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 26, 2019 and April 27, 2018 and for each of the three fiscal years ended April 26, 2019 (fiscal year 2019), April 27, 2018 (fiscal year 2018), and April 28, 2017 (fiscal year 2017), which are presented within "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

Throughout this Management’s Discussion and Analysis, we present certain financial measures that we use to evaluate the operational performance of the Company and as a basis for strategic planning; however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted 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 2019, 2018, and 2017:

		Fiscal Year												Percent Change
(in millions, except per share data)		2019				2018				2017				2019			2018
Net income attributable to Medtronic		$	4,631			$	3,104			$	4,028			49	%		(23	)%
Diluted earnings per share		$	3.41			$	2.27			$	2.89			50	%		(21	)%

The increase in net income attributable to Medtronic and diluted earnings per share (EPS) for fiscal year 2019 as compared to fiscal year 2018 was primarily attributable to the $2.4 billion tax charge recognized during fiscal year 2018 related to the enactment of U.S. comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). Further contributing to the increases was a reduction in other operating expense, net, and an increase in other non-operating income, net. These items were partially offset by the $697 million gain on the sale of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group on July 29, 2017 (the "Divestiture") in fiscal year 2018, along with increases in interest expense and restructuring and associated costs.

The decrease in net income attributable to Medtronic and diluted EPS for fiscal year 2018 as compared to fiscal year 2017 was unfavorably affected by the aforementioned $2.4 billion tax charge related to the Tax Act, along with the impacts of the Divestiture;

net sales of the divested businesses for fiscal years 2018 and 2017 were $0.6 billion and $2.4 billion, respectively. For fiscal year 2018, decreases in net income attributable to Medtronic and diluted EPS were partially offset by a $697 million gain on the Divestiture.

Refer to the "Costs and Expenses" section of this Management's Discussion and Analysis for more information on the items impacting net income attributable to Medtronic and diluted EPS during fiscal years 2019, 2018, and 2017.

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 2019, 2018, and 2017:

	Fiscal year ended April 26, 2019
(in millions, except per share data)	Income Before Income Taxes				Income Tax Provision				Net Income Attributable to Medtronic				Diluted EPS (1)				Effective Tax Rate
GAAP	$	5,197			$	547			$	4,631			$	3.41			10.5	%
Non-GAAP Adjustments:
Restructuring and associated costs (2)	407				66				341				0.25				16.2
Acquisition-related items (3)	88				16				72				0.05				18.2
Certain litigation charges	166				24				142				0.10				14.5
(Gain)/loss on minority investments (4)	(62		)		3				(65		)		(0.05		)		(4.8	)
Debt tender premium and other charges (5)	457				113				344				0.25				24.7
IPR&D charges (6)	58				9				49				0.04				15.5
Exit of businesses (7)	149				31				118				0.09				20.8
Amortization of intangible assets	1,764				267				1,497				1.10				15.1
Certain tax adjustments, net (8)	—				40				(40		)		(0.03		)		—
Non-GAAP	$	8,224			$	1,116			$	7,089			$	5.22			13.6	%

	Fiscal year ended April 27, 2018
(in millions, except per share data)	Income Before Income Taxes				Income Tax Provision				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 (9)	132				42				90				0.07				31.8
Debt redemption premium (10)	38				12				26				0.02				31.6
Divestiture-related items (11)	115				12				103				0.08				10.4
Certain litigation charges	61				8				53				0.04				13.1
Investment loss (12)	227				(1		)		228				0.17				(0.4	)
IPR&D charges (13)	46				5				41				0.03				10.9
Gain on sale of businesses (14)	(697		)		—				(697		)		(0.51		)		—
Hurricane Maria (15)	34				1				33				0.02				2.9
Contribution to Medtronic Foundation	80				26				54				0.04				32.5
Amortization of intangible assets	1,823				322				1,501				1.10				17.7
Certain tax adjustments, net (16)	—				(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				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 (9)	230				74				156				0.11				32.2
Certain litigation charges	300				110				190				0.14				36.7
Contribution to Medtronic Foundation	100				37				63				0.05				37.0
Impact of inventory step-up (17)	38				14				24				0.02				36.8
Amortization of intangible assets	1,980				520				1,460				1.05				26.3
Certain tax adjustments, net (18)	—				(202)				202				0.15				—
Non-GAAP	$	7,623			$	1,232			$	6,395			$	4.60			16.2	%

(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 charges include unvested stock option payouts and investment banker and other transaction fees, along with integration-related costs incurred in connection with the Covidien acquisition and changes in the fair value of contingent consideration.

(4)	Effective in fiscal year 2019, we exclude unrealized and realized gains and losses on our minority investments as we do not believe that these components of income or expense have a direct correlation to our ongoing or future business operations.

(5)	The net charge, which includes $485 million recognized in interest expense and ($28 million) recognized in other operating expense, net, primarily relates to the early redemption of approximately $6.4 billion of Medtronic Inc. and CIFSA senior notes.

(6)	The charges represent acquired IPR&D in connection with asset acquisitions and charges recognized in connection with the impairment of IPR&D assets.

(7)	The net charge relates to business exits and is primarily comprised of intangible asset impairments.

(8)	The net benefit relates to the impacts of U.S. tax reform, along with intercompany legal entity restructuring, and the finalization of certain income tax aspects of the Divestiture.

(9)	The charges primarily include integration-related costs incurred in connection with the Covidien acquisition and changes in the fair value of contingent consideration.

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

(11)	The transaction expenses incurred in connection with the Divestiture.

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

(13)	The charge was recognized in connection with the impairment of IPR&D assets.

