Document



	Three months ended						Nine months ended
(in millions, except per share data)	January 26, 2018			January 27, 2017			January 26, 2018			January 27, 2017
Net sales	$	7,369		$	7,283		$	21,809		$	21,794

Costs and expenses:
Cost of products sold	2,191			2,268			6,660			6,855
Research and development expense	558			530			1,661			1,640
Selling, general, and administrative expense	2,499			2,388			7,422			7,232
Amortization of intangible assets	461			497			1,375			1,484
Restructuring charges, net	7			21			23			162
Acquisition-related items	26			68			77			148
Certain litigation charges	61			218			61			300
Divestiture-related items	—			—			114			—
Gain on sale of businesses	—			—			(697		)	—
Special charge	—			100			80			100
Other expense, net	140			46			317			174
Operating profit	1,426			1,147			4,716			3,699

Investment loss	227			—			227			—

Interest income	(98		)	(88		)	(290		)	(272		)
Interest expense	270			268			829			804
Interest expense, net	172			180			539			532
Income before income taxes	1,027			967			3,950			3,167
Income tax provision	2,419			147			2,320			307
Net (loss) income	(1,392		)	820			1,630			2,860
Net loss attributable to noncontrolling interests	3			1			14			5
Net (loss) income attributable to Medtronic	$	(1,389	)	$	821		$	1,644		$	2,865

Basic (loss) earnings per share	$	(1.03	)	$	0.60		$	1.21		$	2.07

Diluted (loss) earnings per share	$	(1.03	)	$	0.59		$	1.20		$	2.05

Basic weighted average shares outstanding	1,354.0			1,372.2			1,357.2			1,381.9

Diluted weighted average shares outstanding	1,354.0			1,383.1			1,368.9			1,394.7

Cash dividends declared per ordinary share	$	0.46		$	0.43		$	1.38		$	1.29



	Three months ended						Nine months ended
(in millions)	January 26, 2018			January 27, 2017			January 26, 2018			January 27, 2017
Net (loss) income	$	(1,392	)	$	820		$	1,630		$	2,860

Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on available-for-sale securities	(14		)	(115		)	41			(40		)
Currency translation	897			(553		)	1,525			(1,239		)
Net change in retirement obligations	(3		)	22			11			66
Unrealized (loss) gain on derivatives	(202		)	95			(346		)	202
Other comprehensive income (loss)	678			(551		)	1,231			(1,011		)
Comprehensive (loss) income including noncontrolling interests	(714		)	269			2,861			1,849
Comprehensive loss attributable to noncontrolling interests	3			1			14			5
Comprehensive (loss) income attributable to Medtronic	$	(711	)	$	270		$	2,875		$	1,854



(in millions)	January 26, 2018			April 28, 2017
ASSETS

Current assets:
Cash and cash equivalents	$	6,358		$	4,967
Investments	8,078			8,741
Accounts receivable, less allowances of $183 and $155, respectively	5,775			5,591
Inventories, net	3,751			3,338
Other current assets	2,645			1,865
Current assets held for sale	—			371
Total current assets	26,607			24,873

Property, plant, and equipment	10,006			9,691
Accumulated depreciation	(5,489		)	(5,330		)
Property, plant, and equipment, net	4,517			4,361
Goodwill	39,795			38,515
Other intangible assets, net	22,178			23,407
Tax assets	1,537			1,509
Other assets	1,166			1,232
Noncurrent assets held for sale	—			5,919
Total assets	$	95,800		$	99,816

LIABILITIES AND EQUITY

Current liabilities:
Current debt obligations	$	2,902		$	7,520
Accounts payable	1,809			1,731
Accrued compensation	1,645			1,860
Accrued income taxes	925			633
Other accrued expenses	3,652			2,442
Current liabilities held for sale	—			34
Total current liabilities	10,933			14,220

Long-term debt	25,918			25,921
Accrued compensation and retirement benefits	1,524			1,641
Accrued income taxes	4,758			2,405
Deferred tax liabilities	1,363			2,978
Other liabilities	964			1,515
Noncurrent liabilities held for sale	—			720
Total liabilities	45,460			49,400

Commitments and contingencies (Note 17)

Shareholders’ equity:
Ordinary shares— par value $0.0001, 2.6 billion shares authorized, 1,355,260,722 and 1,369,424,818 shares issued and outstanding, respectively	—			—
Additional paid-in capital	28,190			29,551
Retained earnings	23,426			23,356
Accumulated other comprehensive loss	(1,382		)	(2,613		)
Total shareholders’ equity	50,234			50,294
Noncontrolling interests	106			122
Total equity	50,340			50,416
Total liabilities and equity	$	95,800		$	99,816



