2019 Q3 Form 10-Q Financial Statement

#000161310319000038 Filed on August 30, 2019

View on sec.gov

Income Statement

Concept 2019 Q3 2018 Q3 2018 Q2
Revenue $7.493B $7.384B $8.144B
YoY Change 1.48% -0.08% 2.88%
Cost Of Revenue $2.366B $2.204B $2.383B
YoY Change 7.35% -6.29% -1.93%
Gross Profit $5.127B $5.180B $5.746B
YoY Change -1.02% 2.82% 4.85%
Gross Profit Margin 68.42% 70.15% 70.56%
Selling, General & Admin $2.543B $2.597B $2.533B
YoY Change -2.08% 0.66% -9.08%
% of Gross Profit 49.6% 50.14% 44.08%
Research & Development $587.0M $585.0M $592.0M
YoY Change 0.34% 6.56% 7.05%
% of Gross Profit 11.45% 11.29% 10.3%
Depreciation & Amortization $657.0M $666.0M $664.0M
YoY Change -1.35% 4.72% -7.52%
% of Gross Profit 12.81% 12.86% 11.56%
Operating Expenses $3.130B $3.182B $3.719B
YoY Change -1.63% 1.69% -2.97%
Operating Profit $1.485B $1.236B $2.027B
YoY Change 20.15% -10.56% 23.07%
Interest Expense $609.0M $242.0M -$345.0M
YoY Change 151.65% -15.38% 200.0%
% of Operating Profit 41.01% 19.58% -17.02%
Other Income/Expense, Net $101.0M $186.0M $234.0M
YoY Change -45.7% -381.82% -541.51%
Pretax Income $977.0M $1.180B $1.725B
YoY Change -17.2% -1.26% 20.21%
Income Tax $100.0M $103.0M $223.0M
% Of Pretax Income 10.24% 8.73% 12.93%
Net Earnings $864.0M $1.075B $1.460B
YoY Change -19.63% 5.81% 25.54%
Net Earnings / Revenue 11.53% 14.56% 17.93%
Basic Earnings Per Share $0.64 $0.79 $1.08
Diluted Earnings Per Share $0.64 $0.79 $1.07
COMMON SHARES
Basic Shares Outstanding 1.341B shares 1.353B shares 1.352B shares
Diluted Shares Outstanding 1.352B shares 1.365B shares

Balance Sheet

Concept 2019 Q3 2018 Q3 2018 Q2
SHORT-TERM ASSETS
Cash & Short-Term Investments $10.68B $11.00B $11.23B
YoY Change -2.92% -15.92% -18.1%
Cash & Equivalents $5.080B $4.380B $3.669B
Short-Term Investments $5.603B $6.624B $7.558B
Other Short-Term Assets $2.196B $2.101B $2.187B
YoY Change 4.52% 5.05% 17.27%
Inventory $3.932B $3.681B $3.579B
Prepaid Expenses
Receivables $5.894B $5.674B $5.987B
Other Receivables $0.00 $0.00 $0.00
Total Short-Term Assets $22.71B $22.46B $22.98B
YoY Change 1.09% -9.36% -7.61%
LONG-TERM ASSETS
Property, Plant & Equipment $4.711B $4.524B $4.604B
YoY Change 4.13% 3.12% 5.57%
Goodwill $40.08B $38.96B $39.54B
YoY Change 2.89% -0.61% 2.67%
Intangibles $20.23B $21.27B $21.72B
YoY Change -4.87% -7.55% -7.19%
Long-Term Investments $372.0M $500.0M $18.00M
YoY Change -25.6% -31.32%
Other Assets $1.991B $1.099B $1.078B
YoY Change 81.16% -14.41% -12.5%
Total Long-Term Assets $68.56B $67.26B $68.41B
YoY Change 1.94% -10.88% -8.76%
TOTAL ASSETS
Total Short-Term Assets $22.71B $22.46B $22.98B
Total Long-Term Assets $68.56B $67.26B $68.41B
Total Assets $91.27B $89.72B $91.39B
YoY Change 1.72% -10.5% -8.48%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $1.906B $1.789B $1.628B
YoY Change 6.54% 1.71% 4.69%
Accrued Expenses $4.430B $4.735B $5.232B
YoY Change -6.44% 8.53% 17.76%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00 $0.00
YoY Change
Long-Term Debt Due $1.458B $1.545B $2.058B
YoY Change -5.63% -80.83% -72.54%
Total Short-Term Liabilities $8.518B $9.112B $10.08B
YoY Change -6.52% -39.85% -29.3%
LONG-TERM LIABILITIES
Long-Term Debt $24.80B $23.68B $23.69B
YoY Change 4.76% -8.77% -8.43%
Other Long-Term Liabilities $1.590B $801.0M $889.0M
YoY Change 98.5% -21.93% -41.32%
Total Long-Term Liabilities $1.590B $801.0M $24.58B
YoY Change 98.5% -21.93% -10.25%
TOTAL LIABILITIES
Total Short-Term Liabilities $8.518B $9.112B $10.08B
Total Long-Term Liabilities $1.590B $801.0M $24.58B