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

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

(16)

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, and the net tax cost associated with an internal reorganization, which were partially offset by the tax effects from the intercompany sale of intellectual property.

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

(18)	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, 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.

NET SALES

Segment and Division

The table below illustrates net sales by segment and division for fiscal years 2019, 2018, and 2017:

	Net Sales by Fiscal Year												Percent Change
(in millions)	2019				2018				2017				2019			2018
Cardiac Rhythm & Heart Failure	$	5,849			$	5,947			$	5,649			(2	)%		5	%
Coronary & Structural Heart	3,730				3,562				3,113				5			14
Aortic, Peripheral & Venous	1,926				1,845				1,736				4			6
Cardiac and Vascular Group	11,505				11,354				10,498				1			8
Surgical Innovations	5,753				5,537				5,145				4			8
Respiratory, Gastrointestinal, & Renal	2,725				3,179				4,774				(14	)		(33	)
Minimally Invasive Therapies Group	8,478				8,716				9,919				(3	)		(12	)
Spine	2,654				2,668				2,641				(1	)		1
Brain Therapies	2,604				2,354				2,098				11			12
Specialty Therapies	1,641				1,556				1,491				5			4
Pain Therapies	1,284				1,165				1,136				10			3
Restorative Therapies Group	8,183				7,743				7,366				6			5
Diabetes Group	2,391				2,140				1,927				12			11
Total	$	30,557			$	29,953			$	29,710			2	%		1	%

Net sales growth for fiscal year 2019 as compared to fiscal year 2018 was primarily attributable to strong growth in our Restorative Therapies Group and Diabetes Group, partially offset by the impact of the Divestiture within the Minimally Invasive Therapies Group.

Our performance displays our continued execution against our three growth strategies: therapy innovation, globalization, and economic value. We continue to allocate our capital to higher growth markets and new opportunities that create competitive advantages and capitalize 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.

We continue to see an acceleration in our innovation cycle within our therapy innovation growth strategy. Our segments invest in a pipeline of groundbreaking medical technology, with several recent product launches and adoption of new therapies contributing to net sales growth. We remain focused on our globalization strategy, as net sales in emerging markets grew 6 percent during fiscal year 2019 as compared to fiscal year 2018. Our emerging market performance continues to benefit from geographic diversification, with strong, balanced results around the world. Finally, 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 while delivering improved economic value to the payers and providers. 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 2019, 2018, and 2017:

	U.S.****(1)											Non-U.S. Developed Markets**(2)**											Emerging Markets**(3)**
(in millions)	Fiscal Year 2019				Fiscal Year 2018				% Change			Fiscal Year 2019				Fiscal Year 2018				% Change			Fiscal Year 2019				Fiscal Year 2018				% Change
Cardiac and Vascular Group	$	5,750			$	5,681			1	%		$	3,767			$	3,790			(1	)%		$	1,988			$	1,883			6	%
Minimally Invasive Therapies Group	3,630				3,804				(5	)		3,250				3,378				(4	)		1,598				1,534				4
Restorative Therapies Group	5,478				5,164				6			1,759				1,720				2			946				859				10
Diabetes Group	1,336				1,226				9			855				739				16			200				175				14
Total	$	16,194			$	15,875			2	%		$	9,631			$	9,627			—	%		$	4,732			$	4,451			6	%

	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	%

(1)	U.S. includes the United States and U.S. territories.

(2)	Non-U.S. developed markets include Japan, Australia, New Zealand, Korea, Canada, and the countries within Western Europe.

(3)	Emerging markets include the countries of the Middle East, Africa, Latin America, Eastern Europe, and the countries of Asia that are not included in the non-U.S. developed markets, as defined above.

Net sales increases in the U.S. for fiscal year 2019 as compared to fiscal year 2018 were primarily attributable to strong growth in our Restorative Therapies Group and Diabetes Group, partially offset by the impact of the Divestiture within the Minimally Invasive Therapies Group. Net sales remained flat in non-U.S. developed markets for fiscal year 2019, reflecting consistent growth across our segments in Japan and Korea, partially offset by declines in Australia. Net sales growth in emerging markets continues to reflect our broad diversification and was driven by strong performance in China, the Middle East & Africa, Eastern Europe, and both South and Southeast Asia. Currency had an unfavorable impact on net sales in non-U.S. developed markets and emerging markets of $205 million and $250 million, respectively, for fiscal year 2019.

Net sales declines in the U.S. for fiscal year 2018 as compared to fiscal year 2017 were primarily attributable to the Divestiture within the Minimally Invasive Therapies Group, partially offset by growth in our other segments. Net sales growth in non-U.S.

developed markets was led by strong performance in Western Europe. Net sales growth in emerging markets continues to reflect our broad diversification and was driven by strong performance in all of our segments, with strong performance in China, Latin America, Eastern Europe, and the Middle East & Africa.

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 and related delivery systems, balloons and related delivery systems, endovascular stent graft systems, heart valve replacement technologies, cardiac tissue ablation systems, and open heart and coronary bypass grafting surgical products. 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 2019 were $11.5 billion, an increase of 1 percent as compared to fiscal year 2018. Currency had an unfavorable impact on net sales for fiscal year 2019 of $182 million. The Cardiac and Vascular Group's net sales for fiscal year 2019, as compared to fiscal year 2018, benefited from net sales growth in Coronary & Structural Heart and Aortic, Peripheral & Venous (formerly known as Aortic & Peripheral Vascular) divisions, offset by declines in Cardiac Rhythm & Heart Failure.

