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

Understanding Our Financial Information

The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of the Company and its subsidiaries. The Company became the successor registrant to Medtronic, Inc. subsequent to the Transactions described below. You should read this discussion and analysis along with our consolidated financial statements and related notes thereto as of April 24, 2015 and April 25, 2014 and for each of the three fiscal years ended April 24, 2015, April 25, 2014, and April 26, 2013.

On January 26, 2015, pursuant to the Transaction Agreement, the Company acquired Covidien and Medtronic, Inc. (collectively, the Transactions). Following the consummation of the Transactions, Medtronic, Inc. and Covidien became subsidiaries of the Company. In connection with the consummation of the Transactions, the Company re-registered as a public limited company organized under the laws of Ireland.

On January 26, 2015, (a) each Covidien ordinary share was converted into the right to receive $35.19 in cash and 0.956 of a newly issued ordinary share of the Company, and (b) each share of Medtronic, Inc. common stock was converted into the right to receive one newly issued ordinary share of the Company. The total cash and stock value of the Transactions was approximately $50 billion.

This Annual Report on Form 10-K relates to Medtronic’s fiscal year ended April 24, 2015. Due to the timing of the Transactions, the results of operations of Covidien are only reflected in Medtronic’s results of operations for the fourth quarter of fiscal year 2015, which will affect comparability to the prior year historical operations of Medtronic, Inc. throughout this Annual Report on Form 10-K. In addition, we incurred $550 million in acquisition-related expenses in fiscal year 2015, primarily related to the Covidien acquisition.

For further information regarding the Acquisition, see the section entitled "Acquisition and Investments - Acquisition of Covidien" contained in "Item 1. Business" and Note 2 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Organization of Financial Information Management’s discussion and analysis, presented on pages 37 to 60 of this report, provides material historical and prospective disclosures designed to enable investors and other users to assess our financial condition and results of operations.

Statements that are forward-looking and not historical in nature are subject to risks and uncertainties. See "Item 1A. Risk Factors" in this Annual Report on Form 10-K and "Cautionary Factors That May Affect Future Results" in this management's discussion and analysis for more information.

The consolidated financial statements are presented on pages 63 to 139 of this report, and include the consolidated statements of income, consolidated statements of comprehensive income, consolidated balance sheets, consolidated statements of shareholders’ equity, consolidated statements of cash flows, and the related notes, which are an integral part of the consolidated financial statements.

Financial Trends Throughout this management’s discussion and analysis, you will read about transactions or events that materially contribute to or reduce earnings and materially affect financial trends, but which includes charges or benefits that results from facts and circumstances that vary in frequency and/or impact to our operations. We refer to these transactions and events as Non-GAAP Adjustments. Management uses Non-GAAP Adjustments to assist in comparing business trends from period to period on a consistent basis without regard to the impact of such Non-GAAP Adjustments and believes that these Non-GAAP Adjustments are useful to investors in evaluating operating performance by providing better comparability between reporting periods. Investors should not consider results reflecting Non-GAAP Adjustments in isolation from, or as a substitute for, financial information prepared in accordance with generally accepted accounting principles in the U.S. (U.S. GAAP), and are cautioned that Medtronic may calculate results reflecting Non-GAAP Adjustments in a manner that is different from other companies. Please refer to “Net Income GAAP to Non-GAAP Reconciliation” for a reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management.

Our fiscal year-end is the last Friday in April, and therefore, the total weeks in a fiscal year can fluctuate between 52 and 53 weeks. Fiscal years 2015 , 2014 , and 2013 were 52-week years. Fiscal year 2016 is a 53-week year, with the additional week occurring in the first quarter.

Executive Level Overview

Medtronic is the global leader in medical technology - alleviating pain, restoring health, and extending life for millions of people around the world. We develop, manufacture, and market our medical devices and technologies in approximately 160 countries. Our primary products prior to the Covidien acquisition included those for cardiac rhythm disorders, cardiovascular disease, neurological disorders, spinal conditions and musculoskeletal trauma, urological and digestive disorders, and ear, nose, and throat and diabetes conditions. As a result of the Covidien acquisition, our products were expanded to include advanced and general surgical care and patient care products, including respiratory and monitoring solutions.

