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MEDTRONIC PLC

(MDT)
  Report
Delayed Nyse  -  04:00:01 2023-02-06 pm EST
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MEDTRONIC PLC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

12/01/2022 | 04:21pm EST

UNDERSTANDING OUR FINANCIAL INFORMATION


The following discussion and analysis provides information management believes
to be relevant to understanding the financial condition and results of
operations of Medtronic 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 ended April 29,
2022. In addition, you should read this discussion along with our consolidated
financial statements and related notes thereto at and for the three and six
months ended October 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 facilitate management's review of the operational
performance of the Company and as a basis for strategic planning; however, such
financial measures are not presented in our financial statements prepared in
accordance with accounting principles generally accepted in the United States
(U.S.) (U.S. GAAP). These financial measures are considered "non-GAAP financial
measures" and are intended to supplement, and should not be considered as
superior to, financial measures presented in accordance with U.S. GAAP. We
believe that non-GAAP financial measures provide information useful to investors
in understanding the Company's underlying operational performance and trends and
may facilitate comparisons with the performance of other companies in the
medical technologies industry.

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

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

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


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

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 challenges posed by
the COVID-19 pandemic ("COVID-19" or the "pandemic"). Several of our businesses
continued to be affected by the pandemic, including the impacts of healthcare
system staffing shortages on procedural volumes, and, in the first quarter of
fiscal year 2023, the COVID-19 lockdowns in China, which continued through the
end of May. In addition to the impacts of the pandemic, certain businesses
continue to be impacted by supply chain disruptions that began during the fourth
quarter of fiscal year 2022. 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
further healthcare system staffing shortages will have on procedural volumes,
and the continued impact certain supply chain disruptions will have on the
business.

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The following is a summary of revenue and diluted earnings per share for the
three months ended October 28, 2022 and October 29, 2021, and operating cash
flow for the six months ended October 28, 2022 and October 29, 2021:

[[Image Removed: mdt-20221028_g2.jpg]]

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GAAP to Non-GAAP Reconciliations


Starting with the quarter ended April 29, 2022, the Company no longer adjusts
non-GAAP financial measures for certain license payments for, or acquisitions
of, technology not approved by regulators due to recent industry guidance from
the U.S. Securities and Exchange Commission. Historical non-GAAP financial
measures presented in this quarterly report have been recast for comparability.

The tables below present our GAAP to Non-GAAP reconciliations for the three months ended October 28, 2022 and October 29, 2021:

                                                                                            Three months ended October 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                                                    $   1,395          $         959          $             427          $       0.32                   68.7  %
Non-GAAP Adjustments:
Restructuring and associated costs (1)                         95                     19                         76                  0.06                   20.0
Acquisition-related items (2)                                   2                      8                         (6)                    -                  400.0

(Gain)/loss on minority investments (3)                       (11)                     -                        (11)                (0.01)              

-

Medical device regulations (4)                                 37                      7                         30                  0.02               

18.9

Amortization of intangible assets                             421                     65                        356                  0.27                   15.4
RCS impairments / costs (5)                                    24                      1                         24                  0.02                    4.2

Exit of business (6)                                           37                      -                         37                  0.03                      -
Certain tax adjustments, net (7)                                -                   (793)                       793                  0.60                      -
Non-GAAP                                                $   1,999          $         266          $           1,725          $       1.30                   13.3  %

                                                                                            Three months ended October 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                                                    $   1,493          $         176          $           1,311          $       0.97                   11.8  %
Non-GAAP Adjustments:
Restructuring and associated costs (1)                         77                     15                         62                  0.05                   19.5
Acquisition-related items (2)                                 (13)                     2                        (15)                (0.01)                 (15.4)
Certain litigation charges                                     34                      4                         30                  0.02                   11.8
(Gain)/loss on minority investments (3)                         6                      -                          6                     -               

-

Medical device regulations (4)                                 24                      4                         20                  0.01               

16.7

Amortization of intangible assets                             431                     69                        361                  0.27               

16.0


Certain tax adjustments, net (8)                                -                    (16)                        16                  0.01                      -
Non-GAAP                                                $   2,052          $         254          $           1,792          $       1.32                   12.4  %

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

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

(3)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 European
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. We consider these costs to be duplicative of
previously incurred costs and/or one-time costs, which are limited to a specific
time period.

(5)The charges predominantly relate to changes in the carrying amount of the
disposal group and other associated costs, as a result of the anticipated sale
of half of the Company's Renal Care Solutions (RCS) business related to the May
25, 2022 agreement with DaVita Inc.