Total Liabilities $40.77B $39.39B $40.57B
YoY Change 3.5% -20.36% -18.08%
SHAREHOLDERS EQUITY
Retained Earnings $26.38B $24.73B $24.38B
YoY Change 6.66% 2.86% 4.77%
Common Stock $0.00 $0.00 $0.00
YoY Change
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $50.36B $50.22B $50.72B
YoY Change
Total Liabilities & Shareholders Equity $91.27B $89.72B $91.39B
YoY Change 1.72% -10.5% -8.48%

Cashflow Statement

Concept 2019 Q3 2018 Q3 2018 Q2
OPERATING ACTIVITIES
Net Income $864.0M $1.075B $1.460B
YoY Change -19.63% 5.81% 25.54%
Depreciation, Depletion And Amortization $657.0M $666.0M $664.0M
YoY Change -1.35% 4.72% -7.52%
Cash From Operating Activities $1.510B $1.702B $1.038B
YoY Change -11.28% 130.94% -41.46%
INVESTING ACTIVITIES
Capital Expenditures $301.0M $291.0M -$292.0M
YoY Change 3.44% 4.68% -11.52%
Acquisitions $145.0M $104.0M
YoY Change 39.42%
Other Investing Activities $5.000M $0.00 $403.0M
YoY Change -100.0% 594.83%
Cash From Investing Activities -$551.0M $643.0M $111.0M
YoY Change -185.69% 674.7% -140.81%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net $333.0M $824.0M
YoY Change -59.59% -33.17%
Debt Paid & Issued, Net $5.035B $12.00M
YoY Change 41858.33% 50.0%
Cash From Financing Activities -$274.0M -$1.573B -3.828B
YoY Change -82.58% 37.86% -657.21%
NET CHANGE
Cash From Operating Activities $1.510B $1.702B 1.038B
Cash From Investing Activities -$551.0M $643.0M 111.0M
Cash From Financing Activities -$274.0M -$1.573B -3.828B
Net Change In Cash $687.0M $772.0M -2.679B
YoY Change -11.01% -340.5% -222.44%
FREE CASH FLOW
Cash From Operating Activities $1.510B $1.702B $1.038B
Capital Expenditures $301.0M $291.0M -$292.0M
Free Cash Flow $1.209B $1.411B $1.330B
YoY Change -14.32% 207.41% -36.76%

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CY2019Q2 us-gaap Minority Interest
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CY2019Q2 us-gaap Liabilities And Stockholders Equity
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328000000 USD
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61000000 USD
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CY2019Q3 us-gaap Stockholders Equity Including Portion Attributable To Noncontrolling Interest
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820000000 USD
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CY2019Q3 us-gaap Profit Loss
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CY2018Q3 us-gaap Profit Loss
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CY2018Q3 us-gaap Depreciation Depletion And Amortization
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CY2018Q3 us-gaap Provision For Doubtful Accounts
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CY2018Q3 us-gaap Share Based Compensation
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CY2018Q3 us-gaap Increase Decrease In Inventories
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180000000 USD
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CY2018Q3 us-gaap Increase Decrease In Accounts Payable And Accrued Liabilities
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160000000 USD
CY2018Q3 us-gaap Increase Decrease In Other Operating Capital Net
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169000000 USD
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CY2018Q3 us-gaap Net Cash Provided By Used In Operating Activities
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CY2018Q3 us-gaap Payments To Acquire Businesses Net Of Cash Acquired
