GAAP Adjustments: Restructuring and associated costs (1) 160 42 117 0.09 26.9 Acquisition-related items (2) 35 3 32 0.02 8.6 Certain litigation charges 122 21 101 0.07 17.2 (Gain)/loss on minority investments (3) (18) - (15) (0.01)
16.7
Medical device regulations (4) 21 4 17 0.01
19.0
Amortization of intangible assets 453 73 380 0.28
16.1
Certain tax adjustments, net (5) - 150 (150) (0.11) - Non-GAAP$ 1,993 $ 234 $ 1,753$ 1.29 11.7 %
(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, changes in fair value of contingent consideration, and specifically for the three months endedJanuary 28, 2022 , certain license payments for unapproved technology.
(3)We exclude unrealized and realized gains and losses on our minority investments as we do not believe that these components of income or expense have a direct correlation to our ongoing or future business operations.
(4)The charges represent incremental costs of complying with the newEuropean Union (E.U.) medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses. (5)For the three months endedJanuary 28, 2022 , the tax benefit primarily relates to the deferred tax impact associated with a step up in tax basis for Swiss Cantonal purposes. For the three months endedJanuary 29, 2021 , the tax benefit primarily relates to the finalization of an audit at theIRS Appellate level for fiscal years 2012 through 2014 and the capitalization of certain research and development costs forU.S. income tax purposes. For each period, the tax benefits were partially offset by the amortization on previously established deferred tax assets from intercompany intellectual property transactions. 32
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The tables below present our GAAP to Non-GAAP reconciliations for the nine
months ended
Nine months ended January 28, 2022
Income Income Net Income
Before Tax Provision Attributable to Effective
(in millions, except per share data) Income Taxes (Benefit) Medtronic Diluted EPS Tax Rate GAAP$ 3,915 $ 346 $ 3,554$ 2.63 8.8 % Non-GAAP Adjustments: Restructuring and associated costs (1) 237 46 191 0.14 19.4 Acquisition-related items (2) 46 26 21 0.02 56.5 Certain litigation charges 95 17 78 0.06 17.9 (Gain)/loss on minority investments (3) (23) (1) (19) (0.01)
4.3
Medical device regulations (4) 70 14 56 0.04
20.0
Amortization of intangible assets 1,298 205 1,093 0.81 15.8 MCS impairments / costs (5) 726 162 564 0.42 22.3 Certain tax adjustments, net (6) - (10) 10 0.01 - Non-GAAP$ 6,365 $ 806 $ 5,547$ 4.10 12.7 % Nine months ended January 29, 2021 Income Income Net Income Before Tax Provision Attributable to
Effective
(in millions, except per share data) Income Taxes (Benefit) Medtronic Diluted EPS Tax Rate GAAP$ 2,329 $ 65 $ 2,246$ 1.66 2.8 % Non-GAAP Adjustments: Restructuring and associated costs (1) 466 109 358 0.26 23.2 Acquisition-related items (2) (13) (18) 5 - 138.5 Certain litigation charges 118 23 95 0.07 19.5 (Gain)/loss on minority investments (3) (28) - (23) (0.02)
17.9
Medical device regulations (4) 58 10 48 0.04
17.2
Amortization of intangible assets 1,337 214 1,123 0.83 16.0 Debt tender premium (7) 308 60 248 0.18 19.5 Certain tax adjustments, net (6) - 130 (130) (0.10) - Non-GAAP$ 4,576 $ 593 $ 3,969$ 2.93 13.0 % (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, changes in fair value of contingent consideration, acquisitions of, or certain license payments for, unapproved technology, and specifically for the nine months endedJanuary 29, 2021 , changes in amounts accrued for certain contingent liabilities for recent acquisitions.
(3)We exclude unrealized and realized gains and losses on our minority investments as we do not believe that these components of income or expense have a direct correlation to our ongoing or future business operations.
(4)The charges represent incremental costs of complying with the new E.U. medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses.
(5)The charges relate to the Company'sJune 2021 decision to stop the distribution and sale of the Medtronic HVAD System within the Mechanical Circulatory Support Operating Unit (MCS). The charges included$515 million of non-cash impairments, primarily related to$409 million of intangible asset impairments, as well as$211 million for commitments and obligations in connection with the decision, including customer support obligations, restructuring, and other associated costs. Medtronic is committed to serving the needs of the approximately 4,000 patients currently implanted with the HVAD System. (6)For the nine months endedJanuary 28, 2022 , the tax charge primarily relates to 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, which are partially offset by the deferred tax impact associated with a step up in tax basis for Swiss Cantonal purposes. For the nine months endedJanuary 29, 2021 , the tax benefit primarily relates to the finalization of an audit at theIRS Appellate level for fiscal years 2012 through 2014 and the capitalization of certain research and development costs forU.S. income tax purposes which are partially offset by the impact of an intercompany sale of assets and the amortization on previously established deferred tax assets from intercompany intellectual property transactions.
(7)The charges relate to the early redemption of approximately
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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 toU.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 withU.S. GAAP. Reconciliations between net cash provided by operating activities (the most comparableU.S. GAAP measure) and free cash flow are as follows: Nine months ended January 28, (in millions) 2022 January 29, 2021 Net cash provided by operating activities$ 5,289 $ 4,495 Additions to property, plant, and equipment (979) (978) Free cash flow$ 4,310 $ 3,517
Refer to the Summary of Cash Flows section for drivers of the change in cash provided by operating activities.