(6)The charges relate to the exit of a business and are primarily comprised of inventory write-downs.


(7)The charge primarily relates to a $764 million reserve adjustment that was a
direct result of the U.S. Tax Court opinion, issued on August 18, 2022, on the
previously disclosed litigation regarding the allocation of income between
Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico.

(8)The charge includes the amortization on previously established deferred tax assets from intercompany intellectual property transactions.

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The tables below present our GAAP to Non-GAAP reconciliations for the six months ended October 28, 2022 and October 29, 2021:

                                                                                             Six months ended October 28, 2022
                                                                                Income                 Net Income
                                                        Income Before        Tax Provision          Attributable to                                   Effective
(in millions, except per share data)                    Income Taxes           (Benefit)               Medtronic               Diluted EPS             Tax Rate
GAAP                                                    $    2,438          $      1,072          $           1,356          $       1.02                   44.0  %
Non-GAAP Adjustments:
Restructuring and associated costs (1)                         171                    35                        136                  0.10                   20.5
Acquisition-related items (2)                                   38                    14                         23                  0.02                   36.8

(Gain)/loss on minority investments (3)                        (15)                    -                        (15)                (0.01)              

-

Medical device regulations (4)                                  70                    14                         56                  0.04               

20.0

Amortization of intangible assets                              844                   129                        715                  0.54                   15.3
RCS impairments / costs (5)                                     99                     2                         97                  0.07                    2.0
Debt redemption premium and other charges (6)                   53                    11                         42                  0.03                   20.8
Exit of business (7)                                            37                     -                         37                  0.03                      -
Certain tax adjustments, net (8)                                 -                  (780)                       780                  0.59                      -
Non-GAAP                                                $    3,733          $        497          $           3,226          $       2.42                   13.3  %

                                                                                             Six months ended October 29, 2021
                                                                                Income                 Net Income
                                                        Income Before        Tax Provision          Attributable to                                   Effective
(in millions, except per share data)                    Income Taxes           (Benefit)               Medtronic               Diluted EPS             Tax Rate
GAAP                                                    $    2,326          $        240          $           2,074          $       1.53                   10.3  %
Non-GAAP Adjustments:
Restructuring and associated costs (1)                         159                    31                        128                  0.09                   19.5
Acquisition-related items (2)                                    6                     3                          3                     -                   50.0
Certain litigation charges                                      60                     9                         51                  0.04                   15.0
(Gain)/loss on minority investments (3)                        (25)                    -                        (22)                (0.02)              

-

Medical device regulations (4)                                  45                     9                         36                  0.03               

20.0

Amortization of intangible assets                              866                   139                        728                  0.54                   16.1
MCS impairment / costs (9)                                     726                   162                        564                  0.42                   22.3
Certain tax adjustments, net (10)                                -                   (69)                        69                  0.05                      -
Non-GAAP                                                $    4,163          $        524          $           3,629          $       2.68                   12.6  %

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

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

(3)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 European
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. We consider these costs to be duplicative of
previously incurred costs and/or one-time costs, which are limited to a specific
time period.

(5)The charges predominantly include non-cash pre-tax impairments, primarily
related to goodwill, and other associated costs, as a result of the anticipated
sale of half of the Company's Renal Care Solutions (RCS) business related to the
May 25, 2022 agreement with DaVita Inc.

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

(7)The charges relate to the exit of a business and are primarily comprised of inventory write-downs.


(8)The charge primarily relates to a $764 million reserve adjustment that was a
direct result of the U.S. Tax Court opinion, issued on August 18, 2022, on the
previously disclosed litigation regarding the allocation of income between
Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico.

(9)The charges relate to the Company's June 2021 decision to stop the distribution and sale of the Medtronic HVAD System within the Mechanical Circulatory Support Operating Unit (MCS). The charges included $515 million of non-cash impairments, primarily related to $409 million of intangible asset impairments, as well as $211 million for commitments and obligations in connection with the decision, including customer support

                                       32
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obligations, restructuring, and other associated costs. Medtronic is committed to serving the needs of the patients currently implanted with the HVAD System.

(10)The charge is associated with a change in the company's permanently reinvestment assertion on certain historical earnings and the amortization on previously established deferred tax assets from intercompany intellectual property transactions.

