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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM
10-Q

|  |                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------
|x | QUARTERLY
 REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 24, 2008

Commission File Number 1-7707

(MEDTRONIC LOGO)


MEDTRONIC, INC.(Exact name of
registrant as specified in its charter)


|                          |  |                                       
|------------------------- |  | --------------------------------------
|Minnesota                 |  | 41-0793183                            
|(State
 of incorporation) |  | (I.R.S.
 Employer
 Identification No.)

710 Medtronic Parkway
Minneapolis, Minnesota 55432(Address of principal
executive offices) (Zip Code)

(763) 514-4000(Registrants
telephone number, including area code)

Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.     Yes x     No
o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

| |                           |                     |                        
| | ------------------------- | ------------------- | -----------------------
| | Large accelerated filer x | Accelerated filer o | Non-accelerated filer o

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No x

Shares of common stock, $.10
par value, outstanding on November 28,
2008: 1,118,224,679

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TABLE OF CONTENTS

|        |  |                                                                                        |  |     
|------- |  | -------------------------------------------------------------------------------------- |  | ----
|Item    |  | Description                                                                            |  | Page
|        |  |                                                                                        |  |     
|        |  |                                                                                        |  |     
|PART I 
|1.      |  | Financial
 Statements                                                                  |  | 1   
|2.      |  | Managements
 Discussion and Analysis of Financial Condition and Results of Operations |  | 27  
|3.      |  | Quantitative
 and Qualitative Disclosures About Market Risk                            |  | 47  
|4.      |  | Controls
 and Procedures                                                               |  | 47  
|PART II
|1.      |  | Legal
 Proceedings                                                                     |  | 48  
|2.      |  | Unregistered
 Sales of Equity Securities and Use of Proceeds                           |  | 49  
|4.      |  | Submission
 of Matters to a Vote of Security Holders                                   |  | 49  
|6.      |  | Exhibits                                                                               |  | 49  

---

PART I  FINANCIAL
INFORMATION

Item 1. Financial
Statements

MEDTRONIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|--------------------------------------------------------------- |  | ------------------------------------- | ------- | ----------------- | - | ---------------- | - | ---------------- | ------- |  | - | ------- | -
|                                                                |  | Three
 months ended                   |         | Six months
 ended |  
|                                                                |  |                                       |         |                   |  
|                                                                |  | October
 24,2008                      |         | October
 26,2007  |   | October
 24,2008 |   | October
 26,2007 |        
|                                                                |  |                                       |         |                   |   |                  |   |                  |        
|                                                                |  | (in
 millions, except per share data) |        
|Net sales                                                       |  | $                                     | 3,570   |                   | $ | 3,124            |   | $                | 7,276   |  | $ | 6,250   |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Costs and expenses:                                             |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Cost of products sold                                           |  |                                       | 883     |                   |   | 840              |   |                  | 1,738   |  |   | 1,632   |  
|Research and development expense                                |  |                                       | 326     |                   |   | 298              |   |                  | 650     |  |   | 598     |  
|Selling, general and administrative
expense                     |  |                                       | 1,263   |                   |   | 1,107            |   |                  | 2,581   |  |   | 2,203   |  
|Restructuring charges                                           |  |                                       |        |                   |   |                 |   |                  | 96      |  |   | 14      |  
|Certain litigation charges                                      |  |                                       | 266     |                   |   |                 |   |                  | 266     |  |   |        |  
|Purchased in-process research and
 development
 (IPR&D) charges |  |                                       | 18      |                   |   |                 |   |                  | 18      |  |   | 33      |  
|Other expense, net                                              |  |                                       | 143     |                   |   | 72               |   |                  | 294     |  |   | 128     |  
|Interest expense/(income), net                                  |  |                                       | 10      |                   |   | (61              | ) |                  | 19      |  |   | (105    | )
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Total costs and expenses                                        |  |                                       | 2,909   |                   |   | 2,256            |   |                  | 5,662   |  |   | 4,503   |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Earnings before income taxes                                    |  |                                       | 661     |                   |   | 868              |   |                  | 1,614   |  |   | 1,747   |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Provision for income taxes                                      |  |                                       | 90      |                   |   | 202              |   |                  | 296     |  |   | 406     |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Net earnings                                                    |  | $                                     | 571     |                   | $ | 666              |   | $                | 1,318   |  | $ | 1,341   |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Earnings per share:                                             |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Basic                                                           |  | $                                     | 0.51    |                   | $ | 0.59             |   | $                | 1.18    |  | $ | 1.18    |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Diluted                                                         |  | $                                     | 0.51    |                   | $ | 0.58             |   | $                | 1.17    |  | $ | 1.17    |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Weighted average shares outstanding:                            |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Basic                                                           |  |                                       | 1,120.4 |                   |   | 1,133.1          |   |                  | 1,120.5 |  |   | 1,136.1 |  
|Diluted                                                         |  |                                       | 1,128.5 |                   |   | 1,147.7          |   |                  | 1,128.6 |  |   | 1,150.6 |  
|                                                                |  |                                       |         |                   |   |                  |   |                  |         |  |   |         |  
|Cash dividends declared per common share                        |  | $                                     | 0.188   |                   | $ | 0.125            |   | $                | 0.376   |  | $ | 0.250   |  

The accompanying notes are an integral part
of these consolidated financial statements.

1

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MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                                                                   |  |                                       |        |                 |   |        |  
|------------------------------------------------------------------ |  | ------------------------------------- | ------ | --------------- | - | ------ | -
|                                                                   |  | October
 24,
 2008                    |        | April 25,
 2008 |  
|                                                                   |  |                                       |        |                 |  
|                                                                   |  | (in
 millions, except per share data) |       
|ASSETS                                                             |  |                                       |        |                 |   |        |  
|                                                                   |  |                                       |        |                 |   |        |  
|Current assets:                                                    |  |                                       |        |                 |   |        |  
|Cash and cash equivalents                                          |  | $                                     | 541    |                 | $ | 1,060  |  
|Short-term investments                                             |  |                                       | 501    |                 |   | 553    |  
|Accounts receivable, less allowances of $77
 and $99, respectively |  |                                       | 2,947  |                 |   | 3,287  |  
|Income tax receivable                                              |  |                                       | 148    |                 |   | 73     |  
|Inventories                                                        |  |                                       | 1,348  |                 |   | 1,280  |  
|Deferred tax assets, net                                           |  |                                       | 384    |                 |   | 600    |  
|Prepaid expenses and other current assets                          |  |                                       | 633    |                 |   | 469    |  
|                                                                   |  |                                       |        |                 |   |        |  
|                                                                   |  |                                       |        |                 |   |        |  
|Total current assets                                               |  |                                       | 6,502  |                 |   | 7,322  |  
|                                                                   |  |                                       |        |                 |   |        |  
|Property, plant and equipment                                      |  |                                       | 4,865  |                 |   | 4,743  |  
|Accumulated depreciation                                           |  |                                       | (2,631 | )               |   | (2,522 | )
|                                                                   |  |                                       |        |                 |   |        |  
|Property, plant and equipment, net                                 |  |                                       | 2,234  |                 |   | 2,221  |  
|                                                                   |  |                                       |        |                 |   |        |  
|Goodwill                                                           |  |                                       | 7,515  |                 |   | 7,519  |  
|Other intangible assets, net                                       |  |                                       | 2,198  |                 |   | 2,193  |  
|Long-term investments                                              |  |                                       | 2,803  |                 |   | 2,322  |  
|Long-term deferred tax assets, net                                 |  |                                       |       |                 |   | 103    |  
|Other assets                                                       |  |                                       | 781    |                 |   | 518    |  
|                                                                   |  |                                       |        |                 |   |        |  
|Total assets                                                       |  | $                                     | 22,033 |                 | $ | 22,198 |  
|                                                                   |  |                                       |        |                 |   |        |  
|                                                                   |  |                                       |        |                 |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                               |  |                                       |        |                 |   |        |  
|                                                                   |  |                                       |        |                 |   |        |  
|Current liabilities:                                               |  |                                       |        |                 |   |        |  
|Short-term borrowings                                              |  | $                                     | 1,018  |                 | $ | 1,154  |  
|Accounts payable                                                   |  |                                       | 364    |                 |   | 383    |  
|Accrued compensation                                               |  |                                       | 734    |                 |   | 789    |  
|Other accrued expenses                                             |  |                                       | 798    |                 |   | 1,209  |  
|                                                                   |  |                                       |        |                 |   |        |  
|                                                                   |  |                                       |        |                 |   |        |  
|Total current liabilities                                          |  |                                       | 2,914  |                 |   | 3,535  |  
|                                                                   |  |                                       |        |                 |   |        |  
|Long-term debt                                                     |  |                                       | 5,523  |                 |   | 5,802  |  
|Long-term accrued compensation and
 retirement benefits            |  |                                       | 302    |                 |   | 304    |  
|Long-term accrued income taxes                                     |  |                                       | 553    |                 |   | 519    |  
|Long-term deferred tax liabilities, net                            |  |                                       | 18     |                 |   |       |  
|Other long-term liabilities                                        |  |                                       | 99     |                 |   | 502    |  
|                                                                   |  |                                       |        |                 |   |        |  
|                                                                   |  |                                       |        |                 |   |        |  
|Total liabilities                                                  |  |                                       | 9,409  |                 |   | 10,662 |  
|                                                                   |  |                                       |        |                 |   |        |  
|Commitments and contingencies (Note 18)                            |  |                                       |       |                 |   |       |  
|                                                                   |  |                                       |        |                 |   |        |  
|Shareholders equity:                                              |  |                                       |        |                 |   |        |  
|Preferred stock par value $1.00                                   |  |                                       |       |                 |   |       |  
|Common stock par value $0.10                                      |  |                                       | 112    |                 |   | 112    |  
|Retained earnings                                                  |  |                                       | 12,468 |                 |   | 11,710 |  
|Accumulated other comprehensive income
 (loss)                     |  |                                       | 44     |                 |   | (286   | )
|                                                                   |  |                                       |        |                 |   |        |  
|                                                                   |  |                                       |        |                 |   |        |  
|Total shareholders equity                                         |  |                                       | 12,624 |                 |   | 11,536 |  
|                                                                   |  |                                       |        |                 |   |        |  
|                                                                   |  |                                       |        |                 |   |        |  
|Total liabilities and shareholders
equity                         |  | $                                     | 22,033 |                 | $ | 22,198 |  
|                                                                   |  |                                       |        |                 |   |        |  

The accompanying notes are an integral part
of these consolidated financial statements.

2

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MEDTRONIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                                     |  |                    |        |                     |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------ | ------ | ------------------- | - | ------ | -
|                                                                                     |  | Six months
 ended  |       
|                                                                                     |  |                    |       
|                                                                                     |  | October
 24,
 2008 |        | October
 26, 
 2007 |  
|                                                                                     |  |                    |        |                     |  
|                                                                                     |  | (in
 millions)     |       
|Operating Activities:                                                                |  |                    |        |                     |   |        |  
|Net earnings                                                                         |  | $                  | 1,318  |                     | $ | 1,341  |  
|Adjustments to reconcile net earnings to
 net cash provided by operating activities: |  |                    |        |                     |   |        |  
|Depreciation and amortization                                                        |  |                    | 352    |                     |   | 276    |  
|IPR&D charges                                                                        |  |                    | 18     |                     |   | 33     |  
|Provision for doubtful accounts                                                      |  |                    | 16     |                     |   | 17     |  
|Deferred income taxes                                                                |  |                    | 71     |                     |   | 3      |  
|Stock-based compensation                                                             |  |                    | 108    |                     |   | 92     |  
|Excess tax benefit from exercise of
 stock-based awards                              |  |                    | (26    | )                   |   | (32    | )
|Change in operating assets and liabilities,
 net of effect of acquisitions:          |  |                    |        |                     |   |        |  
|Accounts receivable                                                                  |  |                    | 270    |                     |   | (128   | )
|Inventories                                                                          |  |                    | (141   | )                   |   | (12    | )
|Accounts payable and accrued liabilities                                             |  |                    | (90    | )                   |   | 98     |  
|Other operating assets and liabilities                                               |  |                    | (276   | )                   |   | 117    |  
|                                                                                     |  |                    |        |                     |   |        |  
|Net cash provided by operating activities                                            |  |                    | 1,620  |                     |   | 1,805  |  
|                                                                                     |  |                    |        |                     |   |        |  
|Investing Activities:                                                                |  |                    |        |                     |   |        |  
|Acquisitions, net of cash acquired                                                   |  |                    | (29    | )                   |   | (26    | )
|Purchase of intellectual property                                                    |  |                    | (135   | )                   |   | (52    | )
|Additions to property, plant and equipment                                           |  |                    | (263   | )                   |   | (280   | )
|Purchases of marketable securities                                                   |  |                    | (1,877 | )                   |   | (4,279 | )
|Sales and maturities of marketable
 securities                                       |  |                    | 1,321  |                     |   | 6,959  |  
|Other investing activities, net                                                      |  |                    | (5     | )                   |   | (67    | )
|                                                                                     |  |                    |        |                     |   |        |  
|Net cash (used in) provided by investing activities                                  |  |                    | (988   | )                   |   | 2,255  |  
|                                                                                     |  |                    |        |                     |   |        |  
|Financing Activities:                                                                |  |                    |        |                     |   |        |  
|Change in short-term borrowings, net                                                 |  |                    | (124   | )                   |   | 266    |  
|Payments on long-term debt                                                           |  |                    | (300   | )                   |   |       |  
|Dividends to shareholders                                                            |  |                    | (421   | )                   |   | (284   | )
|Issuance of common stock                                                             |  |                    | 367    |                     |   | 285    |  
|Excess tax benefit from exercise of
 stock-based awards                              |  |                    | 26     |                     |   | 32     |  
|Repurchase of common stock                                                           |  |                    | (639   | )                   |   | (901   | )
|                                                                                     |  |                    |        |                     |   |        |  
|Net cash used in financing activities                                                |  |                    | (1,091 | )                   |   | (602   | )
|                                                                                     |  |                    |        |                     |   |        |  
|Effect of exchange rate changes on cash and
 cash equivalents                        |  |                    | (60    | )                   |   | (31    | )
|                                                                                     |  |                    |        |                     |   |        |  
|Net change in cash and cash equivalents                                              |  |                    | (519   | )                   |   | 3,427  |  
|                                                                                     |  |                    |        |                     |   |        |  
|Cash and cash equivalents at beginning of
 period                                    |  |                    | 1,060  |                     |   | 1,256  |  
|                                                                                     |  |                    |        |                     |   |        |  
|Cash and cash equivalents at end of period                                           |  | $                  | 541    |                     | $ | 4,683  |  
|                                                                                     |  |                    |        |                     |   |        |  
|Supplemental Cash Flow Information                                                   |  |                    |        |                     |   |        |  
|Cash Paid For:                                                                       |  |                    |        |                     |   |        |  
|Income taxes                                                                         |  | $                  | 249    |                     | $ | 198    |  
|Interest                                                                             |  |                    | 113    |                     |   | 118    |  
|Supplemental Noncash Investing and
 Financing Activities:                            |  |                    |        |                     |   |        |  
|Reclassification of debentures from
 short-term to long-term debt                    |  | $                  | 15     |                     | $ |       |  
|Reclassification of debentures from
 long-term to short-term debt                    |  |                    |       |                     |   | 94     |  

The accompanying notes are an integral part
of these consolidated financial statements.

3

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MEDTRONIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Dollars in millions, except per share data

Note
1  Basis of Presentation

The accompanying unaudited
condensed consolidated financial statements 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. Accordingly, they do not
include all of the information necessary for a fair presentation of results of
operations, financial condition, and cash flows in conformity with U.S. GAAP. In
the opinion of management, the condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the results of Medtronic, Inc. and its
subsidiaries (Medtronic or the Company) for the periods presented. 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. For further information, refer to the consolidated
financial statements and notes thereto included in the Companys Annual Report
on Form 10-K for the year ended April 25, 2008.

The Companys fiscal years
2009, 2008 and 2007 will end or ended on April 24, 2009, April 25, 2008 and
April 27, 2007, respectively.

Note
2  New Accounting Pronouncements

Effective April 26, 2008,
the Company adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS
No. 157). SFAS No. 157 establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, clarifies the
definition of fair value within that framework and expands disclosures about
fair value measurements. SFAS No. 157 applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value, except for the
measurement of share-based payments. SFAS No. 157 does not expand the use
of fair value in any new circumstances. For certain types of financial
instruments, SFAS No. 157 requires a limited form of retrospective transition,
whereby the cumulative impact of the change in principle is recognized in the
opening balance in retained earnings in the fiscal year of adoption. All other
provisions of SFAS No. 157 will be applied prospectively. On February 12, 2008,
the FASB issued FASB Staff Position (FSP) FAS 157-2, Effective Date of FASB
Statement No. 157 (FSP FAS No. 157-2). FSP FAS No. 157-2 defers the
implementation of SFAS No. 157 for certain nonfinancial assets and nonfinancial
liabilities. Accordingly, the Company adopted the required provisions of SFAS
No. 157 at the beginning of fiscal year 2009 and the remaining provisions will
be adopted by the Company at the beginning of fiscal year 2010. The fiscal year
2009 adoption did not result in a material impact to the Companys financial
statements (see Note 7). The Company is currently evaluating the impact of
adopting the remaining parts of SFAS No. 157 in fiscal year 2010 in accordance
with FSP FAS No. 157-2.

In September 2006, the FASB
issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans  an amendment of FASB Statements No. 87,
88, 106 and 132(R) (SFAS No. 158), which requires the recognition of
an asset or liability for the funded status of defined benefit pension and
other post-retirement benefit plans in the statement of financial position. The
funded status recognition and certain disclosure provisions of SFAS No. 158
were adopted for the Companys fiscal year ended April 25, 2008. See Notes
1 and 13 to the consolidated financial statements included in the Companys
Annual Report on Form 10-K for the year ended April 25, 2008 for the impact of
this adoption. SFAS No. 158 also requires the consistent measurement of
plan assets and benefit obligations as of the date of the Companys fiscal
year-end statement of financial position effective for the Companys fiscal
year ending April 24, 2009. A select number of the Companys plans,
including the U.S. plans, currently have a January 31 measurement date.
This standard will require the Company to change that measurement date to match
the date of the Companys fiscal year-end in fiscal year 2009. The Company will
adopt the new measurement date provisions of SFAS No. 158 in the fourth
quarter of fiscal year 2009 which will result in a one-time adjustment to
retained earnings and accumulated other comprehensive income in that period.

In December 2007, the FASB
issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)). SFAS No.
141(R) replaces SFAS No. 141, Business Combinations. SFAS No. 141(R)
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interests in the acquiree and the
goodwill acquired. Some of the key changes under SFAS No. 141(R) will impact
the accounting treatment for certain acquisition related items including: (1)
accounting for acquired in process research and development (IPR&D) as an
indefinite-lived intangible asset until approved or discontinued rather than as
an immediate expense; (2) expensing acquisition costs rather than adding them to
the cost of an acquisition; (3) expensing restructuring costs in connection
with an acquisition rather than adding them to the cost of an acquisition; (4)
including the fair value of contingent consideration at the date of an
acquisition in the cost of an acquisition; and (5) recording at the date of an acquisition the
fair value of contingent liabilities that are more likely than not to occur.
SFAS No. 141(R) also includes a substantial number of new disclosure
requirements. SFAS No. 141(R) will be effective for the Company beginning
fiscal year 2010 and must be applied prospectively to all new acquisitions
closing on or after April 25, 2009. Early adoption of SFAS No. 141(R) is
prohibited. SFAS No. 141(R) is expected to have a material impact on how the
Company will identify, negotiate, and value future acquisitions and a material
impact on how an acquisition will affect the Companys consolidated financial
statements.