	Nine months ended
(in millions)	January 26, 2018			January 27, 2017
Operating Activities:
Net income	$	1,630		$	2,860
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,980			2,199
Amortization of debt premium, discount, and issuance costs	(17		)	21
Acquisition-related items	(37		)	(43		)
Provision for doubtful accounts	36			31
Deferred income taxes	(1,042		)	(404		)
Stock-based compensation	270			272
Gain on sale of businesses	(697		)	—
Investment loss	227			—
Other, net	66			(113		)
Change in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable, net	19			18
Inventories, net	(318		)	(261		)
Accounts payable and accrued liabilities	13			32
Other operating assets and liabilities	1,516			495
Net cash provided by operating activities	3,646			5,107
Investing Activities:
Acquisitions, net of cash acquired	(111		)	(1,328		)
Proceeds from sale of businesses	6,058			—
Additions to property, plant, and equipment	(776		)	(924		)
Purchases of investments	(2,479		)	(3,354		)
Sales and maturities of investments	3,060			4,286
Other investing activities, net	(5		)	21
Net cash provided by (used in) investing activities	5,747			(1,299		)
Financing Activities:
Acquisition-related contingent consideration	(43		)	(58		)
Change in current debt obligations, net	(391		)	1,118
Repayment of short-term borrowings (maturities greater than 90 days)	(44		)	(2		)
Proceeds from short-term borrowings (maturities greater than 90 days)	1			4
Issuance of long-term debt	21			131
Payments on long-term debt	(4,167		)	(361		)
Dividends to shareholders	(1,870		)	(1,782		)
Issuance of ordinary shares	333			309
Repurchase of ordinary shares	(1,964		)	(3,409		)
Other financing activities	(2		)	80
Net cash used in financing activities	(8,126		)	(3,970		)
Effect of exchange rate changes on cash and cash equivalents	124			54
Net change in cash and cash equivalents	1,391			(108		)
Cash and cash equivalents at beginning of period	4,967			2,876
Cash and cash equivalents at end of period	$	6,358		$	2,768
Supplemental Cash Flow Information
Cash paid for:
Income taxes	$	911		$	474
Interest	651			626

The accompanying unaudited consolidated financial statements of Medtronic plc and its subsidiaries (Medtronic plc, Medtronic, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the consolidated financial statements include all of the adjustments necessary for a fair statement in conformity with U.S. GAAP. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.

Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates.

In March 2016, the Financial Accounting Standards Board (FASB) issued guidance to simplify the accounting for share-based payment transactions by requiring all excess tax benefits and deficiencies to be recognized in income tax expense or benefit in earnings; eliminating the requirement to classify the excess tax benefits and deficiencies as additional paid-in capital. Cash flows related to excess tax benefits are to be classified in operating activities in the statement of cash flows rather than financing. Under the new guidance, an entity makes an accounting policy election to either estimate the expected forfeiture awards or account for forfeitures as they occur. The standard also allows an entity to withhold up to the maximum statutory tax rate and classify the awards as equity. The Company prospectively adopted this guidance in the first quarter of fiscal year 2018. The Company has elected to continue to estimate forfeitures. The adoption of this guidance resulted in no cumulative adjustment to retained earnings and, including the impacts of U.S. Tax Reform, decreases to net loss and diluted loss per share of $9 million and $0.01, respectively, for the three months ended January 26, 2018, and increases to net income and diluted earnings per share of $50 million and $0.04, respectively, for the nine months ended January 26, 2018.

In October 2016, the FASB issued guidance that requires the tax effect of intra-entity transactions, other than sales of inventory, to be recognized when the transaction occurs. Previously, U.S. GAAP prohibited the recognition of current and deferred income taxes associated with an intra-entity asset transfer until an asset had been sold to a third-party. This update requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, such as equipment or intangibles, when the transfer occurs. The adoption of this guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company has early adopted this guidance, as permitted, in the first quarter of fiscal year 2018. As a result of this adoption, the Company increased its beginning retained earnings by $296 million. The adoption of this guidance, not considering the impacts of U.S. Tax Reform, resulted in an increase to net loss of $5 million and no change to diluted loss per share for the three months ended January 26, 2018, and increases to net income and diluted earnings per share of $552 million and $0.40, respectively, for the nine months ended January 26, 2018.

In May 2014, the FASB issued amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue in an amount that reflects the consideration to which an entity expects to be entitled in exchange for the transfer of goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2019, and may be applied either retrospectively to each prior reporting period presented

(full retrospective method), or retrospectively with the cumulative effect of the change recognized at the date of initial application (modified retrospective method). The Company intends to adopt this guidance under the modified retrospective method. Based on the Company's current evaluation of the amended revenue recognition guidance, the Company does not expect the adoption of the amended guidance to have a material impact on the Company's consolidated financial statements. The Company is continuing to evaluate the impact of the amended guidance as it pertains to presentation and disclosure. The Company will continue to monitor any modifications, clarifications, and interpretations communicated by the FASB that may impact its conclusions.

In January 2016, the FASB issued guidance which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The guidance also includes a simplified impairment assessment of equity investments without readily determinable fair values and presentation and disclosure changes. This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2019. The Company is unable to estimate the impact of the future adoption of this guidance on its financial statements as it will depend on the equity investments at the adoption date.

In February 2016, the FASB issued guidance which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. The Company is evaluating the impact of the lease guidance on the Company's consolidated financial statements and anticipates recording additional assets and corresponding liabilities on its consolidated balance sheets related to operating leases within its lease portfolio upon adoption of the guidance.