Free Cash Flow


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

                                                                                 Six months ended
(in millions)                                                      October 28, 2022           October 29, 2021
Net cash provided by operating activities                         $             2,005       $              3,061
Additions to property, plant, and equipment                                     (749)                      (649)
Free cash flow                                                    $             1,256       $              2,412

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

NET SALES

Segment and Division

The charts below illustrate the percent of net sales by segment for the three months ended October 28, 2022 and October 29, 2021:

[[Image Removed: mdt-20221028_g3.jpg]][[Image Removed: mdt-20221028_g4.jpg]]

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The table below illustrates net sales by segment and division for the three and six months ended October 28, 2022 and October 29, 2021:

                                                     Three months ended                                              Six months ended
                                                                      October 29,                             October 28,        October 29,
(in millions)                               October 28, 2022             2021               % Change              2022               2021              % Change
Cardiac Rhythm & Heart Failure             $       1,431             $    1,471                   (3) %       $   2,824          $   2,954                   (4) %
Structural Heart & Aortic                            757                    750                    1              1,499              1,537              

(3)

Coronary & Peripheral Vascular                       584                    606                   (4)             1,163              1,226                   (5)
Cardiovascular                                     2,773                  2,827                   (2)             5,486              5,717                   (4)
Surgical Innovations                               1,398                  1,497                   (7)             2,736              3,051                  (10)
Respiratory, Gastrointestinal, & Renal               671                    802                  (16)             1,335              1,570                  (15)
Medical Surgical                                   2,070                  2,299                  (10)             4,071              4,621                  (12)
Cranial & Spinal Technologies                      1,081                  1,067                    1              2,124              2,189                   (3)
Specialty Therapies                                  686                    634                    8              1,353              1,275                    6
Neuromodulation                                      419                    435                   (4)               824                875                   (6)
Neuroscience                                       2,186                  2,136                    2              4,301              4,340                   (1)
Diabetes                                             556                    585                   (5)             1,098              1,157                   (5)
Total                                      $       7,585             $    7,847                   (3) %       $  14,955          $  15,835                   (6) %

Segment and Market Geography

The charts below illustrate the percent of net sales by market geography for the three months ended October 28, 2022 and October 29, 2021:

[[Image Removed: mdt-20221028_g5.jpg]][[Image Removed: mdt-20221028_g6.jpg]]

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The table below includes net sales by market geography for each of our segments for the three and six months ended October 28, 2022 and October 29, 2021:


                                                     U.S.(1)                                         Non-U.S. Developed Markets(2)                                      Emerging Markets(3)
                                               Three months ended                                         Three months ended                                            Three months ended
                               October 28,        October 29,                             October 28,       October 29,                                                       October 29,
(in millions)                     2022                2021              % Change             2022               2021              % Change           October 28, 2022             2021              % Change
Cardiovascular                $    1,424          $   1,373                    4  %       $    802          $     948                  (15) %       $         546             $     506                    8  %
Medical Surgical                     905                970                   (7)              719                841                  (15)                   446                   488                   (9)
Neuroscience                       1,512              1,394                    8               382                433                  (12)                   292                   309                   (6)
Diabetes                             228                261                  (13)              254                256                   (1)                    74                    69                    7
Total                         $    4,069          $   3,997                    2  %       $  2,157          $   2,478                  (13) %       $       1,359             $   1,372                   (1) %

                                                     U.S.(1)                                         Non-U.S. Developed Markets(2)                                      Emerging Markets(3)
                                                Six months ended                                           Six months ended                                              Six months ended
                               October 28,        October 29,                             October 28,       October 29,                                                       October 29,
(in millions)                     2022                2021              % Change             2022               2021              % Change           October 28, 2022             2021              % Change
Cardiovascular                $    2,722          $   2,793                   (3) %       $  1,694          $   1,952                  (13) %       $       1,070             $     972                   10  %
Medical Surgical                   1,748              1,959                  (11)            1,485              1,710                  (13)                   838                   951                  (12)
Neuroscience                       2,931              2,840                    3               788                898                  (12)                   582                   602                   (3)
Diabetes                             434                506                  (14)              518                519                    -                    145                   132                   10
Total                         $    7,835          $   8,098                   (3) %       $  4,485          $   5,079                  (12) %       $       2,635             $   2,658                   (1) %


(1)U.S. includes the United States and U.S. territories.
(2)Non-U.S. developed markets include Japan, Australia, New Zealand, Korea,
Canada, and the countries within Western Europe.
(3)Emerging markets include the countries of the Middle East, Africa, Latin
America, Eastern Europe, and the countries of Asia that are not included in the
non-U.S. developed markets, as defined above.