4

---

In December 2007, the
FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 will
change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity as compared to a liability today. This new consolidation method will
significantly change the accounting for partial and/or step acquisitions. SFAS
No. 160 will be effective for the Company in the first quarter of fiscal year
2010. The Company does not believe the adoption of SFAS No. 160 will have
a material impact to the Companys consolidated financial statements.

In March 2008, the FASB
issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), which will require increased disclosures about
an entitys strategies and objectives for using derivative instruments; the
location and amounts of derivative instruments in an entitys financial
statements; how derivative instruments and related hedged items are accounted
for under SFAS No. 133, Accounting for Derivative and Hedging Activities
(SFAS No. 133); and how derivative instruments and related hedged items affect
an entitys financial position, financial performance, and cash flows. Certain
disclosures will also be required with respect to derivative features that are
credit risk-related. SFAS No. 161 is effective for the Company beginning
in the fourth quarter of fiscal year 2009 but only requires the revised
disclosures on a prospective basis. The Company will provide the additional
disclosures necessary to the condensed consolidated financial statements
beginning in the Companys fourth quarter fiscal year 2009.

In May 2008, the FASB issued
FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB
14-1). FSP APB 14-1 requires the proceeds from the issuance of such convertible
debt instruments to be allocated between a liability component (issued at a
discount) and an equity component. The resulting debt discount is amortized
over the period the convertible debt is expected to be outstanding as
additional non-cash interest expense. The change in accounting treatment is
effective for the Company beginning in fiscal year 2010, and will be applied
retrospectively to prior periods. FSP APB 14-1 changes the accounting treatment
for the Companys $2,200 of 1.500 percent and $2,200 of 1.625 percent Senior
Convertible Notes due in 2011 and 2013, respectively, which were issued in
April 2006 and the $15 remaining balance of the Companys Contingent
Convertible Debentures due 2021. The Company is currently evaluating the impact
of this new accounting treatment, which will result in an increase to non-cash
interest expense reported in its historical financial statements. Based on a
preliminary review, the Company believes historical diluted EPS would be
impacted in the range of $0.06 to $0.10 per fiscal year.

Note
3  Acquisitions and IPR&D Charges

When the Company acquires
another company or a group of assets, the purchase price is allocated, as
applicable, between IPR&D, other identifiable intangible assets, net
tangible assets, and goodwill as required by U.S. GAAP. Goodwill represents the
excess of the aggregate purchase price over the fair value of net assets,
including IPR&D, of acquired businesses. The values assigned to IPR&D
and other identifiable intangible assets are based on valuations that have been
prepared using methodologies and valuation techniques consistent with those
used by independent appraisers. These techniques include estimating the future
cash flows of each project or technology and discounting the net cash flows
back to their present values utilizing an appropriate risk-adjusted rate of
return (discount rate). The discount rate used is determined at the time of the
acquisition in accordance with accepted valuation methods. For IPR&D, these
methodologies include consideration of the risk of the project not achieving
commercial feasibility and include a factor that takes into account the
uncertainty surrounding the successful development of the IPR&D.

At the time of acquisition,
the Company expects all acquired IPR&D will reach technological
feasibility, but there can be no assurance that the commercial viability of
these products will actually be achieved. The nature of the efforts to develop
the acquired technologies into commercially viable products consists
principally of planning, designing, and conducting clinical trials necessary to
obtain regulatory approvals. The risks associated with achieving
commercialization include, but are not limited to, delay or failure to obtain
regulatory approvals to conduct clinical trials, delay or failure to obtain
required market clearances, and patent issuance, validity and litigation, if
any. If commercial viability were not achieved, the Company would likely look
to other alternatives to provide these therapies.

Fiscal Year 2009

Restore Medical Acquisition

On July 16, 2008, the
Company acquired Restore Medical, Inc. (Restore). Restores Pillar Palatal
Implant System (Pillar System) will be integrated into the Surgical
Technologies operating segment of the Company. The Pillar System will provide
the Company with a minimally invasive, implantable medical device used to treat
the soft palate component of sleep breathing disorders, including mild to moderate obstructive sleep
apnea and snoring. Restore shareholders received $1.60 per share in cash for
each share of Restore common stock they owned. Total consideration for the
transaction was approximately $30 excluding cash acquired.

5

---

In connection with the
acquisition of Restore, the Company acquired $17 of technology-based intangible
assets with an estimated useful life of 10 years, $2 of net tangible assets,
and $11 of goodwill. The goodwill is not deductible for tax purposes. The pro
forma impact of the acquisition of Restore was not significant to the results
of the Company for the three and six months ended October 24, 2008 or October
26, 2007. The results of operations for Restore have been included in the Companys
condensed consolidated statement of earnings since the date
of acquisition.

Fiscal Year 2008

Kyphon Acquisition

On November 2, 2007, the
Company acquired Kyphon Inc. (Kyphon) and it became a wholly owned subsidiary
of the Company. Kyphon develops and markets medical devices designed to restore
and preserve spinal function using minimally invasive technology. Kyphons
primary products are used in balloon kyphoplasty for the treatment of spinal
compression fractures caused by osteoporosis or cancer, and in the interspinous
process decompression procedure for treating the symptoms of lumbar spinal
stenosis. It is expected that the acquisition of Kyphon will add to the growth
of the Companys existing Spinal business by extending its product offerings and
enabling the Company to provide physicians with a broader range of therapies
for use at all stages of the care continuum.

Under the terms of the
agreement announced on July 27, 2007, Kyphon shareholders received $71 per
share in cash for each share of Kyphon common stock they owned. Total
consideration for the transaction was approximately $4,203, which includes
payments to Kyphon shareholders for the cancellation of outstanding shares, the
assumption and settlement of existing Kyphon debt and payment of direct
acquisition costs. Total debt assumed relates to Kyphons obligations under
existing credit and term loan facilities and outstanding senior convertible
notes. In addition, the total consideration includes the proceeds of unwinding
the related convertible note hedges and cancellation and payment of the
warrants to the hedge participants that were originally issued by Kyphon in
February 2007. The transaction was financed through a combination of
approximately $3,303 cash on hand, the issuance of $600 short-term commercial
paper and borrowing $300 through a new long-term unsecured revolving credit
facility.

The Company has accounted
for the acquisition of Kyphon as a purchase under U.S. GAAP. Under the purchase
method of accounting, the assets and liabilities of Kyphon were recorded as of
the acquisition date, at their respective fair values, and consolidated with
the Company. The break down of the purchase price of Kyphon is as follows:

|                                                                                                                                                                      |  |   |       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----- | 
|Cash acquisition of Kyphon outstanding
 common stock                                                                                                                  |  | $ | 3,300 | 
|Cash settlement of vested stock-based
 awards                                                                                                                         |  |   | 218   | 
|Debt assumed and settled                                                                                                                                              |  |   | 570   | 
|Cash settlement of convertible debt
 warrants, net of proceeds from convertible note hedges                                                                           |  |   | 87    | 
|Direct acquisition costs                                                                                                                                              |  |   | 28    | 
|                                                                                                                                                                      |  |   |       | 
|Total purchase price                                                                                                                                                  |  | $ | 4,203 | 
|                                                                                                                                                                      |  |   |       | 
|                                                                                                                                                                      |  |   |       | 
|The purchase
 price allocation is based on estimates of the fair value of assets acquired
 and liabilities assumed. The purchase price has been allocated as follows:
|                                                                                                                                                                      |  |   |       | 
|Current
 assets                                                                                                                                                       |  | $ | 367   | 
|Property,
 plant and equipment                                                                                                                                        |  |   | 39    | 
|IPR&D                                                                                                                                                                 |  |   | 290   | 
|Other
 intangible assets                                                                                                                                              |  |   | 996   | 
|Goodwill                                                                                                                                                              |  |   | 3,175 | 
|Other
 long-term assets                                                                                                                                               |  |   | 10    | 
|                                                                                                                                                                      |  |   |       | 
|Total assets acquired                                                                                                                                                 |  |   | 4,877 | 
|                                                                                                                                                                      |  |   |       | 
|                                                                                                                                                                      |  |   |       | 
|Current
 liabilities                                                                                                                                                  |  |   | 359   | 
|Deferred tax
 liabilities                                                                                                                                             |  |   | 282   | 
|Other
 long-term liabilities                                                                                                                                          |  |   | 33    | 
|                                                                                                                                                                      |  |   |       | 
|Total liabilities assumed                                                                                                                                             |  |   | 674   | 
|                                                                                                                                                                      |  |   |       | 
|Net assets
 acquired                                                                                                                                                  |  | $ | 4,203 | 
|                                                                                                                                                                      |  |   |       | 

6

---

In connection with the
acquisition, the Company acquired $996 of intangible assets that had a weighted
average useful life of approximately 10.5 years. The intangible assets include $887
of technology-based assets and $109 of tradenames with weighted average lives
of 10.5 years and 11 years, respectively. Also as part of the acquisition, the
Company recognized, in total, $290 and $3,175 for IPR&D and goodwill,
respectively. The IPR&D was expensed on the date of acquisition. Various
factors contributed to the establishment of goodwill, including: the benefit of
adding existing products of the Company to the portfolio of products already
sold by Kyphon sales representatives; the value of Kyphons highly trained
assembled workforce; and the expected revenue growth that is attributable to
expanded indications and increased market penetration from future products and
customers. The goodwill is not deductible for tax purposes.

The $290 IPR&D charge
primarily relates to three projects: 1) future launch of the balloon
kyphoplasty (kyphoplasty) procedure into the Japanese market, 2) future launch
of the Aperius product into the U.S. market, and 3) the development of the next
generation kyphoplasty balloon technology. Kyphoplasty is Kyphons minimally
invasive approach to treat spinal fractures including vertebral compression
fractures due to osteoporosis and cancer. Aperius is Kyphons internally
developed interspinous spacing device which provides a minimally invasive
approach to treat lumbar spinal stenosis. For purposes of valuing the acquired
IPR&D, the Company estimated total costs to complete of approximately $19.

As required, the Company
recognized a $34 fair value adjustment related to inventory acquired from
Kyphon. Inventory fair value is defined as the estimated selling price less the
sum of (a) cost to complete (b) direct costs to sell and (c) a reasonable
profit allowance for the selling effort. The $34 fair value adjustment was
fully expensed through cost of products sold during the third quarter of fiscal
year 2008, which reflects the estimated period over which the acquired
inventory was sold to customers.

In connection with the
acquisition, the Company began to assess and formulate a plan for the
elimination of duplicative positions, employee relocations, the exit of certain
facilities, and the termination of certain contractual obligations. The
purchase accounting liabilities recorded in connection with these activities
were approximately $68 and included approximately $48 for termination benefits
and employee relocation and approximately $20 of estimated costs to cancel
contractual obligations. The remaining balance of these liabilities as of
October 24, 2008 was approximately $36. The Company continues to assess these
liabilities and until the plan is finalized and the integration activities are
complete, the allocation of the purchase price is subject to adjustment.

The Companys condensed
consolidated financial statements include Kyphons operating results from the
date of acquisition, November 2, 2007. The following unaudited pro forma
information sets forth the combined results of Medtronics and Kyphons
operations for the three months and six months ended October 26, 2007 as if the
acquisition had occurred at the beginning of the periods presented. The
unaudited pro forma results of operations for the three and six month periods
ended October 26, 2007 includes the results of Medtronics historical financial
information for the periods and the operations for Kyphon for the three and six
month periods ended September 30, 2007.

The pro forma information
gives effect to actual operating results prior to the acquisition, adjusted to
reflect, among other things, reduced interest income, additional intangible
asset amortization and interest expense that would have resulted from the
change in the accounting basis of certain assets and liabilities due to the
acquisition. Pro forma adjustments are tax-effected at the Companys statutory
tax rate. No effect has been given to cost reductions or operating synergies in
this presentation. These pro forma amounts are not necessarily indicative of
the results that would have been obtained if the acquisition had occurred as of
the beginning of the periods presented or that may occur in the future, and
does not reflect future synergies, integration costs, or other such costs or
savings. The unaudited pro forma condensed consolidated financial information
is presented for informational purposes only.

|                                             |  |                      |       |                     |   |       | 
|-------------------------------------------- |  | -------------------- | ----- | ------------------- | - | ----- | 
|                                             |  | Three
 months
 ended |       | Six months
 ended   |  
|                                             |  |                      |       |                     |  
|(dollars in millions, except per share data) |  | October
 26, 
 2007  |       | October
 26, 
 2007 |  
|                                             |  |                      |       |                     |  
|Net sales                                    |  | $                    | 3,269 |                     | $ | 6,667 | 
|Net earnings                                 |  | $                    | 365   |                     | $ | 987   | 
|                                             |  |                      |       |                     |   |       | 
|Earnings per share:                          |  |                      |       |                     |   |       | 
|Basic                                        |  | $                    | 0.32  |                     | $ | 0.87  | 
|Diluted                                      |  | $                    | 0.32  |                     | $ | 0.86  | 

7

---

The unaudited pro forma
financial information for the three and six months ended October 26, 2007
includes a $290 IPR&D charge and a $34 increase in cost of products sold
related to the step-up to fair value of inventory acquired, both of which are
non-recurring.

Other Acquisitions and IPR&D Charges

During the second quarter of
fiscal year 2009, the Company recorded an IPR&D charge of $18 related to
the purchase of certain intellectual property for use in the Spinal business.
These payments were expensed as IPR&D since technological feasibility of
the underlying product had not yet been reached and such technology has no
future alternative use.

On June 25, 2007, the
Company exercised a purchase option and acquired substantially all of the O-arm
Imaging System (O-arm) assets of Breakaway Imaging, LLC (Breakaway), a
privately held company based in Littleton, Massachusetts. Prior to the
acquisition, the Company had the exclusive rights to distribute and market the O-arm.
The O-arm provides multi-dimensional surgical imaging for use in spinal and
orthopedic surgical procedures. The acquisition is expected to bring the O-arm
into a broad portfolio of image guided surgical solutions. Total consideration
for Breakaway was approximately $26 in cash, subject to purchase price
increases, which would be triggered by the achievement of certain milestones.
In connection with the acquisition of Breakaway, the Company acquired $22 of
technology-based intangible assets that had an estimated useful life of 15
years at the time of acquisition, $1 of tangible assets, and $3 of goodwill.
The goodwill was deductible for tax purposes. The pro forma impact of the
acquisition of Breakaway was not significant to the results of the Company for
the three and six months ended October 26, 2007.

Additionally, during the
first quarter of fiscal year 2008, the Company recorded IPR&D charges of
$25 related to a milestone payment under the existing terms of a royalty
bearing, non-exclusive patent cross-licensing agreement with NeuroPace, Inc.
and $8 for unrelated purchases of certain intellectual property. These payments
were expensed as IPR&D since technological feasibility of the underlying
projects had not yet been reached and such technology has no future alternative
use.

In addition to the
acquisitions above, Medtronic periodically acquires certain tangible or
intangible assets from certain enterprises that do not otherwise qualify for
accounting as a business combination. These transactions are largely reflected
in the condensed consolidated statements of cash flows as a component of
investing activities under purchase of
intellectual property.

Contingent Consideration

Certain of the Companys
business combinations or purchases of intellectual property involve the
potential for the payment of future contingent consideration upon the
achievement of certain product development milestones and/or various other
favorable operating conditions. While it is not certain if and/or when these
payments will be made, the Company has developed an estimate of the potential
contingent consideration for each of its acquisitions with an outstanding
potential obligation. At October 24, 2008, the estimated potential amount of
future contingent consideration that the Company is expected to make associated
with all business combinations or purchases of intellectual property is
approximately $124. The milestones associated with the contingent consideration
must be reached in future periods ranging from fiscal years 2009 to 2016 in
order for the consideration to be paid.

Note
4  Certain Litigation Charges

The Company classifies
material litigation reserves recognized as certain litigation charges. During
the three and six months ended October 24, 2008, the Company incurred certain litigation charges of
$266. Of the amount recorded, $229 relates to litigation with Cordis
Corporation (Cordis), a subsidiary of Johnson & Johnson (J&J). The
Cordis litigation originated in October 1997 and pertains to patent infringement
claims on previous generations of bare metal stents that are no longer on the
market. On September 30, 2008, the U.S. District Court entered final judgment
including accrued interest, totaling approximately $521, to Cordis. The Company
had previously recorded a charge of $243 related to this litigation in the
third quarter of fiscal year 2008. At the time the $243 charge was recorded,
the range of potential loss related to this matter was subject to a high degree
of estimation. The amount recorded represented an estimate of the low end of
the range of probable outcomes related to the matter. Given that the Company
and J&J are involved in a number of litigation matters which span across
businesses, the Company entered into negotiations with J&J in an attempt to
settle some of the additional litigation simultaneous with the payment of this
judgment. Ultimately, the agreement reached with Cordis required a total cash
payment of $472, which included the settlement of several outstanding legal
matters between the parties. The charge of $229 in the three months ended
October 24, 2008 is the net result of $472 in cash payments, offset by the
existing reserves on the balance sheet including interest accrued on the $243
since the date established.

The remainder of the certain
litigation charge of $37 relates to costs for the settlement of litigation that
originated in May 2006 with Fastenetix LLC (Fastenetix), a patent holding
company. The litigation related to an alleged breach of a royalty agreement in
our Spinal business. The agreement reached with Fastenetix required a total cash
payment of $125 for the settlement of ongoing litigation and the purchase of patents. Of the
$125, $37 was assigned to past damages in the case and the remaining $88 was
recorded as purchased intellectual property that has an estimated useful life
of 7 years. As of October 24, 2008, all of these amounts have been paid. See
Note 18 for further discussion of these cases.

8

---

During the three and six
months ended October 26,
2007, there were no certain litigation charges.

Note
5  Restructuring Charges

Global Realignment Initiative

In fiscal year 2008, as part
of a global realignment initiative, the Company recorded a $31 restructuring
charge, which consisted of employee termination costs of $27 and asset write-downs
of $4. This initiative began in the fourth quarter of fiscal year 2008 and
focuses on shifting resources to those areas where the Company has the greatest
opportunities for growth and streamlining operations to drive operating
leverage. The global realignment initiative impacts most businesses and certain
corporate functions. Within the Companys Cardiac Rhythm Disease Management
(CRDM) business, the Company is reducing research and development
infrastructure by closing a facility outside the U.S., reprioritizing research
and development projects to focus on the core business and consolidating
manufacturing operations to drive operating leverage. Within Spinal, the
Company is reorganizing and consolidating certain activities where Medtronics
existing infrastructure, resources, and systems can be leveraged to obtain
greater operational synergies. The global realignment initiative is also
designed to further consolidate manufacturing of CardioVascular products,
streamline distribution of products in select businesses and to reduce general
and administrative costs in the Companys corporate functions. The asset
write-downs were recorded within cost of
products sold in the condensed consolidated statement of earnings.
The employee termination costs of $27 consist of severance and the associated
costs of continued medical benefits and outplacement services.

As a continuation of the
global realignment initiative that began in fiscal year 2008, in the first
quarter of fiscal year 2009 the Company incurred $96 of incremental
restructuring charges, which consists of employee termination costs of $91 and
asset write-downs of $5. The majority of the expense recognized in the first
quarter of fiscal year 2009 is related to the execution of the Companys global
realignment initiative outside the U.S. This includes the realignment and
elimination of personnel throughout Europe and the Emerging Markets and the
closure of an existing facility in the Netherlands that will be integrated into
the U.S. operations. The remainder of the expense is associated with enhanced
severance benefits provided to employees identified in the fourth quarter of
fiscal year 2008. These incremental costs were not accrued in fiscal year 2008
because the enhanced benefits had not yet been communicated to the impacted
employees.