In January 2017, the FASB issued guidance which simplifies the accounting for goodwill impairment. The guidance requires a goodwill impairment to be measured as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company is required to adopt this guidance beginning in the first quarter of fiscal year 2021. Early adoption is permitted, and the guidance must be applied prospectively. The Company is unable to estimate the impact of the future adoption of this guidance on its financial statements, as it is dependent on the specific facts and circumstances of any future impairments, if applicable.

The Company had acquisitions and other acquisition-related activity during the three and nine months ended January 26, 2018. The Company accounted for the acquisitions as business combinations using the acquisition method of accounting. The assets and liabilities of the businesses acquired were recorded and consolidated on the acquisition date at their respective fair values. Goodwill resulting from business combinations is largely attributable to future yet to be defined technologies, new customer relationships, existing workforce of the acquired businesses, and synergies expected to arise after the Company's acquisition of these businesses. The pro forma impact of these acquisitions was not significant, either individually or in the aggregate, to the results of the Company for the three and nine months ended January 26, 2018. The results of operations of acquired businesses have been included in the Company's consolidated statements of income since the date each business was acquired.

On August 23, 2016, the Company's Cardiac and Vascular Group acquired HeartWare International, Inc. (HeartWare), a medical device company that develops and manufactures miniaturized implantable heart pumps, or ventricular assist devices, to treat patients around the world suffering from advanced heart failure. Total consideration for the transaction was approximately $1.1 billion. The Company acquired $602 million of technology-based and customer-related intangible assets and $23 million of tradenames, with estimated useful lives of 15 and 5 years, respectively, and $481 million of goodwill. The acquired goodwill is not deductible for tax purposes. In addition, the Company acquired $245 million of debt through the acquisition, of which the Company redeemed $203 million as part of a cash tender offer in August 2016, and the remaining $42 million of debt acquired was repaid in December 2017.

Acquisition-related items includes expenses incurred in connection with the integration of Covidien, the Company's $50.0 billion acquisition completed in the fourth quarter of fiscal year 2015, expenses incurred in connection with business acquisitions, and changes in fair value of contingent consideration. During the three and nine months ended January 26, 2018, the Company recognized acquisition-related items expense of $30 million and $101 million, respectively, including $4 million and $24 million, respectively, recognized within cost of products sold in the consolidated statements of income. For the three and nine months ended January 26, 2018, acquisition-related items expense includes $48 million and $137 million, respectively, of costs associated with the integration of Covidien manufacturing, distribution, and administrative facilities as well as information technology system implementation and benefits harmonization. For the three and nine months ended January 26, 2018, acquisition-related items expenses were partially offset by changes in fair value of contingent consideration as a result of revised revenue forecasts and the timing of anticipated regulatory payments.

During the three and nine months ended January 27, 2017, the Company recognized acquisition-related items expense of $68 million and $148 million, respectively. For the three and nine months ended January 27, 2017, acquisition-related items expense includes $51 million and $154 million, respectively, of costs associated with the integration of Covidien manufacturing, distribution, and administrative facilities as well as information technology system implementation and benefits harmonization, and $5 million and $21 million, respectively, of accelerated and incremental stock compensation expense. For the nine months ended January 27, 2017, acquisition-related items expenses were partially offset by changes in fair value of contingent consideration as a result of revised revenue forecasts and the timing of anticipated regulatory payments.

Certain of the Company’s business combinations involve potential payments of future consideration that are contingent upon the achievement of product development milestones and/or contingent on the acquired business reaching performance milestones. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period using Level 3 inputs, and the change in fair value is recognized within acquisition-related items in the consolidated statements of income. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows.

The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based consideration). Projected revenues are based on the Company's most recent internal operational budgets and long-range strategic plans. Changes in projected revenues, probabilities of payment, discount rates, and projected payment dates may result in adjustments to the fair value measurement. The recurring Level 3 fair value measurements of contingent consideration include the following significant unobservable inputs:



	Fair Value at
(in millions)	January 26, 2018	Valuation Technique	Unobservable Input	Range
			Discount rate	11% - 32.5%
Revenue-based payments	$88	Discounted cash flow	Probability of payment	30% - 100%
			Projected fiscal year of payment	2018 - 2026
			Discount rate	5.5%
Product development and other milestone-based payments	$83	Discounted cash flow	Probability of payment	75% - 100%
			Projected fiscal year of payment	2018 - 2025

The fair value of contingent consideration at January 26, 2018 and April 28, 2017 was $171 million and $246 million, respectively. At January 26, 2018, $80 million was recorded in other liabilities and $91 million was recorded in other accrued expenses in the consolidated balance sheets. At April 28, 2017, $180 million was recorded in other liabilities and $66 million was recorded in other accrued expenses in the consolidated balance sheets.

