Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of the Company. You should read this discussion and analysis along with our consolidated financial statements and related notes thereto at April 27, 2018 and April 28, 2017 and for each of the three fiscal years ended April 27, 2018 (fiscal year 2018), April 28, 2017 (fiscal year 2017), and April 29, 2016 (fiscal year 2016), which are presented within "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. Our fiscal year-end is the last Friday in April, and therefore, the total weeks in a fiscal year fluctuates between 52 and 53 weeks. Fiscal years 2018 and 2017 were 52-week years. Fiscal year 2016 was a 53-week year, with the additional week occurring in the first quarter.

Throughout this Management’s Discussion and Analysis, we present certain financial measures that we use to evaluate the operational performance of the Company and as a basis for strategic planning; however, such financial measures are not presented in our financial statements prepared in accordance with generally accepted accounting principles in the 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 generally use non-GAAP financial measures to facilitate management's review of the operational performance of the Company and as a basis for strategic planning. We believe that non-GAAP financial measures provide information useful to investors in understanding the Company's underlying operational performance and trends and may facilitate comparisons with the performance of other companies in the medical technologies industry.

As presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measures exclude the impact of certain charges or gains 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 among the world's largest medical technology, services, and solutions companies - 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 table below presents net income attributable to Medtronic and diluted earnings per share for fiscal years 2018, 2017, and 2016:

		Fiscal Year												Percent Change
(in millions, except per share data)		2018				2017				2016				2018			2017
Net income attributable to Medtronic		$	3,104			$	4,028			$	3,538			(23	)%		14	%
Diluted earnings per share		$	2.27			$	2.89			$	2.48			(21	)%		17	%

Diluted earnings per share (EPS) for fiscal year 2018 as compared to fiscal year 2017 was unfavorably affected by the net $2.4 billion tax charge related to the enactment of U.S. comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the Tax Act), which had a significant effect on the income tax provision in fiscal year 2018. Further, diluted EPS for fiscal year 2018 was unfavorably affected by an investment loss related to the impairment of certain cost and equity method investments of $227 million, along with impairments of IPR&D of $68 million. Additionally, for fiscal year 2018, diluted EPS was unfavorably affected by the July 29, 2017 sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group. Net sales of these businesses for fiscal years 2018 and 2017 were $0.6 billion and $2.4

billion, respectively. For fiscal year 2018, diluted EPS was partially offset by a $697 million gain on the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.

Diluted EPS for fiscal year 2017 as compared to 2016 was favorably affected by the recognition of certain tax adjustments of $417 million, including a charge of $442 million in fiscal year 2016 primarily related to the U.S. income tax expense resulting from our completion of an internal reorganization of the ownership of certain legacy Covidien businesses that reduced the cash and investments held by our U.S. controlled non-U.S. subsidiaries, partially offset by a benefit related to the establishment of a deferred tax asset on the tax basis in excess of book basis of a wholly owned U.S. subsidiary of which we disposed. Further, diluted EPS was also affected by a $226 million charge in fiscal year 2016 related to the recognition of the fair value step-up of acquired Covidien inventory.

GAAP to Non-GAAP Reconciliations The tables below present reconciliations of our Non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with U.S. GAAP for fiscal years 2018, 2017, and 2016:

	Fiscal year ended April 27, 2018
(in millions, except per share data)	Income before income taxes				Income tax provision (benefit)				Net income attributable to Medtronic				Diluted EPS (1)				Effective tax rate
GAAP	$	5,675			$	2,580			$	3,104			$	2.27			45.5	%
Non-GAAP Adjustments:
Restructuring and associated costs (2)	107				20				87				0.06				18.7
Acquisition-related items	132				42				90				0.07				31.8
Debt redemption premium (3)	38				12				26				0.02				31.6
Divestiture-related items (4)	115				12				103				0.08				10.4
Certain litigation charges	61				8				53				0.04				13.1
Investment loss (5)	227				(1		)		228				0.17				(0.4	)
IPR&D impairment	46				5				41				0.03				10.9
Gain on sale of businesses (6)	(697		)		—				(697		)		(0.51		)		—
Hurricane Maria (7)	34				1				33				0.02				2.9
Special charge (8)	80				26				54				0.04				32.5
Amortization of intangible assets	1,823				322				1,501				1.10				17.7
Certain tax adjustments, net (9)	—				(1,907		)		1,907				1.39				—
Non-GAAP	$	7,641			$	1,120			$	6,530			$	4.77			14.7	%

	Fiscal year ended April 28, 2017
(in millions, except per share data)	Income before income taxes				Income tax provision (benefit)				Net income attributable to Medtronic				Diluted EPS (1)				Effective tax rate
GAAP	$	4,602			$	578			$	4,028			$	2.89			12.6	%
Non-GAAP Adjustments:
Restructuring charges, net	373				101				272				0.20				27.1
Acquisition-related items	230				74				156				0.11				32.2
Certain litigation charges	300				110				190				0.14				36.7
Special charge (8)	100				37				63				0.05				37.0
Impact of inventory step-up (10)	38				14				24				0.02				36.8
Amortization of intangible assets	1,980				520				1,460				1.05				26.3
Certain tax adjustments, net (11)	—				(202		)		202				0.15				—
Non-GAAP	$	7,623			$	1,232			$	6,395			$	4.60			16.2	%

	Fiscal year ended April 29, 2016
(in millions, except per share data)	Income before income taxes				Income tax provision (benefit)				Net income attributable to Medtronic				Diluted EPS (1)				Effective tax rate
GAAP	$	4,336			$	798			$	3,538			$	2.48			18.4	%
Non-GAAP Adjustments:
Restructuring charges, net	299				78				221				0.15				26.1
Acquisition-related items	283				71				212				0.15				25.1
Debt tender premium	183				65				118				0.08				35.5
Certain litigation charges	26				9				17				0.01				34.6
Investment loss (12)	70				26				44				0.03				37.1
Impact of inventory step-up (13)	226				61				165				0.12				27.0
Loss on previously held forward starting interest rate swaps	45				16				29				0.02				35.6
Amortization of intangible assets	1,931				464				1,467				1.03				24.0
Certain tax adjustments, net (14)	—				(417)				417				0.29				—
Non-GAAP	$	7,399			$	1,171			$	6,228			$	4.37			15.8	%

(1)	Amounts in this column have been intentionally rounded to the nearest $0.01 and, therefore, may not sum.

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

(3)	The charge, included within interest expense, net in our consolidated statements of income, was recognized in connection with the early redemption of approximately $1.2 billion of Medtronic Inc. senior notes.

(4)	The transaction expenses incurred in connection with the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.

(5)	The charge was recognized in connection with the impairment of certain cost and equity method investments.

(6)	The gain on the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.

(7)	The charges represent idle facility costs, asset write-downs, and humanitarian efforts related to Hurricane Maria.

(8)	The charge represents a contribution to the Medtronic Foundation.

(9)

The net charge primarily relates to the impact of U.S. tax reform, inclusive of the transition tax, remeasurement of deferred tax assets and liabilities, and the decrease in the U.S. statutory tax rate. Additionally, the net charge includes the impacts from the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses, and the tax cost associated with an internal reorganization, which were partially offset by the tax effects from the intercompany sale of intellectual property.

(10)	The charge represents the amortization of step-up in fair value of inventory acquired in connection with the HeartWare acquisition.

(11)

The net charge primarily relates to the tax effect from the recognition of the outside basis of certain subsidiaries which were included in the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses completed during the second quarter of fiscal year 2018, along with certain tax charges recorded in connection with the redemption of an intercompany minority interest, and the resolution of various tax matters from prior periods.

(12)	The charge represents the impairment of a debt investment.

(13)	The charge represents the amortization of step-up in fair value of inventory acquired in connection with the Covidien acquisition.

(14)

The net charge primarily relates to U.S. income tax expense resulting from our completion of an internal reorganization of the ownership of certain legacy Covidien businesses that reduced the cash and investments held by Medtronic’s U.S.-controlled non-U.S. subsidiaries, partially offset by a benefit related to the establishment of a deferred tax asset on the tax basis in excess of book basis of a wholly owned U.S. subsidiary of which we disposed.

NET SALES

Segment and Division

The table below illustrates net sales by segment and division for fiscal years 2018, 2017, and 2016:

	Net Sales by Fiscal Year												Percent Change
(in millions)	2018				2017				2016				2018			2017
Cardiac Rhythm & Heart Failure	$	5,947			$	5,649			$	5,465			5	%		3	%
Coronary & Structural Heart	3,562				3,113				3,093				14			1
Aortic & Peripheral Vascular	1,845				1,736				1,638				6			6
Cardiac and Vascular Group	11,354				10,498				10,196				8			3
Surgical Innovations(1)	5,537				5,145				4,851				8			6
Respiratory, Gastrointestinal, & Renal(1)	3,179				4,774				4,712				(33	)		1
Minimally Invasive Therapies Group	8,716				9,919				9,563				(12	)		4
Spine	2,668				2,641				2,629				1			—
Brain Therapies	2,354				2,098				1,980				12			6
Specialty Therapies	1,556				1,491				1,419				4			5
Pain Therapies	1,165				1,136				1,182				3			(4	)
Restorative Therapies Group	7,743				7,366				7,210				5			2
Diabetes Group	2,140				1,927				1,864				11			3
Total	$	29,953			$	29,710			$	28,833			1	%		3	%

(1)

During the second quarter of fiscal year 2018, the Surgical Solutions and Patient Monitoring & Recovery divisions of the Minimally Invasive Therapies Group were realigned into the Surgical Innovations and Respiratory, Gastrointestinal, & Renal divisions. Refer to the "Minimally Invasive Therapies Group" discussion within this Management's Discussion and Analysis for more information on the composition of the Surgical Innovations and Respiratory, Gastrointestinal, & Renal divisions.