The decline in net sales for three and six months ended October 28, 2022, as
compared to the corresponding period in the prior fiscal year, was driven
primarily by unfavorable currency impact and supply chain challenges in certain
businesses, particularly in the first quarter of fiscal year 2023. For the three
months ended October 28, 2022, currency had an unfavorable impact on emerging
markets and non-U.S. developed markets of $66 million and $390 million,
respectively. For the six months ended October 28, 2022, currency had an
unfavorable impact on emerging markets and non-U.S. developed markets of
$101 million and $705 million, respectively. The decline in net sales for the
three and six months ended October 28, 2022 was partially offset by growth in
certain product lines, including Transcatheter Aortic Valve replacements (TAVR),
Core Spine in the U.S., and Diabetes in international markets.

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


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

•National and provincial tender pricing for certain products, particularly in China;


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

•The potential impact that sanctions and other measures being imposed in
response to the Russia-Ukraine conflict could have on revenue and supply chain.
The financial impact of the conflict in the second quarter of fiscal year 2023,
including on accounts receivable and inventory reserves, was not material, and
for the three and six months ended October 28, 2022, the business of the Company
in these countries represented less than 1% of the Company's consolidated
revenues and assets. Although the implications of this conflict are difficult to
predict at this time, the ongoing conflict may increase pressure on the global
economy and supply chains, resulting in increased future volatility risk for our
business operations and performance.

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Cardiovascular


Cardiovascular products include pacemakers, insertable cardiac monitors, cardiac
resynchronization therapy devices, implantable cardioverter defibrillators
(ICD), leads and delivery systems, electrophysiology catheters, products for the
treatment of atrial fibrillation, information systems for the management of
patients with Cardiac Rhythm & Heart Failure devices, products designed to
reduce surgical site infections, coronary and peripheral stents and related
delivery systems, balloons and related delivery systems, endovascular stent
graft systems, heart valve replacement technologies, cardiac tissue ablation
systems, and open heart and coronary bypass grafting surgical products.
Cardiovascular also includes Care Management Services and Cath Lab Managed
Services (CLMS) within the Cardiac Rhythm & Heart Failure division.
Cardiovascular's net sales for the three and six months ended October 28, 2022
were $2.8 billion and $5.5 billion, respectively, a decrease of 2 percent and 4
percent, respectively, compared to the corresponding periods in the prior fiscal
year. Currency had an unfavorable impact of $177 million and $315 million on net
sales for the three and six months ended October 28, 2022. The net sales
decrease for both periods was primarily driven by unfavorable currency impact
and supply chain challenges in certain businesses.

The graphs below illustrate the percent of Cardiovascular net sales by division for the three months ended October 28, 2022 and October 29, 2021:


  [[Image Removed: mdt-20221028_g7.jpg]][[Image Removed: mdt-20221028_g8.jpg]]
Cardiac Rhythm & Heart Failure (CRHF) net sales for the three and six months
ended October 28, 2022 decreased 3 percent and 4 percent, respectively, as
compared to the corresponding periods in the prior fiscal year. The net sales
declines were driven by unfavorable currency partially offset by increases from
continued adoption of Micra AV, TYRX antibacterial envelopes, and LINQ II
implants. Additionally, Cardiac Ablation Solutions net sales for the six months
ended October 28, 2022 were negatively impacted by competitive pressures in
Western Europe and Japan, as well as the pending volume-based procurement (VBP)
in China.

Structural Heart & Aortic (SHA) net sales for the three and six months ended
October 28, 2022 increased 1 percent and decreased 3 percent, respectively, as
compared to the corresponding periods in the prior fiscal year. The net sales
for both periods were impacted by unfavorable currency. The net sales for both
periods were also impacted by growth in transcatheter aortic valve replacement
(TAVR), surgical valves therapies, and perfusion systems. For the three months
ended October 28, 2022, Aortic experienced growth due to lessening impacts from
previous supply chain challenges. Net sales for the six months ended October 28,
2022 were also impacted by a field corrective action with the Harmony
Transcatheter Pulmonary Valve and Delivery Catheter System, staffing shortages,
and supply shortages of contrast.