Segment and Division
The charts below illustrate the percent of net sales by segment for the three
months ended
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The table below illustrates net sales by segment and division for the three and
nine months ended
Three months ended Nine months ended
January 29, January 28, January 29,
(in millions) January 28, 2022 2021 % Change 2022 2021 % Change
Cardiac Rhythm & Heart Failure $ 1,402 $ 1,371 2 % $ 4,356 $ 4,045 8 %
Structural Heart & Aortic 740 730 1 2,277 2,090 9
Coronary & Peripheral Vascular 603 605 - 1,829 1,730 6
Cardiovascular 2,745 2,707 1 8,462 7,865 8
Surgical Innovations 1,519 1,423 7 4,570 3,896 17
Respiratory, Gastrointestinal, & Renal 771 890 (13) 2,341 2,502 (6)
Medical Surgical 2,290 2,313 (1) 6,910 6,399 8
Cranial & Spinal Technologies 1,102 1,081 2 3,292 3,096 6
Specialty Therapies 633 618 2 1,908 1,653 15
Neuromodulation 409 426 (4) 1,285 1,152 12
Neuroscience 2,144 2,126 1 6,484 5,900 10
Diabetes 584 630 (7) 1,741 1,766 (1)
Total $ 7,763 $ 7,775 - % $ 23,597 $ 21,929 8 %
Segment and Market Geography
The charts below illustrate the percent of net sales by market geography for the
three months ended
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The table below includes net sales by market geography for each of our segments
for the three and nine months ended
U.S.(1) Non-U.S. Developed Markets(2) Emerging Markets(3)
Three months ended Three months ended Three months ended
January 28, January 29, January 28, January 29, January 29,
(in millions) 2022 2021 % Change 2022 2021 % Change January 28, 2022 2021 % Change
Cardiovascular $ 1,297 $ 1,272 2 % $ 935 $ 941 (1) % $ 513 $ 493 4 %
Medical Surgical 990 959 3 812 868 (6) 488 486 -
Neuroscience 1,397 1,401 - 431 444 (3) 316 280 13
Diabetes 255 307 (17) 261 268 (3) 68 55 24
Total $ 3,939 $ 3,939 - % $ 2,438 $ 2,522 (3) % $ 1,385 $ 1,314 5 %
U.S.(1) Non-U.S. Developed Markets(2) Emerging Markets(3)
Nine months ended Nine months ended Nine months ended
January 28, January 29, January 28, January 29, January 29,
(in millions) 2022 2021 % Change 2022 2021 % Change January 28, 2022 2021 % Change
Cardiovascular $ 4,090 $ 3,854 6 % $ 2,886 $ 2,739 5 % $ 1,486 $ 1,271 17 %
Medical Surgical 2,950 2,677 10 2,521 2,425 4 1,439 1,297 11
Neuroscience 4,237 3,934 8 1,330 1,246 7 918 720 28
Diabetes 760 879 (14) 780 733 6 201 154 31
Total $ 12,038 $ 11,344 6 % $ 7,517 $ 7,143 5 % $ 4,043 $ 3,443 17 %
(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.
Net sales for the three months ended January 28, 2022 , as compared to the
corresponding period in the prior fiscal year, remained flat both globally and
in the U.S , largely driven by the Omicron COVID-19 impact. For the nine months
ended January 28, 2022 , most of our businesses and geographies experienced
growth primarily due to the recovery of global procedure volumes from the
downturn experienced in the first and second quarters of fiscal year 2021 as a
result of the pandemic. For the three months ended January 28, 2022 , currency
had an unfavorable impact on emerging markets and non-U.S. developed markets of
$22 million and $115 million , respectively. For the nine months ended
January 28, 2022 , currency had a favorable impact on emerging markets and
non-U.S. developed markets of $78 million and $62 million , respectively.
During the fourth quarter of fiscal year 2021, we realigned our divisions within
the Cardiovascular Portfolio. As a result, fiscal year 2021 results have been
recast to adjust for this realignment. Additionally, in fiscal year 2021 we
implemented our new operating model, which was fully operational the beginning
of the fourth quarter. Our new operating model simplifies our organization in
order to accelerate decision making, improve commercial execution, and more
effectively leverage the scale of our company.