In April 2017, the Company entered into a definitive agreement for the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group segment to Cardinal Health, Inc. (Cardinal). The divestiture was completed on July 29, 2017. As a result of the transaction, the Company received proceeds of $6.1 billion, which was recorded in proceeds from sale of businesses in the consolidated statements of cash flows and recognized a before-tax gain of $697 million, which was recognized within gain on sale of businesses in the consolidated statements of income. Among the product lines included in the divestiture were the dental and animal health, chart paper, wound care, incontinence, electrodes, SharpSafety, thermometry, perinatal protection, blood collection, compression, and enteral feeding offerings. The divestiture also included 17 dedicated manufacturing sites. In connection with the transaction, the Company entered into Transition Service Agreements (TSAs) and Transition Manufacturing Agreements (TMAs) with Cardinal designed to ensure and facilitate an orderly transfer of business operations. The TSAs are primarily related to administrative services and continue for 12 months from the divestiture date, with an ability to extend upon mutual agreement of both parties. Certain of the TSAs have been extended beyond the initial 12 month period in accordance with the provisions of the original agreement. Under the TMAs, both the Company and Cardinal will manufacture and supply certain products to each other for a transition period of up to 5 years.

The divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses did not meet the criteria to be classified as discontinued operations, as such, the results of operations of these businesses were included within net income through the date of the divestiture. The Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses met the criteria to be classified as held for sale in the fourth quarter of fiscal year 2017, at which time the Company ceased depreciation and amortization of property, plant, and equipment and intangible assets classified as held for sale. The following table presents information related to the assets and liabilities that were classified as held for sale in the consolidated balance sheets:

Divestiture-related items includes expenses incurred in connection with the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. During the nine months ended January 26, 2018, the Company recognized divestiture-related items expense of $114 million, primarily comprised of expenses incurred for professional services, including banker, legal, tax, and advisory fees, as well as $16 million of accelerated stock compensation expense related to the acceleration of the vesting period for employees that transferred with the divestiture. There were no divestiture-related items expenses for the three months ended January 26, 2018 and for the three and nine months ended January 27, 2017.

During the nine months ended January 26, 2018, continuing the Company's commitment to improve the health of people and communities throughout the world, the Company recognized a charge of $80 million for a commitment to fund the Medtronic Foundation. During the three months ended January 26, 2018, the Company did not recognize a special charge. During the three and nine months ended January 27, 2017, the Company recognized a charge of $100 million for a charitable cash contribution to the Medtronic Foundation.

In the third quarter of fiscal year 2018, the Company announced its Enterprise Excellence restructuring program, which is expected to leverage the Company's global size and scale, as well as enhance the customer and employee experience with a focus on three objectives: global operations, functional optimization, and commercial optimization. Primary activities of the restructuring program include integrating and enhancing global manufacturing and supply processes, systems and site presence; enhancing and leveraging global operating models across several enabling functions; and optimizing certain commercial processes, systems and models.

The Company estimates that, in connection with its Enterprise Excellence restructuring program, it will recognize pre-tax exit and disposal costs and other costs associated with the restructuring program across all reportable segments of approximately $1.6 billion to $1.8 billion, the majority of which are expected to be incurred by the end of fiscal year 2022. Approximately half of the estimated 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. These charges are recognized within restructuring charges, net, cost of products sold, and selling, general and administrative expense in the consolidated statements of income. For the three months ended January 26, 2018, the Company recognized $32 million in charges.

The cost synergies program related to administrative office optimization, manufacturing and supply chain infrastructure, and certain general and administrative savings and completed in the third quarter of fiscal year 2018. Restructuring charges incurred throughout the life of the initiative were primarily related to employee termination costs and costs related to manufacturing and facility closures and affect all reportable segments.

For the three months ended January 26, 2018, the Company recognized no charges, and for the nine months ended January 26, 2018, the Company recognized $45 million in charges. During the three and nine months ended January 26, 2018, the Company recognized accrual adjustments of $2 million and $15 million, respectively. Accrual adjustments relate to certain employees identified for termination finding other positions within the Company, cancellations of employee terminations, and employee termination benefits being less than initially estimated. For the nine months ended January 26, 2018, charges included $12 million recognized within cost of products sold and $4 million recognized within selling, general and administrative expense in the consolidated statements of income.

For the three and nine months ended January 27, 2017, the Company recognized $56 million and $214 million in charges, respectively, which were partially offset by accrual adjustments of $35 million and $42 million, respectively. Accrual adjustments relate to certain employees identified for termination finding other positions within the Company and employee termination benefits being less than initially estimated. For the three months and nine months ended January 27, 2017, charges included asset disposal write-downs of $1 million and $8 million, respectively, related to property, plant, and equipment. For the nine months ended January 27, 2017, asset disposal write-downs included $10 million related to inventory write-offs of discontinued product lines, which were recognized within cost of products sold in the consolidated statements of income.

The Company holds investments, including marketable debt and equity securities, that are classified and accounted for as available-for-sale and are remeasured on a recurring basis. The Company also holds cost method, equity method, and other investments which are measured at fair value on a nonrecurring basis. For information regarding the valuation techniques and inputs used in the fair value measurements, refer to Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 2017.