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CY2019Q3 us-gaap Payments To Acquire Property Plant And Equipment
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CY2018Q3 us-gaap Payments To Acquire Property Plant And Equipment
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CY2018Q3 us-gaap Proceeds From Issuance Of Long Term Debt
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CY2018Q3 us-gaap Proceeds From Issuance Or Sale Of Equity
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CY2018Q3 us-gaap Proceeds From Payments For Other Financing Activities
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CY2018Q3 us-gaap Net Cash Provided By Used In Financing Activities
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CY2018Q3 us-gaap Effect Of Exchange Rate On Cash And Cash Equivalents
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CY2018Q3 us-gaap Cash And Cash Equivalents Period Increase Decrease
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CY2018Q2 us-gaap Cash And Cash Equivalents At Carrying Value
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CY2019Q3 us-gaap Cash And Cash Equivalents At Carrying Value
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CY2018Q3 us-gaap Cash And Cash Equivalents At Carrying Value
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CY2018Q3 us-gaap Interest Paid Net
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CY2019Q3 us-gaap Basis Of Accounting
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<span style="font-family:inherit;font-size:10pt;font-weight:bold;">Basis of Presentation</span><span style="font-family:inherit;font-size:10pt;font-weight:bold;"> </span><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The accompanying unaudited consolidated financial statements of Medtronic plc and its subsidiaries (Medtronic plc, Medtronic, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the consolidated financial statements include all of the adjustments necessary for a fair statement in conformity with U.S. GAAP. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The accompanying unaudited consolidated financial statements include the accounts of Medtronic plc, its wholly-owned subsidiaries, entities for which the Company has a controlling financial interest, and variable interest entities for which the Company is the primary beneficiary. Intercompany transactions and balances have been eliminated in consolidation. </span></div><span style="font-family:inherit;font-size:10pt;">The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended </span><span style="font-family:inherit;font-size:10pt;">April 26, 2019</span><span style="font-family:inherit;font-size:10pt;">. The Company’s fiscal years </span><span style="font-family:inherit;font-size:10pt;">2020</span><span style="font-family:inherit;font-size:10pt;">, </span><span style="font-family:inherit;font-size:10pt;">2019</span><span style="font-family:inherit;font-size:10pt;">, and </span><span style="font-family:inherit;font-size:10pt;">2018</span><span style="font-family:inherit;font-size:10pt;"> will end or ended on </span><span style="font-family:inherit;font-size:10pt;">April 24, 2020</span><span style="font-family:inherit;font-size:10pt;">, </span><span style="font-family:inherit;font-size:10pt;">April 26, 2019</span><span style="font-family:inherit;font-size:10pt;">, and </span><span style="font-family:inherit;font-size:10pt;">April 27, 2018</span>, respectively.