Looking ahead, a number of macro-economic and geopolitical factors could negatively impact our business, including without limitation:
•The uncertain and uneven impact of COVID-19 on future procedural volumes, supply constraints, healthcare staffing, worker absenteeism with our customers, suppliers, and in our own operations and field teams, and resulting impacts on demand for our products and therapies;
•The potential impact that sanctions and other measures being imposed in
response to the
•Competitive product launches and pricing pressure, geographic macro-economic risks including general price inflation, reimbursement challenges, impacts from changes in the mix of our product offerings, delays in product registration approvals, replacement cycle challenges, and fluctuations in currency exchange rates; and
•National and provincial tender pricing for certain products, particularly in
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--------------------------------------------------------------------------------Cardiovascular
Cardiovascular products include pacemakers, insertable cardiac monitors, cardiac resynchronization therapy devices, implantable cardioverter defibrillators (ICD), leads and delivery systems, ablation products, electrophysiology catheters, products for the treatment of atrial fibrillation, information systems for the management of patients with Cardiac Rhythm & Heart Failure devices, products designed to reduce surgical site infections, coronary and peripheral stents and related delivery systems, balloons and related delivery systems, endovascular stent graft systems, heart valve replacement technologies, cardiac tissue ablation systems, and open heart and coronary bypass grafting surgical products. Cardiovascular also includes Care Management Services and Cath Lab Managed Services (CLMS) within the Cardiac Rhythm & Heart Failure division. Cardiovascular's net sales for the three and nine months endedJanuary 28, 2022 were$2.7 billion and$8.5 billion , respectively, which represents an increase of 1 percent and 8 percent, respectively, compared to the corresponding periods in the prior fiscal year. Currency had an unfavorable impact of$54 million and a favorable impact of$52 million on net sales for the three and nine months endedJanuary 28, 2022 , respectively. Cardiovascular experienced modest growth for the three months endedJanuary 28, 2022 primarily driven by the continued global adoption of many products, with partial offsetting declines due to supply challenges and the Omicron variant of COVID-19, particularly in theU.S. The net sales increase for the nine months endedJanuary 28, 2022 was primarily due to the recovery of global procedure volumes from the declines experienced in the corresponding period in the prior year along with growth from recent product launches. The graphs below illustrate the percent of Cardiovascular net sales by division for the three months endedJanuary 28, 2022 andJanuary 29, 2021 : [[Image Removed: mdt-20220128_g7.jpg]][[Image Removed: mdt-20220128_g8.jpg]] Cardiac Rhythm & Heart Failure (CRHF) net sales for the three and nine months endedJanuary 28, 2022 increased 2 percent and 8 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The increase for the three and nine months ended was led by Cardiac Rhythm Management with growth in TYRX antibacterial envelopes, CRT-Ds, CRT-P's, and cardiac pacing therapies due to Micra and transvenous pacemakers. Cardiac Ablation Solutions also led growth for both periods with strong sales ofArctic Front cryoablation systems. For both periods, the net sales growth was partially offset by a decline of Medtronic HVAD System net sales as a result of ourJune 2021 decision to stop the distribution and sale of the system. Structural Heart & Aortic (SHA) net sales for the three and nine months endedJanuary 28, 2022 increased 1 percent and 9 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The increase in both periods was led by growth in transcatheter aortic valve replacement (TAVR) net sales as a result of continued adoption of the CoreValve Evolut. Cardiac Surgery also contributed to the net increase in sales for both periods as a result of broad-based growth across the business, particularly from strong sales of Extra-Corporeal Life Support (ECLS) devices. For the three months endedJanuary 28, 2022 , these increases were partially offset by declines within Aortic caused by field corrective actions (FCA) and COVID-19 challenges. The most notable field corrective actions were for the Valiant Navion Thoracic Stent Graft System FCA issued in the fourth quarter of fiscal year 2021 and the Endurant and Endurant II/IIs Stent Graft Systems FCA issued in the third quarter of fiscal year 2022. 37 -------------------------------------------------------------------------------- Coronary & Peripheral Vascular (CPV) net sales for the three and nine months endedJanuary 28, 2022 was flat and increased 6 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The increase in nine months ended was led by growth inPeripheral Vascular Health driven by strong performance of the recently launched Abre venous self-expanding stent system for Deep Venous disease, as well as our superficial venous product portfolio, including the VenaSeal and ClosureFast systems. For the three months ended, the aforementioned strengths inPeripheral Vascular Health and superficial venous product portfolio did experience increases however, net sales were flat due to impacts of COVID-19. In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead, we expect Cardiovascular could be affected by the following: •Continued growth of our Micra transcatheter pacing system. Micra AV receivedU.S. FDA approval and CE Mark approval in January andApril 2020 , respectfully. The Micra AV launched inJapan in November and expands the Micra target population from 15 percent to 45 percent of pacemaker patients.
•Continued acceptance and growth from the Azure XT and S SureScan pacing systems. Azure pacemakers feature Medtronic-exclusive BlueSync technology, which enables automatic, secure wireless remote monitoring with increased device longevity.
•Growth of the Cobalt and Crome portfolio of ICDs and CRT-Ds. These devices received CE Mark approval during the fourth quarter of fiscal year 2020 andU.S. FDA approval during the first quarter of fiscal year 2021.
•Continued acceptance and expansion of the Claria MRI CRT-D system with EffectivCRT Diagnostic and EffectivCRT During AF Algorithm.
•Continued acceptance and expansion of the LINQ II cardiac monitor. Supply for the LINQ II cardiac monitor is improving as we continue to ramp our wafer scale manufacturing. 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 while retaining sensitivity for true positive detection and reduce clinic workload and burden.
•Growth of the CRT-P quadripolar pacing system.
•Continued growth, adoption, and utilization of the TYRX Envelope for implantable devices driven by the favorable results of the WRAP-IT clinical study.
•Continued acceptance and market expansion ofArctic Front cryoablation for treatment of atrial fibrillation. InJune 2021 , theArctic Front cryoablation system received a first line therapy designation from theU.S. FDA for the treatment of atrial fibrillation. •Continued acceptance and growth of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform into intermediate risk indication globally and for the treatment of patients determined to be at low risk with surgery. The Platform received both CE Mark for low risk and bicuspid labeling indication inEurope during the first quarter of fiscal year 2021. InAugust 2020 , theU.S. FDA approved revised commercial labeling for the platform that modified a precaution for the treatment of patients at low risk.