For fiscal year 2018, total net sales were unfavorably affected by the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group which closed on the first day of the second quarter of fiscal year 2018. Our performance continues to be fueled by our three growth strategies: therapy innovation, globalization, and economic value. We are creating competitive advantages and capitalizing on the long-term trends in healthcare: namely the desire to improve clinical outcomes, the growing demand for expanded access to care, and the optimization of cost and efficiency within healthcare systems. In our therapy innovation growth strategy, we continue to see clear acceleration in our innovation cycle, with several meaningful new product launches during fiscal year 2018 across all of our segments. We advanced a pipeline of groundbreaking medical technology, and we are creating new markets, disrupting existing markets, and leading in several of the fastest growth markets. In globalization, net sales in emerging markets grew 12% during fiscal year 2018 as compared to fiscal year 2017. Our consistent emerging market performance continues to benefit from geographic diversification, with strong, balanced results around the world. In our third growth strategy, economic value, we continue to execute our value-based healthcare signature programs and aggressively develop unique, value-based healthcare solutions that directly link our therapies to improving outcomes across each of our segments. We remain focused on leading the shift to healthcare payment systems that reward value and improved patient outcomes over volume.

Segment and Market Geography

The tables below include net sales by market geography for each of our segments for fiscal years 2018, 2017, and 2016:

	U.S.(1)											Non-U.S. Developed Markets(2)											Emerging Markets(3)
(in millions)	Fiscal Year 2018				Fiscal Year 2017				% Change			Fiscal Year 2018				Fiscal Year 2017				% Change			Fiscal Year 2018				Fiscal Year 2017				% Change
Cardiac and Vascular Group	$	5,681			$	5,454			4	%		$	3,790			$	3,393			12	%		$	1,883			$	1,651			14	%
Minimally Invasive Therapies Group	3,804				5,049				(25	)		3,378				3,479				(3	)		1,534				1,391				10
Restorative Therapies Group	5,164				5,012				3			1,720				1,588				8			859				766				12
Diabetes Group	1,226				1,148				7			739				625				18			175				154				14
Total	$	15,875			$	16,663			(5	)%		$	9,627			$	9,085			6	%		$	4,451			$	3,962			12	%

	U.S.(1)											Non-U.S. Developed Markets(2)											Emerging Markets(3)
(in millions)	Fiscal Year 2017				Fiscal Year 2016				% Change			Fiscal Year 2017				Fiscal Year 2016				% Change			Fiscal Year 2017				Fiscal Year 2016				% Change
Cardiac and Vascular Group	$	5,454			$	5,347			2	%		$	3,393			$	3,283			3	%		$	1,651			$	1,566			5	%
Minimally Invasive Therapies Group	5,049				5,014				1			3,479				3,299				5			1,391				1,250				11
Restorative Therapies Group	5,012				4,921				2			1,588				1,542				3			766				747				3
Diabetes Group	1,148				1,140				1			625				584				7			154				140				10
Total	$	16,663			$	16,422			1	%		$	9,085			$	8,708			4	%		$	3,962			$	3,703			7	%

(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 of 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.

For fiscal year 2018, net sales for the U.S. decreased 5 percent, developed markets outside the U.S. increased 6 percent, and emerging markets increased 12 percent as compared to fiscal year 2017. Net sales declines in the U.S. were impacted by the July 29, 2017 divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group, partially offset by growth in the other segments. Net sales growth in non-U.S. developed markets was led by strong performance in Western Europe. Emerging market sales growth was driven by solid performance in all of our segments, with strong performance in China, Latin America, Eastern Europe and the Middle East & Africa. Currency had a favorable effect of $494 million on net sales for fiscal year 2018.

For fiscal year 2017, net sales for the U.S. increased 1 percent, non-U.S. developed markets increased 4 percent, and emerging markets increased 7 percent as compared to fiscal year 2016. Net sales growth across all markets was driven by meaningful product

launches and introduction of groundbreaking new technologies, partially offset by an unfavorable impact of an additional selling week during the first quarter of fiscal year 2016. Net sales growth in the U.S. was led by strong growth in the Cardiac and Vascular Group and Minimally Invasive Therapies Group and solid growth in the Restorative Therapies Group and Diabetes Group. In Emerging Markets, net sales growth was also attributable to the expansion of access to our therapies.

Looking ahead, our segments are likely to face competitive product launches and pricing pressure, geographic macro-economic risks, reimbursement challenges, impacts from changes in the mix of our product offerings, the timing of product registration approvals, replacement cycle challenges, and fluctuations in currency exchange rates. Additionally, changes in procedural volumes could affect our Cardiac and Vascular, Minimally Invasive Therapies, and Restorative Therapies Groups.

Cardiac and Vascular Group

The Cardiac and Vascular Group’s products include pacemakers, insertable and external cardiac monitors, cardiac resynchronization therapy devices (CRT-D), implantable cardioverter defibrillators (ICD), leads and delivery systems, ventricular assist systems, ablation products, electrophysiology catheters, products for the treatment of atrial fibrillation, information systems for the management of patients with Cardiac Rhythm & Heart Failure devices, products designed to reduce surgical site infections, coronary and peripheral stents, 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. The Cardiac and Vascular Group also includes Care Management Services and Cath Lab Managed Services (CLMS) within the Cardiac Rhythm & Heart Failure division. The Cardiac and Vascular Group's net sales for fiscal year 2018 were $11.4 billion, an increase of 8 percent as compared to fiscal year 2017. Currency had a favorable impact on net sales for fiscal year 2018 of $215 million. Cardiac and Vascular Group's net sales for fiscal year 2018, as compared to fiscal year 2017, benefited from strong net sales in all three divisions. See the more detailed discussion of each division's performance below.

Cardiac Rhythm & Heart Failure net sales for fiscal year 2018 were $5.9 billion, an increase of 5 percent as compared to fiscal year 2017. Cardiac Rhythm & Heart Failure net sales growth for fiscal year 2018 was driven by strong growth in Arrhythmia Management and Heart Failure. The strong growth in Arrhythmia Management was largely due to growth in AF Solutions, driven by the continued global acceptance of our Arctic Front Advance Cardiac CryoAblation Catheter (Arctic Front) system, growth in Diagnostics, driven by the continued adoption of the Reveal LINQ insertable cardiac monitor, as well as strong adoption of the Micra transcatheter pacing system and TYRX absorbable antibacterial envelope. The strong growth in Heart Failure was driven by growth in Mechanical Circulatory Support from sales of the HVAD system, as well as continued demand for the CRT-P quadripolar pacing system, which launched in the U.S. in the first quarter of fiscal year 2018.

Coronary & Structural Heart net sales for fiscal year 2018 were $3.6 billion, an increase of 14 percent as compared to fiscal year 2017. Coronary & Structural Heart net sales growth for fiscal year 2018 was largely driven by the continued strong customer adoption of the Evolut PRO Transcatheter Aortic Valve system (Evolut PRO) and the Evolut R 34mm transcatheter aortic heart valve, as well as continued penetration into intermediate risk in the U.S., which received approval late in the first quarter of fiscal year 2018. Net sales growth was also driven by the continued strong demand for the Resolute Onyx drug-eluting stent in the U.S. and Japan, which launched in the first quarter of fiscal year 2018.

Aortic & Peripheral Vascular net sales for fiscal year 2018 were $1.8 billion, an increase of 6 percent as compared to fiscal year 2017. Aortic & Peripheral Vascular net sales growth for fiscal year 2018 was driven by growth in Valiant Captivia Thoracic stent grafts, Percutaneous Transluminal Angioplasty (PTA) balloons and drug-coated balloons, as well as success of the Heli-FX EndoAnchor System. Net sales growth was further driven by strong performance in EndoVenous due to accelerated growth of the VenaSeal vein closure system, for which approval for reimbursement payment in the U.S. from the Centers for Medicare & Medicaid Services (CMS) was initiated in January 2018.

The Cardiac and Vascular Group's net sales for fiscal year 2017 were $10.5 billion, an increase of 3 percent as compared to fiscal year 2016. The Cardiac and Vascular Group’s net sales for fiscal year 2017 were unfavorably affected by an additional selling week during the first quarter fiscal year 2016. The Cardiac and Vascular Group's net sales for fiscal year 2017, as compared to fiscal year 2016, benefited from strong net sales in Arrhythmia Management within Cardiac Rhythm & Heart Failure, largely due to growth in AF Solutions and Diagnostics, Coronary & Structural Heart, largely due to the transcatheter aortic heart valve in the U.S. and Europe, and in Aortic & Peripheral Vascular, as well as the acquisition of HeartWare in the second quarter of fiscal year 2017. See the more detailed discussion of each division's performance below.

Cardiac Rhythm & Heart Failure net sales for fiscal year 2017 were $5.6 billion, an increase of 3 percent as compared to fiscal year 2016. Cardiac Rhythm & Heart Failure net sales growth for fiscal year 2017 was driven by strong growth in Arrhythmia Management, largely due to growth in AF Solutions and Diagnostics. The strong growth in AF Solutions was driven by the continued global acceptance of our Arctic Front Advance Cardiac CryoAblation Catheter (Arctic Front) system, including strong growth in Japan. The strong growth in Diagnostics was driven by the continued adoption of the Reveal LINQ insertable cardiac

monitor. Cardiac Rhythm & Heart Failure also benefited from the acquisition of HeartWare, which was acquired during the second quarter of fiscal year 2017.

Coronary & Structural Heart net sales for fiscal year 2017 were $3.1 billion, an increase of 1 percent as compared to fiscal year 2016. Coronary & Structural Heart net sales growth for fiscal year 2017 was largely driven by the continued launch of the Evolut R 34mm transcatheter aortic heart valve in the U.S. and Europe. Net sales growth was partially offset by challenges with drug-eluting stents in both the U.S. and Japan due to competitive pressures related to the anticipated approval of the Resolute Onyx drug-eluting stents in these countries, which received U.S. FDA approval, as well as approval in Japan, during the first quarter of fiscal year 2018. Net sales growth was also partially offset by continued pricing pressures and competition worldwide in our Coronary business.

Aortic & Peripheral Vascular net sales for fiscal year 2017 were $1.7 billion, an increase of 6 percent as compared to fiscal year 2016. Aortic & Peripheral Vascular net sales growth for fiscal year 2017 was driven by the continued strong worldwide growth of the IN.PACT Admiral drug-coated balloon as well as success of the Heli-FX EndoAnchor System and the Endurant IIs aortic stent graft. Net sales growth as compared to fiscal year 2016 was also driven by the launch of the HawkOne 6 French directional atherectomy system in the third quarter of fiscal year 2017.