Cardiac Rhythm & Heart Failure net sales for fiscal year 2019 were $5.8 billion, a decrease of 2 percent as compared to fiscal year 2018. Cardiac Rhythm & Heart Failure net sales decrease for fiscal year 2019 was driven by declines in Heart Failure, Care Management Services, and CLMS, offset by growth in Arrhythmia Management. The decline in Heart Failure was driven by CRT-D replacements and LVAD headwinds due to a competitor product launch in the U.S. and changes in the U.S. heart transplant guidelines. The growth in Arrhythmia Management was driven by AF Solutions due to the continued strength of the Arctic Front Cardiac CryoAblation Catheter System and Diagnostics due to growth from our Reveal LINQ insertable cardiac monitor. Arrhythmia Management net sales growth also benefited from strong adoption of the TYRX absorbable antibacterial envelope through further expansion of value-based health-care arrangements.

Coronary & Structural Heart net sales for fiscal year 2019 were $3.7 billion, an increase of 5 percent as compared to fiscal year 2018. Coronary & Structural Heart net sales growth for fiscal year 2019 was driven by the global strength of the CoreValve Evolut PRO transcatheter aortic valve system (Evolut PRO) and continued penetration into intermediate risk in the U.S., as well as growth in cannulae, including the Bio-Medicus Next Gen Cannulae, guide catheters, and coronary balloons.

Aortic, Peripheral & Venous net sales for fiscal year 2019 were $1.9 billion, an increase of 4 percent as compared to fiscal year 2018. Aortic, Peripheral & Venous net sales growth for fiscal year 2019 was driven by strong performance of the VenaSeal vein closure system, for which final approval for reimbursement payment in the U.S. from the Centers for Medicare & Medicaid Services (CMS) was received in January 2018, growth in Percutaneous Transluminal Angioplasty (PTA) balloons, as well as the launch of the Valiant Navion thoracic stent graft system which received U.S. FDA and CE Mark approval in October and November 2018, respectively.

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 Cardiac CryoAblation Catheter 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 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 & Venous net sales for fiscal year 2018 were $1.8 billion, an increase of 6 percent as compared to fiscal year 2017. Aortic, Peripheral & Venous net sales growth for fiscal year 2018 was driven by growth in Valiant Captivia thoracic stent grafts, PTA 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 CMS was received in January 2018.

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

•	Acceptance and growth from penetration of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform into intermediate risk indication in the U.S.

•

Continued acceptance and growth from Evolut PRO, which provides industry-leading hemodynamics, reliable delivery, and advanced sealing with an excellent safety profile. Evolut PRO 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. Evolut PRO launched in Japan and received approval from the Ministry of Health, Labour, and Welfare during the second quarter of fiscal year 2019.

•	Continued acceptance and growth of the CRT-P quadripolar pacing system.

•	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 of our Micra transcatheter pacing system. 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, which we expect will continue to accelerate sales in the U.S. and in Japan.

•	Continued 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 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 for the Destination Therapy indication in September 2017 and the thoracotomy indication in July 2018, which allows for a less-invasive implant via a small surgical incision between the patient's ribs on the left side of the chest. We expect that future LVAD net sales will be impacted by a competitor's product launch and the impact of changes in the U.S. heart transplant guidelines.

•	Continued growth, adoption, and utilization of the TYRX Envelope for implantable devices driven by the favorable results of the WRAP-IT clinical study.

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

•	Approval and acceptance of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform for the treatment of patients determined to be at low risk with surgery. The application for expanded indication is pending regulatory approval and is anticipated in fiscal year 2020.

•

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, including the Valiant Navion which received U.S. FDA approval in October 2018 and CE Mark approval in November 2018.

Minimally Invasive Therapies Group

The Minimally Invasive Therapies Group’s products span the entire continuum of patient care from diagnosis to recovery, with a focus on diseases of the gastrointestinal tract, lungs, pelvic region, kidneys, obesity, and preventable complications. The products include those for advanced and general surgical products 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 year 2017 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 2019 were $8.5 billion, a decrease of 3 percent as compared to fiscal year 2018. Currency had an unfavorable impact on net sales of $164 million for fiscal year 2019. The Minimally Invasive Therapies Group's net sales for fiscal year 2018 were affected by the Divestiture.

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 Patient Monitoring, Respiratory Interventions, GI & Hepatology, and Renal Care Solutions businesses. The Patient Monitoring business includes Oxygenation, Anesthesia, and Perfusion Monitoring and Informatics product lines. The Respiratory Interventions business includes Airway and Ventilation product lines. The GI & Hepatology business includes GI Diagnostics and Therapeutics product lines. The Renal Care Solutions business includes the Renal Access and Dialyzers product lines.

Surgical Innovations net sales for fiscal year 2019 were $5.8 billion, an increase of 4 percent as compared to fiscal year 2018. Surgical Innovations net sales growth was driven by new products in Advanced Stapling and Advanced Energy, led by the LigaSure vessel sealing instruments with nano-coating, Exact and L-Hook, and both the Tri-Staple 2.0 endo stapling specialty reloads and Signia powered stapler.

Respiratory, Gastrointestinal, & Renal net sales for fiscal year 2019 were $2.7 billion, a decrease of 14 percent as compared to fiscal year 2018, due to the Divestiture. Aside from the decline due to the Divestiture, Respiratory, Gastrointestinal, & Renal net sales growth was driven by growth in Patient Monitoring, including the continued adoption of MicroStream capnography monitoring products and pulse oximetry, along with growth in Respiratory Interventions, including the continued adoption of ventilators and video laryngoscopy products. Also driving growth for fiscal year 2019 was growth in GI & Hepatology and strength in renal access products.

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 growth was our Valleylab FT10 energy platform and new iterations of our LigaSure vessel sealing instruments, along with 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 Divestiture. 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.