Net income for the fiscal year ended April 24, 2015 was $2.675 billion , $2.41 per diluted share, as compared to net income of $3.065 billion , $3.02 per diluted share, for the fiscal year ended April 25, 2014 , representing a decrease of 13 percent and 20 percent, respectively.

The table below illustrates net sales by operating segment for fiscal years 2015 and 2014 :

Net sales in fiscal year 2015 were $20.261 billion , an increase of 19 percent from the prior fiscal year. Foreign currency translation had an unfavorable impact of $666 million on net sales compared to the prior fiscal year. Net sales growth for fiscal year 2015 was driven by 6 percent growth in our Cardiac and Vascular Group, 4 percent growth in our Restorative Therapies Group, and 6 percent growth in our Diabetes Group compared to the prior fiscal year and the addition of $2.387 billion of revenue during the fourth quarter from our Minimally Invasive Therapies Group due to the acquisition of Covidien, which closed on January 26, 2015. The Cardiac and Vascular Group’s performance was primarily a result of strong net sales in Aortic and Peripheral with the addition of a portion of Covidien's Peripheral business, and growth in Cardiac Rhythm & Heart Failure and Coronary & Structural Heart. The Restorative Therapies Group’s performance was a result of solid growth in Surgical Technologies and growth in Neuromodulation, partially offset by a decline in Spine. The Diabetes Group's performance was due to solid growth in the U.S driven by the ongoing launch of the MiniMed 530G System. Within the Minimally Invasive Therapies Group, the Surgical Solutions and Patient Monitoring & Recovery divisions contributed $1.293 billion and $1.094 billion of revenue, respectively. See our discussion in the “Net Sales” section of this management’s discussion and analysis for more information on the results of our operating segments.

Acquisition of Covidien On January 26, 2015, pursuant to the Transaction Agreement, we acquired Covidien to continue in our mission to create a medical technology and services company with a comprehensive product portfolio and a broad global reach that is better able to improve healthcare outcomes. Covidien meaningfully accelerates our core strategies of therapy innovation, globalization and economic value. The transaction was accounted for as a business combination using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values at the Acquisition Date.

For further information regarding the Acquisition, see the section entitled “Acquisition and Investments - Acquisition of Covidien” contained in “Item 1. Business,” and Note 2 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. The full text of the Transaction Agreement, was filed as Exhibit 2.1 to our Amendment No. 5 to the Registration Statement on Form S-4 filed with the SEC on November 20, 2014.

Net Income GAAP to Non-GAAP Reconciliation The following is a reconciliation of our results of operations prepared in accordance with U.S. GAAP to those results after giving effect to adjustments relating to items or charges considered by management to be unusual or infrequent. Refer to our discussion in the "Cost and Expenses" section of this management's discussion and analysis for more information on these reconciling items.

Critical Accounting Estimates

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect managements' best judgment about economic and market conditions and their 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. See also Note 1 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K, which discusses our most significant accounting policies.

Our critical accounting estimates include the following:

Revenue Recognition The Company records price adjustment rebates as a reduction of net sales in the same period revenue is recognized. We estimate rebates based on sales terms, historical experience, and trend analyses. Subsequent to the January 26, 2015 acquisition of Covidien, we reevaluated the judgments used by management of the Company in making estimates and assumptions that affect the reported amounts for revenues, expenses, assets, and liabilities related to revenue recognition. Based upon the lag time between the original sale to distributors at list price and the related distributor rebate claim earned at time of sale to the end customer, and the judgments involved in estimating such rebates, we consider price adjustment rebates for Covidien to be a critical accounting estimate. We adjust reserves to reflect differences between estimated and actual experience, and record such adjustment as a reduction of sales in the period of adjustment. Adjustments to recorded reserves have not been significant. Covidien price adjustment rebates charged against gross sales in the fourth quarter of fiscal year 2015 were $679 million.