CY2019Q2 us-gaap Business Combination Contingent Consideration Liability
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CY2019Q3 us-gaap Revenue From Contract With Customer Excluding Assessed Tax
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98000000 USD
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CY2019Q3 us-gaap Business Combination Contingent Consideration Liability
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CY2019Q3 mdt Business Acquisition Contingent Consideration Milestone Payment
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CY2018Q3 mdt Business Acquisition Contingent Consideration Milestone Payment
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CY2018Q3 us-gaap Business Combination Contingent Consideration Arrangements Change In Amount Of Contingent Consideration Liability1
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CY2019Q3 us-gaap Business Combination Contingent Consideration Liability
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CY2018Q3 us-gaap Business Combination Contingent Consideration Liability
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CY2019Q3 us-gaap Available For Sale Debt Securities Accumulated Gross Unrealized Loss Before Tax
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CY2019Q2 us-gaap Available For Sale Debt Securities Accumulated Gross Unrealized Loss Before Tax
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CY2019Q3 us-gaap Debt Securities Available For Sale Continuous Unrealized Loss Position12 Months Or Longer
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CY2019Q2 us-gaap Debt Securities Available For Sale Continuous Unrealized Loss Position Less Than12 Months
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CY2019Q2 us-gaap Debt Securities Available For Sale Continuous Unrealized Loss Position12 Months Or Longer
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CY2019Q3 us-gaap Debt Securities Available For Sale Realized Loss
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CY2018Q3 us-gaap Debt Securities Available For Sale Realized Loss
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CY2019Q3 us-gaap Other Than Temporary Impairment Credit Losses Recognized In Earnings Credit Losses On Debt Securities Held
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CY2019Q3 us-gaap Other Than Temporary Impairment Credit Losses Recognized In Earnings Reductions Securities Sold
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CY2019Q3 us-gaap Available For Sale Securities Debt Maturities Within One Year Fair Value
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CY2019Q3 us-gaap Available For Sale Securities Debt Maturities After One Through Five Years Fair Value
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2407000000 USD
CY2019Q3 us-gaap Available For Sale Securities Debt Maturities After Five Through Ten Years Fair Value
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2030000000 USD
CY2019Q3 us-gaap Available For Sale Securities Debt Maturities After Ten Years Fair Value
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53000000 USD
CY2019Q3 us-gaap Available For Sale Securities Debt Securities
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CY2019Q3 us-gaap Gain Loss On Investments
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CY2019Q3 us-gaap Long Term Debt And Capital Lease Obligations Current
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CY2019Q2 us-gaap Long Term Debt And Capital Lease Obligations Current
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CY2019Q3 us-gaap Deferred Finance Costs Net
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CY2019Q3 us-gaap Long Term Debt And Capital Lease Obligations
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CY2019Q3 us-gaap Long Term Debt Fair Value
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CY2019Q2 us-gaap Debt Instrument Face Amount
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CY2019Q3 us-gaap Gain Loss On Foreign Currency Derivative Instruments Not Designated As Hedging Instruments
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CY2018Q3 us-gaap Gain Loss On Foreign Currency Derivative Instruments Not Designated As Hedging Instruments
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141000000 USD
CY2019Q3 us-gaap Other Operating Income Expense Net
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CY2019Q3 mdt Unrealized Gain Loss On Interest Rate Cash Flow Hedges Accumulated Other Comprehensive Income Loss Net Of Tax
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187000000 USD
CY2019Q2 mdt Unrealized Gain Loss On Interest Rate Cash Flow Hedges Accumulated Other Comprehensive Income Loss Net Of Tax
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194000000 USD
CY2019Q3 us-gaap Cash Flow Hedge Gain Loss To Be Reclassified Within Twelve Months
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164000000 USD
CY2019Q3 us-gaap Gain Loss From Hedged Firm Commitment Not Qualifying As Fair Value Hedge Net
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0 USD
CY2019Q3 mdt Unrealized Gain Losson Net Investment Hedges Accumulated Other Comprehensive Income Loss Netof Tax
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-70000000 USD
CY2018Q3 mdt Unrealized Gain Losson Net Investment Hedges Accumulated Other Comprehensive Income Loss Netof Tax
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-169000000 USD
CY2019Q3 mdt Net Investment Hedge Gain Losstobe Reclassified Within Twelve Months
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0 USD
CY2019Q3 mdt Gain Lossfrom Hedged Firm Commitment Not Qualifyingas Net Investment Hedge Net
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0 USD
CY2019Q3 us-gaap Derivative Fair Value Of Derivative Asset
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318000000 USD
CY2019Q3 us-gaap Derivative Fair Value Of Derivative Liability