There were no restructuring
charges in the second quarter of fiscal year 2009.

As of the end of the first
quarter of fiscal year 2009, the Company had identified approximately 900
positions for elimination which will be achieved through both voluntary and
involuntary separation. Of the 900 positions identified, approximately 410 have
been eliminated as of October 24, 2008. The restructuring initiatives are
scheduled to be substantially complete by the end of fiscal year 2009.

A summary of the activity
related to the global realignment initiative is presented below:

|                            |  |                                |     |                    |   |       |   |   |     |  
|--------------------------- |  | ------------------------------ | --- | ------------------ | - | ----- | - | - | --- | -
|                            |  | Global
 Realignment Initiative |    
|                            |  |                                |    
|                            |  | Employee
 Termination
 Costs   |     | Asset
 Write-downs |   | Total |  
|                            |  |                                |     |                    |   |       |  
|Balance at April 27, 2007   |  | $                              |    |                    | $ |      |   | $ |    |  
|Restructuring
 charges      |  |                                | 27  |                    |   | 4     |   |   | 31  |  
|Payments/write-downs        |  |                                | (2  | )                  |   | (4    | ) |   | (6  | )
|                            |  |                                |     |                    |   |       |   |   |     |  
|Balance at April 25, 2008   |  | $                              | 25  |                    | $ |      |   | $ | 25  |  
|Restructuring
 charges      |  |                                | 91  |                    |   | 5     |   |   | 96  |  
|Payments/write-downs        |  |                                | (18 | )                  |   | (5    | ) |   | (23 | )
|                            |  |                                |     |                    |   |       |   |   |     |  
|Balance at July 25, 2008    |  | $                              | 98  |                    | $ |      |   | $ | 98  |  
|Restructuring
 charges      |  |                                |    |                    |   |      |   |   |    |  
|Payments                    |  |                                | (19 | )                  |   |      |   |   | (19 | )
|Currency
 adjustment, net   |  |                                | (9  | )                  |   |      |   |   | (9  | )
|                            |  |                                |     |                    |   |       |   |   |     |  
|Balance at October 24, 2008 |  | $                              | 70  |                    | $ |      |   | $ | 70  |  
|                            |  |                                |     |                    |   |       |   |   |     |  

9

---

Fiscal Year 2007 Initiative

In fiscal year 2007, the
Company recorded a $36 restructuring charge, which consisted of employee
termination costs of $28 and asset write-downs of $8. These initiatives were
designed to drive manufacturing efficiencies in the Companys CardioVascular business,
downsize the Physio-Control business due to the Companys voluntary suspension
of U.S. shipments, and rebalance resources within the CRDM business in response
to market dynamics. The employee termination costs consist of severance and the
associated costs of continued medical benefits, and outplacement services. The
asset write-downs consist of a $5 charge for inventory write-downs and a $3
charge for non-inventory asset write-downs. The inventory and non-inventory
asset write-downs were recorded within cost
of products sold in the condensed consolidated statement of
earnings.

As a continuation of the
fiscal year 2007 initiatives, in the first quarter of fiscal year 2008 the
Company incurred $14 of incremental restructuring charges associated with compensation
provided to employees whose employment terminated with the Company in the first
quarter of fiscal year 2008. These incremental costs were not accrued in fiscal
year 2007 because these benefits had not yet been communicated to the impacted
employees. Included in the total $14 restructuring charge is $4 of incremental
defined benefit pension and post-retirement related expense for those employees
who accepted early retirement packages. These costs are not included in the
table summarizing restructuring costs below because they are associated with
costs that are accounted for under the pension and postretirement rules. For
further discussion on the incremental defined benefit pension and
post-retirement related expense, see Note 17.

When the restructuring
initiative began in fiscal year 2007, the Company identified approximately 900
positions for elimination which were achieved through early retirement packages
offered to employees, voluntary separation, and involuntary separation, as
necessary. As of April 25, 2008, the initiatives begun in the fourth quarter of
fiscal year 2007 were substantially complete.

A summary of the activity
related to the fiscal year 2007 initiative is presented below:

|                          |  |                              |     |                    |   |       |   |   |     |  
|------------------------- |  | ---------------------------- | --- | ------------------ | - | ----- | - | - | --- | -
|                          |  | Fiscal
 Year 2007 Initiative |    
|                          |  |                              |    
|                          |  | Employee
 Termination
 Costs |     | Asset
 Write-downs |   | Total |  
|                          |  |                              |     |                    |   |       |  
|Balance at April 28, 2006 |  | $                            |    |                    | $ |      |   | $ |    |  
|Restructuring
 charges    |  |                              | 28  |                    |   | 8     |   |   | 36  |  
|Payments/write-downs      |  |                              | (5  | )                  |   | (8    | ) |   | (13 | )
|                          |  |                              |     |                    |   |       |   |   |     |  
|Balance at April 27, 2007 |  |                              | 23  |                    |   |      |   |   | 23  |  
|Restructuring
 charges    |  |                              | 10  |                    |   |      |   |   | 10  |  
|Payments                  |  |                              | (33 | )                  |   |      |   |   | (33 | )
|                          |  |                              |     |                    |   |       |   |   |     |  
|Balance at April 25, 2008 |  | $                            |    |                    | $ |      |   | $ |    |  
|                          |  |                              |     |                    |   |       |   |   |     |  

Note
6  Investments

The carrying amounts of cash
and cash equivalents approximate fair value due to their short maturities.

Information regarding the
Companys short-term and long-term investments at October 24, 2008
is as follows:

|                                                  |  |      |       |                   |   |                    |  |            |      |   |   |       | 
|------------------------------------------------- |  | ---- | ----- | ----------------- | - | ------------------ |  | ---------- | ---- | - | - | ----- | 
|                                                  |  | Cost |       | Unrealized
 Gains |   | Unrealized
 Losses |  | Fair Value |     
|                                                  |  |      |       |                   |   |                    |  |            |     
|Corporate
 debt securities                        |  | $    | 873   |                   | $ | 1                  |  | $          | (56  | ) | $ | 818   | 
|Auction rate
 securities                          |  |      | 201   |                   |   |                   |  |            | (49  | ) |   | 152   | 
|Mortgage
 backed securities                       |  |      | 911   |                   |   | 3                  |  |            | (33  | ) |   | 881   | 
|Government
 and agency securities                 |  |      | 818   |                   |   | 5                  |  |            | (3   | ) |   | 820   | 
|Certificates
 of deposit                          |  |      | 6     |                   |   |                   |  |            |     |   |   | 6     | 
|Other asset
 backed securities                    |  |      | 391   |                   |   |                   |  |            | (22  | ) |   | 369   | 
|Marketable
 equity securities                     |  |      | 12    |                   |   |                   |  |            |     |   |   | 12    | 
|Cost method,
 equity method and other investments |  |      | 246   |                   |   |                   |  |            |     |   |   | 246   | 
|                                                  |  |      |       |                   |   |                    |  |            |      |   |   |       | 
|Total
 short-term and long-term investments       |  | $    | 3,458 |                   | $ | 9                  |  | $          | (163 | ) | $ | 3,304 | 
|                                                  |  |      |       |                   |   |                    |  |            |      |   |   |       | 

10

---

Information regarding the
Companys short-term and long-term investments at April 25, 2008 is
as follows:

|                                                  |  |      |       |                   |   |                    |  |            |     |   |   |       | 
|------------------------------------------------- |  | ---- | ----- | ----------------- | - | ------------------ |  | ---------- | --- | - | - | ----- | 
|                                                  |  | Cost |       | Unrealized
 Gains |   | Unrealized
 Losses |  | Fair Value |    
|                                                  |  |      |       |                   |   |                    |  |            |    
|Corporate
 debt securities                        |  | $    | 942   |                   | $ | 2                  |  | $          | (15 | ) | $ | 929   | 
|Auction rate
 securities                          |  |      | 198   |                   |   |                   |  |            | (22 | ) |   | 176   | 
|Mortgage
 backed securities                       |  |      | 693   |                   |   | 3                  |  |            | (17 | ) |   | 679   | 
|Government
 and agency securities                 |  |      | 478   |                   |   | 1                  |  |            | (3  | ) |   | 476   | 
|Other asset
 backed securities                    |  |      | 382   |                   |   | 1                  |  |            | (12 | ) |   | 371   | 
|Marketable
 equity securities                     |  |      | 14    |                   |   |                   |  |            | (1  | ) |   | 13    | 
|Cost method,
 equity method and other investments |  |      | 231   |                   |   |                   |  |            |    |   |   | 231   | 
|                                                  |  |      |       |                   |   |                    |  |            |     |   |   |       | 
|Total
 short-term and long-term investments       |  | $    | 2,938 |                   | $ | 7                  |  | $          | (70 | ) | $ | 2,875 | 
|                                                  |  |      |       |                   |   |                    |  |            |     |   |   |       | 

Activity
related to the Companys short-term and long-term investment portfolio is as
follows:

|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|----------------------------- |  | ------------------- | ----- | ----------------- | - | -------- | - | ---------- | ----- | - | - | -- | -
|                              |  | Three
 months ended |      
|                              |  |                     |      
|                              |  | October
 24, 2008   |       | October
 26, 2007 |  
|                              |  |                     |       |                   |  
|                              |  | Debt (1)            |       | Equity (2)        |   | Debt (1) |   | Equity (2) |      
|                              |  |                     |       |                   |   |          |   |            |      
|Proceeds
 from sales          |  | $                   | 763   |                   | $ |         |   | $          | 5,437 |   | $ | 1  |  
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|Gross
 realized gains         |  | $                   | 5     |                   | $ |         |   | $          | 14    |   | $ |   |  
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|Gross
 realized losses        |  | $                   | (3    | )                 | $ |         |   | $          | (3    | ) | $ |   |  
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|Impairment
 losses recognized |  | $                   | (18   | )                 | $ |         |   | $          |      |   | $ |   |  
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|                              |  | Six months
 ended   |      
|                              |  |                     |      
|                              |  | October
 24, 2008   |       | October
 26, 2007 |  
|                              |  |                     |       |                   |  
|                              |  | Debt (1)            |       | Equity (2)        |   | Debt (1) |   | Equity (2) |      
|                              |  |                     |       |                   |   |          |   |            |      
|Proceeds
 from sales          |  | $                   | 1,321 |                   | $ |         |   | $          | 6,935 |   | $ | 24 |  
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|Gross
 realized gains         |  | $                   | 6     |                   | $ |         |   | $          | 15    |   | $ | 15 |  
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|Gross realized
 losses        |  | $                   | (5    | )                 | $ |         |   | $          | (4    | ) | $ |   |  
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  
|Impairment
 losses recognized |  | $                   | (21   | )                 | $ | (2       | ) | $          |      |   | $ | (1 | )
|                              |  |                     |       |                   |   |          |   |            |       |   |   |    |  

(1) Includes available-for-sale
(AFS) debt securities.

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

The October 24, 2008 balance
of AFS debt securities 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.

|                                        |  |                   |       | 
|--------------------------------------- |  | ----------------- | ----- | 
|                                        |  | October 24,
 2008 |      
|                                        |  |                   |      
|Due in one year or less                 |  | $                 | 657   | 
|Due after one year through
 five years  |  |                   | 2,165 | 
|Due after five years
 through ten years |  |                   | 56    | 
|Due after ten years                     |  |                   | 168   | 
|                                        |  |                   |       | 
|Total debt securities                   |  | $                 | 3,046 | 
|                                        |  |                   |       | 

As of October 24, 2008, the
Company has $97 in debt securities that have been in an unrealized loss
position for more than twelve months. The aggregate amount of unrealized losses
for these investments is $16. As of October 24, 2008, the Company has $2,066 in
debt securities that have been in
an unrealized loss position for less than twelve months. The aggregate amount
of unrealized losses for these investments is $147. The majority of these
investments are in high quality, investment grade securities. The Company does
not consider these unrealized losses to be other-than-temporary as it has the
intent and ability to hold these investments long enough to avoid realizing any
significant losses.

11

---

The Company has investments
in marketable debt securities that are classified and accounted for as
available-for-sale. The Companys debt securities include government
securities, commercial paper, corporate debt securities, bank certificates of
deposit, and mortgage backed and other asset backed securities including
auction rate securities. Market conditions during the first half of fiscal year
2009 and subsequent to the Companys October 24, 2008 quarter-end continue to
indicate significant uncertainty on the part of investors on the economic
outlook for the U.S. and for financial institutions that have potential
exposure to the sub-prime housing market. This uncertainty has created reduced
liquidity across the fixed income investment market, including certain
securities in which the Company has invested. As a result, some of the
Companys investments have experienced reduced liquidity including unsuccessful
monthly auctions for auction rate security holdings. Starting in the third
quarter of fiscal year 2008, all of the investments in auction rate fixed
income securities have been reclassified from short-term
investments to long-term
investments on the condensed consolidated balance sheet due to the
fact that they are currently not trading, and current conditions in the general
debt markets have reduced the likelihood that the securities will successfully
auction within the next 12 months. Auction rate securities that did not
successfully auction reset to the maximum rate as prescribed in the underlying
indenture and all of the Companys holdings continue to be current with their
interest payments.

For the three and six months
ended October 24, 2008, the Company recognized an other-than-temporary
impairment loss on AFS debt securities of $18 and $21, respectively. 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 invested,
the Company believes it has recorded all necessary other-than-temporary
impairments as the Company has the ability and the intent to hold these
investments long enough to avoid realizing any further losses. For additional
discussion, see the Liquidity and Capital Resources section of managements
discussion and analysis.

As of October 24, 2008 and
April 25, 2008, the aggregate carrying amount of equity and other securities without
a quoted market price and accounted for using the cost or equity method was
$246 and $231, respectively. The total carrying value of these investments is
reviewed quarterly for changes in circumstance or the occurrence of events that
suggest the Companys investment may not be recoverable. The fair value of cost
or equity method investments is not estimated if there are no identified events
or changes in circumstances that may have a material adverse effect on the fair
value of the investment.

Gains and losses recognized
on debt instruments are recorded in interest
expense/(income), net in the condensed consolidated statements of
earnings. Gains and losses recognized on equity instruments are recorded in other expense, net in the condensed
consolidated statements of earnings. Gains and losses from the sale of
investments are calculated based on the specific identification method.

The Company lends certain
fixed income securities to enhance its investment income. These lending
activities are indemnified against counterparty risk and collateralized at an
average rate of 102 percent, with the collateral determined based on the
underlying securities and creditworthiness of the borrowers. The value of the
securities on loan at October 24, 2008 and April 25, 2008 was $0 and
$610, respectively.

Note
7  Fair Value Measurements

As discussed in Note 2, the
Company adopted SFAS No. 157 effective April 26, 2008, with respect to
fair value measurements of (a) nonfinancial assets and liabilities that
are recognized or disclosed at fair value in the Companys financial statements
on a recurring basis (at least annually) and (b) all financial assets and
liabilities. SFAS No. 157 clarifies the definition of fair value, establishes a
framework for measuring fair value, and expands the disclosures on fair value
measurements.

Under SFAS No. 157,
fair value is defined as the exit price, or the amount that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants as of the measurement date. SFAS No. 157 also
establishes a hierarchy for inputs used in measuring fair value that maximizes
the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable
inputs are inputs market participants would use in valuing the asset or
liability developed based on market data obtained from sources independent of
the Company. Unobservable inputs are inputs that reflect the Companys
assumptions about the factors market participants would use in valuing the
asset or liability developed based upon the best information available in the
circumstances. The categorization of financial assets and financial liabilities
within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The hierarchy is broken down into
three levels defined as follows:

12

---

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1 - Inputs are
 quoted prices in active markets for identical assets or liabilities. The
 Companys Level 1 assets include money market funds, treasury bonds,
 marketable equity securities, and foreign currency hedges that are valued
 using quoted market prices.                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Level 2 - Inputs include
 quoted prices for similar assets or liabilities in active markets, quoted
 prices for identical or similar assets or liabilities in markets that are not
 active, and inputs (other than quoted prices) that are observable for the
 asset or liability, either directly or indirectly. The Companys Level 2
 assets and liabilities primarily include agency bonds, corporate debt
 securities, asset backed securities, certain mortgage backed securities, and
 interest rate swaps whose value is determined using inputs that are
 observable in the market or can be derived principally from or corroborated
 by observable market data.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Level 3 - Inputs are
 unobservable inputs for the asset or liability. The Companys Level 3 assets
 include certain corporate debt securities, auction rate securities, certain
 mortgage backed securities, and certain asset backed securities. See the
 section below titled Level 3 Valuation
 Techniquesfor further discussion of how the Company determines
 fair value for investments classified as Level 3.                                                                                                                                                                                                                                                      

Assets and Liabilities that are Measured at Fair Value on a
Recurring Basis

For the Company, effective
April 26, 2008, fair value under SFAS No. 157 is principally applied to
financial assets and liabilities such as marketable equity securities and debt
securities that are classified and accounted for as available-for-sale,
investments in equity and other securities, and certain derivative instruments.
Derivatives include cash flow hedges, freestanding derivative forward
contracts, interest rate swaps and most net investment hedges. These items were
previously and will continue to be marked-to-market at each reporting period;
however, the definition of fair value is now applied using SFAS No. 157.
The information in the following paragraphs and tables primarily addresses
matters relative to these financial assets and liabilities. Separately, there
were no material fair value measurements with respect to nonfinancial assets or
liabilities that are recognized or disclosed at fair value in the Companys
financial statements on a recurring basis subsequent to the effective date of
SFAS No. 157.

The following table provides
information by level for assets and liabilities that are measured at fair
value, as defined by SFAS No. 157, on a recurring basis.

|                                 |  |                                  |         |                                                      |         |     |         |   |       |  |   |     | 
|-------------------------------- |  | -------------------------------- | ------- | ---------------------------------------------------- | ------- | --- | ------- | - | ----- |  | - | --- | 
|                                 |  | Fair Value
 at
 October 24, 2008 |         | Fair Value
 Measurements
 Using Inputs Considered as |        
|                                 |  |                                  |         |                                                     
|                                 |  |                                  | Level 1 |                                                      | Level 2 |     | Level 3 |  
|                                 |  |                                  |         |                                                      |         |     |         |   |      
|Assets:                          |  |                                  |         |                                                      |         |     |         |   |       |  |   |     | 
|Corporate debt securities        |  | $                                | 818     |                                                      | $       | 5   |         | $ | 784   |  | $ | 29  | 
|Auction rate securities          |  |                                  | 152     |                                                      |         |    |         |   |      |  |   | 152 | 
|Mortgage backed securities       |  |                                  | 881     |                                                      |         |    |         |   | 830   |  |   | 51  | 
|Government and agency securities |  |                                  | 820     |                                                      |         | 210 |         |   | 610   |  |   |    | 
|Certificates of deposit          |  |                                  | 6       |                                                      |         |    |         |   | 6     |  |   |    | 
|Other asset backed securities    |  |                                  | 369     |                                                      |         |    |         |   | 360   |  |   | 9   | 
|Marketable equity securities     |  |                                  | 12      |                                                      |         | 12  |         |   |      |  |   |    | 
|Derivative assets                |  |                                  | 560     |                                                      |         | 519 |         |   | 41    |  |   |    | 
|                                 |  |                                  |         |                                                      |         |     |         |   |       |  |   |     | 
|Total assets                     |  | $                                | 3,618   |                                                      | $       | 746 |         | $ | 2,631 |  | $ | 241 | 
|                                 |  |                                  |         |                                                      |         |     |         |   |       |  |   |     | 
|                                 |  |                                  |         |                                                      |         |     |         |   |       |  |   |     | 
|Liabilities:                     |  |                                  |         |                                                      |         |     |         |   |       |  |   |     | 
|Derivative liabilities           |  | $                                | 102     |                                                      | $       | 102 |         | $ |      |  | $ |    | 
|                                 |  |                                  |         |                                                      |         |     |         |   |       |  |   |     | 
|Total
 liabilities               |  | $                                | 102     |                                                      | $       | 102 |         | $ |      |  | $ |    | 
|                                 |  |                                  |         |                                                      |         |     |         |   |       |  |   |     | 

Level 3 Valuation Techniques

Financial assets are
considered Level 3 when their fair values are determined using pricing models,
discounted cash flow methodologies or similar techniques and at least one
significant model assumption or input is unobservable. Level 3 financial assets
also include certain investment securities for which there is limited market
activity such that the determination of fair value requires significant
judgment or estimation. Level 3 investment securities primarily include certain
corporate debt securities, auction rate securities, certain mortgage backed
securities, and certain asset backed securities for which there was a decrease
in the observability of market pricing for these investments. At October 24,
2008, these securities were valued primarily using broker pricing models that
incorporate transaction details such as contractual terms,
maturity, timing and amount of future cash flows, as well as assumptions about
liquidity and credit valuation adjustments of marketplace participants at
October 24, 2008.