Looking ahead, we expect our Cardiac and Vascular Group could be affected by the following:

•	Continued acceptance and growth of the CRT-P quadripolar pacing system, which received CE Mark approval in February 2017 and launched in Europe during the fourth quarter of fiscal year 2017. In the U.S., we received Food and Drug Administration (FDA) approval in May 2017, and launched in the first quarter of fiscal year 2018.

•	Continued acceptance and growth of the Claria MRI CRT-D system with EffectivCRT Diagnostic and Effective CRT during AF algorithm, which launched in Japan during the third quarter of fiscal year 2018.

•	Continued growth from the Reveal LINQ insertable cardiac monitor.

•

Continued growth of our Micra transcatheter pacing system. Micra is a miniaturized single chamber pacemaker system that is delivered through the femoral vein and is implanted in the right ventricle of the heart. The system does not use a lead and does not have a subcutaneous device pocket underneath the skin as with conventional pacemaker systems. We received final approval for reimbursement in the U.S. from the CMS and in Japan from the Ministry of Health, Labour, and Welfare during the fourth quarter of fiscal year 2017 and during the second quarter of fiscal year 2018, respectively, for this transformative therapy, which we expect will continue to accelerate sales in the U.S. and in Japan.

•	Acceptance and growth from the Azure XT and S SureScan pacing systems, which launched in the U.S. during the third quarter of fiscal year 2018. Azure pacemakers feature Medtronic-exclusive BlueSync technology, which enables automatic, secure wireless remote monitoring with increased device longevity.

•

Continued acceptance and growth of the HVAD System as a Destination Therapy for patients with advanced heart failure who are not candidates for heart transplants. The HVAD System, a left ventricular assist device or LVAD, helps the heart pump and increases the amount of blood that flows through the body. In the U.S., we received FDA approval in September 2017 for this Destination Therapy indication, and expect to receive thoracotomy indication during fiscal year 2019. Further, we expect to launch the HVAD system in Japan during fiscal year 2019.

•	Continued acceptance and growth from Care Management Services as post-acute care services become even more critical in bundled payment models for different interventions or therapies.

•	Continued acceptance and growth from Evolut R 34mm transcatheter aortic heart valve, our next-generation recapturable system with differentiated 16 French equivalent delivery system, which was launched in the U.S. in the third quarter of fiscal year 2017.

•	Acceptance and growth from penetration of the self-expanding CoreValve Evolut Transcatheter Aortic Valve Replacement platform into intermediate risk indication in the U.S., which received FDA approval during the first quarter of fiscal year 2018.

•

Continued acceptance and growth from Evolut PRO, which provides control during deployment to assist with accurate positioning with the ability to recapture and reposition the valve. Evolut PRO received U.S. FDA approval and launched in the fourth quarter of fiscal year 2017. Evolut PRO also received CE Mark approval at the end of the first quarter of fiscal year 2018 and launched in Europe during the second quarter of fiscal year 2018. Further, Evolut PRO is expected to launch in Japan during the first half of fiscal year 2019.

•	Continued acceptance and growth from the market release of Resolute Onyx, which launched in the first quarter of fiscal year 2018 in the U.S. and in Japan. Resolute Onyx builds on the Resolute Integrity drug-eluting coronary stent with thinner struts to improve deliverability and is the first stent to feature our CoreWire technology, allowing greater visibility during procedures.

•	Continued acceptance and growth of the IN.PACT Admiral drug-coated balloon for the treatment of peripheral artery disease in the upper leg.

•

Continued acceptance and growth from the VenaSeal vein closure system in the United States, for which reimbursement payment was established in January 2018 and payer coverage has been gradually increasing. The VenaSeal system is a unique non-thermal solution to address superficial venous disease that provides improved patient comfort, reduces the recovery time, and eliminates the risk of thermal nerve injury.

•	Continued acceptance and growth from the Valiant family of thoracic stent grafts. Building on the success of Valiant Captivia, we expect to launch the next generation Valiant Navion in the United States and Europe during fiscal year 2019.

•	Continued acceptance and growth from the expansion of the Endurant II used with the Heli-FX EndoAnchor for the short neck indication in the U.S., which received FDA approval in October 2017.

Minimally Invasive Therapies Group

The Minimally Invasive Therapies Group’s products span the entire continuum of patient care 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 including surgical stapling devices, vessel sealing instruments, wound closure, electrosurgery products, hernia mechanical devices, mesh implants, advanced ablation, interventional lung, ventilators, capnography, airway products, sensors, dialysis, and monitors. Net sales for the three months ended July 28, 2017 and fiscal years 2017 and 2016 also include sales of dental and animal health, chart paper, wound care, incontinence, electrodes, SharpSafety, thermometry, perinatal protection, blood collection, compression, and enteral feeding offerings, which were divested on July 29, 2017.

The Minimally Invasive Therapies Group’s net sales for fiscal year 2018 were $8.7 billion, a decrease of 12 percent as compared to fiscal year 2017. Currency had a favorable impact on net sales of $147 million for fiscal year 2018. The Minimally Invasive Therapies Group's net sales for fiscal year 2018 were affected by the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses on July 29, 2017.

Subsequent to the divestiture, during the second quarter of fiscal year 2018, the Surgical Solutions and Patient Monitoring & Recovery divisions were realigned into the Surgical Innovations and Respiratory, Gastrointestinal, & Renal divisions. The Surgical Innovations division consists of the Advanced Surgical and General Surgical businesses. The Advanced Surgical business includes the Advanced Stapling, Advanced Energy, Hernia, Gynecology, and Interventional Lung product lines. The General Surgical business includes the Wound Closure, Electrosurgery, and Instrument product lines.

The Respiratory, Gastrointestinal, & Renal division consists of the Respiratory & Monitoring Solutions and Renal Care Solutions businesses. The Respiratory & Monitoring Solutions business includes the Patient Monitoring, Respiratory Solutions, Advanced Ablation, and GI Solutions product lines. The Renal Care Solutions business includes the Renal Access and Dialyzers product lines.

Surgical Innovations net sales for fiscal year 2018 were $5.5 billion, an increase of 8 percent as compared to fiscal year 2017. Surgical Innovations net sales growth was driven by new products in Advanced Stapling and Advanced Energy, including the Signia powered surgical stapling system and endo stapling specialty reloads. Also driving net sales was our Valleylab FT10 energy platform and new iterations of our LigaSure vessel sealing instruments, and growth in emerging markets.

Respiratory, Gastrointestinal, & Renal net sales for fiscal year 2018 were $3.2 billion, a decrease of 33 percent as compared to fiscal year 2017. Respiratory, Gastrointestinal, & Renal net sales declined as a result of the July 29, 2017 divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. Apart from the decline in net sales due to the divestiture, net sales performance in Respiratory, Gastrointestinal, & Renal benefited from growth in GI Solutions, the strength in Nellcor

pulse oximetry products due to the intensity of the flu season in the U.S., the continued adoption of MicroStream capnography monitoring product, and growth in Airway and Ventilation net sales.

Surgical Innovations net sales for fiscal year 2017 were $5.1 billion, an increase of 6 percent as compared to fiscal year 2016. Surgical Innovations net sales growth was driven by Advanced Stapling and Advanced Energy. Advanced Stapling growth resulted from strong adoption of endo stapling specialty reloads with Tri-Staple technology, growth in emerging markets, and the release of the Signia power stapling system. Advanced Energy growth resulted from the launch of the LigaSure vessel sealing instruments and continued adoption of the Valleylab FT10 energy platform. The launch of the LigaSure vessel sealing instruments along with the Valleylab FT10 energy platform helped mitigate the negative impact of reprocessing. Surgical Innovations also benefited from the acquisition of Smith & Nephew's gynecology business, which was acquired during the second quarter of fiscal year 2017.

Respiratory, Gastrointestinal, & Renal net sales for fiscal year 2017 were $4.8 billion, an increase of 1 percent as compared to fiscal year 2016. Respiratory, Gastrointestinal, & Renal net sales growth was driven by strong Respiratory & Monitoring Services sales of the Puritan Bennett 980 and Nellcor pulse oximetry products, along with growth in emerging markets. Respiratory, Gastrointestinal, & Renal also benefited from the acquisition of Bellco, which was acquired during the fourth quarter of fiscal year 2016.

Looking ahead, we expect our Minimally Invasive Therapies Group could be affected by the following:

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Continued acceptance and growth of Open-to-Minimally Invasive Surgery (MIS) techniques and tools supported by our efforts to transition open surgery to MIS. The Open-to-MIS initiative focuses on establishing our presence in and working to optimize open surgery globally, while capturing the market opportunity that exists in transitioning open procedures to MIS, whether through traditional MIS, or advanced technologies including robotics. To achieve this transition, we are focused on product training, surgical skill training and continued therapy innovation to advance MIS.

•	Our ability to execute ongoing strategies to develop, gain regulatory approval, and commercialize new products, including our surgical robotics platform.

•

The July 29, 2017 divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. Net sales of the businesses included in the divestiture were $2.4 billion for fiscal years 2017 and 2016. We have entered into Transition Manufacturing Agreements (TMAs) with Cardinal Health, Inc. (Cardinal). The TMAs will contribute to net sales and are designed to ensure and facilitate an orderly transfer of business operations for a transition period of two to five years, with the ability to extend upon mutual agreement of the parties.

•	Continued acceptance and growth of the powered stapling and energy platform.

•	Our ability to execute ongoing strategies in order to address the competitive pressure of reprocessing of our vessel sealing disposables in the U.S.

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

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Continued acceptance and growth within the end stage renal disease market. The population of patients treated for end stage renal disease globally is expected to double over the next decade. We will grow our therapy innovation with scalable and affordable dialysis delivery while investing in vascular creation and maintenance technologies. In addition, the HD multi-pass system reduces infrastructure by requiring less water, less start-up costs, and offers high quality ultrapure dialysate treatment. The system is expected to launch in late fiscal year 2020, but timing may shift depending on regulatory requirements.

•	Continued elevation of the standard of care for respiratory compromise, a progressive condition impacting a patient’s ability to breathe effectively.