•Continued expansion and training of field support to increase coverage in the
•Continued acceptance and growth from Evolut PRO, which provides industry-leading hemodynamics, reliable delivery, and advanced sealing with an excellent safety profile. InAugust 2021 , theU.S. FDA approved the Evolut FX TAVR, a system enhancement designed to improve the overall procedural experience through enhancements in deliverability, implant visibility and deployment stability. During the third quarter, Evolut PRO received NMPA approval withinChina . •Continued acceptance and growth from the VenaSeal Closure System in theU.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. •Continued acceptance and growth of the Abre venous self-expanding stent system in theU.S. as well as pressure from competitors re-entering the market. Abre is designed for the unique challenges of venous disease. It offers easy deployment, to let physicians focus on their patient, and delivers demonstrated endurance, to give patients freedom of movement. •Our voluntary recall of the Valiant Navion Thoracic Stent Graft System and our ability to ramp production of our previous generation product, the Valiant Captivia Thoracic Stent Graft System. We are currently ramping production of the Valiant Captivia Thoracic Stent Graft System and plan to reach full production capacity in the fourth quarter of fiscal year 2022. 38 -------------------------------------------------------------------------------- •OurJune 2021 decision to stop the distribution and sale of the Medtronic HVAD System in light of a growing body of observational clinical comparisons indicating a lower frequency of neurological adverse events and mortality with another circulatory support device available to patients compared to the HVAD System. •Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include theSymplicity Spyral Multi-Electrode Renal Denervation Catheter, Pulse Field Ablation, a novel energy source that is non-thermal, Aurora Extravascular ICD and transcatheter mitral and tricuspid therapy products led by our Intrepid system.
Medical Surgical
Medical Surgical's products span the entire continuum of patient care from diagnosis to recovery, with a focus on diseases of the gastrointestinal tract, lungs, pelvic region, kidneys, obesity, and preventable complications. The products include those for advanced and general surgical products, surgical stapling devices, vessel sealing instruments, wound closure, electrosurgery products, hernia mechanical devices, mesh implants, advanced ablation, interventional lung, ventilators, airway products, renal care products, and sensors and monitors for pulse oximetry, capnography, level of consciousness and cerebral oximetry. Medical Surgical's net sales for the three and nine months endedJanuary 28, 2022 were$2.3 billion and$6.9 billion , respectively, a decrease of 1 percent and an increase of 8 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had an unfavorable impact of$51 million and a favorable impact of$34 million on net sales for the three and nine months endedJanuary 28, 2022 , respectively. Medical Surgical's net sales decrease for the three months endedJanuary 28, 2022 was primarily driven by a decline in ventilator sales due to the high COVID-19 demand in the corresponding period in the prior year. These declines were partially offset by growth experienced in most businesses due to COVID-19's impact in the corresponding period in the prior year. The net sales increase for the nine months endedJanuary 28, 2022 was primarily due to the recovery of global procedure volumes from the declines experienced in the corresponding period in the prior year.
The graphs below illustrate the percent of Medical Surgical net sales by
division for the three months ended
[[Image Removed: mdt-20220128_g9.jpg]][[Image Removed: mdt-20220128_g10.jpg]]
Surgical Innovations (SI) net sales for the three and nine months endedJanuary 28, 2022 increased 7 percent and 17 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Net sales growth for the three and nine months endedJanuary 28, 2022 was led by Advanced Surgical instruments, driven by the continued adoption of the Company's LigaSure, Sonicision, and Tri-Staple technologies, and Hernia and Wound Management. Respiratory, Gastrointestinal, & Renal (RGR) net sales for the three and nine months endedJanuary 28, 2022 decreased 13 percent and 6 percent, respectively, as compared to the corresponding periods in the prior fiscal year. RGR net sales declines for both periods were largely due to declines in ventilator demands when compared to the corresponding periods in the prior year as demand continues to normalize towards pre-pandemic levels. These declines were partially offset by growth in Renal Care Solutions, Patient Monitoring Nellcor pulse oximetry system, as well as in Gastrointestinal, driven by the esophageal product portfolio and PillCam capsule endoscopy. 39 -------------------------------------------------------------------------------- In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect Medical Surgical could be affected by the following: •Continued acceptance and future growth of Open-to-MIS techniques and tools supported by our efforts to transition open surgery to MIS (minimally invasive surgery). The Open-to-MIS initiative focuses on furthering our presence in and working to optimize open surgery globally, while capturing the market opportunity that exists in transitioning open procedures to MIS, whether through traditional MIS, or advanced technologies, including robotics.
•Continued acceptance and future growth of powered stapling and energy platform.
•Our ability to execute ongoing strategies in order to address the competitive
pressure of reprocessing of our vessel sealing disposables and growth of
surgical soft tissue robotics procedures in the
•Our ability to create markets and drive products and procedures into emerging markets. We have high quality and cost-effective surgical products designed for customers in emerging markets such as the ValleyLab LS10 single channel vessel sealing generator, which is compatible with our line of LigaSure instruments and designed for simplified use and affordability. •Continued acceptance and growth within the end stage renal disease market. The population of patients treated for end stage renal disease globally is expected to double over the next decade.
•Continued elevation of the standard of care for respiratory compromise, a progressive condition impacting a patient's ability to breathe effectively, which leverages our market leading MicroStream capnography technology.
•Continued acceptance and growth in patient monitoring, airway, and ventilation management. Key products in this area include thePuritan Bennett 980 ventilator, Microstream Capnography, Nellcor pulse oximetry system with OxiMax technology, Shiley tracheostomy and endotracheal tubes, McGRATH MAC video laryngoscopes, as well as the SonarMed Airway Monitoring System for the NICU that was launched in theU.S during the first quarter of fiscal year 2022. •Continued and future acceptance of less invasive standards of care in Gastrointestinal and Hepatology products, including the areas of GI Diagnostic and Therapeutic product lines. Recently launched products include the PillCam COLON capsule endoscopy, theBarrx platform through ablation with theBarrx 360 Express catheter, Endoflip imaging systems, Bravo Calibration-free reflux testing, and the Emprint ablation system with Thermosphere Technology, which maintains predictable spherical ablation zones throughout procedures reducing procedure time and cost. •Continued and future acceptance of Interventional Lung Solutions. Products include our Illumisite navigation platform, combined with our portfolio of biopsy tools including the Arcpoint pulmonary needle, and to access lesions outside the airway, the CrossCountry transbronchial access tool. This comprehensive portfolio gives the power to display position and access lung nodules in the periphery of the lungs, in a minimally invasive approach to accessing difficult-to-reach areas of the lung, which may aid in the diagnosis of lung cancer. •Expanding the use of less invasive treatments and furthering our commitment to improving options for women with abnormal uterine bleeding. Our expanded and strengthened surgical offerings are expected to complement our global gynecology business. •Continued future growth internationally for the Hugo robotic assisted surgery (RAS) system for urologic, gynecologic, and general surgery procedures as well as for our easy-to-access Touch Surgery Enterprise surgical video system. The Hugo RAS system, which received CE Mark inOctober 2021 as well as additional regulatory approvals inCanada ,Australia , andIsrael during the third quarter of fiscal year 2022, is designed to help reduce unwanted variability, improve patient outcomes, and by extension, lower per procedure cost.