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

•

Continued acceptance and future growth of Open-to-MIS techniques and tools supported by our efforts to transition open surgery to MIS. The Open-to-MIS initiative focuses on furthering our presence in and working to optimize open surgery globally, while capturing the market opportunity that exists in transitioning open procedures to MIS, whether through traditional MIS, or advanced technologies including robotics.

•	Continued acceptance and future growth of powered stapling and energy platform, along with our ability to execute ongoing strategies to develop, gain regulatory approval, and commercialize new products including our surgical robotics platform.

•	Our ability to obtain adequate replacement sterilization capacity in our Surgical Innovations business and Gastrointestinal product lines in light of the Illinois Environmental Protection Agency's (Illinois EPA) decision to close the Sterigenics U.S. LLC (Sterigenics) Willowbrook, Illinois facility on February 15, 2019. We have

been working to identify alternate suppliers and rerouting our supply chain, and expect to return to full sterilization capacity late in the first quarter of fiscal year 2020.

•

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 $0.6 billion and $2.4 billion for fiscal years 2018 and 2017, respectively. 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.

•	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.

•

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. We are expecting regulatory filing in early fiscal year 2021, with launch following regulatory clearance in targeted countries.

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

•

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, McGRATH MAC video laryngoscopes, and Respiratory Rate.

•

Continued and future acceptance of less invasive standards of care, including the areas of GI Diagnostic and Therpeutic product lines. Recently launched products include the PillCam COLON capsule endoscopy, the Barrx platform through ablation with the Barrx 360 Express catheter, Endoflip Reflux/Disphagia diagnosis, Bravo Calibration-free reflux testing, and the Emprint ablation system with Thermosphere Technology, which maintains predictable spherical ablation zones throughout procedures reducing procedure time and cost.

•

Continued and future acceptance of Interventional Lung Solutions. Products include 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. Our expanded and strengthened surgical offerings are expected to complement 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, epilepsy, overactive bladder, urinary retention, fecal incontinence and gastroparesis, as well as products to treat conditions of the ear, nose, and throat (ENT), and systems that incorporate advanced energy surgical instruments. The Restorative Therapies Group also manufactures and sells image-guided surgery and intra-operative imaging systems, robotic guidance systems used in robot assisted spine procedures, and therapies to treat diseases of the vasculature in and around the brain, including coils, neurovascular stent retrievers, and flow diversion products. The Restorative Therapies Group’s net sales for fiscal year 2019 were $8.2 billion, an increase of 6 percent as compared to fiscal year 2018. Currency had a negative impact on net sales for fiscal year 2019 of $73 million. The Restorative Therapies Group’s performance for fiscal year 2019 was driven by the Brain Therapies, Specialty Therapies, and Pain Therapies divisions.

Spine net sales for fiscal year 2019 were $2.7 billion, a decrease of 1 percent as compared to fiscal year 2018. Despite the decline, we saw incremental growth driven by increased spinal impact attachment rates in conjunction with our Surgical Synergy strategy, which integrates our spinal implants with enabling technologies such as robotics, imaging, navigation, power instruments, and nerve monitoring. Further contributing to growth was 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. Recently launched products include the Infinity OCT System and the Solera Voyager 5.5/6.0 fixation system.

Brain Therapies net sales for fiscal year 2019 were $2.6 billion, an increase of 11 percent as compared to fiscal year 2018. 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 franchise, with growth across our stent retriever, flow diversion, neuro access, coil, and embolic protection products. Neurosurgery net sales growth was driven by strong capital equipment sales of the Mazor X robotic guidance systems, StealthStation S8 surgical navigation systems, Midas Rex powered surgical instrument systems, O-Arm Imaging Systems, and Visualase MRI-guided laser ablation systems.

Specialty Therapies net sales for fiscal year 2019 were $1.6 billion, an increase of 5 percent as compared to fiscal year 2018. Net sales growth was driven by strong sales of the Aquamantys biopolar sealers and PlasmaBlade dissection devices within Transformative Solutions and growth in ENT.

Pain Therapies net sales for fiscal year 2019 were $1.3 billion, an increase of 10 percent as compared to fiscal year 2018. The increase in net sales was driven by our Intellis spinal cord stimulation platform which received U.S. FDA approval in September 2017 and CE Mark in November 2017. Further driving net sales growth were the Evolve workflow algorithm, Snapshot reports, and our Targeted Drug Delivery products, including the new clinician and patient programmers.

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 and our "Speed-to-Scale" initiative.

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. 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.

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.

•	Acceptance of our React Catheter and Riptide aspiration system, along with the launch of our next-generation Solitaire revascularization device.

•	Continued growth from Neurosurgery StealthStation and O-Arm Imaging Systems, Midas, and ENT Navigation and Power Systems.

•	Continued sales of Mazor robotic units and associated market adoption of robot-assisted spine procedures, including the Mazor X Stealth, our integrated robotics and navigation platform, which received FDA approval in November 2018.

•	Strengthening of our position as a global leader in enabling technologies for spine surgery as a result of the December 2018 acquisition of Mazor Robotics.

•	Continued adoption of our 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.

•	Market acceptance and continued global adoption of innovative new Spine products, such as our Infinity OCT System and Solera Voyager 5.5/6.0 fixation system, as well 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 global adoption of our Intellis spinal cord stimulator, Evolve workflow algorithm, and Snapshot reporting to treat chronic pain in major markets around the world.

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

•	Continued acceptance of our devices for the treatment of Parkinson's Disease, epilepsy and other movement disorders. We launched our medically refractory epilepsy device in the U.S. in November 2018.

•	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 core portfolio products including Aquamantys biopolar sealers and PlasmaBlade soft tissue dissection devices.