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Continued acceptance and growth in respiratory care, airway and ventilation management, and Patient Monitoring. Key products in this area include the Puritan Bennett 980 ventilator, Microstream Capnography bedside capnography monitor, portable monitor with Nellcor pulse oximetry system with OxiMax technology and the Nellcor Respiratory Compromise monitor with vital signs of SpO2, pulse rate, End-Tidal CO2, and Respiratory Rate.

•

Continued acceptance of less invasive standards of care, including the areas of GI Solutions and Advanced Ablation. Recently launched products include the PillCam COLON capsule endoscopy, the Barrx platform through ablation with the Barrx 360 Express catheter, and the Emprint ablation system with Thermosphere Technology, which maintains predictable spherical ablation zones throughout procedures reducing procedure time and cost.

•	Continued acceptance of Interventional Lung Solutions. Products include the superDimension GenCut core biopsy system and the Triple Needle Cytology Brush, a lung tissue biopsy tool for use with the superDimension navigation system. The superDimension system enables a minimally invasive approach to accessing difficult-to-reach areas of the lung, which may aid in the diagnosis of lung cancer.

•	Expanding the use of less invasive treatments and furthering our commitment to improving options for women with abnormal uterine bleeding with our fiscal year 2017 acquisition of Smith & Nephew's gynecology business. The addition expanded and strengthened the surgical offerings and complemented our global gynecology business.

Restorative Therapies Group

The Restorative Therapies Group's products focus on various areas of the spine, bone graft substitutes, biologic products, trauma, implantable neurostimulation therapies and drug delivery systems for the treatment of chronic pain, movement disorders, obsessive-compulsive disorder (OCD), overactive bladder, urinary retention, fecal incontinence and gastroparesis, as well as products to treat conditions of the ear, nose, and throat, and systems that incorporate advanced energy surgical instruments. The Restorative Therapies Group also manufactures and sells image-guided surgery and intra-operative imaging systems and therapies to treat diseases of the vasculature in and around the brain, including coils, neurovascular stents and flow diversion products. The Restorative Therapies Group’s net sales for fiscal year 2018 were $7.7 billion, an increase of 5 percent as compared to fiscal year 2017. Currency had a favorable impact on net sales for fiscal year 2018 of $85 million. The Restorative Therapies Group’s performance for fiscal year 2018 was driven by strong growth in Brain Therapies and solid growth in Specialty Therapies and Pain Therapies. See the more detailed discussion of each division's performance below.

Spine net sales for fiscal year 2018 were $2.7 billion, an increase of 1 percent as compared to fiscal year 2017. Spine net sales growth was driven by growth in bone morphogenetic protein (composed of INFUSE bone graft (InductOs in the European Union)), partially offset by a slight decline in Core Spine. Core Spine net sales declined due to continued overall market softness in the U.S. and Europe, partially offset by the continued success of our Surgical Synergy strategy, which integrates our spinal implants with enabling technologies such as imaging, navigation, power instruments, nerve monitoring and Mazor robotics sold by our Neurosurgery business, and our "Speed-to-Scale" initiative, which involves faster innovation cycles and the launching of a steady cadence of new products at scale with sets immediately available for the entire market.

Brain Therapies net sales for fiscal year 2018 were $2.4 billion, an increase of 12 percent as compared to fiscal year 2017. Brain Therapies net sales growth was driven by strong growth in both Neurovascular and Neurosurgery. Neurovascular net sales growth was driven by strength across our stroke portfolio, specifically in stents, as a result of our leading role in the development of the endovascular therapy market for treatment of ischemic stroke. Neurosurgery net sales growth was driven by strong sales of the StealthStation S8 surgical navigation system, O-arm O2 surgical imaging system, Visualase MRI-guided laser ablation system, Midas disposables, as well as disposables revenue from placement of capital equipment through our distributor agreement with Mazor. Net sales growth in Neurovascular and Neurosurgery for fiscal year 2018 was partially offset by slight declines in Brain Modulation due to competitive pressures in major markets.

Specialty Therapies net sales for fiscal year 2018 were $1.6 billion, an increase of 4 percent as compared to fiscal year 2017. Specialty Therapies net sales growth was driven by growth in ENT, Pelvic Health, and Transformative Solutions.

Pain Therapies net sales for fiscal year 2018 were $1.2 billion, an increase of 3 percent as compared to fiscal year 2017. Pain Therapies net sales growth was driven by Interventional from the OsteoCool RF Spinal Tumor ablation system. Within Spinal Cord Stimulation, the Intellis Platform launch and ongoing roll-out of the Evolve workflow algorithm contributed to net sales in fiscal year 2018 and helped mitigate competitive pressures in the U.S. and Europe.

Spine net sales for fiscal year 2017 were $2.6 billion, flat as compared to fiscal year 2016. Spine net sales were driven by growth in BMP due to strong U.S. sales, offset by declines in Europe due to the InductOs stop shipment due to suspension in the E.U. Core Spine had net sales growth in the U.S due to new product launches including the Solera Voyager and Elevate expandable cage in conjunction with the "Speed to Scale" initiative, offset by market softness in Europe and the Middle East driven by the macro-economic conditions. Inductos returned to the European market in the first quarter of fiscal year 2018.

Brain Therapies net sales for fiscal year 2017 were $2.1 billion, an increase of 6 percent as compared to fiscal year 2016. The increase in net sales was driven by strong growth in both Neurovascular and Neurosurgery. Neurovascular net sales growth was driven by growth in coils from the Axium Prime Extra Soft detachable coil, growth in flow diversion from the Pipeline Flex embolization device, and growth in stents due to the Solitaire revascularization device, partially offset by declines due to a voluntary recall of certain product lines in the second quarter. Neurosurgery net sales growth was driven by strong sales of navigation capital equipment, disposables, and the O-arm O2 surgical imaging system. Despite competitive pressure, Brain Modulation drove net sales growth with U.S. sales of the MR Conditional Activa DBS portfolio and through updated Parkinson’s Disease labeling for patients with Recent Onset of Motor Complications.

Specialty Therapies net sales for fiscal year 2017 were $1.5 billion, an increase of 5 percent as compared to fiscal year 2016. The increase in net sales was driven by strong growth in Transformative Solutions and Pelvic Health and growth in ENT. Net sales growth in Transformative Solutions was driven by the sales of the Aquamantys Transcollation and PEAK PlasmaBlade products. Net sales growth in Pelvic Health was driven by strong InterStim implant growth in the U.S. Net sales growth in ENT benefited from strong adoption of new products, including NuVent balloons and Fusion Compact navigation.

Pain Therapies net sales for fiscal year 2017 were $1.1 billion, a decrease of 4 percent as compared to fiscal year 2016. The decrease in net sales was driven by declines in sales of spinal cord stimulation products due to competitive pressures in the U.S., partially offset by growth in Interventional from the OsteoCool RF Spinal Tumor ablation system.

Looking ahead, we expect our Restorative Therapies Group could be affected by the following:

•	Continued acceptance and growth of the Solitare 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 growth from Neurosurgery StealthStation and O-Arm Imaging Systems, Midas, and ENT power systems.

•	Continued sales of robotic units and associated market adoption of robot-assisted spine procedures, under an exclusive worldwide distributor agreement with Mazor Robotics.

•	Continued market acceptance of our new integrated solutions through the Surgical Synergy strategy, which integrates our spinal implants with enabling technologies such as imaging, navigation, power instruments, nerve monitoring and Mazor robotics.

•	Continued success of our "Speed-to-Scale" program launches, which involves faster innovation cycles and launching a steady cadence of new products at scale with sets immediately available for the entire market.

•	Market acceptance and continued global adoption of innovative new Spine products, such as our CD Horizon Solera Voyager system, our ELEVATE expandable interbody cages, and our OLIF25 and OLIF51 procedural solutions.

•	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 adoption rates of stimulators and leads approved to treat chronic pain in major markets around the world. Our Intellis spinal cord stimulator and Evolve workflow algorithm have received positive customer reaction since their launch in the second quarter of fiscal year 2018.

•	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 distributor requirements on our implantable drug pump in October and its warning letter in November 2017.

•	Continued acceptance of our devices for the treatment of Parkinson's Disease and other movement disorders.

•	Continued acceptance and growth of our Specialty Therapies, including InterStim therapy for the treatment of the symptoms of overactive bladder, urinary retention, and bowel incontinence, and Transformative Solutions products and strategies to focus on its four core markets of orthopedic, spine, breast surgery, and Cardiac Rhythm Disease Management device replacements.

Diabetes Group

The Diabetes Group's products include insulin pumps, continuous glucose monitoring (CGM) systems, insulin pump consumables, and therapy management software. The Diabetes Group’s net sales for fiscal year 2018 were $2.1 billion, an increase of 11 percent as compared to fiscal year 2017. The Diabetes Group's net sales increased for fiscal year 2018, primarily as a result of an increase in sales in the U.S. due to continued growth in our customer base through the continued adoption of the MiniMed 670G hybrid closed loop system. Further, we experienced continued growth in international markets due to strong sales of the MiniMed 640G system in Europe and Asia Pacific.

The Diabetes Group’s net sales for fiscal year 2017 were $1.9 billion, an increase of 3 percent as compared to fiscal year 2016. The Diabetes Group's net sales for fiscal year 2017 benefited from growth in both the U.S. and international markets due to strong U.S. sales of the MiniMed 630G system and interest in the Priority Access Program for the MiniMed 670G hybrid closed loop system, as well as strong international sales in Europe, Latin America, and Asia Pacific of the MiniMed 640G system with the Enhanced Enlite sensor.

Looking ahead, we expect our Diabetes Group could be affected by the following:

•	Continued increases in sensor manufacturing capacity to benefit from rapidly growing demands. In the fourth quarter of 2018, sensor expansion efforts were met with unconstrained capacity and completed with no back orders. We expect to keep sensor utilization strong and continue commercial expansion into the new fiscal year.

•	Continued acceptance and growth of the MiniMed 670G system, the first hybrid closed loop system in the world. The system features our most advanced SmartGuard algorithm, which enables improved glucose control with reduced user input. The MiniMed 670G system received U.S. FDA approval during the second quarter of fiscal year 2017 and launched in the U.S. in June 2017.

•	Changes in medical reimbursement policies and programs, along with payor coverage of the MiniMed 670G system.