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33000000 USD
CY2019Q2 us-gaap Derivative Fair Value Of Derivative Asset
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365000000 USD
CY2019Q2 us-gaap Derivative Fair Value Of Derivative Liability
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19000000 USD
CY2019Q3 us-gaap Derivative Fair Value Of Derivative Asset
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318000000 USD
CY2019Q3 us-gaap Derivative Asset Not Offset Policy Election Deduction
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19000000 USD
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<span style="font-weight:bold;"> Commitments and Contingencies</span><span style="font-family:inherit;font-size:10pt;font-weight:bold;"> </span><div style="line-height:120%;padding-bottom:10px;padding-top:10px;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;font-weight:bold;">Legal Matters</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company and its affiliates are involved in a number of legal actions involving product liability, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, income tax disputes, and governmental proceedings and investigations, including those described below. With respect to governmental proceedings and investigations, like other companies in our industry, the Company is subject to extensive regulation by national, state and local governmental agencies in the United States and in other jurisdictions in which the Company and its affiliates operate. As a result, interaction with governmental agencies is ongoing. The Company’s standard practice is to cooperate with regulators and investigators in responding to inquiries. The outcomes of legal actions are not within the Company’s complete control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies (including injunctions barring the sale of products that are the subject of the proceeding), that could require significant expenditures, result in lost revenues, or limit the Company's ability to conduct business in the applicable jurisdictions. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company records a liability in the consolidated financial statements on an undiscounted basis for loss contingencies related to legal actions when a loss is known or considered probable and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. When determining the estimated loss or range of loss, significant judgment is required. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery, involve unsubstantiated or indeterminate claims for damages, potentially involve penalties, fines or punitive damages, or could result in a change in business practice. At </span><span style="font-family:inherit;font-size:10pt;">July 26, 2019</span><span style="font-family:inherit;font-size:10pt;"> and </span><span style="font-family:inherit;font-size:10pt;">April 26, 2019</span><span style="font-family:inherit;font-size:10pt;">, accrued litigation was approximately </span><span style="font-family:inherit;font-size:10pt;"><span>$0.5 billion</span></span><span style="font-family:inherit;font-size:10pt;">. The ultimate cost to the Company with respect to accrued litigation could be materially different than the amount of the current estimates and accruals and could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows. The Company includes accrued litigation in </span><span style="font-family:inherit;font-size:10pt;font-style:italic;">other accrued expenses</span><span style="font-family:inherit;font-size:10pt;"> and </span><span style="font-family:inherit;font-size:10pt;font-style:italic;">other liabilities</span><span style="font-family:inherit;font-size:10pt;"> on the consolidated balance sheets. While it is not possible to predict the outcome for most of the legal matters discussed below, the Company believes it is possible that the costs associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;font-style:italic;">Product Liability Matters</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;text-decoration:underline;">Pelvic Mesh Litigation</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company is currently involved in litigation in various state and federal courts against manufacturers of pelvic mesh products alleging personal injuries resulting from the implantation of those products. </span><span style="font-family:inherit;font-size:10pt;"><span>Two</span></span><span style="font-family:inherit;font-size:10pt;"> subsidiaries of Covidien supplied pelvic mesh products to </span><span style="font-family:inherit;font-size:10pt;"><span>one</span></span><span style="font-family:inherit;font-size:10pt;"> of the manufacturers, C.R. Bard (Bard), named in the litigation. The litigation includes a federal multi-district litigation in the U.S. District Court for the Northern District of West Virginia and cases in various state courts and jurisdictions outside the U.S. Generally, complaints allege design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. In fiscal year 2016, Bard paid the Company </span><span style="font-family:inherit;font-size:10pt;"><span>$121 million</span></span><span style="font-family:inherit;font-size:10pt;"> towards </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">the settlement of </span><span style="font-family:inherit;font-size:10pt;"><span>11,000</span></span><span style="font-family:inherit;font-size:10pt;"> of these claims. In May 2017, the agreement with Bard was amended to extend the terms to apply to up to an additional </span><span style="font-family:inherit;font-size:10pt;"><span>5,000</span></span><span style="font-family:inherit;font-size:10pt;"> claims. That agreement does not resolve the dispute between the Company and Bard with respect to claims that do not settle, if any. As part of the agreement, the Company and Bard agreed to dismiss without prejudice their pending litigation with respect to Bard’s obligation to defend and indemnify the Company. The Company estimates law firms representing approximately </span><span style="font-family:inherit;font-size:10pt;"><span>15,800</span></span><span style="font-family:inherit;font-size:10pt;"> claimants have asserted or may assert claims involving products manufactured by Covidien’s subsidiaries. As of August 7, 2019, the Company had reached agreements to settle approximately </span><span style="font-family:inherit;font-size:10pt;"><span>15,400</span></span><span style="font-family:inherit;font-size:10pt;"> of these claims. The Company's accrued expenses for this matter are included within accrued litigation as discussed above. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;font-style:italic;">Patent Litigation</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;text-decoration:underline;">Ethicon</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">On December 14, 2011, Ethicon filed an action against Covidien in the U.S. District Court for the Southern District of Ohio, alleging patent infringement and seeking monetary damages and injunctive relief. On January 22, 2014, the district court entered summary judgment in Covidien's favor, and the majority of this ruling was affirmed by the Federal Circuit on August 7, 2015. Following appeal, the case was remanded back to the District Court with respect to </span><span style="font-family:inherit;font-size:10pt;"><span>one</span></span><span style="font-family:inherit;font-size:10pt;"> patent. On January 21, 2016, Covidien filed a second action in the U.S. District Court for the Southern District of Ohio, seeking a declaration of non-infringement with respect to a second set of patents held by Ethicon. The court consolidated this second action with the remaining patent issues from the first action. Following consolidation of the cases, Ethicon dismissed </span><span style="font-family:inherit;font-size:10pt;"><span>six</span></span><span style="font-family:inherit;font-size:10pt;"> of the asserted patents, leaving a single asserted patent. In addition to claims of non-infringement, the Company asserts an affirmative defense of invalidity. The Company has not recognized an expense related to damages in connection with this matter, because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from this matter. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;text-decoration:underline;">Sasso</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company is involved in litigation in Indiana relating to certain patent and royalty disputes with Dr. Sasso under agreements originally entered into in 1999 and 2001. On November 28, 2018, a jury in Indiana state court returned a verdict against the Company for approximately </span><span style="font-family:inherit;font-size:10pt;"><span>$112 million</span></span><span style="font-family:inherit;font-size:10pt;">. The Company has strong arguments to appeal the verdict and has filed post-trial motions and appeals with the appropriate appellate courts. The Company has not recognized an expense in connection with this matter because it does not currently believe a loss is probable under U.S. GAAP. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;font-style:italic;">Shareholder Related Matters</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;text-decoration:underline;">Covidien Acquisition</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">On July 2, 2014, Lewis Merenstein filed a putative shareholder class action in Hennepin County, Minnesota, District Court seeking to enjoin the then-potential acquisition of Covidien. The lawsuit named Medtronic, Inc., Covidien, and each member of the Medtronic, Inc. Board of Directors at the time as defendants, and alleged that the directors breached their fiduciary duties to shareholders with regard to the then-potential acquisition. On August 21, 2014, Kenneth Steiner filed a putative shareholder class action in Hennepin County, Minnesota, District Court, also seeking an injunction to prevent the potential Covidien acquisition. In September 2014, the </span><span style="font-family:inherit;font-size:10pt;font-style:italic;">Merenstein</span><span style="font-family:inherit;font-size:10pt;"> and </span><span style="font-family:inherit;font-size:10pt;font-style:italic;">Steiner</span><span style="font-family:inherit;font-size:10pt;"> matters were consolidated and in December 2014, the plaintiffs filed a preliminary injunction motion seeking to enjoin the Covidien transaction. On March 20, 2015, the District Court issued an order and opinion granting Medtronic’s motion to dismiss the case. In May of 2015, the plaintiffs filed an appeal, and, in January of 2016, the Minnesota State Court of Appeals affirmed in part, and reversed in part. On April 19, 2016 the Minnesota Supreme Court granted the Company’s petition to review the issue of whether most of the original claims are properly characterized as direct or derivative under Minnesota law. In August of 2017, the Minnesota Supreme Court affirmed the decision of the Minnesota State Court of Appeals, sending the matter back to the trial court for further proceedings, which are ongoing. The Company has not recognized an expense related to damages in connection with this matter, because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from these matters.