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 2019 were $2.4 billion, an increase of 12 percent as compared to fiscal year 2018. Currency had an unfavorable impact on net sales for fiscal year 2019 of $36 million. The Diabetes Group's net sales growth for fiscal year 2019 was primarily attributable to the continued demand for the MiniMed 670G hybrid closed loop system, which offers the latest in SmartGuard technology, as well as the higher sensor attachment and utilization we are seeing with our integrated CGM users. Further, we experienced continued international growth due to strong sales of insulin pump systems in Europe, Latin America, and Asia Pacific as well as worldwide strength of the Guardian Connect CGM system.

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 growth for fiscal year 2018 was primarily attributable to increased sales in the U.S. due to continued growth in our customer base through the adoption of the MiniMed 670G hybrid closed loop system. Further, we experienced continued international growth due to strong sales of the MiniMed 640G system in Europe and Asia Pacific.

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

•	Continued patient demand for the MiniMed 670G system, the first hybrid closed loop system in the world. The system is powered by SmartGuard technology, which mimics some of the functions of a healthy pancreas by providing two levels of automated insulin delivery, maximizing Time in Range with reduced user input. More than 180,000 trained, active users are benefiting from SmartGuard technology.

•	Continued acceptance and future growth internationally for the MiniMed 670G system. This system received CE mark in June 2018 and is now commercialized in Canada, Australia, Chile and in certain European countries. The global adoption of sensor-augmented insulin pump systems has resulted in strong sensor attachment rates.

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

•	Acceptance of the upcoming launch of our advanced hybrid closed loop system, along with the advancement of our Personalized Closed Loop system which was recently granted "Breakthrough Device" designation by the FDA. These technologies feature our next-generation algorithms designed to improve Time in Range by further automating insulin delivery.

•	Continued acceptance and growth of the Guardian Connect CGM system which displays glucose information directly to a smartphone.

•	Continued partnership with UnitedHealthcare as the preferred in-network provider of insulin pumps, giving their members, including pediatric patients 7 years and above, access to our advanced diabetes technology and comprehensive support services.

•	Continued partnership and future growth of our outcomes-based agreement with select health plans (i.e. 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 comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"), which significantly revised 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 had 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 measurement period closed during fiscal year 2019.

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 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. 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 intangible assets 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 intangible assets 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 3 and 4, 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
	2019			2018			2017
Cost of products sold	30.0	%		30.3	%		31.3	%
Research and development expense	7.6	%		7.5	%		7.4	%
Selling, general, and administrative expense	34.1	%		34.2	%		33.7	%

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 $9.2 billion, $9.1 billion, and $9.3 billion during fiscal years 2019, 2018, and 2017, respectively. The decrease in cost of products sold as a percentage of net sales from fiscal year 2019 as compared to fiscal year 2018 was favorably affected by decreased sales of lower-margin products as a result of the Divestiture. Also contributing to the decrease in cost of products sold as a percentage of net sales during fiscal year 2019 was the infusion set recall in our Diabetes Group, along with $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, incurred during fiscal year 2018. These benefits were slightly offset by increased restructuring and associated costs, a change in product mix due to strong growth in some of our lower-margin businesses, and additional expenses incurred due to the closing of a supplier sterilization facility used by our Minimally Invasive Therapies Group during fiscal year 2019. Cost of products sold for fiscal year 2019 includes $91 million of restructuring and associated costs, as compared to $40 million for fiscal year 2018.

The decrease in cost of products sold as a percentage of sales from fiscal year 2018 as compared to 2017 was due primarily to decreased sales of lower-margin products as a result of the Divestiture and a $38 million charge recognized during fiscal year 2017 related to the fair value step-up taken on inventory acquired in connection with the HeartWare acquisition. Partially offsetting these benefits were the costs recognized in relation to restoring operations at four Puerto Rico manufacturing sites after Hurricane Maria and the infusion set recall in our Diabetes group during fiscal year 2018.

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 during fiscal years 2019 and 2018 and $2.2 billion during fiscal year 2017.

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 consists of salaries and wages, other administrative costs, such as professional fees and marketing expenses, and certain acquisition, restructuring, and divestiture-related expenses.

Selling, general, and administrative expense was $10.4 billion, $10.2 billion, and $10.0 billion during fiscal years 2019, 2018, and 2017, respectively. The decrease in selling, general, and administrative expense as a percentage of sales from fiscal year 2018 to 2019 benefited from our Enterprise Excellence program, continued net sales growth, cost containment measures, and $115 million of professional service fees and accelerated stock compensation expense incurred in connection with the Divestiture during fiscal year 2018. Offsetting these benefits were increased restructuring and associated costs. Selling, general, and administrative expense in fiscal year 2019 includes $118 million of restructuring and associated costs, as compared to $37 million in fiscal year 2018.

The increase in selling, general, and administrative expense as a percentage of net sales from fiscal year 2017 to 2018 was driven by expenses incurred for new product launches, expenses incurred to fulfill our Transition Service Agreements (TSAs) that we entered into with Cardinal Health in conjunction with the Divestiture, and $115 million of professional service fees and accelerated stock compensation expense incurred in connection with the Divestiture. Offsetting these increases were decreased acquisition-related items. Selling, general, and administrative expense in fiscal year 2018 includes $137 million of acquisition-related items, as compared to $303 million in fiscal year 2017.

The following is a summary of other costs and expenses:

		Fiscal Year
(in millions)		2019				2018				2017
Amortization of intangible assets		$	1,764			$	1,823			$	1,980
Restructuring charges, net		198				30				303
Certain litigation charges		166				61				300
Gain on sale of businesses		—				(697		)		—
Other operating expense, net		258				535				239
Other non-operating income, net		(373		)		(181		)		(313		)
Interest expense		1,444				1,146				1,094

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 during fiscal years 2019 and 2018 and $2.0 billion during fiscal year 2017.