Coronary & Peripheral Vascular (CPV) net sales for the three and six months
ended October 28, 2022 decreased 4 percent and 5 percent, respectively, as
compared to the corresponding periods in the prior fiscal year. The net sales
declines were driven by unfavorable currency, partially offset by strong demand
combined with improved product availability of the SpiderFX embolic protection
device (EPD) and strong performance of our superficial venous product portfolio,
including the VenaSeal system. Coronary & Renal Denervation also experienced
growth driven by Coronary Balloons and the launch of the Onyx Frontier DES
platform in the U.S. Net sales for the six months ended October 28, 2022 were
also impacted by market procedural volumes in Coronary remaining below pre-COVID
levels in several major
                                       36
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markets, headwinds related to U.S. hospital contrast shortages early in the first quarter of fiscal year 2023, and declines in Peripheral Vascular Health due to competitors re-entering the market and supply chain challenges.

In addition to the macro-economic and geopolitical factors 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. The Micra AV launched in Japan in November 2021 and China in August 2022. Micra AV 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
and the 3830 lead. Azure pacemakers feature Medtronic-exclusive BlueSync
technology, which enables automatic, secure wireless remote monitoring with
increased device longevity. The 3830 lead, previously labeled for His bundle
pacing, has now been expanded to include left bundle branch area pacing.

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

•Continued acceptance and expansion of the Claria MRI CRT-D system with AdaptivCRT and compatibility with TriageHF technology.


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

•Growth of the CRT-P quadripolar pacing system.

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

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


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

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


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

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

•Acceptance and growth of IN.PACT 018 drug-coated balloons (DCB). The product
was launched under limited market release in the first quarter of fiscal year
2023 with full market release expected in the third quarter of fiscal year 2023.
IN.PACT 018 is used in endovascular therapies to treat femoropopliteal disease.

•Pressure from competitors re-entering the market contributing to the decline in
sales of the Abre venous self-expanding stent system. Abre is designed for the
unique challenges of venous disease. It offers easy deployment and delivers
demonstrated endurance, to give patients freedom of movement.

•Strengthening our position in the cardiac ablation technologies market as a
result of the August 2022 acquisition of Affera, Inc. The acquisition expands
the Cardiovascular segment portfolio of advanced cardiac ablation products and
accessories to include its first cardiac mapping and navigation platform to meet
physician needs within a growing patient population.

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

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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 six months
ended October 28, 2022 were $2.1 billion and $4.1 billion, respectively, a
decrease of 10 percent and 12 percent, respectively, compared to the
corresponding periods in the prior fiscal year. Currency had an unfavorable
impact of $149 million and $264 million on net sales for the three and six
months ended October 28, 2022, respectively. The net sales decrease for both
periods was primarily driven by unfavorable currency impact, supply chain
disruptions particularly in Surgical Innovations, provincial volume-based
procurement (VBP) stapling tenders in China, and a decline in ventilator sales
due to the high COVID-19 demand in the corresponding period in the prior fiscal
year.

The graphs below illustrate the percent of Medical Surgical net sales by division for the three months ended October 28, 2022 and October 29, 2021:

[[Image Removed: mdt-20221028_g9.jpg]][[Image Removed: mdt-20221028_g10.jpg]]


Surgical Innovations (SI) net sales for the three and six months ended
October 28, 2022 decreased 7 percent and 10 percent, respectively, as compared
to the corresponding periods in the prior fiscal year. The decrease for the
three months ended October 28, 2022 was attributable to slower than expected
procedure volumes, and declines in Advanced Stapling primarily driven by
provincial VBP stapling tenders in China, partially offset by growth in Hernia
and Wound Management due to supply chain recoveries. The decrease for the six
months ended October 28, 2022 was led by Advanced Surgical Instruments, driven
by global supply chain challenges, including resins, semiconductors, and
packaging trays, which impacted energy and stapling products, and provincial VBP
stapling tenders and COVID-19 lockdowns in China.

Respiratory, Gastrointestinal, & Renal (RGR) net sales for the three and six
months ended October 28, 2022 decreased 16 percent and 15 percent, respectively,
as compared to the corresponding periods in the prior fiscal year. The decrease
for three and six months ended October 28, 2022 was largely due to declines in
ventilator demand when compared to the corresponding period in the prior fiscal
year as demand dropped below pre-pandemic levels. Pulse oximetry products also
contributed to the decrease, driven by lower COVID-19 related utilization
compared to the prior period.

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


•The pending separation of the combined Patient Monitoring and Respiratory
Interventions businesses from the Medical Surgical Portfolio. The Company
announced its intention to pursue a separation in October 2022 and expects to
complete the separation 12 to 18 months from the announcement date.