•Our ability to successfully develop, obtain regulatory approval of and
commercialize the products within our pipeline, which include our Hugo RAS
system in the
Neuroscience
Neuroscience's products include various spinal implants, bone graft substitutes,
biologic products, image-guided surgery and intra-operative imaging systems,
robotic guidance systems used in the robot-assisted spine procedures, and
systems that incorporate advanced energy surgical instruments. Neuroscience's
products also focus on the treatment of overactive bladder, urinary retention,
fecal incontinence, gastroparesis, as well as products to treat ear, nose, and
throat (ENT), and therapies to treat the diseases of the vasculature in and
around the brain, including coils, neurovascular stents and flow diversion
products. Neuroscience also manufactures products related to implantable
40
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neurostimulation therapies and drug delivery systems for the treatment of
chronic pain, movement disorders, and epilepsy. Neuroscience's net sales for the
three and nine months ended January 28, 2022 were $2.1 billion and $6.5 billion ,
respectively, an increase of 1 percent and 10 percent, respectively, as compared
to the corresponding periods in the prior fiscal year. Currency had an
unfavorable impact of $21 million and a favorable impact of $37 million on net
sales for the three and nine months ended January 28, 2022 , respectively.
Neuroscience's net sales were relatively flat for the three months ended
January 28, 2022 , with growth experienced in emerging markets partially offset
by declines due to pandemic-driven procedural slowdowns particularly in the U.S.
The net sales growth for the nine months ended January 28, 2022 was primarily
due to the recovery of global procedure volumes from the declines experienced in
the corresponding period in the prior year.
The graphs below illustrate the percent of Neuroscience net sales by division
for the three months ended
[[Image Removed: mdt-20220128_g11.jpg]][[Image Removed: mdt-20220128_g12.jpg]]
Cranial and Spinal Technologies (CST) net sales growth for the three and nine months endedJanuary 28, 2022 increased 2 percent and 6 percent, respectively, as compared to the corresponding periods in the prior fiscal year. For both periods, Neurosurgery experienced growth from strong sales of Midas Rex powered surgical instruments, and Advanced Energy. The growth in CST for both periods was also led by Spine and Biologics due to the recovery of global procedural volumes in theU.S. ,Japan , andWestern Europe when compared to the corresponding period in the prior year. StealthStation Navigation and O-arm imaging surgery also contributed to growth for the nine months endedJanuary 28, 2022 . Specialty Therapies (Specialty) net sales for the three and nine months endedJanuary 28, 2022 increased 2 percent and 15 percent, respectively, as compared to the corresponding periods in the prior fiscal year. The increase for both periods was driven by growth in Neurovascular led by flow diversion and liquid embolic products. ENT experienced worldwide growth for the nine months endedJanuary 28, 2022 , including strong performance outside theU.S. in power, navigation, and monitoring, partially offset by declines driven by supply chain disruptions in disposables for the three months endedJanuary 28, 2022 . For the three months endedJanuary 28, 2022 ,Pelvic Health experienced net sales decline due to COVID-19 impacts on procedural volumes. For the nine months endedJanuary 28, 2022 ,Pelvic Health saw growth led by sales of the recently launched InterStim Micro neurostimulator and SureScan MRI leads. Neuromodulation (NM) net sales for the three and nine months endedJanuary 28, 2022 decreased 4 percent and increased 12 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Net sales for both periods were impacted by growth within Brain Modulation with strong performance in the Percept PC deep brain stimulation (DBS) device with BrainSense technology. For the nine months endedJanuary 28, 2022 , the increase was also driven by Pain Stim and Pain Therapies, largely due to performance of recent product launches. For the three months endedJanuary 28, 2022 , Pain Stim, Pain Therapies, and Interventional offset the sales growth with declines in theU.S andWestern Europe primarily due to COVID-19 procedural slowdowns. 41 --------------------------------------------------------------------------------
In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect Neuroscience could be affected by the following:
•Continued growth from Enabling Technologies, including StealthStation and O-arm Imaging Systems, Midas, and ENT Navigation and Power Systems, as well as acceptance of the Stealth Autoguide cranial robotic guidance platform.
•Continued sales of Mazor robotic units and associated market adoption of robot-assisted spine procedures, including the Mazor X Stealth, our integrated robotics and navigation platform.
•Continued growth from spine titanium interbody implants.
•Continued adoption of our integrated solutions through theSurgical Synergy strategy which integrates our spinal implants with enabling technologies such as imaging, navigation, power instruments, nerve monitoring, and Mazor robotics, as well as AI-driven surgical planning, personalized spinal implants, and robot-assisted surgery due to the newly acquiredMedicrea technologies.