	Valuation									Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Investments		Other Assets
Available-for-sale securities:
Level 1:
U.S. government and agency securities	$	618	$	—	$	(16	)	$	602	$	602	$	—
Marketable equity securities	69		126		(2		)	193		—		193
Total Level 1	687		126		(18		)	795		602		193
Level 2:
Corporate debt securities	4,254		42		(30		)	4,266		4,266		—
U.S. government and agency securities	882		—		(18		)	864		864		—
Mortgage-backed securities	753		3		(26		)	730		730		—
Foreign government and agency securities	66		—		(1		)	65		65		—
Other asset-backed securities	337		1		(2		)	336		336		—
Debt funds	939		7		(126		)	820		820		—
Total Level 2	7,231		53		(203		)	7,081		7,081		—
Level 3:
Corporate debt securities	1		—		—			1		—		1
Auction rate securities	47		—		(3		)	44		—		44
Total Level 3	48		—		(3		)	45		—		45
Investments measured at net asset value⁽¹⁾:
Debt funds	400		—		(5		)	395		395		—
Total available-for-sale securities	8,366		179		(229		)	8,316		8,078		238
Cost method, equity method, and other investments:
Level 3:
Cost method, equity method, and other investments	407		—		—			N/A		—		407
Total Level 3	407		—		—			N/A		—		407
Total cost method, equity method, and other investments	407		—		—			N/A		—		407
Total investments	$	8,773	$	179	$	(229	)	$	8,316	$	8,078	$	645



	Valuation									Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Investments		Other Assets
Available-for-sale securities:
Level 1:
U.S. government and agency securities	$	613	$	2	$	(5	)	$	610	$	610	$	—
Marketable equity securities	58		49		(4		)	103		—		103
Total Level 1	671		51		(9		)	713		610		103
Level 2:
Corporate debt securities	4,643		62		(23		)	4,682		4,682		—
U.S. government and agency securities	860		—		(10		)	850		850		—
Mortgage-backed securities	766		9		(16		)	759		759		—
Foreign government and agency securities	49		—		—			49		49		—
Other asset-backed securities	228		1		(1		)	228		228		—
Debt funds	1,246		4		(178		)	1,072		1,072		—
Total Level 2	7,792		76		(228		)	7,640		7,640		—
Level 3:
Corporate debt securities	1		—		—			1		—		1
Auction rate securities	47		—		(3		)	44		—		44
Total Level 3	48		—		(3		)	45		—		45
Investments measured at net asset value⁽¹⁾:
Debt funds	497		—		(6		)	491		491		—
Total available-for-sale securities	9,008		127		(246		)	8,889		8,741		148
Cost method, equity method, and other investments:
Level 3:
Cost method, equity method, and other investments	589		—		—			N/A		—		589
Total Level 3	589		—		—			N/A		—		589
Total cost method, equity method, and other investments	589		—		—			N/A		—		589
Total investments	$	9,597	$	127	$	(246	)	$	8,889	$	8,741	$	737



	January 26, 2018
	Less than 12 months					More than 12 months
(in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	1,675	$	(19	)	$	295	$	(11	)
Auction rate securities	—		—			44		(3		)
Mortgage-backed securities	435		(9		)	107		(17		)
U.S. government and agency securities	658		(20		)	454		(14		)
Foreign government and agency securities	—		—			36		(1		)
Debt funds	—		—			1,001		(131		)
Other asset-backed securities	184		(1		)	61		(1		)
Marketable equity securities	—		—			1		(2		)
Total	$	2,952	$	(49	)	$	1,999	$	(180	)



	April 28, 2017
	Less than 12 months					More than 12 months
(in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	1,263	$	(19	)	$	46	$	(4	)
Auction rate securities	—		—			44		(3		)
Mortgage-backed securities	276		(4		)	95		(12		)
U.S. government and agency securities	896		(15		)	—		—
Other asset-backed securities	127		(1		)	—		—
Debt funds	173		(1		)	1,125		(183		)
Marketable equity securities	14		(3		)	2		(1		)
Total	$	2,749	$	(43	)	$	1,312	$	(203	)

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended January 26, 2018 and January 27, 2017. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

Activity related to the Company’s investment portfolio is as follows:



	Three months ended
	January 26, 2018						January 27, 2017
(in millions)	Debt⁽¹⁾			Equity⁽²⁾			Debt⁽¹⁾			Equity⁽²⁾
Proceeds from sales	$	667		$	39		$	661		$	1
Gross realized gains	3			8			10			—
Gross realized losses	(2		)	—			(7		)	—
Impairment losses recognized	—			(227		)	—			(10		)

	Nine months ended
	January 26, 2018						January 27, 2017
(in millions)	Debt⁽¹⁾			Equity⁽²⁾			Debt⁽¹⁾			Equity⁽²⁾
Proceeds from sales	$	3,021		$	39		$	4,203		$	83
Gross realized gains	22			15			74			29
Gross realized losses	(17		)	—			(56		)	—
Impairment losses recognized	—			(228		)	—			(20		)

Credit losses represent the difference between the present value of cash flows expected to be collected on certain mortgage-backed securities and auction rate securities and the amortized cost of these securities. Based on the Company’s assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which the Company is invested, the Company believes it has recognized all necessary other-than-temporary impairments, as the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, before recovery of the amortized cost.