Legal Proceedings We are involved in a number of legal actions involving product liability, intellectual property disputes, shareholder derivative actions, securities class actions, other class actions, income tax matters, and environmental matters. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief (including injunctions barring the sale of products that are the subject of the lawsuit), that could require significant expenditures or result in lost revenues. Estimates of probable losses resulting from litigation, governmental proceedings, and income tax matters involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, or punitive damages; or could result in a change in business practice. Our significant legal proceedings are discussed in Note 16 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. While it is not possible to predict the outcome for most of the matters discussed in Note 16 to the consolidated financial statements, we believe it is possible that costs associated with them could have a material adverse impact on our consolidated earnings, financial position, or cash flows.

Income Taxes Our effective tax rate is based on income, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. 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. These reserves are established and adjusted in accordance with the principles of U.S. GAAP. 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 (i) there is a completion of a tax audit, (ii) there is a change in applicable tax law including a tax case or legislative guidance, or (iii) there is an expiration of the 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 or cash flows.

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 recorded. Because the effective rate can be significantly impacted by these discrete items that take place in the period, we often refer to our tax rate using both the effective rate and the non-GAAP nominal tax rate. The non-GAAP nominal tax rate is defined as the income tax provision as a percentage of income before income taxes, excluding Non-GAAP Adjustments. We believe this resulting non-GAAP financial measure provides useful information to investors because it excludes the effect of these discrete items so that investors can compare our recurring results over multiple periods. Investors should consider this non-GAAP measure in addition to, and not as a substitute for, financial performance measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP financial measure may not be the same or similar to measures presented by other companies.

Tax regulations require certain items to be included in the tax return at different times than when those items are required to be recorded in the consolidated financial statements. As a result, our effective tax rate reflected in our consolidated financial statements is different than that reported in our tax returns. Some of these differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in our consolidated statements of income. We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. Deferred tax liabilities generally represent tax expense recognized in our consolidated financial statements for which payment has been deferred or expense has already been taken as a deduction on our tax return but has not yet been recognized as an expense in our consolidated statements of income.

The Company’s overall tax rate from continuing operations including the tax impact of Non-GAAP Adjustments resulted in an effective tax rate of 23.3 percent for fiscal year 2015 . Excluding the impact of the Non-GAAP Adjustments, our operational and tax strategies have resulted in a non-GAAP nominal tax rate of 18.2 percent versus the U.S. federal statutory rate of 35.0 percent. An increase in our non-GAAP nominal tax rate of 1 percent would result in an additional income tax provision for the fiscal year ended April 24, 2015 of approximately $58 million. See discussion of our tax rate and the tax adjustments in the “Income Taxes” section of this management’s discussion and analysis.

Valuation of Intangible Assets Intangible assets include patents, trademarks, tradenames, customer relationships, purchased technology, and IPR&D. When we acquire a business, the assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date. IPR&D represents the fair value of those R&D projects for which the related products have not received regulatory approval and have no alternative future use. 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 fair value assigned to IPR&D is determined by estimating the future cash flows of each project or technology and discounting the net cash flows back to their present values. The discount rate used is determined at the time of measurement in accordance with accepted valuation methodologies. There is risk that actual results will differ materially from the original cash flow projections, due to the uncertainty associated with R&D projects. In addition, there are risks associated with achieving product commercialization. These risks include, but are not limited to, delays or failure to obtain regulatory approvals to conduct clinical trials, delays or failure to obtain required market clearances, or delays or issues with patent issuance, validity, and litigation.

Our impairment reviews of other intangible assets are based on a discounted future cash flow approach that requires significant judgment with respect to future revenue and expense growth rates, appropriate discount rate, asset groupings, and other assumptions and estimates. We use estimates that are consistent with our business plans and a market participant view of the assets being evaluated. The results of our annual impairment test are discussed in Note 6 to the consolidated financial statements in “Item 8.

Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. 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 foreign currency exchange rates. These risk factors are discussed in “Item 1A. Risk Factors” in this Annual Report on Form 10-K. Other intangible assets, net of accumulated amortization, were $28.101 billion and $2.286 billion as of April 24, 2015 and April 25, 2014 , respectively.

Goodwill Goodwill is the excess of the purchase price consideration over the estimated fair value of net assets of acquired businesses. The test for goodwill impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows. Our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value, including projected future cash flows. The results of annual impairment test are discussed in Note 6 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. Goodwill was $40.530 billion and $10.593 billion as of April 24, 2015 and April 25, 2014 , respectively.