•Market acceptance and continued global adoption of innovative new spine
products and procedural solutions within our CST division, such as our
•Growth in the broader vertebral compression fracture (VCF) and adjacent markets as we continue to pursue the development of other therapies to treat more patients with VCF, including continued success of both the Kyphon V vertebroplasty system and the Osteocool RF Spinal Tumor ablation system.
•Continued acceptance and growth of ourENT and Pelvic Health therapies within our Specialty Therapies division, including our InterStim therapy with InterStim II, InterStim Micro and InterStim X neurostimulators for the treatment of the symptoms of overactive bladder, urinary retention, and bowel incontinence, and capital equipment sales of the Stealth Station ENT surgical navigation system and intraoperative NIM nerve monitoring system. •Continued acceptance and growth of the Solitaire FR revascularization device for treatment of acute ischemic stroke and the Pipeline Embolization Devices, endovascular treatments for large or giant wide-necked brain aneurysms.
•Continued acceptance of our React Catheter and Riptide aspiration system, along with our next-generation Solitaire revascularization device.
•Market acceptance and continued global adoption of our Intellis spinal cord stimulator, DTM proprietary waveform, Evolve workflow algorithm, and Snapshot reporting to treat chronic pain in major markets around the world. •Continued acceptance and growth of our Percept PC DBS device with BrainSense technology, including its treatment of Parkinson's Disease, epilepsy, and other movement disorders.
•Market acceptance and growth from SCS therapy for treating Diabetic Peripheral
Neuropathy (DPN) on Intellis rechargeable neurostimulator and Vanta
recharge-free neurostimulator which recently received
•Ongoing obligations under theU.S. FDA consent decree entered inApril 2015 relating to the SynchroMed drug infusion system and the Neuromodulation quality system. TheU.S. FDA lifted its distribution requirements on our implantable drug pump inOctober 2017 and its warning letter inNovember 2017 . •Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include our closed-loop Percept PC and RC devices with adaptive DBS (aDBS) within Neuromodulation, as well as our hemorrhagic stroke intravascular device within Specialty Therapies, and our next-generation spine enabling technologies within CST.
Diabetes
Diabetes' products include insulin pumps, continuous glucose monitoring (CGM) systems, consumables, and smart insulin pen systems. Diabetes' net sales for the three and nine months endedJanuary 28, 2022 were$584 million and$1.7 billion , respectively, a decrease of 7 percent and 1 percent, respectively, as compared to the corresponding periods in the prior fiscal year. Currency had an unfavorable impact of$12 million and favorable impact of$17 million on net sales for the three and nine months endedJanuary 28, 2022 , respectively. Diabetes' net sales decline for both periods was primarily attributable to declines in theU.S. partially offset by growth in the international markets in integrated CGM. 42 -------------------------------------------------------------------------------- In addition to the general impacts of COVID-19 on our Company as described in the Executive Level Overview, looking ahead we expect Diabetes could be affected by the following: •Patient demand for the MiniMed 770G insulin pump system, which launched in theU.S. inNovember 2020 and inJapan inJanuary 2022 . The system is powered by SmartGuard technology and features the added benefits of smartphone connectivity and an expanded age indication to children as young as age two. •Continued future growth internationally for the MiniMed 780G insulin pump system. The MiniMed 780G system was approved in the E.U. inJune 2020 and has launched in over 40 countries on four continents outside theU.S. The global adoption of sensor-augmented insulin pump systems has resulted in strong sensor attachment rates.
•Continued acceptance and growth of the Guardian Connect CGM system which displays glucose information directly to a smartphone to help ensure patients have access to their glucose levels seamlessly and discretely. The Guardian Connect CGM system is available on both Apple iOS and Android devices.
•Strengthening our position in the diabetes market as a result of theSeptember 2020 acquisition of Companion Medical. Companion Medical offered aU.S. FDA cleared InPen smart pen system that combines the freedom of a reusable Bluetooth pen with the intelligence of an intuitive mobile application that helps users administer the appropriate insulin dose. During the third quarter of fiscal year 2021, we integrated our CGM data into the InPen Application, which allows users to have their Medtronic CGM readings in real-time alongside insulin dose information, all in one view.
•Continued pump and CGM competition in an expanding global market.
•Changes in medical reimbursement policies and programs, along with additional payor coverage on insulin pumps.