The January 26, 2018 balance of available-for-sale debt securities, excluding debt funds which have no single maturity date, by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

The Company holds investments in marketable equity securities, which are classified as other assets in the consolidated balance sheets. The aggregate carrying amount of these investments was $193 million and $103 million at January 26, 2018 and April 28, 2017, respectively. The Company did not recognize any significant impairment charges related to marketable equity securities during the three and nine months ended January 26, 2018 and January 27, 2017.

The Company holds investments in equity and other securities that are accounted for using the cost or equity method, which are classified as other assets in the consolidated balance sheets. At January 26, 2018 and April 28, 2017, the aggregate carrying amount of equity and other securities accounted for using the cost or equity method was $407 million and $589 million, respectively. Cost and equity method investments are measured at fair value on a nonrecurring basis. Changes in circumstance or the occurrence of

events that suggest the Company’s investment may not be recoverable are assessed quarterly. If events or changes in circumstances are identified that may have a material adverse effect on the fair value of the investment, the investment is assessed for impairment. Cost and equity method investments are included within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. To determine the fair value of these investments, the Company uses all pertinent financial information available related to the investees, including financial statements, market participant valuations from recent and proposed equity offerings, and other third-party data.

During the three months ended January 26, 2018, the Company received bids from potential buyers and investors for some or all of its ownership in a portfolio of selected investments, which indicated that the fair values of certain of the underlying cost and equity method investments in the portfolio may be below the respective carrying values. The Company determined that the decline in the fair values was other-than-temporary given the uncertainty regarding the Company’s intent to hold the investments for a period of time that would be sufficient to recover the carrying values. As a result, the Company recognized impairment charges of $227 million during the three and nine months ended January 26, 2018, which were recognized within investment loss in the consolidated statements of income. The fair values of the investments were determined based on Level 3 inputs. The carrying values of the investments prior to recognizing the impairment charges was $317 million. There were no other significant impairments charges recognized during the three and nine months ended January 26, 2018.

During the three and nine months ended January 27, 2017, the Company determined that the fair values of certain cost method investments were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized $10 million and $20 million in impairment charges during the three and nine months ended January 27, 2017, respectively, which were recognized in other expense, net in the consolidated statements of income.

The Company maintains a commercial paper program that allows the Company to have a maximum of $3.5 billion in commercial paper outstanding. Commercial paper outstanding at January 26, 2018 was $504 million, as compared to $901 million at April 28, 2017. During the three and nine months ended January 26, 2018, the weighted average original maturity of the commercial paper outstanding was approximately 24 and 29 days, respectively, and the weighted average interest rate was 1.44 percent and 1.33 percent, respectively. The issuance of commercial paper reduces the amount of credit available under the Company’s existing Credit Facility, as defined below.

Interest rates on advances on the Credit Facility are determined by a pricing matrix, based on the Company’s long-term debt ratings, assigned by Standard & Poor’s Ratings Services and Moody’s Investors Service. 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 the Company remained in compliance with at January 26, 2018.

The Company's debt obligations consisted of the following:



(in millions, except interest rates)	Maturity by Fiscal Year	January 26, 2018			April 28, 2017
Current debt obligations	2018 - 2019	$	2,902		$	7,520

Long-term debt
5.600 percent ten-year 2009 senior notes	2019	400			400
1.700 percent two-year 2017 senior notes	2019	1,000			1,000
4.450 percent ten-year 2010 senior notes	2020	766			766
2.500 percent five-year 2015 senior notes	2020	2,500			2,500
Floating rate five-year 2015 senior notes	2020	500			500
4.200 percent ten-year 2010 CIFSA senior notes	2021	600			600
4.125 percent ten-year 2011 senior notes	2021	500			500
3.125 percent ten-year 2012 senior notes	2022	675			675
3.150 percent seven-year 2015 senior notes	2022	2,500			2,500
3.200 percent ten-year 2012 CIFSA senior notes	2023	650			650
2.750 percent ten-year 2013 senior notes	2023	530			530
2.950 percent ten-year 2013 CIFSA senior notes	2024	310			310
3.625 percent ten-year 2014 senior notes	2024	850			850
3.500 percent ten-year 2015 senior notes	2025	4,000			4,000
3.350 percent ten-year 2017 senior notes	2027	850			850
4.375 percent twenty-year 2015 senior notes	2035	2,382			2,382
6.550 percent thirty-year 2008 CIFSA senior notes	2038	374			374
6.500 percent thirty-year 2009 senior notes	2039	300			300
5.550 percent thirty-year 2010 senior notes	2040	500			500
4.500 percent thirty-year 2012 senior notes	2042	400			400
4.000 percent thirty-year 2013 senior notes	2043	325			325
4.625 percent thirty-year 2014 senior notes	2044	650			650
4.625 percent thirty-year 2015 senior notes	2045	4,150			4,150
Interest rate swaps (Note 9)	2021 - 2022	10			40
Capital lease obligations	2019 - 2025	22			23
Bank borrowings	2019 - 2021	165			139
Debt premium, net	2019 - 2045	123			135
Deferred financing costs	2019 - 2045	(114		)	(128		)
Long-term debt		$	25,918		$	25,921

The Company has outstanding unsecured senior debt obligations, described both as senior notes and current debt obligations in the table above (collectively, the Senior Notes). The Senior Notes rank equally with all other unsecured and unsubordinated indebtedness of the Company. The indentures under which the Senior Notes were issued contain customary covenants, all of which the Company remained in compliance with at January 26, 2018. For additional information regarding the terms of these agreements, refer to Note 8 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 2017.