13

---

The following table provides
a reconciliation of the beginning and ending balances of items measured at fair
value on a recurring basis in the table above that used significant
unobservable inputs (Level 3).

|                                                                                       |  |   |      |  
|-------------------------------------------------------------------------------------- |  | - | ---- | -
|Balance at April 26, 2008                                                              |  | $ | 448  |  
|Total realized losses and
 other-than-temporary impairment losses included in earnings |  |   | (22  | )
|Total unrealized losses
 included in other comprehensive income                        |  |   | (54  | )
|Purchases, issuances, and
 settlements                                                 |  |   | (189 | )
|Net transfers in (out) of
 Level 3                                                     |  |   | 58   |  
|                                                                                       |  |   |      |  
|Balance at October 24, 2008                                                            |  | $ | 241  |  
|                                                                                       |  |   |      |  

Realized gains or losses
included in earnings are included in interest
expense/(income), netin the consolidated statement of earnings.

Assets and Liabilities that are Measured at Fair Value on a
Nonrecurring Basis

During the three and six
months ended October 24, 2008, the Company had no significant measurements of
financial assets or liabilities at fair value on a nonrecurring basis
subsequent to their initial recognition.

The aspects of SFAS No. 157
for which the effective date was deferred under FSP No. 157-2 until fiscal year
2010 relate to nonfinancial assets and liabilities that are measured at fair
value, but are recognized or disclosed at fair value on a nonrecurring basis.
This deferral applies to such items as nonfinancial assets and liabilities
initially measured at fair value in a business combination (but not measured at
fair value in subsequent periods) or nonfinancial long-lived asset groups measured
at fair value for an impairment assessment.

Note
8  Financing Arrangements

Senior Convertible Notes

In April 2006, the Company
issued $2,200 of 1.500 percent Senior Convertible Notes due 2011 and $2,200 of
1.625 percent Senior Convertible Notes due 2013 (collectively, the Senior
Convertible Notes). The Senior Convertible Notes were issued at par and pay
interest in cash semi-annually in arrears on April 15 and October 15
of each year. The Senior Convertible Notes are unsecured unsubordinated
obligations and rank equally with all other unsecured and unsubordinated
indebtedness. The Senior Convertible Notes had an initial conversion price of
$56.14 per share. The Senior Convertible Notes may only be converted:
(i) during any calendar quarter if the closing price of the Companys
common stock reaches 140 percent of the conversion price for 20 trading days
during a specified period, or (ii) if specified distributions to holders
of the Companys common stock are made or specified corporate transactions occur,
or (iii) during the last month prior to maturity of the applicable notes.
Upon conversion, a holder would receive: (i) cash equal to the lesser of
the principal amount of the note or the conversion value and (ii) to the
extent the conversion value exceeds the principal amount of the note, shares of
the Companys common stock, cash, or a combination of common stock and cash, at
the Companys option. In addition, upon a change in control, as defined in the
applicable indentures, the holders may require the Company to purchase for cash
all or a portion of their notes for 100 percent of the principal amount of the
notes plus accrued and unpaid interest, if any, plus a number of additional
make-whole shares of the Companys common stock, as set forth in the applicable
indenture. The indentures under which the Senior Convertible Notes were issued
contain customary covenants. A total of $2,500 of the net proceeds from these
note issuances were used to repurchase common stock. As of April 2008, pursuant
to provisions in the indentures relating to the Companys increase of its
quarterly dividend to shareholders, the conversion rates for each of the Senior
Convertible Notes is now 17.8715, which correspondingly changed the conversion
price per share for each of the Senior Convertible Notes to $55.96.

Under EITF Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock (EITF No. 00-19), the notes are accounted
for similar to traditional convertible debt (that is, as a combined instrument)
because the conversion spread meets the requirements of EITF No. 00-19,
including the provisions contained in paragraphs 1232 of EITF No. 00-19.
Accordingly, the conversion spread is not separated as a derivative.

Concurrent with the issuance
of the Senior Convertible Notes, the Company purchased call options on its
common stock in private transactions. The call options allow the Company to
receive shares of the Companys common stock and/or cash from counterparties equal
to the amounts of common stock and/or cash related to the excess conversion
value that it would pay to the holders of the Senior Convertible Notes upon
conversion. These call options will terminate upon the earlier of the maturity
dates of the related Senior Convertible Notes or the
first day all of the related Senior Convertible Notes are no longer outstanding
due to conversion or otherwise. The call options, which cost an aggregate
$1,075 ($699 net of tax benefit), were recorded as a reduction of shareholders
equity.

14

---

In separate transactions,
the Company sold warrants to issue shares of the Companys common stock at an
exercise price of $76.56 per share in private transactions. Pursuant to these
transactions, warrants for 41 million shares of the Companys common stock may
be settled over a specified period beginning in July 2011 and warrants for 41
million shares of the Companys common stock may be settled over a specified
period beginning in July 2013 (the settlement dates). If the average price of
the Companys common stock during a defined period ending on or about the
respective settlement dates exceeds the exercise price of the warrants, the
warrants will be settled in shares of the Companys common stock. Proceeds
received from the issuance of the warrants totaled approximately $517 and were
recorded as an addition to shareholders equity. In April 2008, certain of the
holders requested adjustment to the exercise price of the warrants from $76.47
to $76.30 pursuant to the anti-dilution provisions of the warrants relating to
the Companys payment of dividends to common shareholders.

EITF No. 00-19 provides that
contracts are initially classified as equity if (1) the contract requires
physical settlement or net-share settlement, or (2) the contract gives the
Company a choice of net-cash settlement or settlement in its own shares
(physical settlement or net-share settlement). The settlement terms of the
Companys purchased call options and sold warrant contracts provide for net
cash settlement for the particular contract or net share settlement, depending
on the method of settlement, as discussed above, which is at the option of the
Company. Based on the guidance from EITF No. 00-19 and SFAS No. 133,
the purchased call option contracts were recorded as a reduction of equity and
the warrants were recorded as an addition to equity as of the trade date. SFAS
No. 133 states that a reporting entity shall not consider contracts to be
derivative instruments if the contract issued or held by the reporting entity
is both indexed to its own stock and classified in shareholders equity in its
statement of financial position. The Company concluded the purchased call
option contracts and the warrant contracts should be accounted for in
shareholders equity.

Senior Notes

In September 2005, the
Company issued two tranches of Senior Notes with the aggregate face value of
$1,000. The first tranche consisted of $400 of 4.375 percent Senior Notes due
2010 and the second tranche consisted of $600 of 4.750 percent Senior Notes due
2015. Each tranche was issued at a discount which resulted in an effective
interest rate of 4.433 percent and 4.760 percent for the five and ten year
Senior Notes, respectively. Interest on each series of Senior Notes is payable
semi-annually, on March 15 and September 15 of each year. The Senior Notes are
unsecured unsubordinated obligations of the Company and rank equally with all
other unsecured and unsubordinated indebtedness of the Company. The indentures
under which Senior Notes were issued contain customary covenants. The Company
used the net proceeds from the sale of the Senior Notes for repayment of a
portion of its commercial paper.

In November 2005, the
Company entered into a five year interest rate swap agreement with a notional
amount of $200. This interest rate swap agreement was designated as a fair
value hedge of the changes in fair value of a portion of the Companys
fixed-rate $400 Senior Notes due 2010. The Company pays variable interest equal
to the three-month London Interbank Offered Rate (LIBOR) minus 55 basis points
and it receives a fixed interest rate of 4.375 percent. The outstanding market
value of this swap agreement was a $9 and $8 unrealized gain at October 24,
2008 and April 25, 2008, respectively. The unrealized gain of $9 and $8 at
October 24, 2008 and April 25, 2008, respectively, is recorded in long-term debt with the offset recorded in
other assets on the condensed
consolidated balance sheets.

In June 2007, the Company
entered into an eight year interest rate swap agreement with a notional amount
of $300. This interest rate swap agreement was designated as a fair value hedge
of the changes in fair value of a portion of the Companys fixed-rate $600
Senior Notes due 2015. The Company pays variable interest equal to the
three-month LIBOR minus 90 basis points and it receives a fixed interest rate
of 4.750 percent. The outstanding market value of this swap agreement was a $32
and $27 unrealized gain at October 24, 2008 and April 25, 2008, respectively.
The unrealized gain of $32 and $27 at October 24, 2008 and April 25, 2008,
respectively, is recorded in long-term debt
with the offset recorded in other assetson
the condensed consolidated balance sheets.

Contingent Convertible Debentures

As of October 24, 2008, the Company
has $15 remaining in aggregate principle amount of 1.250 percent
Contingent Convertible Debentures, Series B due 2021 (the Debentures)
outstanding. Interest is payable semi-annually. Each Debenture is convertible
into shares of common stock at an initial conversion price of $61.81 per share;
however, the Debentures are not convertible before their final maturity unless
the closing price of our common stock reaches 110 percent of the conversion
price for 20 trading days during a consecutive 30 trading day period. Upon
conversion of the Debentures, the Company will pay holders cash equal to the
lesser of the principal amount of the Debentures or their conversion value, and
shares of the Companys common stock to the extent the conversion value exceeds
the principal amount of the Debentures. The Company may be required to
repurchase the remaining debentures at the option of the holders in September
2011 or 2016. For put options exercised by the holders of the Debentures, the
purchase price is equal to the principal amount of the applicable debenture
plus any accrued and unpaid interest thereon to the repurchase date. If the put
option is exercised, the Company will pay holders the repurchase price solely
in cash. In September 2008, as a result of certain holders of the Debentures exercising
their put options, the Company repurchased $79 of the Debentures for cash.
The Company can redeem the debentures for cash at any time.

15

---

Commercial Paper

The Company maintains a
commercial paper program that allows the Company to have a maximum of $2,250 in
commercial paper outstanding, with maturities up to 364 days from the date
of issuance. As of October 24, 2008 and April 25, 2008, outstanding commercial
paper totaled $853 and $874, respectively. During the three and six months
ended October 24, 2008, the weighted average original maturity of the
commercial paper outstanding was approximately 47 days and 40 days,
respectively, and the weighted average interest rate was 2.14 percent for both
periods. The issuance of commercial paper reduces the amount of credit
available under our existing lines of credit.

Lines of Credit

The Company has existing
unsecured lines of credit of approximately $2,802 with various banks at October
24, 2008. The existing lines of credit include a five-year $1,750 syndicated
credit facility dated December 20, 2006 that will expire on December 20,
2011 (Credit Facility). The Credit Facility provides backup funding for the
commercial paper program and may also be used for general
corporate purposes.

The Credit Facility provides
the Company with the ability to increase its capacity by an additional $500 at
any time during the life of the five-year term of the agreement. The Company
can also request the extension of the Credit Facility maturity date for one
additional year on December 20, 2008, the second anniversary of the date of
this facility.

Interest rates on these
borrowings are determined by a pricing matrix, based on the Companys long-term
debt ratings, assigned by Standard and Poors Ratings Group and Moodys
Investors Service. Facility fees are payable on the credit facilities and are
determined in the same manner as the interest rates.

On November 2, 2007, the
Company entered into a new Credit Agreement (New Credit Agreement) with the
Bank of Tokyo-Mitsubishi UFJ, Ltd. (New Lender). The New Credit Agreement
provides for a $300 unsecured revolving credit facility (New Facility) maturing
November 2, 2010. In addition to certain initial fees, the Company is obligated
to pay a commitment fee based on the total revolving commitment. Interest rates
on these borrowings are determined by a pricing matrix, based on the Companys
long-term debt ratings, assigned by Standard and Poors Ratings Group and
Moodys Investors Service. The New Credit Agreement contains customary
representations and warranties of the Company as well as affirmative covenants
regarding the Company. Upon the occurrence of an event of default as defined
under the New Credit Agreement, the New Lender could elect to declare all
amounts outstanding under the New Facility to be immediately due and payable.
As of October 24, 2008 and April 25, 2008, $0 and $300, respectively, were
outstanding on the New Facility.

Note
9  Inventories

Inventories are stated at
the lower of cost or market, with cost determined on a first-in, first-out
basis. Inventory balances are as follows:

|                 |  |                    |       |                 |   |       | 
|---------------- |  | ------------------ | ----- | --------------- | - | ----- | 
|                 |  | October
 24,
 2008 |       | April 25,
 2008 |  
|                 |  |                    |       |                 |  
|Finished
 goods  |  | $                  | 787   |                 | $ | 784   | 
|Work in
 process |  |                    | 262   |                 |   | 250   | 
|Raw
 materials   |  |                    | 299   |                 |   | 246   | 
|                 |  |                    |       |                 |   |       | 
|Total            |  | $                  | 1,348 |                 | $ | 1,280 | 
|                 |  |                    |       |                 |   |       | 

Note
10  Goodwill and Other Intangible Assets

The changes in the carrying
amount of goodwill for the six months ended October 24, 2008 are as follows:

|                                      |  |                    |       |  
|------------------------------------- |  | ------------------ | ----- | -
|                                      |  | October
 24,
 2008 |      
|                                      |  |                    |      
|Balance at April 25, 2008             |  | $                  | 7,519 |  
|Goodwill as
 a result of acquisitions |  |                    | 11    |  
|Currency
 adjustment, net             |  |                    | (15   | )
|                                      |  |                    |       |  
|Balance at October 24, 2008           |  | $                  | 7,515 |  
|                                      |  |                    |       |  

16

---

Intangible assets, excluding
goodwill, as of October 24, 2008 and April 25, 2008 are as follows:

|                               |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|------------------------------ |  | ---------------------------------- | ----- | --------------------------- | - | ----- | - | ----- | ---- | - | - | ------ | -
|                               |  | Purchased
 Technology and
 Patents |       | Trademarks
 and
 Tradenames |   | Other |   | Total |     
|                               |  |                                    |       |                             |   |       |   |       |     
|As of October 24, 2008:        |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|Amortizable
 intangible assets |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|Original cost                  |  | $                                  | 2,661 |                             | $ | 373   |   | $     | 238  |   | $ | 3,272  |  
|Accumulated amortization       |  |                                    | (713  | )                           |   | (199  | ) |       | (162 | ) |   | (1,074 | )
|                               |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|Carrying value                 |  | $                                  | 1,948 |                             | $ | 174   |   | $     | 76   |   | $ | 2,198  |  
|                               |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|                               |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|As of April 25, 2008:          |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|Amortizable
 intangible assets |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|Original cost                  |  | $                                  | 2,538 |                             | $ | 373   |   | $     | 244  |   | $ | 3,155  |  
|Accumulated amortization       |  |                                    | (616  | )                           |   | (181  | ) |       | (165 | ) |   | (962   | )
|                               |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|Carrying value                 |  | $                                  | 1,922 |                             | $ | 192   |   | $     | 79   |   | $ | 2,193  |  
|                               |  |                                    |       |                             |   |       |   |       |      |   |   |        |  

Amortization expense for the
three and six months ended October 24, 2008 was $69 and $135, respectively, and
for the three and six months ended October 26, 2007 was $44 and $87,
respectively.

Estimated aggregate
amortization expense based on the current carrying value of amortizable
intangible assets is as follows:

|                |  |                       |       | 
|--------------- |  | --------------------- | ----- | 
|Fiscal Year     |  | Amortization
 Expense |      
|                |  |                       |      
|Remaining
 2009 |  | $                     | 131   | 
|2010            |  |                       | 266   | 
|2011            |  |                       | 257   | 
|2012            |  |                       | 230   | 
|2013            |  |                       | 215   | 
|Thereafter      |  |                       | 1,099 | 
|                |  |                       |       | 
|                |  | $                     | 2,198 | 
|                |  |                       |       | 

Note
11  Warranty Obligation

The Company offers a
warranty on various products. 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. Factors that affect the Companys
warranty liability include the number of units sold, historical and anticipated
rates of warranty claims and cost per claim. The Company periodically assesses
the adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary. The amount of the reserve recorded is equal to the costs to repair
or otherwise satisfy the claim.

Changes in the Companys
product warranties during the six months ended October 24, 2008 and October 26,
2007 consist of the following:

|                                       |  |                    |     |                     |   |     |  
|-------------------------------------- |  | ------------------ | --- | ------------------- | - | --- | -
|                                       |  | Six months
 ended  |    
|                                       |  |                    |    
|                                       |  | October
 24,
 2008 |     | October
 26, 
 2007 |  
|                                       |  |                    |     |                     |  
|Balance at the beginning of the period |  | $                  | 43  |                     | $ | 34  |  
|Warranty claims provision              |  |                    | 12  |                     |   | 16  |  
|Settlements made                       |  |                    | (16 | )                   |   | (11 | )
|                                       |  |                    |     |                     |   |     |  
|Balance at the end of the period       |  | $                  | 39  |                     | $ | 39  |  
|                                       |  |                    |     |                     |   |     |  

17

---

Note
12  Interest Expense/(Income), net

Interest income and interest
expense for the three and six months ended October 24, 2008 and October 26,
2007 are as follows:

|                                |  |                     |     |                   |   |                   |   |                   |     |   |   |      |  
|------------------------------- |  | ------------------- | --- | ----------------- | - | ----------------- | - | ----------------- | --- | - | - | ---- | -
|                                |  | Three
 months ended |     | Six months
 ended |  
|                                |  |                     |     |                   |  
|                               
|                                |  | October
 24, 2008   |     | October
 26, 2007 |   | October
 24, 2008 |   | October
 26, 2007 |    
|                                |  |                     |     |                   |   |                   |   |                   |    
|Interest
 income                |  | $                   | (42 | )                 | $ | (125              | ) | $                 | (94 | ) | $ | (223 | )
|Interest
 expense               |  |                     | 52  |                   |   | 64                |   |                   | 113 |   |   | 118  |  
|                                |  |                     |     |                   |   |                   |   |                   |     |   |   |      |  
|Interest
 expense/(income), net |  | $                   | 10  |                   | $ | (61               | ) | $                 | 19  |   | $ | (105 | )
|                                |  |                     |     |                   |   |                   |   |                   |     |   |   |      |  

Interest income includes
interest earned on the Companys cash and cash equivalents, short- and
long-term investments and the net realized gain or loss on the sale or impairment of AFS
debt securities.

Interest expense includes the
expense associated with the interest that the Company pays on its outstanding
borrowings, including short- and long-term instruments, and the amortization of
debt issuance costs.

Note
13  Income Taxes

During the three and six
months ended October 24, 2008, the Company recorded a $16 tax benefit
associated with the retroactive renewal and extension of the research and
development credit enacted by the Tax Extenders and Alternative Minimum Tax
Relief Act of 2008. The $16 tax benefit relates to the first seven months of calendar year 2008 and is recorded
in provision for income taxeson
the condensed consolidated statements of earnings.