•Resolution of findings contained in aDecember 2021 U.S. FDA warning letter relating to the MiniMed 600 series insulin pump and a remote controller device for MiniMed 508 and Paradigm pumps. We are currently working with theU.S. FDA to resolve the findings. The existence of the warning letter may limit our ability to launch certain new Diabetes products in theU.S. prior to resolution of the findings. •Our ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include our MiniMed 780G insulin pump and the Guardian 4 sensor, which have been submitted to theU.S. FDA. These technologies feature our next-generation algorithms by further automating insulin delivery. 43 --------------------------------------------------------------------------------
COSTS AND EXPENSES
The following is a summary of cost of products sold, research and development, and selling, general, and administrative expenses as a percent of net sales for the three and nine months endedJanuary 28, 2022 andJanuary 29, 2021 : [[Image Removed: mdt-20220128_g13.jpg]] Cost of Products Sold We continue to focus on reducing our costs of production through supplier management, manufacturing improvements, and optimizing our manufacturing network. Cost of products sold for the three and nine months endedJanuary 28, 2022 was$2.5 billion and$7.6 billion , respectively, as compared to$2.6 billion and$7.8 billion for the corresponding periods in the prior fiscal year. The decrease in cost of products sold as a percentage of net sales for both periods was largely due to higher expenses in the prior year comparable periods as a result of COVID-19. During the three and nine months endedJanuary 29, 2021 , the conditions of the pandemic resulted in period expensing some of our fixed overhead costs, increases in our reserves in our excess and obsolete inventory, as well as negative impact from mix, as products in higher demand had lower gross margins. The decrease was also attributable to charges from field correction actions in the prior year. The nine months endedJanuary 28, 2022 included$58 million of inventory write-downs associated with ourJune 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. Research and Development Expense We remain committed to deliver the best possible experiences for every patient, physician, and caregiver we serve; to create technologies that expand what's possible across the entire human body to transform lives; to turn data and insights into real action to serve real patient needs, dramatically improving care; and to expand healthcare access and deliver positive outcomes that go far beyond our products. Research and development expense for the three and nine months endedJanuary 28, 2022 was$668 million and$2.1 billion , respectively, as compared to$601 million and$1.9 billion , respectively, for the corresponding periods in the prior fiscal year. The nine months endedJanuary 28, 2022 included$101 million of acquisitions of, and license payments for, unapproved technology, primarily in our Diabetes segment. Selling, General, and Administrative Expense Our goal is to continue to leverage selling, general, and administrative expense initiatives. Selling, general, and administrative expense primarily consists of salaries and wages, other administrative costs, such as professional fees and marketing expenses, and certain acquisition and restructuring expenses. Selling, general, and administrative expense for the three and nine months endedJanuary 28, 2022 was$2.6 billion and$7.7 billion , as compared to$2.5 billion and$7.6 billion for the corresponding periods in the prior fiscal year. The increase in selling, general, and administration as a percentage of net sales for the three months ended was primarily driven by increased employee travel as compared to the corresponding period in the prior year where travel was limited. The decrease in selling, general, and administrative expense as a percentage of net sales for the nine months ended was primarily driven by net sales growth as a result of the recovery of procedural volumes partially offset by increases in employee travel and professional services. 44 --------------------------------------------------------------------------------
The following is a summary of other costs and expenses (income):
Three months ended Nine months ended
January 28, January 29, January 28, January 29,
(in millions) 2022 2021 2022 2021
Amortization of intangible assets $ 432 $ 453 $ 1,298 $ 1,337
Restructuring charges, net 12 83 32 235
Certain litigation charges, net 35 122 95 118
Other operating (income) expense, net (63) 82 719 116
Other non-operating income, net (67) (86) (244) (233)
Interest expense 137 143 410 783
Amortization of Intangible Assets Amortization of intangible assets includes the
amortization expense of our definite-lived intangible assets, consisting of
purchased patents, trademarks, tradenames, customer relationships, purchased
technology, and other intangible assets.
Restructuring Charges, Net
Enterprise Excellence
In the third quarter of fiscal year 2018, we announced a multi-year global Enterprise Excellence Program designed to drive long-term business growth and sustainable efficiency. Further program details are described in Note 4 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year endedApril 30, 2021 . Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of$1.5 billion in connection with the Enterprise Excellence program. In total, the Company estimates it will recognize approximately$1.6 billion to$1.8 billion of exit and disposal costs and other costs related to the Enterprise Excellence program, the majority of which are expected to be incurred by the end of this fiscal year. For the three and nine months endedJanuary 28, 2022 , we recognized net charges of$65 million and$201 million , respectively, associated with our Enterprise Excellence Program, including$11 million and$25 million , respectively, recognized within restructuring charges, net in the consolidated statements of income primarily comprised of employee termination benefits. Net charges for the three and nine months endedJanuary 28, 2022 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including$26 million and$90 million , respectively, recognized within cost of products sold and$28 million and$85 million , respectively, recognized within selling, general, and administrative expense in the consolidated statements of income. For the three and nine months endedJanuary 29, 2021 , we recognized net charges of$77 million and$241 million , respectively, associated with our Enterprise Excellence Program, including$11 million and$21 million , respectively, recognized within restructuring charges, net in the consolidated statements of income primarily comprised of employee termination benefits. Net charges for the three and nine months endedJanuary 29, 2021 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including$36 million and$95 million , respectively, recognized within cost of products sold, and$30 million and$125 million , respectively, recognized within selling, general and administrative expense in the consolidated statements of income.
Simplification
In the first quarter of fiscal year 2021, we initiated our Simplification restructuring program, designed to make the Company a more nimble and competitive organization. Further program details are described in Note 4 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year endedApril 30, 2021 . Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of$307 million in connection with the Simplification program. In total, the Company estimates it will recognize approximately$400 million to$450 million of exit and disposal costs and other costs related to the Simplification program, the majority of which are expected to be incurred by the end of this fiscal year. For the three and nine months endedJanuary 28, 2022 , we recognized net charges of$15 million and$39 million , respectively, including$3 million and$11 million , respectively, recognized within restructuring charges, net in the consolidated statements of income primarily comprised of employee termination benefits. Net charges for the three and nine months endedJanuary 28, 2022 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including 45 --------------------------------------------------------------------------------
For the three and nine months endedJanuary 29, 2021 , we recognized net charges of$84 million and$229 million , respectively, including$73 million and$215 million , respectively, recognized within restructuring charges, net in the consolidated statements of income primarily comprised of employee termination benefits. For the nine months endedJanuary 29, 2021 , the net charges included$97 million of incremental defined benefit pension and post-retirement related expenses for employees that accepted voluntary early retirement packages within restructuring charges, net in the consolidated statements of income. Net charges for the three and nine months endedJanuary 29, 2021 also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including$11 million and$14 million , respectively, recognized within selling, general and administrative expense in the consolidated statements of income.