While amortization expense remained consistent when comparing fiscal year 2018 to 2019, the decrease in amortization expense from fiscal year 2017 to fiscal year 2018 was 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, which was completed during the second quarter of fiscal year 2018.

Restructuring Charges, Net

Enterprise Excellence

In the third quarter of fiscal year 2018, we announced a multi-year global Enterprise Excellence Program designed to drive long-term business growth and sustainable efficiency. 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 2019, we recognized restructuring charges of $424 million. For fiscal year 2019, restructuring charges included $198 million recognized within restructuring charges, net in the consolidated statements of income, primarily comprised of employee termination benefits. For fiscal year 2019, 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 $91 million recognized within cost of products sold and $118 million recognized within selling, general and administrative expense in the consolidated statements of income. For fiscal year 2019, selling, general, and administrative expense also includes $17 million of fixed asset write-downs.

During fiscal year 2018, we recognized restructuring charges of $96 million. For fiscal year 2018, restructuring charges included $35 million recognized within restructuring charges, net in the consolidated statements of income, primarily comprised of employee termination benefits. 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 plc. 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 2019, we recognized no restructuring charges and accrual adjustments of $17 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 years 2018 and 2017, we recognized restructuring charges of $45 million and $441 million, respectively, partially offset by accrual adjustments of $34 million and $68 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 year 2017, restructuring charges included asset write-downs of $17 million related to property, plant, and equipment impairments and $10 million 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 5 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Certain Litigation Charges We classify litigation charges and gains related to significant legal matters as certain litigation charges. During fiscal years 2019, 2018, and 2017, we recognized $166 million, $61 million, and $300 million, respectively, of certain litigation charges related to probable and estimable damages for significant legal matters.

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. There were no sales of businesses during fiscal years 2019 or 2017.

Other Operating Expense, Net Other operating expense, net primarily includes royalty income and expense, TSA income, intangible asset charges, currency transaction and derivative gains and losses, contributions to the Medtronic Foundation, Puerto Rico excise taxes, changes in the fair value of contingent consideration, and charges associated with business exits. Other operating expense, net was $258 million, $535 million, and $239 million, during fiscal years 2019, 2018, and 2017, respectively.

The decrease in other operating expense, net from fiscal year 2018 to fiscal year 2019 was primarily attributable to remeasurement and our hedging programs, which, combined, resulted in a gain of $87 million for fiscal year 2019 and a loss of $176 million for fiscal year 2018. Also contributing to the change was a charge of $80 million recognized in fiscal year 2018 for charitable contributions to the Medtronic Foundation and increased gains from the change in fair value of contingent consideration. These items were partially offset by intangible asset impairments and other charges of $149 million associated with business exits during fiscal year 2019 and a reduction of TSA income.

The increase in other operating expense, net from fiscal year 2017 to fiscal year 2018 was primarily attributable to remeasurement and our hedging programs, which, combined, resulted in a loss of $176 million for fiscal year 2018 and a gain of $81 million for fiscal year 2017. Also contributing to the increase were losses of $68 million related to the impairment of IPR&D assets in fiscal year 2018, $15 million of humanitarian aid provided to our employees affected by Hurricane Maria in fiscal year 2018, and a decrease in gains from the changes in fair value of contingent consideration. These items were partially offset by $74 million of TSA income and a reduction in charitable contributions to the Medtronic Foundation.

Other Non-Operating Income, Net Other non-operating income, net includes the non-service component of net periodic pension and post-retirement benefit cost, investment gains and losses, and interest income. Other non-operating income, net was $373 million, $181 million, and $313 million during fiscal years 2019, 2018, and 2017, respectively.

The change in other non-operating income, net from fiscal year 2018 to 2019 was due to $227 million of losses recognized in fiscal year 2018 related to the impairment of certain cost and equity method investments, increased investment gains on our minority investment portfolio, and decreased interest income. Increases in investment gains on our minority investment portfolio were partially due to the adoption of new accounting guidance in the first quarter of fiscal year 2019. Refer to Note 1 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information on recently adopted accounting pronouncements.

The change in other non-operating income, net from fiscal year 2017 to 2018 was due to $227 million of losses recognized in fiscal year 2018 related to the impairment of certain cost and equity method investments, partially offset by increased interest income, and charges of $60 million related to the non-service component of net periodic pension and post-retirement benefit costs associated with voluntary early retirement packages offered and accepted by certain eligible U.S. employees during fiscal year 2017.

Interest Expense Interest expense includes interest incurred on our outstanding borrowings, amortization of debt issuance costs and debt premiums or discounts, amortization of gains or losses on terminated or de-designated interest rate derivative instruments, ineffectiveness on interest rate derivative instruments, and charges recognized in connection with the tender and early redemption of senior notes. Interest expense was $1.4 billion during fiscal year 2019 and $1.1 billion during fiscal years 2018 and 2017.

The increase in interest expense from fiscal year 2018 to 2019 was the result of $485 million of charges recognized in connection with the tender and early redemption of approximately $6.4 billion of Medtronic Inc. and CIFSA senior notes during fiscal year 2019. This increase in interest expense was partially offset by interest expense savings resulting from a decrease in total debt obligations and a decrease in the weighted-average interest rate of outstanding debt obligations during fiscal year 2019, on average, compared to fiscal year 2018.

The change in interest expense from fiscal year 2017 to 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 during fiscal year 2018.