As of October 24, 2008, the
Company had $471 of gross unrecognized tax benefits and accrued interest and
penalties of $145. If all of the Companys unrecognized tax benefits were
recognized, approximately $388 would impact the Companys effective tax rate.
The Company expects to receive the U.S. Internal Revenue Service (IRS) field
audit report for fiscal years 2005 and 2006 within the next twelve months.
However, based on the status of the IRS field audit, the Company cannot
reasonably estimate the potential changes to its unrecognized tax benefits. The
Company continues to record the liability for unrecognized tax benefits as a
long-term liability as it does not expect significant payments to occur or the
total amount of unrecognized tax benefits to change significantly over the next
twelve months. The Company will continue to recognize interest and penalties
related to income tax matters in the provision
for income taxes in the condensed consolidated statement of earnings
and record the liability in the current or long-term accrued income taxes, as appropriate.

Tax audits associated with
the allocation of income, and other complex issues, may require an extended
period of time to resolve and may result in income tax adjustments if changes
to the Companys allocation are required between jurisdictions with different
tax rates. Tax authorities periodically review the Companys tax returns and
propose adjustments to the Companys tax filings. The IRS has settled its
audits with the Company for all years through fiscal year 1996. Tax years
settled with the IRS may remain open for foreign tax audits and competent
authority proceedings. Competent authority proceedings are a means to resolve
intercompany pricing disagreements between countries.

In August 2003, the IRS
proposed adjustments arising out of its audit of the fiscal years 1997, 1998
and 1999 tax returns. The Company initiated a defense of these adjustments at
the IRS appellate level, and in the second quarter of fiscal year 2006 the
Company reached settlement on most, but not all matters. The remaining issue
relates to the allocation of income between Medtronic, Inc., and its wholly
owned subsidiary in Switzerland. On April 16, 2008, the IRS issued a statutory
notice of deficiency with respect to this remaining issue. The Company filed a
Petition with the U.S. Tax Court on July 14, 2008 objecting to the deficiency
and intends to defend its position vigorously.

In September 2005, the IRS
issued its audit report for fiscal years 2000, 2001 and 2002. In addition, the
IRS issued its audit report for fiscal years 2003 and 2004 in March 2007. The
Company has reached agreement with the IRS on substantially all of the proposed
adjustments for fiscal years 2000 through 2004. The only item of significance
that remains open for these years relates to the carryover impact of the
allocation of income issue proposed for fiscal years 1997 through 1999.

18

---

The unresolved
issue from the 1997 through 2004 tax audits, as well as tax positions taken by
the IRS or foreign tax authorities during future tax audits, could have a
material unfavorable impact on the Companys effective tax rate in future
periods. The Company continues to believe that it has meritorious defenses for
its tax filings and will vigorously defend them through litigation in the
courts, as necessary.

Note 14  Earnings Per Share

Basic earnings
per share is computed based on the weighted average number of common shares
outstanding. Diluted earnings per share is computed based on the weighted
average number of common shares outstanding increased by the number of
additional shares that would have been outstanding had the potentially dilutive
common shares been issued and reduced by the number of shares the Company could
have repurchased from the proceeds from issuance of the potentially dilutive
shares. Potentially dilutive shares of common stock include stock options and
other stock-based awards granted under stock-based compensation plans and
shares committed to be purchased under the employee stock purchase plan.

Presented
below is a reconciliation between basic and diluted earnings per share:

|                                               |  |                     |         |                   |   |                  |  |                  |         |  |   |         | 
|---------------------------------------------- |  | ------------------- | ------- | ----------------- | - | ---------------- |  | ---------------- | ------- |  | - | ------- | 
|                                               |  | Three
 months ended |         | Six months
 ended |  
|                                               |  |                     |         |                   |  
|(shares in millions)                           |  | October
 24,2008    |         | October
 26,2007  |   | October
 24,2008 |  | October
 26,2007 |        
|                                               |  |                     |         |                   |   |                  |  |                  |        
|Numerator:                                     |  |                     |         |                   |   |                  |  |                  |         |  |   |         | 
|Net earnings                                   |  | $                   | 571     |                   | $ | 666              |  | $                | 1,318   |  | $ | 1,341   | 
|Denominator:                                   |  |                     |         |                   |   |                  |  |                  |         |  |   |         | 
|Basic 
 weighted average shares outstanding   |  |                     | 1,120.4 |                   |   | 1,133.1          |  |                  | 1,120.5 |  |   | 1,136.1 | 
|Effect of
 dilutive securities:                |  |                     |         |                   |   |                  |  |                  |         |  |   |         | 
|Employee
 stock options                        |  |                     | 4.3     |                   |   | 12.0             |  |                  | 4.6     |  |   | 12.0    | 
|Other                                          |  |                     | 3.8     |                   |   | 2.6              |  |                  | 3.5     |  |   | 2.5     | 
|                                               |  |                     |         |                   |   |                  |  |                  |         |  |   |         | 
|Diluted 
 weighted average shares outstanding |  |                     | 1,128.5 |                   |   | 1,147.7          |  |                  | 1,128.6 |  |   | 1,150.6 | 
|                                               |  |                     |         |                   |   |                  |  |                  |         |  |   |         | 
|                                               |  |                     |         |                   |   |                  |  |                  |         |  |   |         | 
|Basic
 earnings per share                      |  | $                   | 0.51    |                   | $ | 0.59             |  | $                | 1.18    |  | $ | 1.18    | 
|Diluted
 earnings per share                    |  | $                   | 0.51    |                   | $ | 0.58             |  | $                | 1.17    |  | $ | 1.17    | 

The
calculation of weighted average diluted shares outstanding excludes options for
approximately 22 million common shares for both the three and six months
ended October 24, 2008, and approximately 13 million for both the three and six
months ended October 26, 2007, as the exercise price of those options was greater
than the average market price for the period, resulting in an anti-dilutive
effect on diluted earnings per share. For the three and six months ended
October 24, 2008 and October 26, 2007, common share equivalents related to the
Companys $4,400 of Senior Convertible Notes were anti-dilutive as the market
price of the Companys stock was below the conversion price of the Senior
Convertible Notes and, therefore, were excluded from the calculation of
weighted average diluted shares.

Note 15  Comprehensive Income and Accumulated Other Comprehensive
Income/(Loss)

In addition to
net earnings, comprehensive income includes changes in foreign currency
translation adjustments (including the change in current exchange rates, or
spot rates, of net investment hedges), unrealized gains and losses on foreign
exchange derivative contracts qualifying and designated as cash flow hedges, net changes in retirement obligations, and unrealized gains and losses on AFS
marketable securities. Comprehensive income for the three months ended October
24, 2008 and October 26, 2007 was $823 and $624, respectively.
Comprehensive income for the six months ended October 24, 2008 and October 26,
2007 was $1,648 and $1,273, respectively.

Presented
below is a summary of activity for each component of accumulated other comprehensive income/(loss):

|                         |  |                                   |      |                                         |   |                                           |   |                                                               |      |                                                    |   |      |   |   |      |  
|------------------------ |  | --------------------------------- | ---- | --------------------------------------- | - | ----------------------------------------- | - | ------------------------------------------------------------- | ---- | -------------------------------------------------- | - | ---- | - | - | ---- | -
|                         |  | Unrealized
 Loss 
 on Investments |      | Cumulative
 
 Translation 
 Adjustments |   | Net Change
 in 
 Retirement 
 Obligations |   | Unrealized
 
 Gain/(Loss) on 
 Foreign Exchange 
 Derivatives |      | Accumulated
 Other 
 Comprehensive 
 Income/(Loss) |  
|                         |  |                                   |      |                                         |   |                                           |   |                                                               |      |                                                    |  
|Balance April 25, 2008   |  | $                                 | (41  | )                                       | $ | 209                                       |   | $                                                             | (189 | )                                                  | $ | (266 | ) | $ | (286 | )
|Period
 Change           |  |                                   | (9   | )                                       |   | 2                                         |   |                                                               | 1    |                                                    |   | 85   |   |   | 78   |  
|                         |  |                                   |      |                                         |   |                                           |   |                                                               |      |                                                    |   |      |   |   |      |  
|Balance July 25, 2008    |  | $                                 | (50  | )                                       | $ | 211                                       |   | $                                                             | (188 | )                                                  | $ | (181 | ) | $ | (208 | )
|Period
 Change           |  |                                   | (51  | )                                       |   | (134                                      | ) |                                                               | 14   |                                                    |   | 423  |   |   | 252  |  
|                         |  |                                   |      |                                         |   |                                           |   |                                                               |      |                                                    |   |      |   |   |      |  
|Balance October 24, 2008 |  | $                                 | (101 | )                                       | $ | 77                                        |   | $                                                             | (174 | )                                                  | $ | 242  |   | $ | 44   |  
|                         |  |                                   |      |                                         |   |                                           |   |                                                               |      |                                                    |   |      |   |   |      |  

19

---

Translation
adjustments are not adjusted for income taxes as substantially all translation
adjustments relate to permanent investments in non-U.S. subsidiaries. The tax
expense on the unrealized gain on foreign exchange derivatives for the three
and six months ended October 24, 2008 was $276 and $329, respectively. The tax
benefit on the unrealized loss on investments for the three and six months
ended October 24, 2008 was $25 and $35, respectively. The tax benefit on the
net change in retirement obligations was not material for the three and six
months ended October 24, 2008.

Note 16  Stock-Based Compensation

In fiscal year
2007, the Company adopted FASB SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)) which replaced SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123) and superseded Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Under
the fair value recognition provisions of SFAS No. 123(R), the Company measures
stock-based compensation cost at the grant date based on the fair value of the
award and recognizes the compensation expense over the requisite service
period, which is generally the vesting period. The Company elected the
modified-prospective method of adopting SFAS No. 123(R), under which prior
periods were not retroactively restated. The provisions of SFAS No. 123(R)
apply to awards granted after the April 29, 2006 effective date. Stock-based
compensation expense for the non-vested portion of awards granted prior to the
effective date is being recognized over the remaining service period using the
fair-value based compensation cost estimated for SFAS No. 123 pro forma
disclosures.

The following
table presents the components and classification of stock-based compensation
expense recognized for the three and six months ended October 24, 2008 and October
26, 2007:

|                                             |  |                     |    |                     |   |                    |  |                     |     |  |   |    | 
|-------------------------------------------- |  | ------------------- | -- | ------------------- | - | ------------------ |  | ------------------- | --- |  | - | -- | 
|                                             |  | Three
 months ended |    | Six months
 ended   |  
|                                             |  |                     |    |                     |  
|                                             |  | October
 24,
 2008  |    | October
 26, 
 2007 |   | October
 24,
 2008 |  | October
 26, 
 2007 |    
|                                             |  |                     |    |                     |   |                    |  |                     |    
|Stock
 options                               |  | $                   | 33 |                     | $ | 28                 |  | $                   | 66  |  | $ | 58 | 
|Restricted
 stock awards                     |  |                     | 17 |                     |   | 13                 |  |                     | 34  |  |   | 26 | 
|Employee
 stock purchase plan                |  |                     | 3  |                     |   | 3                  |  |                     | 8   |  |   | 8  | 
|                                             |  |                     |    |                     |   |                    |  |                     |     |  |   |    | 
|Total
 stock-based compensation expense      |  | $                   | 53 |                     | $ | 44                 |  | $                   | 108 |  | $ | 92 | 
|                                             |  |                     |    |                     |   |                    |  |                     |     |  |   |    | 
|                                             |  |                     |    |                     |   |                    |  |                     |     |  |   |    | 
|Cost of
 products sold                       |  | $                   | 6  |                     | $ | 5                  |  | $                   | 13  |  | $ | 11 | 
|Research and
 development expense            |  |                     | 13 |                     |   | 11                 |  |                     | 26  |  |   | 23 | 
|Selling,
 general and administrative expense |  |                     | 34 |                     |   | 28                 |  |                     | 69  |  |   | 58 | 
|                                             |  |                     |    |                     |   |                    |  |                     |     |  |   |    | 
|Total
 stock-based compensation expense      |  | $                   | 53 |                     | $ | 44                 |  | $                   | 108 |  | $ | 92 | 
|                                             |  |                     |    |                     |   |                    |  |                     |     |  |   |    | 

In connection
with the acquisition of Kyphon on November 2, 2007, the Company assumed
Kyphons unvested stock-based awards. These awards are amortized over 2.5
years, which was their remaining weighted average vesting period at the time of
acquisition. For the three and six months ended October 24, 2008, the Company
recognized $5 and $12, respectively, of stock-based compensation expense
associated with the assumed Kyphon awards. See Note 3 for further discussion of
the Kyphon acquisition.

Note 17  Retirement Benefit Plans

The Company
sponsors various retirement benefit plans, including defined benefit pension
plans (pension benefits), post-retirement medical plans (post-retirement
benefits), defined contribution savings plans and termination indemnity plans,
covering substantially all U.S. employees and many employees outside the U.S.
The net periodic benefit cost of the pension and post-retirement medical plans
include the following components for the three and six months ended October 24,
2008 and October 26, 2007:

20

---

|                                |  |                        |     |                            |   |                           |   |                  |    |                  |   |                  |   |   |    |   |   |    |  
|------------------------------- |  | ---------------------- | --- | -------------------------- | - | ------------------------- | - | ---------------- | -- | ---------------- | - | ---------------- | - | - | -- | - | - | -- | -
|                                |  | U.S.
 Pension Benefits |     | Non-U.S.
 Pension Benefits |   | Post-Retirement
 Benefits |  
|                                |  |                        |     |                            |   |                           |  
|                                |  | Three
 months ended    |     | Three
 months ended        |   | Three
 months ended       |  
|                                |  |                        |     |                            |   |                           |  
|                                |  | October
 24,2008       |     | October
 26,2007           |   | October
 24,2008          |   | October
 26,2007 |    | October
 24,2008 |   | October
 26,2007 |  
|                                |  |                        |     |                            |   |                           |   |                  |    |                  |   |                  |  
|Service cost                    |  | $                      | 18  |                            | $ | 18                        |   | $                | 8  |                  | $ | 7                |   | $ | 4  |   | $ | 4  |  
|Interest
 cost                  |  |                        | 15  |                            |   | 13                        |   |                  | 6  |                  |   | 4                |   |   | 3  |   |   | 3  |  
|Expected
 return on plan assets |  |                        | (25 | )                          |   | (21                       | ) |                  | (6 | )                |   | (4               | ) |   | (3 | ) |   | (3 | )
|Recognized
 actuarial loss      |  |                        | 1   |                            |   | 3                         |   |                  |   |                  |   |                 |   |   |   |   |   |   |  
|                                |  |                        |     |                            |   |                           |   |                  |    |                  |   |                  |   |   |    |   |   |    |  
|Net periodic
 benefit cost      |  |                        | 9   |                            |   | 13                        |   |                  | 8  |                  |   | 7                |   |   | 4  |   |   | 4  |  
|Special
 termination benefits   |  |                        |    |                            |   |                          |   |                  |   |                  |   |                 |   |   |   |   |   |   |  
|                                |  |                        |     |                            |   |                           |   |                  |    |                  |   |                  |   |   |    |   |   |    |  
|Total cost
 for period          |  | $                      | 9   |                            | $ | 13                        |   | $                | 8  |                  | $ | 7                |   | $ | 4  |   | $ | 4  |  
|                                |  |                        |     |                            |   |                           |   |                  |    |                  |   |                  |   |   |    |   |   |    |  

|                                |  |                        |     |                            |   |                           |   |                     |     |                   |   |                     |   |   |    |   |   |    |  
|------------------------------- |  | ---------------------- | --- | -------------------------- | - | ------------------------- | - | ------------------- | --- | ----------------- | - | ------------------- | - | - | -- | - | - | -- | -
|                                |  | U.S.
 Pension Benefits |     | Non-U.S.
 Pension Benefits |   | Post-Retirement
 Benefits |  
|                                |  |                        |     |                            |   |                           |  
|                                |  | Six months
 ended      |     | Six months
 ended          |   | Six months
 ended         |  
|                                |  |                        |     |                            |   |                           |  
|                                |  | October
 24,
 2008     |     | October
 26, 
 2007        |   | October
 24,
 2008        |   | October
 26, 
 2007 |     | October 24,
 2008 |   | October
 26, 
 2007 |  
|                                |  |                        |     |                            |   |                           |   |                     |     |                   |   |                     |  
|Service cost                    |  | $                      | 36  |                            | $ | 36                        |   | $                   | 16  |                   | $ | 15                  |   | $ | 8  |   | $ | 8  |  
|Interest
 cost                  |  |                        | 30  |                            |   | 26                        |   |                     | 12  |                   |   | 8                   |   |   | 6  |   |   | 6  |  
|Expected
 return on plan assets |  |                        | (49 | )                          |   | (42                       | ) |                     | (12 | )                 |   | (9                  | ) |   | (6 | ) |   | (6 | )
|Recognized
 actuarial loss      |  |                        | 2   |                            |   | 6                         |   |                     |    |                   |   | 1                   |   |   |   |   |   | 1  |  
|                                |  |                        |     |                            |   |                           |   |                     |     |                   |   |                     |   |   |    |   |   |    |  
|Net periodic
 benefit cost      |  |                        | 19  |                            |   | 26                        |   |                     | 16  |                   |   | 15                  |   |   | 8  |   |   | 9  |  
|Special
 termination benefits   |  |                        |    |                            |   | 3                         |   |                     |    |                   |   |                    |   |   |   |   |   | 1  |  
|                                |  |                        |     |                            |   |                           |   |                     |     |                   |   |                     |   |   |    |   |   |    |  
|Total cost
 for period          |  | $                      | 19  |                            | $ | 29                        |   | $                   | 16  |                   | $ | 15                  |   | $ | 8  |   | $ | 10 |  
|                                |  |                        |     |                            |   |                           |   |                     |     |                   |   |                     |   |   |    |   |   |    |  

As a result of
the fiscal year 2007 restructuring initiative that began in the fourth quarter
of fiscal year 2007, the Company has recognized special termination benefits in
the six months ended October 26, 2007 related to employees electing to accept
early retirement packages provided under the restructuring initiatives. The
incremental expense from these special termination benefits is reflected in the
table above.

Note 18  Contingencies

The Company is
involved in a number of legal actions. The outcomes of these legal actions are
not within the Companys 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. In accordance with SFAS No. 5, Accounting for Contingencies (SFAS
No. 5), the Company records a liability in the consolidated financial statements
for these actions when a loss is known or considered probable and the amount
can be reasonably estimated. If the reasonable estimate of a known or probable
loss is a range, and no amount within the range is a better estimate than any
other, the minimum amount of the range is accrued. If a loss is possible but
not known or probable, and can be reasonably estimated, the estimated loss or
range of loss is disclosed. In most cases, significant judgment is required to
estimate the amount and timing of a loss to be recorded. While it is not
possible to predict the outcome for most of the matters discussed, the Company
believes it is possible that costs associated with them could have a material
adverse impact on the Companys consolidated earnings, financial position or
cash flows on any one interim or annual period. With the exception of Cordis,
Fastenetix and some of the Marquis matters discussed below, negative outcomes
for the balance of the litigation matters are not considered probable or cannot
be reasonably estimated.