•	Continued acceptance and growth of the MiniMed 640G system with SmartGuard Suspend before Low technology, which has launched in Europe, Australia, and select countries in Latin America and Asia, and the MiniMed 620G system, the first integrated system customized for the Japanese market. The MiniMed 640G system received regulatory approval in Japan in the fourth quarter of fiscal year 2018.

•	Continued acceptance and growth of Guardian Connect CGM system which displays information directly to a smartphone. This system received CE mark in 2016 and has launched both internationally and now in the U.S. after receiving FDA approval in the fourth quarter of fiscal year 2018.

•	Continued partnership with UnitedHealthcare as the preferred in-network provider of insulin pumps, giving their members access to our advanced diabetes technology and comprehensive support services.

•	Continued partnership and growth of our outcomes-based agreement with Aetna, where a component of our pump reimbursement is based on successfully meeting clinical improvement thresholds as part of our value-based healthcare solutions.

CRITICAL ACCOUNTING ESTIMATES

We have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 1 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect our best judgment about economic and market conditions and the potential effects on the valuation and/or carrying value of assets and liabilities based upon relevant information available. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Our critical accounting estimates include the following:

Litigation Contingencies We 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. The outcomes of these legal actions are not completely within our 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 or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions. Estimating probable losses from our litigation and governmental proceedings is inherently difficult, 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. Our significant legal proceedings are discussed in Note 19 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

Income Tax Reserves and U.S. Tax Reform We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may or may not prevail. Under U.S. GAAP, if we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by determining the amount that is greater than 50 percent likely of being realized upon settlement. We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We regularly monitor our tax positions and tax liabilities. We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) a completion of a tax audit, (ii) effective settlement of an issue, (iii) a change in applicable tax law including a tax case or legislative guidance, or (iv) the expiration of the applicable statute of limitations. Significant judgment is required in accounting for tax reserves. Although we believe that we have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our effective tax rate, consolidated earnings, financial position and/or cash flows.

On December 22, 2017, the U.S. government enacted the Tax Act, which significantly revises U.S. corporate income taxation by, among other things, lowering the U.S. corporate income tax rate, broadening the base of taxation, and implementing a territorial tax system. We have a measurement period of up to one year after the enactment date of the Tax Act to finalize the recognition of the related tax impacts. The final impact of the Tax Act may differ from the provisional amounts recognized in the current period, possibly materially, due to, among other things, changes in our interpretation of the Tax Act, legislative or administrative actions to clarify the intent of the statutory language provided that differ from our current interpretation, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we have utilized to calculate the impacts, including changes to current year earnings estimates and applicable foreign exchange rates.

Valuation of Intangible Assets and Goodwill When we acquire a business, the assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill is the excess of the purchase price consideration over the estimated fair value of net assets of acquired businesses. Intangible assets primarily include patents, trademarks, tradenames, customer relationships, purchased technology, and IPR&D. Determining the fair value of intangible assets acquired as part of a business combination requires us to make significant estimates. These estimates include the amount and timing of projected future cash flows of each project or technology, the discount rate used to discount those cash flows to present value, the assessment of the asset’s life cycle, and the consideration of legal, technical, regulatory, economic, and competitive risks.

The test for goodwill impairment requires us to make several estimates to determine fair value, most of which are based on projected future cash flows. Our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value, including projected future cash flows. We assess the impairment of goodwill at the reporting unit level annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired.

We test definite-lived intangible assets for impairment when an event occurs or circumstances change that would indicate the carrying amount of the assets or asset group may be impaired. Our tests are based on future cash flows that require significant judgment with respect to future revenue and expense growth rates, appropriate discount rates, asset groupings, and other assumptions and estimates. We use estimates that are consistent with our business plans and a market participant's view of the assets being evaluated. Actual results may differ from our estimates due to a number of factors including, among others, changes in competitive conditions, timing of regulatory approval, results of clinical trials, changes in worldwide economic conditions, and fluctuations in currency exchange rates.

We assess the impairment of indefinite-lived intangibles annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Our impairment tests of indefinite-lived intangibles require us to make several estimates to determine fair value, including projected future cash flows and discount rates.

ACQUISITIONS AND DIVESTITURES

Information regarding acquisitions and divestitures is included in Notes 2 and 3, respectively, to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 1 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

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:

	Fiscal Year
	2018			2017			2016
Cost of products sold	30.2	%		31.3	%		31.7	%
Research and development expense	7.5	%		7.4	%		7.7	%
Selling, general, and administrative expense	33.3	%		32.7	%		32.8	%

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 was $9.1 billion, $9.3 billion, and $9.1 billion during fiscal years 2018, 2017, and 2016, respectively. The decrease in cost of products sold as a percentage of sales from fiscal year 2018 as compared to 2017 was due primarily to the divestiture of lower-margin products in conjunction with the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses during fiscal year 2018 and a $38 million charge during fiscal year 2017 related to the recognition of the fair value step-up taken on inventory acquired in connection with the HeartWare acquisition. The decrease in cost of products sold as a percentage of sales due to the divestiture and fair-value step-up on HeartWare inventory was partially offset by $17 million of costs recognized in relation to restoring operations at four Puerto Rico manufacturing sites after Hurricane Maria, including idle facility costs, asset write-downs, and other facility-related costs, and the infusion set recall in our Diabetes Group. The decrease in fiscal year 2017 as compared to fiscal year 2016 was largely due to a $226 million charge in fiscal year 2016 related to the recognition of the fair value step-up of acquired Covidien inventory.

Research and Development Expense We remain committed to accelerating the development of meaningful innovations to deliver better patient outcomes at appropriate costs that lead to enhanced quality of life and may be validated by clinical and economic evidence. We are also focused on expanding access to quality healthcare.

Research and development expense was $2.3 billion, $2.2 billion, and $2.2 billion during fiscal years 2018, 2017, and 2016, respectively. Research and development expense remained fairly consistent as a percentage of net sales with a slight decrease from fiscal year 2016 to 2018 due, in part, to the timing of clinical trials and product approvals, as well as our sales increasing at a slower rate than the increase in research and development following the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.

Selling, General, and Administrative Expense Our goal is to continue to leverage selling, general, and administrative expense initiatives and to continue to realize cost synergies expected from our acquisitions. Selling, general, and administrative expense primarily consist of salaries and wages, as well as other administrative costs, such as professional fees and marketing expenses.

Selling, general, and administrative expense was $10.0 billion, $9.7 billion, and $9.5 billion during fiscal years 2018, 2017, and 2016, respectively. Selling, general, and administrative expense increased a percentage of net sales from fiscal year 2017 to 2018, as we incurred expenses associated with new product launches and Transition Service Agreements (TSAs). In conjunction with the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses on July 29, 2017, we entered into TSAs with Cardinal to ensure and facilitate an orderly transfer of business operations. Expenses associated with the TSA agreements are recognized in selling, general, and administrative expenses; however, TSA revenue is recognized in other expense, net, thereby contributing to an increase in selling, general, and administrative expense as a percentage of revenue.

Selling, general, and administrative expense remained fairly flat as a percentage of net sales from fiscal year 2016 to 2017, with a slight decrease due to cost savings associated with selling, general, and administrative expense initiatives.

The following is a summary of other costs and expenses:

		Fiscal Year
(in millions)		2018				2017				2016
Amortization of intangible assets		$	1,823			$	1,980			$	1,931
Restructuring charges, net		30				363				290
Acquisition-related items		104				220				283
Certain litigation charges		61				300				26
Divestiture-related items		114				—				—
Gain on sale of businesses		(697		)		—				—
Special charge		80				100				—
Other expense, net		505				222				107
Investment loss		227				—				70
Interest expense, net		749				728				955

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. Amortization expense was $1.8 billion, $2.0 billion, and $1.9 billion in fiscal years 2018, 2017, and 2016, respectively. The decrease in amortization expense from fiscal year 2017 to fiscal year 2018 is primarily attributable to the discontinuation of amortization on the definite-lived intangible assets classified as assets held for sale at April 28, 2017 and through the first quarter of fiscal year 2018 related to the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. This divestiture was completed during the second quarter of fiscal year 2018.

Restructuring

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. The Enterprise Excellence Program is expected to further leverage our global size and scale as well as enhance the customer and employee experience.

The Enterprise Excellence Program is focused on three objectives:

•	Global Operations - integrating and enhancing global manufacturing and supply processes, systems and site presence to improve quality, delivery cost and cash flow

•	Functional Optimization - enhancing and leveraging global operating models and systems across several enabling functions to improve productivity and employee experience

•	Commercial Optimization - optimizing certain processes, systems and models to improve productivity and the customer experience

The Enterprise Excellence Program is designed to drive operating margin improvement, as well as fund investment in strategic growth initiatives, with expected annual gross savings of more than $3.0 billion from cost reductions and leverage of our fixed infrastructure by the end of fiscal year 2022. Approximately $500 million to $700 million of gross annual savings are expected to be achieved each fiscal year through the end of fiscal year 2022.

The Enterprise Excellence Program is expected to result in pre-tax restructuring charges of approximately $1.6 billion to $1.8 billion, the vast majority of which are expected to be incurred by the end of fiscal year 2022 and result in cash outlays to be substantially complete by the end of fiscal year 2023. Approximately half of the estimated restructuring charges are related to employee termination benefits. The remaining restructuring charges are costs associated with the restructuring program, such as salaries for employees supporting the program and consulting expenses. We expect these costs to be recognized within restructuring charges, net, cost of products sold, and selling, general and administrative expense in the consolidated statements of income.

During fiscal year 2018, we recognized restructuring charges of $96 million. For fiscal year 2018, restructuring charges included $35 million of employee termination benefits recognized within restructuring charges, net in the consolidated statements of income. For fiscal year 2018, restructuring charges also included costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses, including $28 million recognized within cost of products sold and $33 million recognized within selling, general and administrative expense in the consolidated statements of income.

Cost Synergies

In the third quarter of fiscal year 2018, we achieved $850 million in cost synergies related to the acquisition of Covidien. The cost synergies related to administrative office optimization, manufacturing and supply chain infrastructure, and certain general and administrative savings. Cash outlays for the cost synergies program are scheduled to be substantially complete by the end of fiscal year 2019.

