Revenue

The Company's revenues are principally derived from device-based medical therapies and services related to cardiac rhythm disorders, cardiovascular disease, renal disease, neurological disorders and diseases, spinal conditions and musculoskeletal trauma, chronic pain, urological and digestive disorders, ear, nose, and throat conditions, and diabetes conditions as well as advanced and general surgical care products, respiratory and monitoring solutions, and neurological surgery technologies. The Company's primary customers include hospitals, clinics, third-party health care providers, distributors, and other institutions, including governmental health care programs and group purchasing organizations.

The table below illustrates net sales by segment and division for the three and six months ended October 26, 2018 and October 27, 2017:



	Three months ended				Six months ended
(in millions)	October 26, 2018		October 27, 2017		October 26, 2018		October 27, 2017
Cardiac Rhythm & Heart Failure	$	1,472	$	1,467	$	2,898	$	2,857
Coronary & Structural Heart	906		854		1,823		1,671
Aortic, Peripheral & Venous	480		452		948		891
Cardiac and Vascular Group	2,858		2,773		5,669		5,419
Surgical Innovations	1,393		1,334		2,790		2,640
Respiratory, Gastrointestinal, & Renal	654		618		1,309		1,798
Minimally Invasive Therapies Group	2,047		1,952		4,099		4,438
Spine	656		659		1,308		1,308
Brain Therapies	618		575		1,217		1,097
Specialty Therapies	405		365		789		734
Pain Therapies	314		264		628		533
Restorative Therapies Group	1,993		1,863		3,942		3,672
Diabetes Group	583		462		1,155		911
Total	$	7,481	$	7,050	$	14,865	$	14,440

The table below illustrates net sales by market geography for each segment for the three and six months ended October 26, 2018 and October 27, 2017:



	U.S.⁽¹⁾				Non-U.S. Developed Markets⁽²⁾				Emerging Markets⁽³⁾
	Three months ended				Three months ended				Three months ended
(in millions)	October 26, 2018		October 27, 2017		October 26, 2018		October 27, 2017		October 26, 2018		October 27, 2017
Cardiac and Vascular Group	$	1,482	$	1,423	$	895	$	895	$	481	$	455
Minimally Invasive Therapies Group	872		795		772		783		403		374
Restorative Therapies Group	1,357		1,258		412		394		224		211
Diabetes Group	334		258		203		169		46		35
Total	$	4,045	$	3,734	$	2,282	$	2,241	$	1,154	$	1,075

	U.S.⁽¹⁾				Non-U.S. Developed Markets⁽²⁾				Emerging Markets⁽³⁾
	Six months ended				Six months ended				Six months ended
(in millions)	October 26, 2018		October 27, 2017		October 26, 2018		October 27, 2017		October 26, 2018		October 27, 2017
Cardiac and Vascular Group	$	2,871	$	2,756	$	1,842	$	1,782	$	956	$	881
Minimally Invasive Therapies Group	1,729		2,040		1,600		1,648		770		750
Restorative Therapies Group	2,651		2,479		840		788		451		405
Diabetes Group	658		501		406		336		91		74
Total	$	7,909	$	7,776	$	4,688	$	4,554	$	2,268	$	2,110


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


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


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

The Company sells its products through direct sales representatives and independent distributors. Additionally, a portion of the Company's revenue is generated from consignment inventory maintained at hospitals. The Company recognizes revenue when control is transferred to the customer. For products sold through direct sales representatives and independent distributors, control is transferred upon shipment or upon delivery, based on the contract terms and legal requirements. For consignment inventory, control is transferred when the product is used or implanted. Payment terms vary depending on the country of sale, type of customer, and type of product.

If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on relative standalone selling price. Shipping and handling is treated as a fulfillment activity rather than a promised service, and therefore, is not considered a performance obligation. Taxes assessed by a governmental authority that are both imposed on, and concurrent with, a specific revenue producing transaction and collected by the Company from customers (for example, sales, use, value added, and some excise taxes) are not included in revenue. For contracts that have an original duration of one year or less, the Company uses the practical expedient applicable to such contracts and does not adjust the transaction price for the time value of money.

The amount of revenue recognized reflects sales rebates and returns, which are estimated based on sales terms, historical experience, and trend analysis. In estimating rebates, the Company considers the lag time between the point of sale and the payment of the rebate claim, the stated rebate rates, and other relevant information. The Company records adjustments to rebates and returns reserves as increases or decreases of revenue. At October 26, 2018, $697 million of rebates were classified as other accrued expenses and $410 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheets. At April 27, 2018, $614 million of rebates were classified as other accrued expenses and $376 million of rebates were classified as a reduction of accounts receivable in the consolidated balance sheets. The Company includes obligations for returns in other accrued expenses in the consolidated balance sheets and the right-of-return asset in other current assets in the consolidated balance sheets. The right-of-return asset at October 26, 2018 and right-of-return liability at October 26, 2018 and April 27, 2018 were not material. There was no right-of-return asset at April 27, 2018 as the liability was recorded net of the asset under previous guidance. For the three and six months ended October 26, 2018, adjustments to rebate and return reserves recognized in revenue that were included in the rebate and return reserves at the beginning of the period were not material.

The Company offers warranties on various products. For standard, assurance-type warranties, the Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time the product is sold. The amount of the reserve is equal to the net costs to repair or otherwise satisfy the obligation. The Company includes the warranty obligation in other accrued expenses and other liabilities in the consolidated balance sheets. For extended, service-type warranties, a portion of the transaction price is allocated to the performance obligation. Warranty obligations at October 26, 2018 and April 27, 2018 were not material.

Deferred Revenue and Remaining Performance Obligations

The Company records a deferred revenue liability if a customer pays consideration before the Company transfers a good or service to the customer. Deferred revenue primarily represents remote monitoring services and equipment maintenance, for which consideration is received at the same time as consideration for the device or equipment. Deferred revenue also includes extended, service-type warranties. Revenue related to remote monitoring services, equipment maintenance, and service-type warranties is recognized over the service period as time elapses.

Deferred revenue at October 26, 2018 and April 27, 2018 was $280 million and $289 million, respectively. At October 26, 2018 and April 27, 2018, $186 million and $196 million was included in other accrued expenses, respectively, and $94 million and $93 million was included in other liabilities, respectively. During the six months ended October 26, 2018, the Company recognized $126 million of revenue that was included in deferred revenue as of April 27, 2018.

Remaining performance obligations include deferred revenue and amounts the Company expects to receive for goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments, primarily related to consumables for previously sold equipment as well as remote monitoring services and equipment maintenance. For contracts that have an original duration of one year or less, the Company has elected the practical expedient applicable to such contracts and does not disclose the transaction price for remaining performance obligations at the end of each reporting period and when the Company expects to recognize this revenue. At October 26, 2018, the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed contracts with an original duration of one year or more was approximately $600 million. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next three years.