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•The pending contribution of our Renal Care Solutions business as a result of the May 25, 2022 definitive agreement with DaVita Inc.


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

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

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


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

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


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

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

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

Neuroscience


Neuroscience's products include various spinal implants, bone graft substitutes,
biologic products, image-guided surgery and intra-operative imaging systems,
robotic guidance systems used in 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, 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 neurostimulation therapies and
drug delivery systems for the treatment of chronic pain, movement disorders, and
epilepsy. Neuroscience's net sales for the three and six months ended
October 28, 2022 were $2.2 billion and $4.3 billion, respectively, an increase
of 2 percent and a decrease of 1 percent, respectively, compared to the
corresponding periods in the prior fiscal year. Currency had an unfavorable
impact of $85 million and $149 million on net sales for the three and six months
ended October 28, 2022, respectively. The net sales increase for the three
months ended October 28, 2022, was primarily due to growth in U.S. Core Spine,
ENT, and continued supply risk mitigation, partially offset by unfavorable
currency impact. The net sales decrease for the six months ended October 28,
2022, was driven by unfavorable currency impact, supply chain challenges in
certain businesses, and prolonged purchasing timelines for large capital.

                                       39
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The graphs below illustrate the percent of Neuroscience net sales by division for the three months ended October 28, 2022 and October 29, 2021:

[[Image Removed: mdt-20221028_g11.jpg]][[Image Removed: mdt-20221028_g12.jpg]]


Cranial and Spinal Technologies (CST) net sales for the three and six months
ended October 28, 2022 increased 1 percent and decreased 3 percent,
respectively, as compared to the corresponding periods in the prior fiscal year.
For the three months ended October 28, 2022, the growth was driven by increased
sales in Core Spine products and strong sales of the Infuse Bone Graft in the
U.S. The net sales increase was also attributable to strong sales of
StealthStation Navigation and Midas Rex powered surgical instruments. For the
six months ended October 28, 2022, the net sales decrease was driven by
prolonged customer capital purchasing timelines and Biologics, which experienced
decreases in customer ordering patterns, when compared to the corresponding
period in the prior fiscal year.

Specialty Therapies (Specialty) net sales for the three and six months ended
October 28, 2022 increased 8 percent and 6 percent, respectively, as compared to
the corresponding periods in the prior fiscal year. The increase for both
periods was driven by growth in hemorrhagic and ischemic stroke, flow diversion
and access delivery products. The net sales increase was also driven by benefits
from the recent May 2022 acquisition of Intersect ENT. For the six months ended
October 28, 2022, the growth in ENT growth was partially offset by supply chain
disruption in disposables.

Neuromodulation (NM) net sales for the three and six months ended October 28,
2022 decreased 4 percent and 6 percent, respectively, as compared to the
corresponding periods in the prior fiscal year. For both periods, declines were
largely due to unfavorable currency impacts, healthcare staffing challenges
impacting spinal cord stimulation implant volumes and continued supply chain
challenges in Interventional. For the three months ended October 28, 2022, there
was growth driven by Pain Stim and Targeted Drug Delivery.

In addition to the macro-economic and geopolitical factors 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 the Aible offering
(formerly Surgical 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 acquired
Medicrea technologies.

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•Market acceptance and continued global adoption of innovative new spine products and procedural solutions within our CST division, such as our Infinity OCT System and Prestige LP cervical disc system.

•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 our ENT and Pelvic Health therapies,
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 received U.S. FDA approval in January 2022.


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

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

•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) and Inceptiv Neurostimulator,
as well as our hemorrhagic stroke intravascular device, and our next-generation
spine enabling technologies.

Diabetes

Diabetes' products include insulin pumps, continuous glucose monitoring (CGM)
systems, consumables, and smart insulin pen systems. Diabetes' net sales for the
three and six months ended October 28, 2022 were $556 million and $1.1 billion,
a decrease of 5 percent as compared to the corresponding periods in the prior
fiscal year. Currency had an unfavorable impact of $47 million and $80 million
on net sales for the three and six months ended October 28, 2022, respectively.
The decrease in net sales for both periods was primarily driven by unfavorable
currency impacts and declines in the U.S. across most product lines. The net
sales declines were partially offset by strong international growth primarily
driven by the continued international expansion of the MiniMed 780G insulin pump
system and integrated CGM.

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


•Continued patient demand for the MiniMed 770G insulin pump system, which 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 acceptance and growth internationally for the MiniMed 780G insulin
pump system. The global adoption of sensor-augmented insulin pump systems has
resulted in strong sensor attachment rates.