During fiscal year 2018, we recognized restructuring charges of $45 million, partially offset by accrual adjustments of $34 million. Accrual adjustments relate to certain employees identified for termination finding other positions within Medtronic, cancellations of employee terminations, and employee termination benefits being less than initially estimated. For fiscal year 2018, restructuring charges included $29 million of employee termination benefits and contract termination costs recognized within restructuring charges, net in the consolidated statements of income. Restructuring charges also included other costs of $12 million recognized within cost of products sold and $4 million recognized within selling, general and administrative expense.

For fiscal years 2017 and 2016, we recognized restructuring charges of $441 million and $332 million, respectively, partially offset by accrual adjustments of $68 million and $18 million, respectively. Accrual adjustments relate to certain employees identified for termination finding other positions within Medtronic, cancellations of employee terminations, and employee termination benefits being less than initially estimated. For fiscal years 2017 and 2016, restructuring charges included asset write-downs of $17 million and $14 million, respectively, related to property, plant, and equipment impairments, and $10 million and $9 million, respectively, related to inventory write-offs recognized within cost of products sold in the consolidated statements of income. Additionally, fiscal year 2017 restructuring charges included $73 million of incremental defined benefit pension and post-retirement related expenses for employees that accepted voluntary early retirement packages.

For additional information, see Note 4 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Acquisition-Related Items Acquisition-related items includes expenses incurred in connection with the integration of Covidien, our $50.0 billion acquisition completed in the fourth quarter of fiscal year 2015, transaction expenses incurred in connection with business combinations, and changes in fair value of contingent consideration. During fiscal year 2018, we recognized acquisition-related items expense of $132 million, including $28 million recognized within cost of products sold in the consolidated statements of income. During fiscal year 2018, acquisition-related items expense includes $172 million of costs associated with the integration of Covidien manufacturing, distribution, and administrative facilities as well as information technology system implementation and benefits harmonization, partially offset by the change in fair value of contingent consideration as a result of revised revenue forecasts and the timing of anticipated regulatory milestones.

During fiscal year 2017, we recognized acquisition-related items expense of $230 million, including $10 million recognized within cost of products sold in the consolidated statements of income. During fiscal year 2017, acquisition-related items expense primarily includes $225 million of costs associated with the integration of Covidien manufacturing, distribution, and administrative facilities as well as information technology system implementation and benefits harmonization, $23 million of accelerated or incremental stock compensation expense, and expenses incurred in connection with the HeartWare acquisition and planned divestiture of the Patient Care, Deep Vein, Thrombosis, and Nutritional Insufficiency businesses, partially offset by the change in fair value of contingent consideration as a result of revised revenue forecasts and the timing of anticipated regulatory milestones.

During fiscal year 2016, we recognized acquisition-related items expense of $283 million, including $219 million of costs associated with the integration of Covidien manufacturing, distribution, and administrative facilities as well as information technology system implementation and benefits harmonization and $58 million of accelerated or incremental stock compensation expense.

Certain Litigation Charges We classify litigation charges and gains related to significant legal matters as certain litigation charges. During fiscal years 2018, 2017, and 2016, we recognized $61 million, $300 million, and $26 million, respectively, of certain litigation charges related to probable and estimable damages for significant legal matters.

Divestiture-Related Items Divestiture-related items include expenses incurred in connection with the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. During fiscal year 2018, we recognized divestiture-related items expense of $114 million, primarily comprised of expenses incurred for professional services, including banker, legal, tax, and advisory fees, and $16 million of accelerated stock compensation expense related to the acceleration of the vesting period for employees that transferred with the divestiture. There was no divestiture-related items expense for fiscal years 2017 and 2016.

Gain on Sale of Businesses We recognized a pre-tax gain of $697 million on the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses during fiscal year 2018. No businesses were sold during fiscal years 2017 or 2016.

Special Charge Continuing our commitment to improve the health of people and communities throughout the world, we recognized a charge of $80 million in fiscal year 2018 and $100 million in fiscal year 2017 for charitable contributions to the Medtronic Foundation.

Other Expense, Net Other expense, net includes royalty income and expense, realized equity security gains and losses, TSA income, intangible asset impairments, currency transaction and derivative gains and losses, and Puerto Rico excise tax. In fiscal year 2018, other expense, net was $505 million as compared to $222 million in fiscal year 2017. The increase from fiscal year 2017 to fiscal year 2018 was primarily attributable to remeasurement and our hedging programs, which resulted in a $176 million loss for fiscal year 2018 as compared to an $81 million gain in fiscal year 2017, losses of $68 million related to the impairment of IPR&D assets in fiscal year 2018, and $15 million of humanitarian aid provided to our employees affected by Hurricane Maria in fiscal year 2018. The increase from fiscal year 2017 to 2018 was partially offset by $74 million of TSA income.

In fiscal year 2017, other expense, net was $222 million as compared to $107 million in fiscal year 2016. The increase from fiscal year 2016 to 2017 was primarily attributable to remeasurement and our hedging programs, which resulted in an $81 million gain for fiscal year 2017 as compared to a $314 million gain in fiscal year 2018, partially offset by the decrease in U.S. medical device tax due to the suspension of the U.S. medical device tax beginning January 1, 2016.

Investment Loss We recognized losses of $227 million and $70 million during fiscal years 2018 and 2016, respectively, related to the impairment of certain cost and equity method investments. We remain committed to future strategic and focused investments in the areas of medical device technologies, services, and solutions.

Interest Expense, Net Interest expense, net includes interest earned on our cash, cash equivalents and investments, interest incurred on our outstanding borrowings, amortization of debt issuance costs and debt premiums or discounts, amortization of gains or losses on terminated or de-designated interest rate derivative instruments, charges recognized in connection with the early redemption of senior notes, and ineffectiveness on interest rate derivative instruments. In fiscal year 2018, interest expense, net was $749 million as compared to $728 million in fiscal year 2017. The increase in interest expense, net for fiscal year 2018 was primarily driven by modestly higher average interest rates on total debt obligations outstanding and a $38 million charge recognized in connection with the early redemption of approximately $1.2 billion of Medtronic Inc. senior notes, partially offset by a slight increase in interest income as compared to fiscal year 2017.

In fiscal year fiscal year 2017, interest expense, net was $728 million as compared to $955 million in fiscal year 2016. The decrease in interest expense, net for fiscal year 2017 was the result of a $183 million charge recorded in connection with the cash tender offer and redemption of certain debt securities in fiscal year 2016 and a $45 million loss on interest rate swaps which were entered into in advance of a planned debt issuance that was no longer anticipated in fiscal year 2016.

INCOME TAXES

	Fiscal Year
(in millions)	2018				2017				2016
Income tax provision	$	2,580			$	578			$	798
Income before income taxes	5,675				4,602				4,336
Effective tax rate	45.5		%		12.6		%		18.4		%
Non-GAAP income tax provision	$	1,120			$	1,232			$	1,171
Non-GAAP income before income taxes	7,641				7,623				7,399
Non-GAAP Nominal Tax Rate	14.7		%		16.2		%		15.8		%
Difference between the effective tax rate and Non-GAAP Nominal Tax Rate	(30.8		)%		3.6		%		(2.6		)%

On December 22, 2017, the U.S. government enacted the Tax Act, which significantly revises U.S. corporate income taxation by, among other things, lowering the U.S. corporate income tax rate from 35.0 percent to 21.0 percent, broadening the base of taxation, implementing a territorial tax system, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The decrease in the U.S. federal corporate tax rate from 35.0 percent to 21.0 percent results in a blended statutory tax rate of 30.5 percent for our fiscal year ended April 27, 2018.

Many of the countries we operate in have statutory tax rates lower than our blended U.S. statutory rate, thereby resulting in an overall effective tax rate less than the U.S. statutory rate of 30.5 percent for fiscal year 2018. A significant portion of our earnings are generated from operations in Puerto Rico, Switzerland, and Ireland. The statutory tax rates for these jurisdictions range from 12.5 percent to 45.1 percent. Our earnings in Puerto Rico and Switzerland are subject to certain tax incentive grants which provide for tax rates lower than the country statutory tax rates. Unless our tax incentive grants are extended, they expire between fiscal years 2019 and 2029. The tax incentive grants which expired during fiscal year 2018 did not have a material impact on our financial results. See Note 14 to the consolidated financial statements for additional information.

Our effective tax rate for fiscal year 2018 was 45.5 percent, as compared to 12.6 percent in fiscal year 2017. The increase in the effective tax rate was primarily due to the impacts from U.S. tax reform, the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses, the utilization of non-U.S. special deductions, the net tax cost associated with an internal reorganization, excess tax benefits associated with stock-based compensation, and the tax effect from the intercompany sales of certain intellectual property.

Our Non-GAAP Nominal Tax Rate for fiscal year 2018 was 14.7 percent, as compared to 16.2 percent in fiscal year 2017. The decrease in our Non-GAAP Nominal Tax Rate for fiscal year 2018 as compared to fiscal year 2017 was primarily due to operational tax benefits and year-over-year changes in operational results by jurisdiction.

During fiscal year 2018, we recognized $135 million of operational tax benefits. The operational tax benefits included a $61 million benefit from excess tax benefits associated with stock-based compensation and a $74 million net benefit associated with the resolution of certain income tax audits, finalization of certain tax returns, changes to uncertain tax position reserves, and changes to certain deferred income tax balances.

Our effective tax rate for fiscal year 2017 was 12.6 percent, as compared to 18.4 percent in fiscal year 2016. The decrease in our effective tax rate for fiscal year 2017 as compared to fiscal year 2016 was due to the net tax impact of inventory step-up, debt tender premium, certain litigation payments, certain tax adjustments, operational tax benefits described below, and year-over-year changes in operational results by jurisdiction.

Our Non-GAAP Nominal Tax Rate for fiscal year 2017 was 16.2 percent, as compared to 15.8 percent in fiscal year 2016. The increase in our Non-GAAP Nominal Tax Rate for fiscal year 2017 as compared to fiscal year 2016 was primarily due to operational tax benefits and year-over-year changes in operational results by jurisdiction.