Litigation with Cordis Corporation

On October 6,
1997, Cordis Corporation (Cordis), a subsidiary of J&J, filed suit in U.S.
District Court for the District of Delaware against Arterial Vascular
Engineering, Inc., which Medtronic acquired in January 1999 and which is now
known as Medtronic Vascular, Inc. (Medtronic Vascular). The suit alleged that
Medtronic Vasculars previously marketed stents infringe certain patents owned
by Cordis. Boston Scientific Corporation is also a defendant in this suit. On
December 22, 2000, a jury rendered a verdict that Medtronic Vasculars
previously marketed MicroStent and GFX stents infringed valid claims of two
Cordis patents and awarded damages to Cordis totaling approximately $270. On
March 28, 2002, the District Court entered an order in favor of Medtronic
Vascular, deciding as a matter of law that Medtronic Vasculars MicroStent and
GFX stents did not infringe the patents. Cordis appealed, and on August 12,
2003, the U.S. Court of Appeals for the Federal Circuit reversed the District
Courts decision and remanded the case to the District Court for further
proceedings. The District Court thereafter issued a new patent claim
construction and a new trial was held in March 2005. On March 14, 2005, the jury
found that the previously marketed MicroStent and GFX stent products infringed
valid claims of Cordis patents. On March 27, 2006, the District Court denied
post-trial motions filed by the parties, including Cordis motion to reinstate
the previous damages award. On April 26, 2006, Medtronic filed its Notice of
Appeal of the judgment of infringement. On January 7, 2008, the U.S. Court of
Appeals for the Federal Circuit upheld the District Courts judgment of
infringement. On September 15, 2008, the District Court granted Cordiss
motion for final judgment against Medtronic Vascular, reinstating the jury
verdict from December 2000, including accrued interest. On September 30, 2008,
the District Court entered judgment in favor of Cordis in the amount of $521,
which included interest. On October 15, 2008, Medtronic and Cordis settled this
matter through the combination of a payment of $472 to Cordis and settlement of
certain other disputes between the companies. In accordance with SFAS No. 5,
Medtronic recorded a $243 charge in the third quarter of fiscal year 2008 and a
$229 charge in the second quarter of fiscal year 2009 relating to this matter.
See Note 4 for further discussion regarding the settlement agreement.

21

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Litigation with Wyeth and Cordis Corporation

On February
22, 2008, Wyeth and Cordis filed a lawsuit against the Company and its
subsidiary, Medtronic AVE, Inc., in U.S. District Court for the District of New
Jersey, alleging that Medtronics Endeavor drug eluting stent infringes three
U.S. Morris patents alleged to be owned by Wyeth and exclusively licensed to
Cordis. On May 15, 2008, the District Court stayed the lawsuit filed by Wyeth
and Cordis pending the result of a then pending arbitration between Cordis and
Medtronic which include the three Morris patents. In October 2008, the parties
reached an agreement to settle the arbitration, in which Medtronic received a
license to certain Cordis patents, and, on October 27, 2008, in accordance with
the agreement, the District Court lifted the stay, allowing the litigation
regarding the Morris patents to proceed. The Company believes it is indemnified
for the claims made by Wyeth and Cordis. The Company has not recorded an
expense related to damages in connection with these matters because any
potential loss is not currently probable or reasonably estimable under SFAS No.
5.

Litigation with Johnson & Johnson and
Cordis Corporation

On February
20, 2006, an arbitration panel issued a final, non-appealable award concluding
that Medtronic Vasculars S670, S660, S540, S7 and Driver stents, which were
formerly the subject of a patent infringement dispute between J&J and
Cordis and Medtronic Vascular, are licensed under a 1997 agreement between the
two companies and subject to a covenant not to sue contained within a 1998
amendment to the 1997 agreement. Cordis since initiated six arbitration
proceedings against Medtronic Vascular alleging that certain of the products
infringe certain patents of J&J and Cordis, and is seeking royalties for
such infringement, if any. The first arbitration proceeding, currently
scheduled for March 30, 2009, will determine whether multiple Medtronic stent
products are infringing a single Cordis patent. Each of the remaining five
arbitrations, however, as required under the 1997 agreement, will only address
whether a single Medtronic stent product infringes another group of Cordis
patents. The first of the remaining five arbitrations is scheduled to be heard in June 2009, but dates have not been set for hearings for the remaining arbitrations.
The Company has not recorded an expense related to damages in this matter
because any potential loss is not currently probable or reasonably estimable
under SFAS No. 5.

Litigation with Abbott Cardiovascular Systems
Inc.

On December
24, 1997, Abbott Cardiovascular Systems Inc. (ACS), a subsidiary of Abbott
Laboratories, sued Medtronic Vascular in U.S. District Court for the Northern
District of California alleging that certain models of Medtronic Vasculars
bare metal stents infringe the Lau stent patents held by ACS, and seeking
injunctive relief and monetary damages. Medtronic Vascular denies infringement.
In February 2005, following trial in Delaware federal district court, a jury
determined that the ACS Lau stent patents were valid and that Medtronics
Driver, GFX, MicroStent, S540, S660, S670, Bestent2 and S7 stents (the bare
metal stents) infringe those patents. Medtronic Vascular made numerous
post-trial motions challenging the jurys verdict of infringement and validity.
In August 2005, the Court issued an order continuing a stay of any further
proceedings on the questions of damages or willful infringement.

On March 30,
2007, the District Court denied Medtronics post-trial motions, and on April
24, 2007, the District Court ruled that the patents were enforceable. In May
2007, the District Court entered judgment in favor of ACS and against Medtronic
Vascular on the issues of validity, infringement and enforceability of the Lau
patents. On May 18, 2007, the District Court confirmed that a trial on issues
of damages or willful infringement would be deferred pending the U.S. Court of
Appeals for the Federal Circuit review of the liability issues concerning
alleged infringement, invalidity and inequitable conduct.

ACS filed a
motion for injunction in the District Court on June 29, 2007 on both the bare
metal stents and the Endeavor drug eluting stent, which had never previously
been named as an accused product in the lawsuit. On July 6, 2007, Medtronic
filed its motion to stay ACSs June 29, 2007 motion for a permanent injunction
pending arbitration under a 2002 agreement with Abbott providing Medtronic with
a license that Medtronic asserted precluded the ACS injunction motion.

On August 6,
2007, the Delaware District Court granted Medtronics July 6, 2007 motion to
stay, in part, permitting arbitration to proceed on Medtronics assertion that
it has a license to practice the U.S. Lau patents in its Endeavor stent. On
February 26, 2008, an arbitrator concluded that the Company was not licensed to
practice the U.S. Lau patents in its Endeavor stent and ACS filed a sealed
motion with the District Court seeking to lift the July 6, 2007 stay of
proceedings on ACSs motion for an injunction as to Endeavor. On September 29,
2008, the Delaware District Court granted ACSs motion to lift the stay of
proceedings with regard to Endeavor and then denied ACSs motion
for a permanent injunction with respect to both Driver and Endeavor. On October
2, 2008, Medtronic filed its Notice of Appeal to the United States Court of
Appeals for the Federal Circuit with respect to the May 2007 judgment in favor
of ACS, and all other adverse rulings to Medtronic. On October 15, 2008, ACS
appealed from the District Courts September 29, 2008 order denying ACSs
request for a permanent injunction.

22

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On June 18,
2008, Abbott initiated legal proceedings in the Netherlands against Medtronic
BV, Medtronic Trading NL BV and BV Medtronic FSC asserting that certain of
Medtronics Driver, Endeavor and Endeavor Resolute large vessel diameter stents
infringe an Abbott European Lau patent issued on June 18, 2008. A hearing took
place on August 7, 2008 in the Netherlands district court in The Hague to
consider Abbotts request for a preliminary injunction against infringement in
the Netherlands. On August 28, 2008, the court granted Abbott a
preliminary injunction against Medtronic prohibiting Medtronic from
making, selling and distributing certain large vessel diameter Medtronic stents
in the Netherlands. The affected stents are Medtronics large vessel stents,
4.0mm and larger and one stent sized 3.5mm by 9mm. The injunction does not
apply outside of the Netherlands, and Medtronic has alternative means in place
for distribution of the affected stents outside of the Netherlands while the
preliminary injunction remains in effect. Medtronic has appealed the
preliminary decision and will also challenge this preliminary ruling
at a full trial on the merits of Abbotts claims currently scheduled for
February 6, 2009. The European Lau patent remains subject to challenges to the
patents validity in opposition proceedings in the European patent office as
well as in the proceedings in court in the Netherlands. Abbott has filed
similar lawsuits against Medtronics large vessel bare metal stents in France,
Germany and Japan. In the German proceeding, a trial date is set for August
2009. Hearing dates are not yet scheduled in France and Japan.

In response to
Medtronics Request for Reexamination for each of the four Lau patents, in
December 2006, the USPTO issued an initial office action finding that the
claims which Medtronic products were previously found to have infringed were
not patentable. The USPTO granted a second petition to reexamine each of the
four Lau patents in 2007. On June 30, 2008, the USPTO determined for a second time
that all of the claims of the earliest Lau patent (US 5,514,154) that Medtronic
was found to infringe were invalid. After granting a third petition to
reexamine two of the other four Lau patents (US 6,066,167 and 6,066,168) in
2008, on September 30, 2008, the USPTO again determined that all claims of
those two Lau patents that Medtronic was found to have infringed were invalid.
Finally, with respect to the fourth and latest issued Lau patent (US
6,432,133), on March 3, 2008, the USPTO again determined that all claims of
this Lau patent that Medtronic was found to infringe were invalid with the
exception of a single claim. This latest issued Lau patent is involved in a
reexamination proceeding, which allows Medtronic to participate in the USPTO
proceedings. Responses to the USPTOs rejection of the claims of this patent
were filed by both parties in October 2008. The patent holder will have an
opportunity to challenge the USPTOs determinations in further proceedings in
the reexaminations. Until these reexaminations are concluded, their potential
impact upon the claims relating to the Lau patents in the above proceeding
remains unknown.

The Company
has not recorded an expense related to damages in this matter because any
potential loss is not currently probable or reasonably estimable under SFAS No.
5.

Litigation with DePuy Spine

On January 26,
2001, DePuy Spine (formerly DePuy/AcroMed), a subsidiary of J&J, and
Biedermann Motech GmbH (collectively, DePuy) filed suit in U.S. District Court
for the District of Massachusetts alleging that Medtronics subsidiary,
Medtronic Sofamor Danek USA, Inc. (MSD), was infringing a patent relating to a
design for a thoracolumbar multi-axial screw (MAS). DePuy subsequently
supplemented its allegations to claim that MSDs M10, M8 and Vertex screws
infringe the patent. On April 17, 2003 and February 26, 2004, the District
Court ruled on summary judgment that the M10, M8 and Vertex screws do not
infringe. On October 1, 2004, a jury found that MAS screws, which MSD no longer
sells in the U.S., infringe under the doctrine of equivalents. The jury awarded
damages of $21 and on February 9, 2005, the Court entered judgment against MSD,
including prejudgment interest, in the aggregate amount of $24. In the third
quarter of fiscal year 2005, the Company recorded an expense equal to the $24
judgment in the matter. DePuy appealed the Courts decisions that the M10, M8
and Vertex screws do not infringe, and MSD appealed the jurys verdict that the
MAS screws infringe valid claims of the patent. On November 20, 2006, the U.S.
Court of Appeals for the Federal Circuit affirmed the decision of the District
Court that the M10 and M8 screws do not infringe, affirmed the jurys verdict
and damage award on the MAS screws, affirmed the decision that the Vertex
screws do not literally infringe, but remanded the case, ruling that there is a
triable issue of fact as to whether the Vertex screws infringe under the
doctrine of equivalents. On remand, DePuy further supplemented its allegations
to claim that an additional product, the Vertex Max screws, also infringe. On
March 20, 2007, the District Court declined to stay execution of the judgment
relating to the MAS product. On March 30, 2007, the judgment plus accrued
interest was paid under protest. On May 30, 2007, the USPTO ordered
reexamination of the patent and on March 5, 2008, confirmed the patentability
of the claims in the patent. On September 27, 2007, a jury found that the
Vertex and Vertex Max screws infringe under the doctrine of equivalents and
awarded $226 in damages to DePuy, and the District Court entered judgment
against Medtronic on December 12, 2007. Thereafter, the District Court ruled on
all post-trial motions, increasing the award to DePuy to an estimated amount of
$272. The District Court also granted a permanent injunction against Medtronic
that prohibits Medtronic from making, using and selling Vertex and Vertex Max
polyaxial screws in the U.S.; however, Medtronics recently-introduced Vertex
Select multi-axial screw is not affected by the injunction. Medtronic has
appealed to the U. S.
Court of Appeals for the Federal Circuit. DePuy has cross-appealed. Oral arguments have been set for January 5, 2009. The Company believes that an unfavorable outcome in this
matter is not probable. Accordingly, the Company has not recorded any
additional expense related to damages in this matter because any potential loss
is not currently probable under SFAS No. 5.

23

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Litigation with Cross Medical Products, Inc.

On May 2,
2003, Cross Medical Products, Inc. (Cross) sued MSD in the U.S. District Court
for the Central District of California. The suit alleges that MSDs CD Horizon,
Vertex and Crosslink products infringe certain patents owned by Cross. MSD has
countered that Cross cervical plate products infringe certain patents of MSD,
and Cross has filed a reply alleging that certain MSD cervical plate products
infringe certain patents of Cross. On May 19, 2004, the Court found that the
MAS, Vertex, M8, M10, CD Horizon Sextant and CD Horizon Legacy screw products
infringe one Cross patent. A hearing on the validity of that patent was held on
July 12, 2004, after which the District Court ruled that the patents were
valid. Cross made a motion for permanent injunction on the multi-axial screw
products, which the District Court granted on September 20, 2004, but stayed
the effect of the injunction until January 3, 2005. MSD requested an expedited
appeal of the ruling and the U.S. Court of Appeals for the Federal Circuit
granted the request. On September 30, 2005, the Federal Circuit vacated the
injunction, modified the trial courts claim construction rulings, and remanded
the matter for trial in the District Court. The Federal Circuit awarded costs
to Medtronic on the appeal. In April 2005, the District Court ruled invalid certain
claims in the patents Cross asserted against MSDs Crosslink and cervical plate
products. The Court also ruled that Cross cervical plate products infringe
MSDs valid patents and that MSDs redesigned pedicle screw products infringe
one claim of one of the patents owned by Cross. Cross thereafter moved for an
injunction against the redesigned screw products, which the District Court
granted on May 24, 2005. The District Court then stayed the effectiveness of
the injunction until August 22, 2005. On July 27, 2005, the U.S. Court of
Appeals for the Federal Circuit granted MSDs motion to stay the District
Courts injunction pending a full hearing on the appeal. On March 20, 2007, the
Federal Circuit ruled that MSDs current multi-axial screw products do not
infringe any claim of Cross patent and vacated the District Courts
injunction, which had already been stayed. On February 28, 2008, the U.S.
District Court for the Central District of California found that the remaining
patent claims asserted against MSDs polyaxial screws are invalid. The trial
scheduled for April 29, 2008, has been vacated, and a new trial date on
remaining issues has not been set. The Company has not recorded an expense
related to damages in this matter because any potential loss is not currently
probable or reasonably estimable under SFAS No. 5.

Separately, on
February 1, 2006, MSD filed a lawsuit against Biomet Inc., the corporate parent
of Cross (Biomet) and its subsidiary EBI Spine, L.P., for patent infringement.
The suit, which involves seven Medtronic patents and seeks injunctive relief
and monetary damages, was filed in the U.S. District Court for the District of
New Jersey. Three of the patents were purchased by Medtronic from Gary
Michelson, M.D. and Karlin Technology, Inc. and involve single-lock anterior
cervical plating systems used in cervical spinal fusions. Medtronic claims that
a cervical plate marketed by Biomet under the trade name VueLock Anterior
Cervical Plate System, and openly promoted as a plate that has a Secure One
Step Locking mechanism feature, infringes these patents. The other patents
involve instruments and surgical implantation methods commonly used in spinal
surgeries to implant pedicle screws.

Litigation with Fastenetix LLC

In May 2006,
Fastenetix LLC (Fastenetix), a patent holding company, sued MSD in the U. S.
District Court for the District of New Jersey, alleging breach of a royalty
agreement, or, in the alternative, infringement of certain reissue patents held
by Fastenetix. The products within the scope of the litigation consisted of
Medtronic multiaxial pedicle screws, including the M8, M10, and multiaxial
versions of Legacy, CD Horizon, Sextant, SILO Spinal System and Basis
Thoracolumbar system. On September, 24, 2008, the parties reached a settlement
resolving this matter. The District Court case was dismissed with prejudice on
September 30, 2008. In accordance with SFAS No. 5, Medtronic recorded a $37
charge in the second quarter of fiscal year 2009 relating to the settlement of
this matter.

Marquis/Maximo/InSync Matters

On February
10, 2005, Medtronic voluntarily began to advise physicians about the
possibility that a specific battery shorting mechanism might manifest itself in
a subset of ICDs and cardiac resynchronization therapy-defibrillators (CRT-Ds).
These included certain Marquis VR/DR and Maximo VR/DR ICDs and certain InSync
I/II/III CRT-D devices. Subsequent to this voluntary field action, a number of
lawsuits were filed against the Company alleging a variety of claims, including
individuals asserting claims of personal injury and third party payors alleging
entitlement to reimbursement. Many of these lawsuits were settled, and in the
third quarter of fiscal year 2008, the Company recorded an expense of $123
relating to the settlement in accordance with SFAS No. 5 as the potential loss
was both probable and reasonably estimable. Currently, there remain a limited
number of immaterial, individual lawsuits and one third party payor putative class action relating to the same subject matter.
In addition, class action product liability suits pending in Canada are
consolidated in the Ontario Superior Court of Justice. That court certified a
class proceeding on December 6, 2007 and denied Medtronics leave to appeal
certification on May 15, 2008. The class was certified to include individual implant
recipients and their family members. In addition, the subrogated claims of the
provincial health insurers to recover costs incurred in providing medical
services to the implant class are claimed in the class proceeding. The case is
at an early procedural stage during which notice of the certification will be
sent to class members and the parties will engage in discovery. Discovery is
expected to be completed during 2009. The Company has not recorded an expense
related to damages for the remaining suits because any potential loss is not
currently probable or reasonably estimable under SFAS No. 5.

24

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Sprint Fidelis Matters

On October 15,
2007, the Company voluntarily suspended worldwide distribution of its Sprint
Fidelis (Fidelis) family of defibrillation leads. This decision was based on a
variety of factors that, when viewed together, indicated that suspending
distribution was the appropriate action. At the time, Fidelis lead viability
was trending lower than other Company defibrillation leads, but had not then
become statistically significant. The leads are used to deliver therapy in
patients with ICDs, but are generally not used in pacemaker patients. The U.S.
Food and Drug Administration (FDA) subsequently classified the Companys action
as a Class I recall. As of November 26, 2008, approximately 930 lawsuits
regarding the Fidelis leads have been filed against the Company, including
approximately 36 putative class action suits reflecting a total of
approximately 1,450 individual personal injury cases. In general, the suits
allege claims of product liability, warranty, negligence, unjust enrichment,
emotional distress and consumer protection violations. One lawsuit includes a
claim by an individual purporting to act as a surrogate for the Center for
Medicare and Medicaid Services, and one lawsuit has been brought by a third
party payor as a putative class action suit. In addition, one putative class
action has been filed in the Ontario Superior Court of Justice in Canada.
Approximately 255 of the lawsuits have been filed in state court, generally
alleging similar causes of action. Of those state court actions, approximately
235 are consolidated before a single judge in Hennepin County District Court in
the state of Minnesota. The federal court cases have been consolidated for
pretrial proceedings before a single federal judge in the U.S. District Court
for the District of Minnesota pursuant to the MDL rules. The MDL court has
entered an Order staying all discovery pending the outcome of a December 17,
2008 hearing on Medtronics motion to dismiss the complaints. The Company has
not recorded an expense related to damages in connection with the matter
because any potential loss is not currently probable or reasonably estimable
under SFAS No. 5.