INCOME TAXES

	Fiscal Year
(in millions)	2019				2018				2017
Income tax provision	$	547			$	2,580			$	578
Income before income taxes	5,197				5,675				4,602
Effective tax rate	10.5		%		45.5		%		12.6		%
Non-GAAP income tax provision	$	1,116			$	1,120			$	1,232
Non-GAAP income before income taxes	8,224				7,641				7,623
Non-GAAP Nominal Tax Rate	13.6		%		14.7		%		16.2		%
Difference between the effective tax rate and Non-GAAP Nominal Tax Rate	3.1		%		(30.8		)%		3.6		%

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.

We made the accounting policy election to treat taxes due on U.S. inclusions in taxable income related to Global Intangible Low-Taxed Income (GILTI) as a current period expense when incurred (the "period cost method").

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 21.0 percent for fiscal year 2019. 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 2020 and 2030. The tax incentive grants which expired during fiscal year 2019 did not have a material impact on our financial results. 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 additional information.

Our effective tax rate for fiscal year 2019 was 10.5 percent, as compared to 45.5 percent in fiscal year 2018. The decrease in the effective tax rate was primarily due to the impacts from U.S. tax reform, certain tax adjustments, the gain on the Divestiture, the impact from investment losses, and year-over-year changes in operational results by jurisdiction.

Our Non-GAAP Nominal Tax Rate for fiscal year 2019 was 13.6 percent, as compared to 14.7 percent in fiscal year 2018. The decrease in our Non-GAAP Nominal Tax Rate for fiscal year 2019 as compared to fiscal year 2018 was primarily due to the impacts from U.S. tax reform and year-over-year changes in operational results by jurisdiction.

During fiscal year 2019, we recognized $134 million of operational tax benefits. The operational tax benefits included a $50 million benefit from excess tax benefits associated with stock-based compensation, and an $84 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 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, 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.

An increase in our Non-GAAP Nominal Tax Rate of 1 percent would result in an additional income tax provision for fiscal years 2019, 2018, and 2017 of approximately $82 million, $77 million, and $76 million, respectively.

Certain Tax Adjustments

During fiscal year 2019, certain tax adjustments of $40 million, recognized in income tax provision in the consolidated statement of income, included the following:

•	A net benefit of $30 million associated with the finalization of the transition tax liability and the Tax Act impact to deferred tax assets, liabilities, and valuation allowances.

•	A charge of $42 million related to the recognition of a prepaid tax expense resulting from the reduction in the U.S. statutory tax rate under the Tax Act and the current year sale of U.S. manufactured inventory held as of April 27, 2018.

•	A benefit of $32 million related to intercompany legal entity restructuring.

•	A net benefit of $20 million associated with the finalization of certain income tax aspects of the Divestiture.

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.

•	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. 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.

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)	2019				2018				2017
Cash provided by (used in):
Operating activities	$	7,007			$	4,684			$	6,880
Investing activities	(774		)		5,858				(1,571		)
Financing activities	(5,431		)		(11,954		)		(3,283		)
Effect of exchange rate changes on cash and cash equivalents	(78		)		114				65
Net change in cash and cash equivalents	$	724			$	(1,298	)		$	2,091

Operating Activities The $2.3 billion increase in net cash provided in fiscal year 2019 as compared to fiscal year 2018 was primarily driven by our operating margin expansion as well as decreases in cash paid to suppliers and other vendors, cash paid for taxes, cash paid for interest, and retirement benefit plan contributions, partially offset by an increase in certain litigation payments. The decrease in cash paid to suppliers is primarily due to our continued progress in extending supplier payment terms. The decrease in cash paid for taxes was primarily a result of a $1.1 billion pre-payment that we elected to make to the U.S. IRS in fiscal year 2018 related to in-process litigation on Puerto Rico transfer pricing. Cash paid for interest decreased due to a decrease in total debt obligations as well as a decrease in the weighted average interest rate of outstanding debt obligations. The decrease in retirement benefit plan contributions reflects lower contributions to the U.S. pension plan for fiscal year 2019 as compared to fiscal year 2018. Certain litigation payments increased primarily due to the payment of previously accrued settlement amounts for the INFUSE litigation matter.

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, and a decrease in cash collected from customers. The increase in cash paid for income taxes was primarily a result of the aforementioned $1.1 billion Puerto Rico pre-payment, tax payments related to the intercompany sale of intellectual property and the Divestiture, 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.

Investing Activities The $6.6 billion increase in net cash used in fiscal year 2019 as compared to fiscal year 2018 was primarily attributable to the Divestiture in fiscal year 2018, which resulted in net proceeds of $6.1 billion, and an increase in cash paid for acquisitions of $1.7 billion, primarily due to the acquisition of Mazor and EPiX during fiscal year 2019, partially offset by an increase in net proceeds from purchases and sales and maturities of investments.

The $7.4 billion increase in net cash provided in fiscal year 2018 as compared to fiscal year 2017 was primarily attributable to the Divestiture in fiscal year 2018, 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.

Financing Activities The $6.5 billion decrease in net cash used in fiscal year 2019 as compared to fiscal year 2018 was primarily attributable to the issuance of $7.8 billion of Euro-denominated senior notes in fiscal year 2019, partially offset by an increase in share repurchases of $706 million and an increase in repayments of commercial paper. In fiscal year 2019, we repaid $7.9 billion of long-term debt primarily through the use of the net proceeds from the Euro-debt issuance. In fiscal year 2018, we repaid $7.4 billion of long-term debt, which was not funded through the issuance of long-term debt.

The $8.7 billion increase in net cash used in fiscal year 2018 as compared to fiscal year 2017 was primarily attributable to long-term debt repayments of $7.4 billion, 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.