For additional information about our restructuring programs, refer to Note 5 to the current period's consolidated financial statements.
Certain Litigation Charges, Net We classify litigation charges and gains related to significant legal matters as certain litigation charges. Information regarding certain litigation charges, net is included in Note 16 to the current period's consolidated financial statements. Other Operating (Income) Expense, Net Other operating (income) expense, net primarily includes royalty income and expense, currency remeasurement and derivative gains and losses,Puerto Rico excise taxes, changes in the fair value of contingent consideration, changes in amounts accrued for certain contingent liabilities for a past acquisition, MCS charges, and income from funded research and development arrangements. For the three months endedJanuary 28, 2022 , the change in other operating (income) expense, net is primarily attributable to changes in fair value of contingent consideration, which resulted in$81 million of income for the three months endedJanuary 28, 2022 as compared to$11 million of expense in the corresponding period in the prior year. Additionally, the change is driven by the net currency impact of remeasurement expense and our hedging programs, which resulted in a net gain of$42 million combined for the three months endedJanuary 28, 2022 as compared to a net loss of$21 million for the corresponding period in the prior year. For the nine months endedJanuary 28, 2022 , the change in other operating (income) expense, net was primarily driven by MCS charges recorded during the three months endedJuly 30, 2021 . The charges of$668 million primarily included$409 million of intangible asset impairments and$211 million for commitments and obligations, including customer support obligations, restructuring, and other associated costs. Additionally, the change is due to changes in fair value of contingent consideration, which resulted in$97 million of income for the nine months endedJanuary 28, 2022 as compared to$36 million of expense in the corresponding period in the prior year. Finally, also contributing to the change was a change in amounts accrued for certain contingent liabilities for a past acquisition resulting in a$132 million gain for the nine months endedJanuary 29, 2021 . Additional information regarding the MCS charges is included in Note 5 Restructuring and Other Costs. Other Non-Operating Income, Net Other non-operating income, net includes the non-service component of net periodic pension and postretirement benefit cost, investment gains and losses, and interest income. For the three months endedJanuary 28, 2022 , the decrease in other non-operating income, net is primarily attributable to losses on our minority investment portfolio of$2 million for the three months endedJanuary 28, 2022 as compared to gains of$18 million in the corresponding period in the prior year. The increase in other non-operating income, net for the nine months endedJanuary 28, 2022 when compared to the corresponding in the prior year is primarily attributable to gains on our equity method and minority investment portfolios partially offset by a decrease in interest income. Gains on equity method and minority investments were$36 million and$24 million for the nine months endedJanuary 28, 2022 andJanuary 29, 2021 , respectively. Interest income was$134 million and$144 million for the nine months endedJanuary 28, 2022 andJanuary 29, 2021 , respectively. Interest Expense Interest expense includes interest incurred on our outstanding borrowings, amortization of debt issuance costs and debt premiums or discounts, amortization of gains or losses on terminated or de-designated interest rate derivative instruments, and charges recognized in connection with the tender and early redemption of senior notes. The decrease in interest expense for the nine months endedJanuary 28, 2022 was primarily due to the$308 million charge incurred as a result of the early redemption of approximately$6.0 billion of debt during the three months endedOctober 30, 2020 . 46 --------------------------------------------------------------------------------
INCOME TAXES
Three months ended Nine months ended
(in millions) January 28, 2022 January 29, 2021 January 28, 2022 January 29, 2021
Income tax provision (benefit) $ 106 $ (59) $ 346 $ 65
Income before income taxes 1,589 1,220 3,915 2,329
Effective tax rate 6.7 % (4.8) % 8.8 % 2.8 %
Non-GAAP income tax provision $ 262 $ 234 $ 806 $ 593
Non-GAAP income before income taxes 2,112 1,993 6,365 4,576
Non-GAAP Nominal Tax Rate 12.4 % 11.7 % 12.7 % 13.0 %
Difference between the effective tax rate
and Non-GAAP Nominal Tax Rate 5.7 % 16.5 % 3.9 % 10.2 %
Our effective tax rate for the three and nine months ended January 28, 2022 was
6.7 percent and 8.8 percent, respectively, as compared to (4.8) percent and 2.8
percent for the three and nine months ended January 29, 2021 , respectively. The
increase in our effective tax rate for the three and nine months ended
January 28, 2022 , as compared to the corresponding periods in the prior fiscal
year, was primarily due to the impact of year-over-year changes in operational
results by jurisdiction, the $106 million net tax benefit associated with the
resolution of an audit at the IRS Appellate level for fiscal years 2012 through
2014, and the $83 million benefit related to the capitalization of certain
research and development costs for U.S. income tax purposes recorded during the
three and nine months ended January 29, 2021 as compared to the $82 million net
deferred tax benefit associated with a step up in tax basis for Swiss Cantonal
purposes recorded during the three and nine months ended January 28, 2022 .
Our Non-GAAP Nominal Tax Rate for the three and nine months ended January 28,
2022 was 12.4 percent and 12.7 percent, respectively, as compared to 11.7
percent and 13.0 percent for the three and nine months ended January 29, 2021 ,
respectively. The change in our Non-GAAP Nominal Tax Rate was primarily due to
the impact of year-over-year changes in operational results by jurisdiction. An
increase in our Non-GAAP Nominal Tax Rate of 1 percent would result in an
additional income tax provision for the three and nine months ended January 28,
2022 of approximately $21 million and $64 million , respectively.
LIQUIDITY AND CAPITAL RESOURCES
We are currently in a strong financial position, and we believe our balance sheet and liquidity as ofJanuary 28, 2022 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.
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