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;font-style:italic;">Environmental Proceedings</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. These projects relate to a variety of activities, including removal of solvents, metals and other hazardous substances from soil and groundwater. The ultimate cost of site cleanup and timing of future cash flows is difficult to predict given uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company is a successor to a company which owned and operated a chemical manufacturing facility in Orrington, Maine from 1967 until 1982, and is responsible for the costs of completing an environmental site investigation as required by the Maine Department of Environmental Protection (MDEP). MDEP served a compliance order on Mallinckrodt LLC and U.S. Surgical Corporation, subsidiaries of Covidien, in December 2008, which included a directive to remove a significant volume of soils at the site. After a hearing on the compliance order before the Maine Board of Environmental Protection (Maine Board) to challenge the terms of the compliance order, the Maine Board modified the MDEP order and issued a final order requiring removal of </span><span style="font-family:inherit;font-size:10pt;"><span>two</span></span><span style="font-family:inherit;font-size:10pt;"> landfills, capping of the remaining </span><span style="font-family:inherit;font-size:10pt;"><span>three</span></span><span style="font-family:inherit;font-size:10pt;"> landfills, installation of a groundwater extraction system and long-term monitoring of the site and the </span><span style="font-family:inherit;font-size:10pt;"><span>three</span></span><span style="font-family:inherit;font-size:10pt;"> remaining landfills.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company has proceeded with implementation of the investigation and remediation at the site in accordance with the MDEP order as modified by the Maine Board order. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">Since the early 2000s, the Company or its predecessors have also been involved in a lawsuit filed in the U.S. District Court for the District of Maine by the Natural Resources Defense Council and the Maine People’s Alliance. Plaintiffs sought an injunction requiring the Company's predecessor to conduct extensive studies of mercury contamination of the Penobscot River and Bay and options for remediating such contamination, and to perform appropriate remedial activities, if necessary.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">Following a trial in March 2002, the Court held that conditions in the Penobscot River and Bay may pose an imminent and substantial endangerment and that the Company’s predecessor was liable for the cost of performing a study of the River and Bay. Following a second trial in June 2014, the Court ordered that further engineering study and engineering design work was needed to determine the nature and extent of remediation in the Penobscot River and Bay. The Court also appointed an engineering firm to conduct such studies and issue a report on potential remediation alternatives. In connection with these proceedings, reports have been produced including a variety of cost estimates for a variety of potential remedial options. A third trial to determine the course of remediation to be pursued is scheduled to occur in February of 2020.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company's accrued expenses for environmental proceedings are included within accrued litigation as discussed above. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;font-style:italic;">Government Matters</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">Since 2017, the Company has been responding to requests from the Department of Justice and U.S. Department of Health and Human Services for information about business practices relating to a neurovascular product developed and first marketed by ev3 and Covidien. The Company has provided information in response to these requests and is cooperating with the inquiry. The Company has not recognized an expense in connection with any ongoing investigation, because any such potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the range of loss, if any, that may result from the ongoing information requests. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;font-weight:bold;">Income Taxes</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">In March 2009, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2005 and 2006. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2005 and 2006 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of the Company's key manufacturing sites. The U.S. Tax Court reviewed this dispute, and on June 9, 2016, issued its opinion with respect to the allocation of income between the parties for fiscal years 2005 and 2006. The U.S. Tax Court generally rejected the IRS’s position, but also made certain modifications to the Medtronic, Inc. tax returns as filed. On April 21, 2017, the IRS filed their Notice of Appeal to the U.S. Court of Appeals for the 8th Circuit regarding the Tax Court Opinion. Oral argument for the Appeal occurred on March 14, 2018. The 8th Circuit Court of Appeals issued their opinion on August 16, 2018, and remanded the case back to the U.S. Tax Court for additional factual findings. U.S. Tax Court trial is scheduled to occur in April of 2020.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">In October 2011, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2007 and 2008. Medtronic, Inc. reached agreement with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2007 and 2008 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">In April 2014, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2009, 2010, and 2011. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2009, 2010, and 2011 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for the businesses that are the subject of the U.S. Tax Court Case for fiscal years 2005 and 2006. </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">In May 2017, the IRS issued its audit report on Medtronic, Inc. for fiscal years 2012, 2013, and 2014. Medtronic, Inc. reached agreement with the IRS on some but not all matters related to these fiscal years. The significant issues that remain unresolved relate to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, and proposed </span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">adjustments associated with the utilization of certain net operating losses. The Company disagrees with the IRS and will attempt to resolve these matters at the IRS Appellate level.