On November 8,
2007, a putative class action complaint was filed against the Company and
certain of its officers in the U.S. District Court for the District of
Minnesota, alleging violations of Section 10b-5 of the Securities Exchange Act
of 1934 and Rule 10b-5 thereunder. The complaint is brought on behalf of
persons or entities who purchased securities of Medtronic during the period of
June 25, 2007 through October 15, 2007. The complaint alleges that materially
false and misleading representations were made as to the market acceptance and
use of the Fidelis defibrillator leads to artificially inflate Medtronics
stock price. Pursuant to court order, the caption of the case was changed to Medtronic, Inc., Securities Litigation,
and a consolidated putative class action complaint was filed on April 18, 2008.
The Company has filed a motion to dismiss the consolidated class action
complaint with prejudice, and a hearing date is scheduled for January 27, 2009.
On November 29 and December 14, 2007 respectively, Feivel Gottlieb and Alan
Weinberg filed shareholder derivative actions in Hennepin County District Court
in the state of Minnesota against both the Company and certain of its officers
and directors, alleging breach of fiduciary duty, waste of corporate assets and
other claims arising from the same subject matter as the consolidated class
action complaint. On July 28, 2008, the state court stayed these actions
pending final resolution of the related consolidated class action complaint.
In addition, on August 11, 2008, a complaint was filed against the Company and certain directors, officers, and
other company personnel in the U.S. District Court for the District of Minnesota, alleging violations of the Employee
Retirement Income Security Act arising from the same subject matter as the consolidated class complaint. The complaint was
filed on behalf of a putative class of participants in and beneficiaries of the Medtronic Inc. Saving and Investment Plan whose
individual accounts hold shares of company stock at any time from February 15, 2007 to November 19, 2007.

Similarly, on
January 9, 2008, Iris Markewich filed a shareholder derivative action against
both the Company and certain of its officers, directors, and employees (the
defendants) in the U.S. District Court for the District of Minnesota, alleging
breach of fiduciary duty, waste of corporate assets and other claims arising
from the same subject matter as the consolidated class action complaint. After
the defendants moved to dismiss the complaint, the plaintiffs amended their
complaint to add allegations relating to alleged off-label promotion of INFUSE
Bone Graft. The defendants have filed a motion to dismiss, which has been set
for hearing on January 27, 2009.

The Company
has not recorded an expense related to damages in connection with these
Fidelis-related shareholder matters because any potential loss is not currently
probable or reasonably estimable under SFAS No. 5.

Other Matters

Medtronic is a
licensee to the RE 38,119 patent (119 Patent) and RE 38,897 patent (897
Patent) owned by Mirowski Family Ventures, LLC (Mirowski) relating to the
treatment of hemodynamic dysfunction. Medtronic and Mirowski dispute the
application of the 119 and 897 Patents to certain Medtronic cardiac
resynchronization products. The parties entered into a tolling agreement
deferring and conditioning any litigation of the dispute upon conditions
precedent. The tolling agreement expired on October 1, 2007. In subsequent
notices, Mirowski identified certain claims of the two patents that Mirowski
asserts Medtronic is using. On December 17, 2007, Medtronic filed an action in
U.S. District Court in Delaware seeking a declaration that none of its products
infringe any valid claims of either the 119 or 897 Patents. If certain
conditions are fulfilled, the 119 and/or 897 Patents are determined to be
valid and the Medtronic products are found to infringe the 119 and/or 897
Patents, Medtronic will be obligated to pay royalties to Mirowski based upon
sales of certain CRT-D products. As of October 24, 2008, the amount of disputed
royalties and interest related to CRT-D products is $95. This amount has not
been accrued because the outcome is not currently probable under SFAS No. 5.

25

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In addition,
Medtronic is a licensee to the 4,407,288 Patent (288 Patent) owned by Mirowski
relating to ICDs. Until November 2001, Medtronic accrued and paid royalties
under the license based on a percentage of ICD sales. Medtronic and Mirowski
dispute the application of the 288 Patent to certain Medtronic ICD products.
In November 2001, Medtronic ceased paying royalties and entered into an
agreement with Mirowski to pay putative royalties into an interest-bearing
escrow account through the expiration of the 288 Patent in December of 2003.
As of October 24, 2008, the current balance in the interest-bearing escrow
account is $82. The parties also entered into a tolling agreement deferring and
conditioning any litigation of the obligation to pay royalties upon certain
conditions precedent. If these conditions are fulfilled and the patent
determined to be invalid or Medtronics products found not to infringe, the
escrowed funds will be released to Medtronic.

In the normal
course of business, the Company periodically enters into agreements that
require it to indemnify customers or suppliers for specific risks, such as
claims for injury or property damage arising out of the Companys products or
the negligence of its personnel or claims alleging that its products infringe
third-party patents or other intellectual property. The Companys maximum
exposure under these indemnification provisions cannot be estimated, and the
Company has not accrued any liabilities within the consolidated financial
statements. Historically, the Company has not experienced significant losses on
these types of indemnifications.

Note 19  Segment and Geographic Information

Segment information:

During fiscal
year 2008, the Company revised its operating segment reporting to separate the
Navigation business from Spinal. For most of fiscal year 2008, Navigation was
reported as part of a stand alone segment named Corporate Technologies and New
Ventures. In the fourth quarter of fiscal year 2008, the decision was made to
include the Navigation business as a component of the Ear, Nose and Throat
(ENT) segment, which was renamed Surgical Technologies to reflect the expanding
scope and focus of this business. As a result, the Company now functions in
seven operating segments, consisting of CRDM, Spinal, CardioVascular,
Neuromodulation, Diabetes, Surgical Technologies, and Physio-Control. The
applicable information for the three and six months ended October 26, 2007 has
been reclassified to conform to the current presentation of seven operating
segments.

Each of the
Companys operating segments have similar economic characteristics, technology,
manufacturing processes, customers, distribution and marketing strategies,
regulatory environments, and shared infrastructures. Net sales by operating
segment are as follows:

|                                   |  |                     |       |                     |   |                    |  |                     |       |  |   |       | 
|---------------------------------- |  | ------------------- | ----- | ------------------- | - | ------------------ |  | ------------------- | ----- |  | - | ----- | 
|                                   |  | Three
 months ended |       | Six months
 ended   |  
|                                   |  |                     |       |                     |  
|                                   |  | October
 24,
 2008  |       | October
 26, 
 2007 |   | October
 24,
 2008 |  | October
 26, 
 2007 |      
|                                   |  |                     |       |                     |   |                    |  |                     |      
|Cardiac
 Rhythm Disease Management |  | $                   | 1,242 |                     | $ | 1,148              |  | $                   | 2,546 |  | $ | 2,383 | 
|Spinal                             |  |                     | 829   |                     |   | 660                |  |                     | 1,687 |  |   | 1,304 | 
|CardioVascular                     |  |                     | 596   |                     |   | 490                |  |                     | 1,227 |  |   | 976   | 
|Neuromodulation                    |  |                     | 343   |                     |   | 321                |  |                     | 691   |  |   | 610   | 
|Diabetes                           |  |                     | 272   |                     |   | 246                |  |                     | 541   |  |   | 486   | 
|Surgical
 Technologies             |  |                     | 213   |                     |   | 185                |  |                     | 415   |  |   | 358   | 
|Physio-Control                     |  |                     | 75    |                     |   | 74                 |  |                     | 169   |  |   | 133   | 
|                                   |  |                     |       |                     |   |                    |  |                     |       |  |   |       | 
|Total Net Sales                    |  | $                   | 3,570 |                     | $ | 3,124              |  | $                   | 7,276 |  | $ | 6,250 | 
|                                   |  |                     |       |                     |   |                    |  |                     |       |  |   |       | 

On December 4,
2006, the Company announced its intention to pursue a spin-off of
Physio-Control into an independent, publicly traded company. Physio-Control is
the Companys wholly-owned subsidiary that offers external defibrillators,
emergency response systems, data management solutions and support services used
by hospitals and emergency response personnel. However, shortly thereafter, on
January 15, 2007, the Company announced a voluntary suspension of U.S.
shipments of Physio-Control products manufactured at its facility in Redmond,
Washington in order to address quality system issues. In the months following
the suspension of U.S. shipments, the Company worked diligently with the FDA to
address the quality system issues and resumed limited shipments to critical
customers. As a result of the work performed, on April 28, 2008, the Company
announced that it had reached an agreement on a consent decree with the FDA
regarding quality system improvements for its external defibrillator products.
The agreement was filed on April 25, 2008 in the U.S. District Court for the
Western District of Washington and was approved by the court on May 9, 2008.
The agreement addresses issues raised by the FDA during inspections regarding
Physio-Controls quality system processes and outlines the actions
Physio-Control must take in order to resume unrestricted distribution of its
external defibrillators. In fiscal year 2008, Physio-Control had resumed
limited shipments to critical need customers in the U.S. Following the
resolution of the quality system issues, the Company intends to pursue the
spin-off of Physio-Control. Physio-Controls loss before interest and income
taxes for the three and six months ended October 24, 2008 is $(12) and $(17),
respectively and for the three and six months ended October 26, 2007 is $(9)
and $(30), respectively.

26

---

Geographic information

Net sales to external customers
by geography are as follows:

|                |  |                     |       |                     |   |                    |  |                     |       |  |   |       | 
|--------------- |  | ------------------- | ----- | ------------------- | - | ------------------ |  | ------------------- | ----- |  | - | ----- | 
|                |  | Three
 months ended |       | Six months
 ended   |  
|                |  |                     |       |                     |  
|                |  | October
 24,
 2008  |       | October
 26, 
 2007 |   | October
 24,
 2008 |  | October
 26, 
 2007 |      
|                |  |                     |       |                     |   |                    |  |                     |      
|United
 States  |  | $                   | 2,196 |                     | $ | 1,958              |  | $                   | 4,445 |  | $ | 3,906 | 
|Europe          |  |                     | 868   |                     |   | 718                |  |                     | 1,817 |  |   | 1,457 | 
|Asia Pacific    |  |                     | 382   |                     |   | 339                |  |                     | 768   |  |   | 679   | 
|Other
 Foreign  |  |                     | 124   |                     |   | 109                |  |                     | 246   |  |   | 208   | 
|                |  |                     |       |                     |   |                    |  |                     |       |  |   |       | 
|Total Net Sales |  | $                   | 3,570 |                     | $ | 3,124              |  | $                   | 7,276 |  | $ | 6,250 | 
|                |  |                     |       |                     |   |                    |  |                     |       |  |   |       | 

Note 20  Subsequent Event

On November
12, 2008, the Company acquired CryoCath Technologies Inc. (CryoCath). Under the
terms of the agreement announced on September 25, 2008, CryoCath shareholders
received $8.75 Canadian dollars per share in cash for each share of CryoCath
common stock that they owned. Total consideration for the transaction was
approximately $355 U.S. dollars including the purchase of outstanding CryoCath
common stock, the assumption and settlement of existing CryoCath debt and
payment of direct acquisition costs.

CryoCath
develops cryotherapy products to treat cardiac arrhythmias. CryoCaths Arctic
Front product is a minimally invasive cryo-balloon catheter designed
specifically to treat atrial fibrillation and is currently approved in certain
markets outside the U.S.

Item 2. 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 Medtronic,
Inc. (Medtronic or the Company). For a full understanding of financial
condition and results of operations, you should read this discussion along with
Managements Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the fiscal year ended April
25, 2008. In addition, you should read this discussion along with our condensed
consolidated financial statements and related Notes thereto as of October 24,
2008.

Financial Trends

Throughout
this financial information, you may read about transactions or events that
materially contribute to or reduce earnings and materially affect financial
trends. We refer to these transactions and events as either special (such as
asset impairments), restructuring, certain litigation, and purchased in-process
research and development (IPR&D) charges, or certain tax adjustments. These
charges, or benefits, result from facts and circumstances that vary in
frequency and/or impact to operations. While understanding these charges is
important in understanding and evaluating financial trends, other transactions
or events may also have a material impact on financial trends. A complete
understanding of the special, restructuring, certain litigation, and IPR&D
charges and certain tax adjustments is necessary in order to estimate the
likelihood that financial trends will continue.

Executive Level Overview

We are the
global leader in medical technology - alleviating pain, restoring health and
extending life for millions of people around the world. During fiscal year
2008, we revised our operating segment reporting to separate the Navigation
business from Spinal. For most of fiscal year 2008, Navigation was reported as
part of a stand-alone segment named Corporate Technologies and New Ventures. In
the fourth quarter of fiscal year 2008, the decision was made to include the
Navigation business as a component of the Ear, Nose and Throat (ENT) segment,
which was renamed Surgical Technologies to reflect the expanding scope and
focus of this business. As a result, the Company now functions in seven
operating segments, consisting of Cardiac Rhythm Disease Management (CRDM),
Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical Technologies, and
Physio-Control. The applicable information for the three and six months ended
October 26, 2007 has been reclassified to conform to the current presentation
of seven operating segments.

27

---

Through these
seven operating segments, we develop, manufacture, and market our medical
devices in more than 120 countries worldwide. Our primary products include
those for cardiac rhythm disorders, cardiovascular disease, neurological
disorders, spinal conditions and musculoskeletal trauma, urological and
digestive disorders, diabetes, and ear, nose, and throat conditions.

Net earnings
for the second quarter of fiscal year 2009 were $571 million, or $0.51 per
diluted share, as compared to net earnings of $666 million, or $0.58 per
diluted share for the same period in the prior fiscal year, representing a
decrease of 14 percent and 12 percent, respectively. Net earnings for the
three months ended October 24, 2008 include after-tax certain litigation and
IPR&D charges that decreased net earnings by $187 million. There were no
such items in the three months ended October 26, 2007. See further discussion
of these charges in the Restructuring, Certain Litigation, and IPR&D
Charges section of this managements discussion and analysis. The decrease in
net earnings for the three months ended October 24, 2008 was driven primarily
by the impact of these certain litigation and IPR&D charges in the quarter.

Net earnings
for the six months ended October 24, 2008 were $1.318 billion, or $1.17 per
diluted share, as compared to net earnings of $1.341 billion, or $1.17 per
diluted share for the same period in the prior fiscal year, representing a
decrease of 2 percent and zero percent, respectively. Net earnings for the
six months ended October 24, 2008 included after-tax restructuring, certain
litigation and IPR&D charges that decreased net earnings by $253 million.
Net earnings for the six months ended October 26, 2007 included after-tax
restructuring and IPR&D charges that decreased net earnings by
$36 million. See further discussion of these charges in the Restructuring,
Certain Litigation, and IPR&D Charges section of this managements
discussion and analysis. The decrease in net earnings for the six months ended
October 24, 2008 was driven primarily by the impact of these restructuring,
certain litigation and IPR&D charges.

The table
below illustrates net sales by operating segment for the three and six months
ended October 24, 2008 and October 26, 2007:

|                                   |  |                     |       |                     |   |                   |  |                    |    |                     |   |          |  |   |       |  |  |    |  
|---------------------------------- |  | ------------------- | ----- | ------------------- | - | ----------------- |  | ------------------ | -- | ------------------- | - | -------- |  | - | ----- |  |  | -- | -
|                                   |  | Three
 months ended |       |                     |   | Six months
 ended |  |                    |   
|                                   |  |                     |       |                     |   |                   |  |                    |   
|(dollars in millions)              |  | October
 24,
 2008  |       | October
 26, 
 2007 |   | % Change          |  | October
 24,
 2008 |    | October
 26, 
 2007 |   | % Change | 
|                                   |  |                     |       |                     |   |                   |  |                    |    |                     |   |          | 
|Cardiac
 Rhythm Disease Management |  | $                   | 1,242 |                     | $ | 1,148             |  |                    | 8  | %                   | $ | 2,546    |  | $ | 2,383 |  |  | 7  | %
|Spinal                             |  |                     | 829   |                     |   | 660               |  |                    | 26 |                     |   | 1,687    |  |   | 1,304 |  |  | 29 |  
|CardioVascular                     |  |                     | 596   |                     |   | 490               |  |                    | 22 |                     |   | 1,227    |  |   | 976   |  |  | 26 |  
|Neuromodulation                    |  |                     | 343   |                     |   | 321               |  |                    | 7  |                     |   | 691      |  |   | 610   |  |  | 13 |  
|Diabetes                           |  |                     | 272   |                     |   | 246               |  |                    | 11 |                     |   | 541      |  |   | 486   |  |  | 11 |  
|Surgical
 Technologies             |  |                     | 213   |                     |   | 185               |  |                    | 15 |                     |   | 415      |  |   | 358   |  |  | 16 |  
|Physio-Control                     |  |                     | 75    |                     |   | 74                |  |                    | 1  |                     |   | 169      |  |   | 133   |  |  | 27 |  
|                                   |  |                     |       |                     |   |                   |  |                    |    |                     |   |          |  |   |       |  |  |    |  
|Total Net Sales                    |  | $                   | 3,570 |                     | $ | 3,124             |  |                    | 14 | %                   | $ | 7,276    |  | $ | 6,250 |  |  | 16 | %
|                                   |  |                     |       |                     |   |                   |  |                    |    |                     |   |          |  |   |       |  |  |    |  

Net sales for
the three and six months ended October 24, 2008 were $3.570 billion and $7.276
billion, an increase of 14 percent and 16 percent, respectively, from the same
periods in the prior fiscal year. Foreign currency translation had a favorable
impact of $65 million and $221 million on net sales for the three and six
months ended October 24, 2008, respectively, when compared to the same periods
in the prior fiscal year. The net sales increase in the current fiscal year was
driven by the addition of Kyphon to our Spinal business, the United States
(U.S.) launch of the Endeavor drug eluting stent (Endeavor) in our
CardioVascular business, and strong sales growth in the Diabetes and Surgical
Technologies businesses. Growth outside the U.S. was especially strong, where
six of our seven operating segments had strong double digit growth rates. See
our discussion in the Net Sales section of this managements discussion and
analysis for more information on the results of our significant operating
segments.

We remain
committed to our mission of developing lifesaving and life enhancing therapies
to alleviate pain, restore health and extend life. The diversity and depth of
our current product offerings enable us to provide medical therapies to
patients worldwide. We work to improve patient access through well planned
studies, which show the safety, efficacy, and cost-effectiveness of our
therapies, and our alliance with patients, clinicians, regulators and
reimbursement agencies. Our investments in research and development, strategic
acquisitions, expanded clinical trials and infrastructure provide the
foundation for our growth. We are confident in our ability to drive long-term
shareholder value using principles of our Mission, our strong product pipelines
and continued commitment to innovative research and development.

28

---

Other Matters

On December 4,
2006, we announced our intention to pursue a spin-off of Physio-Control into an
independent, publicly traded company. Physio-Control is our wholly-owned
subsidiary that offers external defibrillators, emergency response systems,
data management solutions, and support services used by hospitals and emergency
response personnel. However, shortly thereafter, in January 2007, we announced
a voluntary suspension of U.S. shipments of Physio-Control products
manufactured at our facility in Redmond, Washington in order to address quality
system issues. In the months following the suspension of U.S. shipments, we
worked diligently with the U.S. Food and Drug Administration (FDA) to address
the quality system issues and resumed limited shipments to critical need
customers. As a result of the work performed to date, on April 28, 2008, we
announced that we had reached an agreement on a consent decree with the FDA
regarding quality system improvements for our external defibrillator products.
The agreement was filed on April 25, 2008 in the U.S. District Court for the
Western District of Washington and was approved by the court on May 9, 2008.
The agreement addresses issues raised by the FDA during inspections regarding
Physio-Controls quality system processes and outlines the actions
Physio-Control must take in order to resume unrestricted distribution of our
external defibrillators. We are continuing to work diligently on implementing
the required actions necessary to resolve the quality issues addressed by the
FDA. Following the resolution of the quality system issues, we intend to pursue
the spin-off of Physio-Control.