During fiscal year 2017, we recognized $95 million of operational tax benefits. The operational tax benefits included a $44 million benefit from the reversal of a valuation allowance associated with foreign net operating losses and a $51 million net benefit associated with the resolution of certain income tax audits, finalization of certain tax returns, changes to uncertain tax position reserves, and changes to certain deferred income tax balances.

An increase in our Non-GAAP Nominal Tax Rate of 1 percent would result in an additional income tax provision for fiscal years 2018, 2017, and 2016 of approximately $77 million, $76 million, and $74 million, respectively.

Certain Tax Adjustments

During fiscal year 2018, certain tax adjustments of $1.9 billion, recognized in income tax provision in the consolidated statement of income, included the following:

•

A net charge of $2.4 billion associated with U.S. tax reform, inclusive of the transition tax, remeasurement of U.S. Federal deferred tax assets and liabilities, and the decrease in the U.S. statutory tax rate. Our income tax provision associated with the impact of the Tax Act for fiscal year 2018 is based on a reasonable estimate and will be finalized within the measurement period in accordance with U.S. GAAP. See Note 14 to the consolidated financial statements for additional information.

•	A charge of $73 million associated with an internal reorganization of certain foreign subsidiaries.

•	A net benefit of $579 million associated with the intercompany sale of intellectual property.

During fiscal year 2017, certain tax adjustments of $202 million, recognized in income tax provision in the consolidated statement of income, included the following:

•

A charge of $404 million associated with the IRS resolution for the Ardian, CoreValve, Inc., Ablation Frontiers, Inc., PEAK Surgical, Inc. and Salient Surgical Technologies, Inc. acquisition-related issues and the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico for certain businesses. This resolution does not include the businesses that are the subject of the Medtronic, Inc. U.S. Tax Court case for fiscal years 2005 and 2006.

•	A net charge of $125 million associated with the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses to Cardinal. The net charge primarily relates to the tax effect from the recognition of the outside basis difference of certain subsidiaries which were included in the divestiture.

•	A charge of $86 million associated with the IRS’s disallowance of the utilization of certain net operating losses, along with the recognition of a valuation allowance against the net operating loss deferred tax asset, was recognized during the year.

•	A charge of $18 million as a result of the redemption of an intercompany minority interest during the year.

•	A benefit of $431 million as the result of the resolution of Covidien's previously disclosed Tyco International plc intercompany debt issues with the U.S. Tax Court and the Appeals Division of the IRS.

During fiscal year 2016, certain tax adjustments of $417 million, recognized in income tax provision in the consolidated statement of income, included the following:

•

A charge of $442 million primarily related to the U.S. income tax expense resulting from our completion of an internal reorganization of the ownership of certain legacy Covidien businesses that reduced the cash and investments held by our U.S.-controlled non-U.S. subsidiaries. As a result of this internal reorganization, approximately $9.7 billion of cash, cash equivalents and investments in marketable debt and equity securities previously held by U.S.-controlled non-U.S. subsidiaries became available for general corporate purposes.

•	A $25 million tax benefit associated with the disposition of a wholly-owned U.S. subsidiary.

Certain tax adjustments will affect the comparability of our operating results between periods. Therefore, we consider these Non-GAAP Adjustments. Refer to the "Executive Level Overview" section of this Management's Discussion and Analysis for further discussion of these adjustments.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital structure is evaluated regularly within the context of our annual operating and strategic planning process. 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.

Summary of Cash Flows

The following is a summary of cash provided by (used in) operating, investing, and financing activities, the effect of exchange rate changes on cash and cash equivalents, and the net change in cash and cash equivalents:

	Fiscal Year
(in millions)	2018				2017				2016
Cash provided by (used in):
Operating activities	$	4,684			$	6,880			$	5,218
Investing activities	5,858				(1,571		)		2,245
Financing activities	(11,954		)		(3,283		)		(9,543		)
Effect of exchange rate changes on cash and cash equivalents	114				65				113
Net change in cash and cash equivalents	$	(1,298	)		$	2,091			$	(1,967	)

Operating Activities The $2.2 billion decrease in net cash provided in fiscal year 2018 as compared to fiscal year 2017 was primarily driven by an increase in cash paid for taxes of $1.5 billion, an increase in net cash outflows for collateral related to our derivative instruments of $145 million, cash paid for divestiture-related expenses of approximately $100 million, an increase in certain litigation payments of $60 million, and a decrease in cash collected from customers. The increase in cash paid for income taxes was primarily a result of a $1.1 billion pre-payment we elected to make to the U.S. IRS related to in-process litigation on Puerto Rico transfer pricing, tax payments related to the intercompany sale of intellectual property and sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses as well as settlement payments for U.S. federal income taxes for fiscal years 2012 to 2014 and audit settlements outside of the U.S.

The $1.7 billion increase in net cash provided in fiscal year 2017 as compared to fiscal year 2016 was primarily attributable to an increase in cash collected from customers, as well as a decrease in cash paid for income taxes and interest of $350 million and

$132 million, respectively, and a $191 million payment in fiscal year 2016 related to the Covidien Tax Sharing Agreement. The increase in cash collected from customers was primarily attributable to an increase in revenue. The decrease in cash paid for income taxes was primarily a result of payments made for the resolution of the Kyphon acquisition-related matters, as well as Covidien income tax extension payments in fiscal year 2016. We did not make any significant tax audit settlement payments or significant extension payments in fiscal year 2017. The decrease in cash paid for interest was the result of less debt, on average, in fiscal year 2017 as compared to fiscal year 2016.

Investing Activities The $7.4 billion increase in net cash provided in fiscal year 2018 as compared to fiscal year 2017 was primarily attributable to the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses on July 29, 2017, resulting in net proceeds of $6.1 billion, a decrease in cash paid for acquisitions of $1.2 billion, primarily due to the acquisition of Heartware during fiscal year 2017, and a decrease in additions to property, plant, and equipment.

The $3.8 billion increase in net cash used in fiscal year 2017 as compared to fiscal year 2016 was primarily attributable to a decrease in net proceeds from purchases and sales and maturities of investments in fiscal year 2017.

Financing Activities The $8.7 billion increase in net cash used in fiscal year 2018 as compared to fiscal year 2017 was primarily attributable to the repayment of our senior unsecured term loan, including accrued interest, for $3.0 billion in August 2017, the repayment of our 6.000 percent ten-year 2008 CIFSA senior notes, including accrued interest, for $1.2 billion in October 2017, the repayment of our 3.500 percent seven-year 2010 HTWR senior notes, including accrued interest, for $43 million in December 2017, the repayment of our 1.500 percent three-year 2015 senior notes, including accrued interest, for $1.0 billion in March 2018, repayment of our 1.375 percent five-year 2013 senior notes, including accrued interest, for $1.0 billion in April 2018, repayment of our 4.450 percent ten-year 2010 senior notes, including accrued interest and early redemption premium, for $795 million in April 2018, and repayment of our 5.600 percent ten-year 2009 senior notes, including accrued interest and early redemption premium, for $413 million in April 2018. The increase in net cash used was also due to the issuance of $2.0 billion of Senior Notes in fiscal year 2017 and a reduction of commercial paper borrowings in fiscal year 2018 as compared to fiscal year 2017, partially offset by a decrease in share repurchases of $1.4 billion.

The $6.3 billion decrease in net cash used in financing activities in fiscal year 2017 as compared to fiscal year 2016 was primarily attributable to the issuance of $2.0 billion of Senior Notes in fiscal year 2017, an increase in commercial paper borrowings, and lower payments on maturing and extinguished debt, partially offset by increases in dividends to shareholders and repurchases of ordinary shares.

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:

	Fiscal Year
(in millions)	2018				2017				2016
Net cash provided by operating activities	$	4,684			$	6,880			$	5,218
Net cash provided by (used in) investing activities	5,858				(1,571		)		2,245
Net cash used in financing activities	(11,954		)		(3,283		)		(9,543		)
Net cash provided by operating activities	4,684				6,880				5,218
Additions to property, plant, and equipment	(1,068		)		(1,254		)		(1,046		)
Free cash flow	$	3,616			$	5,626			$	4,172
Dividends to shareholders	$	2,494			$	2,376			$	2,139
Repurchase of ordinary shares	2,171				3,544				2,830
Issuances of ordinary shares	(403		)		(428		)		(491		)
Return to shareholders	$	4,262			$	5,492			$	4,478
Return of operating cash flow percentage	91		%		80		%		86		%
Return of free cash flow percentage	118		%		98		%		107		%

Debt and Capital

Our capital structure consists of equity and interest-bearing debt. We use a combination of bank borrowings and commercial paper issuances to fund our short-term financing needs. Current debt, including the current portion of our long-term debt and capital lease obligations, at April 27, 2018 was $2.1 billion as compared to $7.5 billion at April 28, 2017. Historically, we have issued Senior Notes to meet our long-term financing needs. Long-term debt at April 27, 2018 was $23.7 billion as compared to $25.9 billion at April 28, 2017.

Total debt at April 27, 2018 was $25.8 billion, as compared to $33.4 billion at April 28, 2017. The decrease in total debt was primarily driven by the repayment of our senior unsecured term loan and senior notes detailed below, along with a reduction in our commercial paper borrowings of $203 million.

During fiscal year 2018, we repaid our senior unsecured term loan, including accrued interest, for $3.0 billion, our 6.000 percent ten-year 2008 CIFSA senior notes, including accrued interest, for $1.2 billion, our 3.500 percent seven-year 2010 HTWR senior notes, including interest, for $43 million, our 1.500 percent three-year 2015 senior notes, including accrued interest, for $1.0 billion, our 1.375 percent five-year 2013 senior notes, including accrued interest, for $1.0 billion, our 4.450 percent ten-year 2010 senior notes, including accrued interest and early redemption premium, for $795 million, and our 5.600 percent ten-year 2009 senior notes, including accrued interest and early redemption premium, for $413 million.

We maintain a commercial paper program for short-term financing, which allows us to issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $3.5 billion. At April 27, 2018, we had $698 million of commercial paper outstanding as compared to $901 million at April 28, 2017. During fiscal years 2018 and 2017, the weighted average original maturity of the commercial paper outstanding was approximately 28 and 39 days, respectively, and the weighted average interest rate was 1.46 percent and 0.89 percent, respectively. The issuance of commercial paper reduces the amount of credit available under our existing line of credit, as explained below.