Contingent Consideration Contingent consideration is recorded at the acquisition date at estimated fair value. The fair value of the contingent consideration is remeasured each reporting period with the change in fair value recognized as income or expense within acquisition-related items in our consolidated statements of income. Changes to the fair value of contingent consideration can result from changes in discount rates, the timing and amount of revenue estimates, or in the timing or probability of achieving the milestones which trigger payment. The fair value of contingent consideration was $264 million and $68 million as of April 24, 2015 and April 25, 2014 , respectively.

Net Sales

In the fourth quarter of fiscal year 2015, we amended the way in which we evaluate performance and allocate resources with the acquisition of Covidien. As a result, we began to operate under four reportable segments and four operating segments, the Cardiac and Vascular Group (composed of Cardiac Rhythm & Heart Failure, Coronary & Structural Heart and Aortic & Peripheral Vascular businesses), the Minimally Invasive Therapies Group (composed of Surgical Solutions and Patient Monitoring & Recovery), the Restorative Therapies Group (composed of the Spine, Neuromodulation, Surgical Technologies, Neurovascular businesses), and the Diabetes Group. See Note 18 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional discussion related to our segment reporting.

The table below illustrates net sales by operating segment and division for fiscal years 2015 , 2014 , and 2013 :

The increase in net sales for fiscal year 2015 was primarily attributable to the Covidien acquisition. In fiscal years 2015 and 2014 , net sales were unfavorably impacted by foreign currency translation of $666 million and $175 million, respectively. The primary exchange rate movements that impacted our consolidated net sales growth were the U.S. dollar as compared to the Euro and the

Japanese Yen. The impact of foreign currency fluctuations on net sales was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses and our hedging activities. See “Item 7A. Qualitative and Quantitative Disclosures about Market Risk” and Note 9 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further details on foreign currency instruments and our related risk management strategies.

Cardiac and Vascular Group The Cardiac and Vascular Group is composed of the Cardiac Rhythm & Heart Failure, Coronary & Structural Heart, and Aortic & Peripheral Vascular divisions. The Cardiac and Vascular Group’s products, with specific focus on comprehensive disease management, include pacemakers, insertable and external cardiac monitors, implantable defibrillators, leads and delivery 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, 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 Cardiocom and Cath Lab Managed Services (CLMS). The Cardiac and Vascular Group's net sales for fiscal year 2015 were $9.361 billion , an increase of 6 percent compared to the prior fiscal year. Foreign currency translation had an unfavorable impact on net sales of $296 million compared to the prior fiscal year. The Cardiac and Vascular Group’s performance was primarily a result of strong net sales in Cardiac Rhythm & Heart Failure and Aortic & Peripheral Vascular and solid growth in Coronary & Structural Heart. See the more detailed discussion of each business’s performance below.

Cardiac Rhythm & Heart Failure net sales for fiscal year 2015 were $5.245 billion , an increase of 5 percent compared to the prior fiscal year. The increase in Cardiac Rhythm & Heart Failure net sales was driven by the ongoing acceptance of the Reveal LINQ insertable cardiac monitor and the launches of the Viva XT CRT-D with Attain Performa quadripolar CRT-D lead system in the U.S. in September 2014 and Evera MRI SureScan ICD in Japan in November 2014. Net sales of the Cardiac Rhythm & Heart failure division were also driven by the continued global acceptance of the Arctic Front Advance Cardiac CryoAblation Catheter (Arctic Front) system, net sales from Cardiocom and our CLMS business, which includes the August 2014 acquisition of NGC. Net sales were negatively impacted by unfavorable foreign currency translation.

Coronary & Structural Heart net sales for fiscal year 2015 were $3.038 billion , an increase of 3 percent compared to the prior fiscal year. The increase in Coronary & Structural Heart net sales was driven by ongoing success of the CoreValve transcatheter aortic heart valve in the U.S., the launch of the CoreValve Evolute R recapturable system in international markets, and the international launch of the Resolute Onyx drug-eluting stent in November 2014. Net sales were partially offset by unfavorable foreign currency translation and continued pricing pressures in the U.S., Western Europe, Japan, and India in our Coronary business.