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)	2019				2018				2017
Net cash provided by operating activities	$	7,007			$	4,684			$	6,880
Additions to property, plant, and equipment	(1,134		)		(1,068		)		(1,254		)
Free cash flow	$	5,873			$	3,616			$	5,626

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 26, 2019 was $838 million as compared to $2.1 billion at April 27, 2018. Long-term debt at April 26, 2019 was $24.5 billion as compared to $23.7 billion at April 27, 2018. We utilize unsecured senior debt obligations to meet our long-term financing needs. From time to time, we may repurchase our outstanding debt obligations in the open market or through privately negotiated transactions.

Total debt at April 26, 2019 was $25.3 billion, as compared to $25.8 billion at April 27, 2018. The decrease in total debt was primarily driven by the reduction in our commercial paper borrowings of $698 million, partially offset by the net impact of the issuance, cash tender offer, early redemptions, and repayment described below.

In March 2019, Medtronic Global Holdings S.C.A. (Medtronic Luxco) issued six tranches of Euro-denominated senior notes with an aggregate principal of €7.0 billion, with maturities ranging from fiscal year 2021 to fiscal year 2039, resulting in cash proceeds of approximately $7.8 billion, net of discounts and issuance costs. We used the net proceeds of the offering to fund the previously announced cash tender offers and early redemption, described below. The Euro-denominated debt is designated as a net investment hedge of certain of our European operations.

We completed the cash tender offer and early redemption of $6.4 billion of Medtronic Inc. and CIFSA senior notes for $6.9 billion of total consideration in March 2019. We recognized a loss on debt extinguishment of $485 million, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. The loss on debt extinguishment was recognized in interest expense in the consolidated statements of income. Also in March 2019, we repaid our 1.700 percent two-year 2017 senior notes, including interest, for $1.0 billion.

For additional information on the issuance of these senior notes and the subsequent cash tender offer and early redemption, refer to Note 7 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 the Euro-denominated debt designated as a net investment hedge, refer to Note 8 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

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 26, 2019, we had no commercial paper outstanding, as compared to $698 million outstanding at April 27, 2018. During fiscal years 2019 and 2018, the weighted average original maturity of the commercial paper outstanding was approximately 27 and 28 days, respectively, and the weighted average interest rate was 2.12 percent and 1.46 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 five-year syndicated credit facility (Credit Facility) which was amended and restated in December 2018, and now expires in December 2023. 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 $1.0 billion 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 26, 2019 and April 27, 2018, 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 26, 2019.

We repurchase our ordinary shares from time to time as part of our focus on returning value to our shareholders. In June 2017, our Board of Directors authorized the expenditure of up to $5.0 billion for new share repurchases. In March 2019, our Board of Directors authorized an incremental $6.0 billion for repurchase of our ordinary shares. There is no specific time period associated with these repurchase authorizations. During fiscal years 2019 and 2018, we repurchased a total of 31 million and 25 million shares, respectively, under these programs at an average price of $91.43 and $83.71, respectively. At April 26, 2019, we had approximately $7.2 billion remaining under the share repurchase programs authorized by our Board of Directors.

For more information on credit arrangements, see Note 7 of the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Liquidity

Our liquidity sources at April 26, 2019 include $4.4 billion of cash and cash equivalents and $5.5 billion of current investments. Additionally, we maintain a commercial paper program (no commercial paper outstanding at April 26, 2019) and Credit Facility. See discussion above regarding changes in our cash and cash equivalents, commercial paper program and Credit Facility.

Our investments include available-for-sale debt securities, including U.S. and non-U.S. government and agency securities, corporate debt securities, mortgage-backed securities, other asset-backed 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 2019, the total other-than-temporary impairment losses on available-for-sale debt securities 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 26, 2019, we have $61 million of gross unrealized losses on our aggregate available-for-sale debt securities of $5.5 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.

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 26, 2019		April 27, 2018
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 26, 2019 were unchanged as compared to the ratings at April 27, 2018. 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. We have removed our permanently reinvested assertion on the undistributed earnings of certain foreign subsidiaries with a U.S. parent which were subject to the transition tax. We removed the assertion for all earnings of such subsidiaries through April 27, 2018 and reasserted for earnings generated for subsequent fiscal years. 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 Credit Facility and related commercial paper program, 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 26, 2019, as well as long-term contractual obligations reflected in the balance sheet at April 26, 2019.

		Maturity by Fiscal Year
(in millions)		Total				2020				2021				2022				2023				2024				Thereafter
Contractual obligations related to off-balance sheet arrangements:
Operating leases		$	652			$	216			$	157			$	103			$	61			$	34			$	81
Commitments to fund minority investments, milestone payments, and royalty obligations(1)		296				86				117				47				7				9				30
Interest payments(2)		8,384				723				708				688				579				545				5,141
Other(3)		790				315				246				54				40				34				101
Contractual obligations related to off-balance sheet arrangements subtotal		$	10,122			$	1,340			$	1,228			$	892			$	687			$	622			$	5,353
Contractual obligations reflected in the balance sheet:
Debt obligations(4)		$	25,374			$	832			$	2,744			$	3,255			$	2,861			$	1,160			$	14,522
Capital leases		13				6				2				1				1				1				2
Contingent consideration(5)		222				81				129				8				1				1				2
Tax obligations(6)		2,024				176				176				176				176				330				990
Contractual obligations reflected in the balance sheet subtotal(7)		27,633				1,095				3,051				3,440				3,039				1,492				15,516
Total contractual obligations		$	37,755			$	2,435			$	4,279			$	4,332			$	3,726			$	2,114			$	20,869

(1)	Includes commitments related to the funding of equity method or other 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 7 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 7 and 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 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.