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">Medtronic, Inc.’s fiscal years 2015 and 2016 U.S. federal income tax returns are currently being audited by the IRS.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">Covidien and the IRS have concluded and reached agreement on its audit of Covidien’s U.S. federal income tax returns for all tax years through 2012. The statute of limitations for Covidien’s 2013 and 2014 U.S. federal income tax returns lapsed during the first quarter of fiscal years 2018 and 2019, respectively. Covidien's fiscal year 2015 U.S. federal income tax returns are currently being audited by the IRS.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">While it is not possible to predict the outcome for most of the income tax matters discussed above, the Company believes it is possible that charges associated with these matters could have a material adverse impact on the Company’s consolidated earnings, financial position, and/or cash flows.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">Refer to Note </span><span style="font-family:inherit;font-size:10pt;">11</span><span style="font-family:inherit;font-size:10pt;"> for additional discussion of income taxes.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;font-weight:bold;">Guarantees</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">As a result of the acquisition of Covidien, the Company has a guarantee commitment related to certain contingent tax liabilities as a party to the Tax Sharing Agreement that was entered into on June 29, 2007, between Covidien, Tyco International (now Johnson Controls), and Tyco Electronics (now TE Connectivity), associated with the spin-off from Tyco. The Tax Sharing Agreement covers certain income tax liabilities for periods prior to and including the spin-off. Medtronic’s share of the income tax liabilities for these periods is </span><span style="font-family:inherit;font-size:10pt;"><span>42 percent</span></span><span style="font-family:inherit;font-size:10pt;">, with Johnson Controls and TE Connectivity share being </span><span style="font-family:inherit;font-size:10pt;"><span>27 percent</span></span><span style="font-family:inherit;font-size:10pt;">, and </span><span style="font-family:inherit;font-size:10pt;"><span>31 percent</span></span><span style="font-family:inherit;font-size:10pt;">, respectively. If Johnson Controls and TE Connectivity default on their obligations to the Company under the Tax Sharing Agreement, the Company would be liable for the entire amount of these liabilities. All costs and expenses associated with the management of these tax liabilities are being shared equally among the parties. The most significant amounts at risk under this Tax Sharing Agreement were resolved with the U.S. Tax Court and IRS Appeals resolutions reached in May 2016. However, the Tax Sharing Agreement remains in place with respect to income tax liabilities that are not the subject of such resolution, including certain state and international tax matters that remain open.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company has used available information to develop its best estimates for certain assets and liabilities related to periods prior to the 2007 separation, including amounts subject to or impacted by the provisions of the Tax Sharing Agreement. The actual amounts that the Company may be required to ultimately accrue or pay under the Tax Sharing Agreement, however, could vary depending upon the outcome of the unresolved tax matters. Final determination of the balances will be made in subsequent periods, primarily related to tax years that remain open for examination. These balances will also be impacted by the filing of final or amended income tax returns in certain jurisdictions where those returns include a combination of Tyco International, Covidien and/or Tyco Electronics legal entities for periods prior to the 2007 separation.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">Refer to Note 1 </span><span style="font-family:inherit;font-size:10pt;">to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 26, 2019</span><span style="font-family:inherit;font-size:10pt;"> for additional information.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">As part of the Company’s sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses to Cardinal on July 29, 2017, the Company has indemnified Cardinal for certain contingent tax liabilities related to the divested businesses that existed prior to the date of divestiture. The actual amounts that the Company may be required to ultimately accrue or pay could vary depending upon the outcome of the unresolved tax matters.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">In the normal course of business, the Company and/or its affiliates periodically enter into agreements that require one or more of the Company and/or its affiliates to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising as a result of the Company or its affiliates’ products, the negligence of the Company's personnel, or claims alleging that the Company's products infringe on third-party patents or other intellectual property. The Company also offers warranties on various products. The Company’s maximum exposure under these guarantees is unable to be estimated. Historically, the Company has not experienced significant losses on these types of guarantees.</span></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-align:justify;font-size:10pt;"><span style="font-family:inherit;font-size:10pt;">The Company believes the ultimate resolution of the above guarantees is not expected to have a material effect on the Company’s consolidated earnings, financial position, or cash flows.</span></div>
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