At January 26, 2018, the estimated fair value of the Company’s Senior Notes was $29.3 billion compared to a principal value of $27.7 billion. At April 28, 2017, the estimated fair value was $30.4 billion compared to a principal value of $28.9 billion. The fair value was estimated using quoted market prices for the publicly registered Senior Notes, which are classified as Level 2 within the fair value hierarchy. The fair values and principal values consider the terms of the related debt and exclude the impacts of debt discounts and hedging activity.

The Company uses operational and economic hedges, as well as currency exchange rate derivative contracts and interest rate derivative instruments, to manage the impact of currency exchange and interest rate changes on earnings and cash flows. In addition, the Company uses cross currency interest rate swaps to manage currency risk related to certain debt. In order to minimize earnings and cash flow volatility resulting from currency exchange rate changes, the Company enters into derivative instruments, principally forward currency exchange rate contracts. These contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets and liabilities. At inception of the contract, the derivative is designated as either a freestanding derivative or a cash flow hedge. The cash flows related to all of the Company's derivative instruments are reported as operating activities in the consolidated statement of cash flows. The primary currencies of the derivative instruments are the Euro, Japanese Yen, and British Pound. The Company does not enter into currency exchange rate derivative contracts for speculative purposes. The gross notional amount of all currency exchange rate derivative instruments outstanding was $12.6 billion and $10.8 billion at January 26, 2018 and April 28, 2017, respectively.

Freestanding derivative contracts are used to offset the Company’s exposure to the change in value of specific foreign currency denominated assets and liabilities and to offset variability of cash flows associated with forecasted transactions denominated in foreign currencies. These derivatives are not designated as hedges, and therefore, changes in the value of these contracts are recognized in earnings, thereby offsetting the current earnings effect of the related change in value of foreign currency denominated assets, liabilities, and cash flows. The gross notional amount of these contracts outstanding at January 26, 2018 and April 28, 2017 was $5.5 billion and $4.9 billion, respectively.

Forward contracts designated as cash flow hedges are designed to hedge the variability of cash flows associated with forecasted transactions denominated in a foreign currency that will take place in the future. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss. The effective portion of the gain or loss on the derivative instrument is reclassified into earnings and is included in other expense, net in the consolidated statements of income in the same period or periods during which the hedged transaction affects earnings.

No gains or losses relating to ineffectiveness of cash flow hedges were recognized in earnings during the three and nine months ended January 26, 2018 and January 27, 2017. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness and no hedges were derecognized or discontinued during the three and nine months ended January 26, 2018 and January 27, 2017. The gross notional amount of these contracts, designated as cash flow hedges, outstanding at January 26, 2018 and April 28, 2017, was $7.0 billion and $5.8 billion, respectively, and will mature within the subsequent three-year period.



	Three months ended January 26, 2018
	Recognized in AOCI			Recognized in Income
(in millions)	Amount			Classification	Amount
Currency exchange rate contracts	$	(287	)	Other expense, net	$	(11	)

	Three months ended January 27, 2017
	Recognized in AOCI			Recognized in Income
(in millions)	Amount			Classification	Amount
Currency exchange rate contracts	$	190		Other expense, net	$	68

	Nine months ended January 26, 2018
	Recognized in AOCI			Recognized in Income
(in millions)	Amount			Classification	Amount
Currency exchange rate contracts	$	(507	)	Other expense, net	$	1

	Nine months ended January 27, 2017
	Recognized in AOCI			Recognized in Income
(in millions)	Amount			Classification	Amount
Currency exchange rate contracts	$	378		Other expense, net	$	89

Forward starting interest rate derivative instruments designated as cash flow hedges are designed to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. The effective portion of the gains or losses on forward starting interest rate derivative instruments that are designated and qualify as cash flow hedges is reported as a component of accumulated other comprehensive loss. Beginning in the period in which the planned debt issuance occurs and the related derivative instruments are terminated, the effective portion of the gains or losses are then reclassified into interest expense, net over the term of the related debt. Any portion of the gains or losses that is determined to be ineffective is immediately recognized in interest expense, net.

The Company had $300 million of fixed pay, forward starting interest rate swaps with a weighted average fixed rate of 3.10 percent in anticipation of planned debt issuances. During the fourth quarter of fiscal year 2017, in connection with the issuance of the 2017 Senior Notes, these swaps were terminated. For the three and nine months ended January 27, 2017, there were $28 million and $22 million, respectively, of unrealized gains recorded in accumulated other comprehensive loss.

No gains or losses relating to ineffectiveness of forward starting interest rate derivative instruments were recognized in interest expense, net during the three and nine months ended January 27, 2017. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness during the three and nine months ended January 27, 2017. For the three and nine months ended January 27, 2017, there were no reclassifications of the effective portion of net losses on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense, net.