                                       41
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•Continued acceptance and growth of the Guardian Connect CGM system, which
displays glucose information directly to a smartphone to help ensure patients
have access to their glucose levels seamlessly and discretely. The Guardian
Connect CGM system is available on both Apple iOS and Android devices.

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

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

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


•Resolution of findings contained in a December 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 the U.S. FDA
to resolve the findings. The existence of the warning letter may limit our
ability to launch certain new Diabetes products in the U.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, but are not limited to, our MiniMed 780G insulin pump and the Guardian 4 sensor, which have been submitted to the U.S. FDA, and our next-generation sensor Simplera.

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 six months ended October 28, 2022 and October 29, 2021:

                    [[Image Removed: mdt-20221028_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 months ended
October 28, 2022 and October 29, 2021 was $2.5 billion and for the six months
ended October 28, 2022 and October 29, 2021 was $5.1 billion. The increase in
cost of products sold as a percentage of net sales was primarily attributable to
increased labor and direct material manufacturing costs, predominantly due to
inflationary pressures and supply chain challenges as well as increased freight
due to higher fuel costs and expedited shipments for backorders resulting from
supply chain challenges. The six months ended October 29, 2021 included $58
million of inventory write-downs associated with our June 2021 decision to stop
the distribution and sale of Medtronic's HVAD System (MCS charges). Looking
forward, our cost of products sold likely will be further negatively impacted by
inflation, supply chain challenges, and higher labor and direct material costs.

Research and Development Expense We remain committed to deliver the best
possible experiences for patients, physicians, and caregivers we serve; to
create technologies that expand what's possible across the entire human body to
transform lives; to turn data and insights into real action to serve patient
needs to improve care; and to expand healthcare access and deliver positive
outcomes. Research and development expense for the three months ended
October 28, 2022 and October 29, 2021 was $676 million and for the six months
ended October 28, 2022 and October 29, 2021 was $1.4 billion. The six months
ended October 29, 2021 included $90 million of acquisitions of, and license
payments for, technology not yet approved by regulators, primarily in our
Diabetes segment.

                                       42
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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 months ended October 28, 2022 and
October 29, 2021 was $2.6 billion and for the six months ended October 28, 2022
and October 29, 2021 was $5.2 billion. The increase in selling, general, and
administrative expense as a percentage of net sales was primarily driven by net
sales declines and increased employee travel as compared to the corresponding
period in the prior fiscal year when travel was limited, partially offset by
reduced incentive accruals.

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

                                                       Three months ended                          Six months ended
                                                October 28,         October 29,                                   October 29,
(in millions)                                      2022                 2021             October 28, 2022             2021
Amortization of intangible assets              $      421          $       431          $      844               $       866
Restructuring charges, net                             30                   10                  44                        21
Certain litigation charges, net                         -                   34                   -                        60
Other operating (income) expense, net                 (97)                  21                 (62)                      781
Other non-operating income, net                      (109)                 (66)               (192)                     (177)
Interest expense                                      118                  136                 282                       273


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 ended April 29, 2022.

Since inception, the Company has incurred pre-tax exit and disposal costs and
other costs, across all segments, of $1.7 billion in connection with the
Enterprise Excellence program. In total, the Company estimates it will recognize
approximately $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 six months ended October 28, 2022, we recognized net charges
of $53 million and $93 million, respectively, associated with our Enterprise
Excellence Program. Net charges for the three and six months ended October 28,
2022 included costs incurred as a direct result of the restructuring program,
such as salaries for employees supporting the program and consulting expenses,
including $19 million and $38 million, respectively, recognized within cost of
products sold and $27 million and $55 million, respectively, recognized within
selling, general, and administrative expense in the consolidated statements of
income. Charges recognized within restructuring charges, net for the period were
not significant.

For the three and six months ended October 29, 2021, we recognized net charges
of $62 million and $136 million, respectively, associated with our Enterprise
Excellence Program, including $4 million and $15 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 six months ended October 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 $31 million and $64
million, respectively, recognized within cost of products sold, and $27 million
and $57 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 ended April 29, 2022.

Since inception, the Company has incurred pre-tax exit and disposal costs and other costs, across all segments, of $427 million in connection with the Simplification program. In total, the Company estimates it will recognize approximately $450 million of exit and

                                       43
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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 six months ended October 28, 2022, we recognized net charges
of $43 million and $78 million, respectively, including $23 million and $44
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 six months ended October 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
$18 million and $31 million, respectively, recognized within selling, general
and administrative expense in the consolidated statements of income.