We also have a $3.5 billion syndicated line of credit facility (Credit Facility) which expires in January 2020. The Credit Facility provides backup funding for the commercial paper program and may also be used for general corporate purposes. The Credit Facility provides us with the ability to increase our borrowing capacity by an additional $500 million at any time during the term of the agreement. At each anniversary date of the Credit Facility, but not more than twice prior to the maturity date, we could also request a one-year extension of the maturity date. At April 27, 2018 and April 28, 2017, no amounts were outstanding on the committed line of credit.

Interest rates on advances of our Credit Facility are determined by a pricing matrix, based on our long-term debt ratings assigned by S&P and Moody’s. For additional information on our credit ratings status by S&P and Moody's, refer to the "Liquidity" section of this Management's Discussion and Analysis. Facility fees are payable on the credit facility and are determined in the same manner as the interest rates. The agreements also contain customary covenants, all of which we were in compliance with at April 27, 2018.

We repurchase our ordinary shares from time to time as part of our focus on returning value to our shareholders. In June 2015, our Board of Directors authorized, subject to the ongoing existence of sufficient distributable reserves, the repurchase of 80 million of our ordinary shares. At April 28, 2017, we had used 51 million of the 80 million shares authorized under the June 2015 share repurchase program. In June 2017, our Board of Directors authorized the expenditure of up to $5.0 billion for new share repurchases, replacing the previous 2015 repurchase authorization to redeem up to an aggregate number of ordinary shares. During fiscal years 2018 and 2017, we repurchased a total of 25 million and 43 million shares, respectively, under these programs at an average price of $83.71 and $83.03, respectively. At April 27, 2018, we had approximately $4.0 billion remaining under the share repurchase program authorized by our Board of Directors.

For more information on credit arrangements, see Note 8 of the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Liquidity

The following table is a summary of our cash, cash equivalents, and current investments, working capital, and current ratio:

(in millions)	April 27, 2018				April 28, 2017
Cash, cash equivalents, and current investments	$	11,227			$	13,708
Working capital	12,896				10,272
Current ratio(1)	2.3:1.0				1.7:1.0

(1)	The ratio of current assets to current liabilities. The current ratio at April 28, 2017 excludes current assets and current liabilities held for sale.

Our liquidity sources at April 27, 2018 include $3.7 billion of cash and cash equivalents and $7.6 billion of current investments. Additionally, we maintain a commercial paper program ($698 million of commercial paper outstanding at April 27, 2018) and Credit Facility. See discussion above regarding changes in our cash and cash equivalents and commercial paper program and Credit Facility.

Our current investments include marketable debt and equity securities that are classified and accounted for as available-for-sale. Our debt and equity securities include U.S. and non-U.S. government and agency securities, corporate debt securities, mortgage-backed securities, other asset-backed securities, debt funds, equity securities, and auction rate securities. Some of our investments may experience reduced liquidity due to changes in market conditions and investor demand. Our auction rate security holdings continue to experience reduced liquidity due to low investor demand. Although our auction rate securities are currently illiquid and other securities could become illiquid, we believe we could liquidate a substantial amount of our portfolio without incurring a material impairment loss.

For fiscal year 2018, the total other-than-temporary impairment losses on available-for-sale debt securities and funds were not significant. Based on our assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which we are invested, we believe we have recognized all necessary other-than-temporary impairments as we do not have the intent to sell, nor is it more likely than not that we will be required to sell, before recovery of the amortized cost. At April 27, 2018, we have $321 million of gross unrealized losses on our aggregate available-for-sale debt securities and funds of $7.6 billion. If market conditions deteriorate, some of these holdings may experience other-than-temporary impairment in the future, which could adversely affect our financial results. We are required to use estimates and assumptions in our valuation of investments, which requires a high degree of judgment, and therefore, actual results could differ materially from estimates. See Note 6 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for additional information.

Our working capital and current ratio at April 27, 2018 increased as compared to April 28, 2017, primarily due to the receipt of $6.1 billion of cash proceeds from the sale of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses on July 29, 2017, partially offset by repayments of current and long-term debt obligations and a $1.1 billion income tax pre-payment we elected to make to the U.S. IRS related to in-process litigation on Puerto Rico transfer pricing in fiscal year 2018.

The following table is a summary of our Standard and Poor's Rating Services (S&P) and Moody's Investors Service (Moody's) long-term debt ratings and short-term debt ratings:

		Agency Rating (1)
		April 27, 2018		April 28, 2017
Standard & Poor's Ratings Services
Long-term debt		A		A
Short-term debt		A-1		A-1
Moody's Investors Service
Long-term debt		A3		A3
Short-term debt		P-2		P-2

(1)	Agency ratings are subject to change, and there is no assurance that an agency will continue to provide ratings and/or maintain its current ratings. A security rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by the rating agency, and each rating should be evaluated independently of any other rating.

S&P and Moody's long-term debt ratings and short-term debt ratings at April 27, 2018 were unchanged as compared to the ratings at April 28, 2017. We do not expect the S&P and Moody's ratings to have a significant impact on our liquidity or future flexibility to access additional liquidity given our balance sheet and Credit Facility and related commercial paper program.

We have future contractual obligations and other minimum commercial commitments that are entered into in the normal course of business. We believe our off-balance sheet arrangements do not have a material current or anticipated future effect on our consolidated earnings, financial position, and/or cash flows. Refer to the "Off-Balance Sheet Arrangements and Long-Term Contractual Obligations" section of this Management's Discussion and Analysis for more information on these obligations and commitments.

Note 19 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K provides information regarding amounts we have accrued related to legal matters. In accordance with U.S. GAAP, we record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Actual settlements may be different than estimated and could have a material effect on our consolidated earnings, financial position, and/or cash flows.

We record tax liabilities in our consolidated financial statements for amounts that we expect to repatriate from subsidiaries (to the extent the repatriation would be subject to tax); however, no tax liabilities are recorded for amounts that we consider to be permanently reinvested. As a result of the Tax Act, we have removed our permanently reinvested assertion on the historical earnings through April 27, 2018 for legal entities with accumulated earnings subject to the transition tax. We continue to evaluate our permanently reinvested assertion for certain legal entities. We expect to have access to the majority of our cash flows in the future. In addition, we continue to evaluate our legal entity structure supporting our business operations, and to the extent such evaluation results in a change to our overall business structure, we may be required to accrue for additional tax obligations.

We believe our balance sheet and liquidity provide us with flexibility, and that our cash, cash equivalents, and current investments, as well as our $3.5 billion revolving credit facility and related commercial paper program ($698 million of commercial paper outstanding at April 27, 2018), will satisfy our foreseeable operating needs for at least the next 12 months. We regularly review our capital needs and consider various investing and financing alternatives to support our requirements.

OFF-BALANCE SHEET ARRANGEMENTS AND LONG-TERM CONTRACTUAL OBLIGATIONS

In the normal course of business, we periodically enter into agreements that require us to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising as a result of our products or the negligence of our personnel or claims alleging that our products infringe third-party patents or other intellectual property. Our maximum exposure under these indemnification provisions is unable to be estimated, and we have not accrued any liabilities within our consolidated financial statements or included any indemnification provisions in the table below. Historically, we have not experienced significant losses on these types of indemnification agreements.

Presented below is a summary of our off-balance sheet contractual obligations and other minimum commercial commitments at April 27, 2018, as well as long-term contractual obligations reflected in the balance sheet at April 27, 2018.

		Maturity by Fiscal Year
(in millions)		Total				2019				2020				2021				2022				2023				Thereafter
Contractual obligations related to off-balance sheet arrangements:
Operating leases		$	753			$	234			$	182			$	133			$	87			$	43			$	74
Commitments to fund minority investments, milestone payments, and royalty obligations(1)		252				75				76				59				38				3				1
Interest payments(2)		12,331				914				901				806				773				662				8,275
Other(3)		608				355				146				44				16				6				41
Contractual obligations related to off-balance sheet arrangements subtotal		$	13,944			$	1,578			$	1,305			$	1,042			$	914			$	714			$	8,391
Contractual obligations reflected in the balance sheet:
Debt obligations(4)		$	25,026			$	1,355			$	3,005			$	1,120			$	3,275			$	1,180			$	15,091
Capital leases		21				4				4				3				2				2				6
Contingent consideration(5)		173				108				41				14				6				1				3
Tax obligations(6)		2,145				198				160				160				160				160				1,307
Contractual obligations reflected in the balance sheet subtotal(7)		27,365				1,665				3,210				1,297				3,443				1,343				16,407
Total contractual obligations		$	41,309			$	3,243			$	4,515			$	2,339			$	4,357			$	2,057			$	24,798

(1)	Includes commitments related to the funding of cost or equity method investments, estimated milestone payments, and royalty obligations. While it is not certain if and/or when payments will be made, the maturity dates included in the table reflect our best estimates.

(2)	Includes the contractual interest payments on our outstanding debt and excludes the impacts of debt premium and discount amortization and interest rate swap agreements. See Note 8 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information on our debt agreements.

(3)	Includes inventory purchase commitments and research and development arrangements which are legally binding and specify minimum purchase quantities or spending amounts. These purchase commitments do not exceed our projected requirements and are in the normal course of business. Excludes open purchase orders with a remaining term of less than one year.

(4)

Includes the current and non-current portion of our Senior Notes and bank borrowings. Excludes debt premium and discount, the fair value impact of outstanding interest rate swap agreements, unamortized gains from terminated interest rate swap agreements, and commercial paper. See Notes 8 and 9 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information on our debt agreements and interest rate swap agreements, respectively.

(5)	Includes the fair value of our current and non-current portions of contingent consideration. While it is not certain if and/or when payments will be made, the maturity dates included in this table reflect our best estimates.

(6)	Represents the tax obligations associated with the transition tax that resulted from U.S. Tax Reform. The transition tax will be paid over an eight-year period and will not accrue interest. See Note 14 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further information.

(7)

Excludes defined benefit plan obligations, guarantee obligations, uncertain tax positions, non-current tax liabilities, and litigation settlements for which we cannot make a reliable estimate of the period of cash settlement. For further information, see Notes 14, 16, and 19 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further information.