Changes in the fair value of the derivative instruments are recognized in interest expense, net, and are offset by changes in the fair value of the underlying debt instrument. The gains (losses) from terminated interest rate swap agreements are recognized in long-term debt, increasing (decreasing) the outstanding balances of the debt, and amortized as a reduction of (addition to) interest expense, net over the remaining life of the related debt.

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at January 26, 2018 and April 28, 2017. The fair value amounts are presented on a gross basis and are segregated between derivatives that are designated and qualify as hedging instruments and those that are not designated and do not qualify as hedging instruments and are further segregated by type of contract within those two categories.



	January 26, 2018
	Derivative Assets			Derivative Liabilities
(in millions)	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts	Other current assets	$	23	Other accrued expenses	$	249
Interest rate contracts	Other assets	15		Other liabilities	5
Currency exchange rate contracts	Other assets	8		Other liabilities	113
Total derivatives designated as hedging instruments		$	46		$	367
Derivatives not designated as hedging instruments
Currency exchange rate contracts	Other current assets	$	52	Other accrued expenses	$	73
Total return swap	Other current assets	22		Other accrued expenses	—
Stock warrants	Other assets	29		Other liabilities	—
Cross currency interest rate contracts	Other assets	6		Other liabilities	8
Total derivatives not designated as hedging instruments		$	109		$	81
Total derivatives		$	155		$	448



	April 28, 2017
	Derivative Assets			Derivative Liabilities
(in millions)	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedging instruments
Currency exchange rate contracts	Other current assets	$	152	Other accrued expenses	$	43
Interest rate contracts	Other assets	41		Other liabilities	—
Currency exchange rate contracts	Other assets	48		Other liabilities	14
Total derivatives designated as hedging instruments		$	241		$	57
Derivatives not designated as hedging instruments
Currency exchange rate contracts	Other current assets	16		Other accrued expenses	36
Cross currency interest rate contracts	Other assets	5		Other liabilities	11
Total derivatives not designated as hedging instruments		$	21		$	47
Total derivatives		$	262		$	104

The Company has elected to present the fair value of derivative assets and liabilities within the consolidated balance sheets on a gross basis, even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. The following table provides information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria as stipulated by the terms of the master netting arrangements with each of the counterparties. Derivatives not subject to master netting arrangements are not eligible for net presentation.



	January 26, 2018
				Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recorded Assets (Liabilities)			Financial Instruments			Collateral (Received) Posted		Net Amount
Derivative assets:
Currency exchange rate contracts	$	83		$	(56	)	$	—	$	27
Interest rate contracts	15			(12		)	—		3
Cross currency interest rate contracts	6			(2		)	—		4
Stock warrants	29			—			—		29
Total return swap	22			—			—		22
	$	155		$	(70	)	$	—	$	85

Derivative liabilities:
Currency exchange rate contracts	$	(435	)	$	66		$	98



MEDTRONIC PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)

Ireland	98-1183488
(State of incorporation)	(I.R.S. Employer Identification No.)



Large accelerated filer x	Accelerated filer o	Emerging growth company o
Non-accelerated filer o	Smaller Reporting Company o



(in millions)	January 26, 2018
Due in one year or less	$	885
Due after one year through five years	2,748
Due after five years through ten years	3,161
Due after ten years	114
Total	$	6,908



x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 26, 2018



Item	Description	Page

	PART I
1.	Financial Statements (unaudited)	1
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
3.	Quantitative and Qualitative Disclosures About Market Risk	76
4.	Controls and Procedures	77
	PART II
1.	Legal Proceedings	77
2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
6.	Exhibits	78
	Signatures	79



(in millions)	HeartWare International, Inc.		All Other
Other current assets	$	351	$	3
Property, plant, and equipment	14		6
Other intangible assets	625		93
Goodwill	481		27
Other assets	84		—
Total assets acquired	1,555		129

Current liabilities	143		2
Deferred tax liabilities	6		3
Long-term debt	245		—
Other liabilities	89		—
Total liabilities assumed	483		5
Net assets acquired	$	1,072	$	124



(in millions)	Employee Termination Benefits		Associated Costs⁽¹⁾			Total
April 28, 2017	$	—	$	—		$	—
Charges	9		23			32
Cash payments	—		(23		)	(23		)
January 26, 2018	$	9	$	—		$	9


(1)	Associated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses. For the three months ended January 26, 2018, $13 million was recognized within cost of products sold and $10 million was recognized within selling, general and administrative expense in the consolidated statements of income.



(in millions)	Employee Termination Benefits			Other Costs			Total
April 28, 2017	$	261		$	30		$	291
Charges	25			20			45
Cash payments	(119		)	(30		)	(149		)
Accrual adjustments	(17		)	2			(15		)
January 26, 2018	$	150		$	22		$	172



	Valuation Technique	Unobservable Input	Range (Weighted Average)
Auction rate securities	Discounted cash flow	Years to principal recovery	2 yrs. - 12 yrs. (3 yrs.)
Auction rate securities	Discounted cash flow	Illiquidity premium	6%


(1)	Includes available-for-sale debt securities and debt funds.


(2)	Includes marketable equity securities and cost and equity method investments.