For the three and six months ended October 29, 2021, we recognized net charges
of $18 million and $25 million, respectively, including $9 million recognized
within restructuring charges, net in the consolidated statements of income for
both periods primarily comprised of employee termination benefits. Net charges
for the three and six months ended October 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 $9 million and $16
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 specified certain litigation charges
and gains related to significant legal matters as certain litigation charges,
net in the consolidated statements of income. For additional information, refer
to Note 16 in 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, MCS charges, RCS charges, impairment charges, and
income from funded research and development arrangements.

For the three months ended October 28, 2022, the change in other operating (income) expense, net was primarily driven by the net currency impact of remeasurement expense and our hedging programs, which resulted in a net gain of $138 million as compared to a net loss of $3 million for the corresponding period in the prior year.


For the six months ended October 28, 2022, the change in other operating
(income) expense, net was primarily driven by MCS charges recorded during three
months ended July 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 driven by the net currency
impact of remeasurement expense and our hedging programs, which resulted in a
net gain of $219 million combined for the six months ended October 28, 2022 as
compared to a net loss of $36 million for the corresponding period in the prior
year. During the six months ended October 28, 2022, the Company also recorded
non-cash pre-tax charges of $81 million, primarily related to impairment of
goodwill, as a result of the anticipated sale of half of the Company's RCS
business, related to the May 25, 2022 agreement with DaVita Inc.

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 and six months ended October 28, 2022, the increase in other
non-operating income, net is primarily attributable to an increase in interest
income, partially offset by reduced gains on our equity method and minority
investment portfolios for the six months ended. Interest income was $73 million
and $128 million for the three and six months ended October 28, 2022,
respectively, and $46 million and $89 million for the three and six months ended
October 29, 2021, respectively. Gains on equity method and minority investments
were $12 million and $15 million for the three and six months ended October 28,
2022, respectively, compared to a loss of $5 million and gain of $38 million for
the three and six months ended October 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 amounts excluded from the effectiveness assessment of certain
net investment hedges, and charges recognized in connection with the early
redemption of senior notes.

For the three months ended October 28, 2022, the decrease in interest expense
was primarily due to $27 million in after-tax unrealized gains representing
amounts excluded from the effectiveness assessment of certain net investment
hedges. For the six months ended October 28, 2022, the increase in interest
expense was primarily due to the $53 million charge incurred as a result of the
early redemption of approximately $2.3 billion of senior notes, during the three
months ended July 29, 2022, partially offset by $47 million in after-tax
unrealized gains representing amounts excluded from the effectiveness assessment
of certain net investment hedges during the six months ended October 28, 2022.
                                       44
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INCOME TAXES

                                                          Three months ended                                     Six months ended
(in millions)                               October 28, 2022              October 29, 2021          October 28, 2022          October 29, 2021
Income tax provision                       $          959                $          176            $          1,072          $          240
Income before income taxes                          1,395                         1,493                       2,438                   2,326
Effective tax rate                                   68.7   %                      11.8    %                   44.0  %                 10.3    %

Non-GAAP income tax provision              $          266                $          254            $            497          $          524
Non-GAAP income before income taxes                 1,999                         2,052                       3,733                   4,163
Non-GAAP Nominal Tax Rate                            13.3   %                      12.4    %                   13.3  %                 12.6    %

Difference between the effective tax rate
and Non-GAAP Nominal Tax Rate                       (55.4)  %                       0.6    %                  (30.7) %                  2.3    %


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

Our effective tax rate for the three and six months ended October 28, 2022 was
68.7% and 44.0%, respectively, as compared to 11.8% and 10.3% for the three and
six months ended October 29, 2021, respectively. The increase in our effective
tax rate for the three and six months ended October 28, 2022, as compared to the
corresponding periods in the prior fiscal year, was primarily due to the $764
million net tax charge referenced above.

Our Non-GAAP Nominal Tax Rate for both the three and six months ended
October 28, 2022 was 13.3%, as compared to 12.4% and 12.6% for the three and six
months ended October 29, 2021, respectively. The change in our Non-GAAP Nominal
Tax Rate was primarily due to the decrease in the stock-based compensation
benefit and 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 six months ended
October 28, 2022 of approximately $20 million and $37 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES


We are currently in a strong financial position, and we believe our balance
sheet and liquidity as of October 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.

                                       45

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