Aortic & Peripheral Vascular net sales for fiscal year 2015 were $1.078 billion , an increase of 20 percent compared to the prior fiscal year. The Aortic & Peripheral Vascular division includes a portion of the Covidien Peripheral business, which contributed strong performance during the fourth quarter of fiscal year 2015 on the strength of its chronic venous insufficiency products. The increase in Aortic & Peripheral Vascular net sales was driven by IN.PACT Admiral drug-coated balloons in the U.S. and international markets. Aortic & Peripheral Vascular net sales were also driven by strong sales of our Valiant Captivia Thoracic Stent Graft System, and growth from the Endurant 2S Abdominal Aortic Aneurysm (AAA) Stent Graft System in the U.S. and Western Europe. Net sales for the Aortic & Peripheral Vascular division were impacted by unfavorable foreign currency translation and increased competitive and pricing pressures in the U.S., Western Europe, and Japan.

The Cardiac and Vascular Group's net sales for fiscal year 2014 were $8.847 billion, an increase of 2 percent compared to the prior fiscal year. Foreign currency translation had an unfavorable impact on net sales of $118 million compared to the prior fiscal year. The Cardiac and Vascular Group’s performance was primarily a result of solid growth in Aortic & Peripheral Vascular and growth in Cardiac Rhythm & Heart Failure and Coronary & Structural Heart. Additionally, the Cardiac and Vascular Group’s performance was favorably affected by new products and the August 2013 acquisition of Cardiocom and January 2014 acquisition of TYRX. See the more detailed discussion of each business’s performance below.

Cardiac Rhythm & Heart Failure net sales for fiscal year 2014 were $4.996 billion, an increase of 2 percent compared to the prior fiscal year. The increase in Cardiac Rhythm & Heart Failure net sales were driven by continued global acceptance of the Arctic Front system and the launches of our Advisa DR MRI SureScan in the U.S. and Japan in the fourth and second quarters of fiscal year 2013, respectively. Net sales of Cardiac Rhythm & Heart Failure were also impacted by the continued acceptance of our shock reduction and lead integrity alert technologies, and our Viva/Brava family of CRT-D devices and Evera family of ICDs. A strong launch of Reveal LINQ in Western Europe and the U.S. in the second half of fiscal year 2014 and net sales from the acquisition of Cardiocom and CLMS also contributed to the increase in net sales. Net sales for the Cardiac Rhythm & Heart Failure were partially offset by unfavorable foreign currency translation, declines in the U.S. High Power and Low Power markets, and pricing pressures in certain international markets.

Coronary & Structural Heart net sales for fiscal year 2014 were $2.956 billion, an increase of 2 percent compared to the prior fiscal year. The increase in Coronary & Structural Heart net sales were driven by strong sales of the CoreValve transcatheter aortic heart valves in Western Europe and of our perfusion system and blood management products in emerging markets. Growth was also driven by a strong initial U.S. launch of CoreValve transcatheter aortic heart valves for extreme risk patients in the fourth quarter of fiscal year 2014. The increase in net sales was also due to worldwide share gains in drug-eluting stents, driven by the continued strength of our Resolute Integrity drug-eluting coronary stent. Growth was partially offset by unfavorable foreign currency translation, pricing pressures, and declines in our cardiopulmonary product lines driven principally by a competitor's full reentry into the market following a supply disruption and by unfavorable foreign currency translation.

Aortic & Peripheral Vascular net sales for fiscal year 2014 were $895 million, an increase of 3 percent compared to the prior fiscal year. The increase in Aortic & Peripheral Vascular net sales was driven by strong sales of our Valiant Captivia Thoracic Stent Graft System, as well as the launch of the Endurant II AAA Stent Graft System in Japan in the first quarter of fiscal year 2014. Growth was partially offset by the divestiture of a reentry catheter product line in the second quarter of fiscal year 2014, the removal of a peripheral below-the-knee product from the market, unfavorable foreign currency translation, and increased competitive and pricing pressures in the U.S., Western Europe, and Japan.

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