Critical Accounting Estimates

We have
adopted various accounting policies to prepare the condensed consolidated
financial statements in accordance with accounting principles generally
accepted in the U.S. (U.S. GAAP). Our most significant accounting policies are
disclosed in Note 1 to the consolidated financial statements included in our
Annual Report on Form 10-K for the year ended April 25, 2008.

The
preparation of the condensed consolidated financial statements, in conformity
with U.S. GAAP, requires us to make estimates and assumptions that affect the
amounts reported in the condensed consolidated financial statements and
accompanying Notes. Our estimates and assumptions, including those related to
bad debts, inventories, intangible assets, property, plant and equipment, asset
impairment, legal proceedings, IPR&D, warranty obligations, product
liability, self-insurance, pension and post-retirement obligations, sales
returns and discounts, stock-based compensation, valuation of equity and debt
securities and income tax reserves are updated as appropriate, which in most
cases is quarterly. We base our estimates on historical experience, actuarial
valuations or various assumptions that are believed to be reasonable under the
circumstances.

Estimates are
considered to be critical if they meet both of the following criteria: (1) the
estimate requires assumptions about material matters that are uncertain at the
time the accounting estimates are made, and (2) material changes in the
estimates are reasonably likely to occur from period to period. Our critical
accounting estimates include the following:

Legal Proceedings

We are
involved in a number of legal actions involving both product liability and
intellectual property disputes. 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. In
accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies,
(SFAS No. 5) we record a liability in our consolidated financial statements for
these actions when a loss is known or considered probable and the amount can be
reasonably estimated. If the reasonable estimate of a known or probable loss is
a range, and no amount within the range is a better estimate than any other,
the minimum amount of the range is accrued. If a loss is possible, but not
known or probable, and can be reasonably estimated, the estimated loss or range
of loss is disclosed in the notes to the condensed consolidated financial
statements. In most cases, significant judgment is required to estimate the
amount and timing of a loss to be recorded. Our significant legal proceedings
are discussed in Note 18 to the condensed consolidated financial statements.
While it is not possible to predict the outcome for most of the matters
discussed in Note 18 to the condensed 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
on any one interim or annual period. With the exception of Cordis, Fastenetix,
and some of the Marquis matters, negative outcomes for the balance of the
litigation matters discussed in Note 18 to the condensed consolidated financial
statements are not considered probable or cannot be reasonably estimated.

Tax Strategies

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 FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). Under FIN 48, 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. We regularly monitor our tax positions and FIN 48 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 in future periods.

29

---

In the event
there is a special, restructuring, certain litigation and/or IPR&D charge
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 earnings before income taxes, excluding
special, restructuring, certain litigation, and IPR&D charges. We believe
that 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.

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 condensed
consolidated financial statements. As a result, our effective tax rate
reflected in our condensed 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 condensed
consolidated statements of earnings. 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 condensed 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 condensed consolidated statements of earnings.

The Companys
overall tax rate including the tax impact of restructuring, certain litigation,
and IPR&D charges has resulted in an effective tax rate of 13.66 percent
and 18.34 percent, respectively, for the three and six months ended October 24,
2008. Excluding the impact of the restructuring, certain litigation, and
IPR&D charges in the three and six months ended October 24, 2008, our
operational and tax strategies have resulted in a non-GAAP nominal tax rate of
19.78 percent and 21.21 percent, respectively, versus the U.S. Federal
statutory rate of 35.0 percent. An increase in our nominal tax rate of 1
percent would result in an additional income tax provision for the three and
six months ended October 24, 2008 of approximately $9 million and $20 million,
respectively. See discussion of the tax rate and the tax adjustments in the Income
Taxes section of this managements discussion and analysis.

Valuation of IPR&D, Goodwill, and Other
Intangible Assets

When we
acquire a company, the purchase price is allocated, as applicable, between
IPR&D, other identifiable intangible assets, net tangible assets, and
goodwill as required by U.S. GAAP. IPR&D is defined as the value assigned
to those projects for which the related products have not received regulatory
approval and have no alternative future use. Determining the portion of the purchase
price allocated to IPR&D and other intangible assets requires us to make
significant estimates. The amount of the purchase price allocated to IPR&D
and other intangible assets 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 the
acquisition in accordance with accepted valuation methods. For IPR&D, these
valuation methodologies include consideration of the risk of the project not
achieving commercial feasibility.

Goodwill
represents the excess of the aggregate purchase price over the fair value of
net assets, including IPR&D, of acquired businesses. Goodwill is tested for
impairment annually, or more frequently if changes in circumstance or the
occurrence of events suggest that the carrying amount may be impaired.

The test for
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 tests are considered critical due to the amount of
goodwill recorded on our condensed consolidated balance sheets and the judgment
required in determining fair value amounts, including projected future cash
flows. Goodwill was $7.515 billion and $7.519 billion as of October 24, 2008
and April 25, 2008, respectively.

Other
intangible assets consist primarily of purchased technology, patents, and
trademarks which are amortized using the straight-line or accelerated basis, as
appropriate, over their estimated useful lives, ranging from 3 to 20 years. As
of October 24, 2008, all of our intangible assets have definite lives and are
amortized on a straight-line basis. We review these intangible assets for
impairment annually or as changes in circumstance or the occurrence of events
suggest the remaining value may not be recoverable. Other intangible assets,
net of accumulated amortization, were $2.198 billion and $2.193 billion as of
October 24, 2008 and April 25, 2008, respectively.

30

---

New Accounting Pronouncements

Information
regarding new accounting pronouncements is included in Note 2 to the condensed
consolidated financial statements in this Quarterly Report on Form 10-Q.

Acquisitions

Three and six months ended October 24, 2008

On July 16,
2008, we acquired Restore Medical, Inc. (Restore). Restores Pillar Palatal
Implant System (Pillar System) will be integrated into the Surgical
Technologies operating segment. The Pillar System will provide us with a
minimally invasive, implantable medical device used to treat the soft palate
component of sleep breathing disorders, including mild to moderate obstructive
sleep apnea and snoring. Restore shareholders received $1.60 per share in cash
for each share of Restore common stock they owned. Total consideration for the
transaction was approximately $30 million excluding cash acquired. The pro forma impact of Restore was
not significant to our results for the
three and six months ended October 24, 2008 and October 26, 2007.

Three and six months ended October 26, 2007

On June 25,
2007, we acquired substantially all of the O-arm Imaging System (O-arm) assets
of Breakaway Imaging, LLC (Breakaway), a privately held company based in
Littleton, Massachusetts. Prior to the acquisition, we had the exclusive rights
to distribute and market the O-arm. The O-arm provides multi-dimensional
surgical imaging for use in spinal and orthopedic surgical procedures. The
acquisition is expected to bring the O-arm into a broad portfolio of image
guided surgical solutions. Total consideration for Breakaway was approximately
$26 million in cash, subject to purchase price increases, which would be
triggered by the achievement of certain milestones. The pro forma impact of
Breakaway was not significant to our results for the three and six months ended
October 26, 2007.

In addition to
the acquisitions above, we periodically acquire certain tangible or intangible
assets from enterprises that do not otherwise qualify for accounting as a
business combination. These transactions are largely reflected in the condensed
consolidated statements of cash flows as a component of investing activities
under purchase of intellectual property.

Subsequent Acquisition

On November 12, 2008, we acquired CryoCath Technologies Inc.
(CryoCath). Under the terms of the agreement announced on September 25, 2008,
CryoCath shareholders received $8.75 Canadian dollars per share in cash for
each share of CryoCath common stock that they owned. Total consideration for
the transaction was approximately $355 million U.S. dollars including the
purchase of outstanding CryoCath common stock, the assumption and settlement of
existing CryoCath debt and the payment of direct acquisition costs. CyroCath
develops cryotherapy products to treat cardiac arrhythmias. CryoCaths Arctic
Front product is a minimally invasive cryo-balloon catheter designed
specifically to treat atrial fibrillation and is currently approved in certain
markets outside the U.S.

Net Sales

The table
below illustrates net sales by operating segment for the three and six months
ended October 24, 2008 and October 26, 2007:

|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         |  |   |       |  |  |     |  
|---------------------------------------- |  | ------------------- | ----- | ------------------ | - | ------- | ----------------- | ------------------ | --- | ------------------ | - | ------- |  | - | ----- |  |  | --- | -
|                                         |  | Three
 months ended |       |                    |   |         | Six months
 ended |                    |     |                    |  
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |  
|(dollars in millions)                    |  | October
 24,
 2008  |       | October
 26,
 2007 |   | %Change |                   | October
 24,
 2008 |     | October
 26,
 2007 |   | %Change | 
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         | 
|Pacing Systems                           |  | $                   | 506   |                    | $ | 495     |                   |                    | 2   | %                  | $ | 1,033   |  | $ | 990   |  |  | 4   | %
|Defibrillation Systems                   |  |                     | 724   |                    |   | 639     |                   |                    | 13  |                    |   | 1,488   |  |   | 1,365 |  |  | 9   |  
|Other                                    |  |                     | 12    |                    |   | 14      |                   |                    | (14 | )                  |   | 25      |  |   | 28    |  |  | (11 | )
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         |  |   |       |  |  |     |  
|CARDIAC RHYTHM DISEASE MANAGEMENT        |  |                     | 1,242 |                    |   | 1,148   |                   |                    | 8   |                    |   | 2,546   |  |   | 2,383 |  |  | 7   |  
|Core Spine                               |  |                     | 485   |                    |   | 462     |                   |                    | 5   |                    |   | 961     |  |   | 916   |  |  | 5   |  
|Biologics                                |  |                     | 198   |                    |   | 198     |                   |                    |    |                    |   | 419     |  |   | 388   |  |  | 8   |  
|Kyphon                                   |  |                     | 146   |                    |   |        |                   |                    | N/A |                    |   | 307     |  |   |      |  |  | N/A |  
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         |  |   |       |  |  |     |  
|SPINAL                                   |  |                     | 829   |                    |   | 660     |                   |                    | 26  |                    |   | 1,687   |  |   | 1,304 |  |  | 29  |  
|Coronary Stents                          |  |                     | 208   |                    |   | 149     |                   |                    | 40  |                    |   | 445     |  |   | 302   |  |  | 47  |  
|Other Coronary/Peripheral                |  |                     | 107   |                    |   | 96      |                   |                    | 11  |                    |   | 220     |  |   | 191   |  |  | 15  |  
|Endovascular                             |  |                     | 95    |                    |   | 70      |                   |                    | 36  |                    |   | 182     |  |   | 138   |  |  | 32  |  
|Revascularization and Surgical Therapies |  |                     | 112   |                    |   | 105     |                   |                    | 7   |                    |   | 229     |  |   | 207   |  |  | 11  |  
|Structural Heart Disease                 |  |                     | 74    |                    |   | 70      |                   |                    | 6   |                    |   | 151     |  |   | 138   |  |  | 9   |  
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         |  |   |       |  |  |     |  
|CARDIOVASCULAR                           |  |                     | 596   |                    |   | 490     |                   |                    | 22  |                    |   | 1,227   |  |   | 976   |  |  | 26  |  
|Neuro Implantables                       |  |                     | 271   |                    |   | 264     |                   |                    | 3   |                    |   | 555     |  |   | 500   |  |  | 11  |  
|Gastroenterology & Urology               |  |                     | 72    |                    |   | 57      |                   |                    | 26  |                    |   | 136     |  |   | 110   |  |  | 24  |  
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         |  |   |       |  |  |     |  
|NEUROMODULATION                          |  |                     | 343   |                    |   | 321     |                   |                    | 7   |                    |   | 691     |  |   | 610   |  |  | 13  |  
|DIABETES                                 |  |                     | 272   |                    |   | 246     |                   |                    | 11  |                    |   | 541     |  |   | 486   |  |  | 11  |  
|Core ENT                                 |  |                     | 86    |                    |   | 75      |                   |                    | 15  |                    |   | 172     |  |   | 150   |  |  | 15  |  
|Neurologic Technologies                  |  |                     | 80    |                    |   | 74      |                   |                    | 8   |                    |   | 160     |  |   | 143   |  |  | 12  |  
|Navigation                               |  |                     | 47    |                    |   | 36      |                   |                    | 31  |                    |   | 83      |  |   | 65    |  |  | 28  |  
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         |  |   |       |  |  |     |  
|SURGICAL TECHNOLOGIES                    |  |                     | 213   |                    |   | 185     |                   |                    | 15  |                    |   | 415     |  |   | 358   |  |  | 16  |  
|PHYSIO-CONTROL                           |  |                     | 75    |                    |   | 74      |                   |                    | 1   |                    |   | 169     |  |   | 133   |  |  | 27  |  
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         |  |   |       |  |  |     |  
|TOTAL                                    |  | $                   | 3,570 |                    | $ | 3,124   |                   |                    | 14  | %                  | $ | 7,276   |  | $ | 6,250 |  |  | 16  | %
|                                         |  |                     |       |                    |   |         |                   |                    |     |                    |   |         |  |   |       |  |  |     |  

31

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Net sales for
the three and six months ended October 24, 2008 were favorably impacted by
foreign currency translation of $65 million and $221 million, respectively,
when compared to the same periods of the prior fiscal year. 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 earnings due to the offsetting foreign currency impact on operating costs
and expenses and our hedging activities. See the Market Risk section of this
managements discussion and analysis and Note 8 to the consolidated financial
statements included in our Annual Report on Form 10-K for the year ended April
25, 2008 for further details on foreign currency instruments and our related
risk management strategies.

Forward-looking
statements are subject to risk factors (see Cautionary Factors That May Affect
Future Results set forth in our Annual Report on Form 10-K for the year ended
April 25, 2008).

Cardiac Rhythm Disease Management

CRDM products
consist primarily of pacemakers, implantable defibrillators, leads, ablation
products, electrophysiology catheters, and information systems for the
management of patients with our devices. CRDM net sales for the three and six
months ended October 24, 2008 were $1.242 billion and $2.546 billion, an
increase of 8 percent and 7 percent, respectively, when compared to the same
periods of the prior fiscal year. Foreign currency translation had a favorable
impact on net sales for the three and six months ended October 24, 2008 of
approximately $32 million and $98 million, respectively, when compared to the
same periods of the prior fiscal year.

Worldwide net
sales of Defibrillation Systems, our largest product line, for the three and
six months ended October 24, 2008 were $724 million and $1.488 billion, an
increase of 13 percent and 9 percent, respectively, when compared to the same
periods of the prior fiscal year. However, net sales for the three and six
months ended October 26, 2007 were negatively impacted by our voluntary
suspension of worldwide distribution of Fidelis leads in the second quarter of
fiscal year 2008, including the reversal of $35 million in revenue from the
return of customer inventory. Net sales growth for the three and six months ended
October 24, 2008 was primarily a result of acceptance of Secura implantable
cardioverter defibrillators (ICDs) and Consulta cardiac resynchronization
therapy-defibrillators (CRT-Ds), both of which are included within our new
Vision 3D portfolio, and the benefit of foreign currency translation. Both the
Secura ICDs and Consulta CRT-Ds feature Conexus wireless technology which
allows for remote transfer of patient data and enables easier communication
between the implanted device and programmer at the time of implant, during
follow-up in a clinicians office, or remotely using a patient
home monitor. Net sales growth for the six months ended October 24, 2008
also benefited from strong net sales outside the U.S. of the Virtuoso ICD and
Concerto CRT-D, both of which also feature Conexus wireless technology.

Pacing Systems
net sales for the three and six months ended October 24, 2008 were $506 million
and $1.033 billion, an increase of 2 percent and 4 percent, respectively, when
compared to the same periods of the prior fiscal year. The increase in both the
three and six months ended October 24, 2008 was due to sales growth outside the
U.S. and the benefit of foreign currency translation. Sales outside the U.S.
were led by the acceptance of the Adapta family of pacemakers, including the
Adapta, Versa, and Sensia models. The Adapta family of pacemakers incorporates
an array of automatic features to help physicians improve pacing therapy and
streamline the patient follow-up process, potentially minimizing the amount of
time spent in a physicians office. Adapta offers Managed Ventricular Pacing,
or MVP, which is an atrial based pacing mode that significantly reduces
unnecessary pacing in the right ventricle while providing the safety of a dual chamber
backup if necessary. Clinical studies have suggested that reducing this
unnecessary pacing in the right ventricle may decrease the risk of developing
heart failure and atrial fibrillation, a potentially life-threatening irregular
heartbeat.

32

---

Looking ahead,
we expect our CRDM operating segment should be impacted by the following:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The further
 launch and acceptance of our new Vision 3D portfolio, which represents a
 common technology platform comprised of a full line of ICDs, CRT-Ds,
 pacemakers and cardiac resynchronization therapy-pacemakers (CRT-Ps) to
 address the needs of patients with arrhythmias, heart failure and those at
 risk of sudden cardiac arrest. The Secura ICD and the Consulta CRT-D, the
 portfolios first ICD and CRT-D devices, became commercially available in the
 U.S. in the second quarter of fiscal year 2009. The Secura ICD and the
 Consulta CRT-D were commercially available in Western Europe beginning in the
 first quarter of fiscal year 2009. The devices within the Vision 3D portfolio
 provide enhanced follow-up and automaticity features and create meaningful
 manufacturing synergies. We will continue to develop our industry leading
 product portfolio to meet the medical needs of our patients.                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The future
 acceptance of our Sprint Quattro Secure S single coil lead, which was
 launched in markets outside the U.S. in November 2008. Some physicians prefer
 a single coil lead, particularly physicians in certain Western European
 countries. We believe the availability of this product will help us to
 further recover from the impact of the voluntary suspension of worldwide
 distribution of the Sprint Fidelis lead in the second quarter of fiscal year
 2008. For more information regarding this issue, refer to the Other Matters
 section of the consolidated financial statements included in the Companys
 Annual Report on Form 10-K for the year ended April 25, 2008. In addition, in
 September 2008, we announced that we had received both U.S. Food and Drug
 Administration (FDA) approval and CE Mark approval for our Lead Integrity
 Alert software which was designed to provide patients with certain Medtronic
 defibrillators and defibrillator leads with more advanced notice  via an
 audible sound  of a potential lead fracture that could result in an
 unnecessary shock.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The recent
 launch of the EnRhythm MRI SureScan pacing system (EnRhythm MRI) in certain
 European countries. EnRhythm MRI is the first pacemaker system to be
 developed and tested specifically for safe use in Magnetic Resonance Imaging
 (MRI) machines under specified scanning conditions. EnRhythm MRI is designed
 to address and mitigate interactions between the pacing system and the
 magnetic resonance environment. On November 17, 2008, we announced that
 EnRhythm MRI received CE Mark approval and is now currently available in
 select European countries. We expect to launch EnRhythm MRI in the U.S. in
 fiscal year 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The recent
 U.S. launch of the Attain StarFix over-the-wire lead which provides
 physicians with a new solution for achieving successful placement and
 stability of the left-heart lead in heart failure patients receiving a CRT
 device. The Attain StarFix became commercially available in the U.S. in the
 second quarter of fiscal year 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
 integration of CryoCath into our CRDM business. In November 2008, we
 announced our acquisition of CryoCath, a medical technology company that
 develops cryotherapy products to treat cardiac arrythmias. CryoCaths Arctic
 Front product is a minimally invasive cryo-balloon catheter designed
 specifically to treat atrial fibrillation and is currently approved in
 certain markets outside the U.S.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Our ability to
 grow consistently with the market. Our growth in CRDM has been and will
 continue to be contingent upon continued market growth and our ability to
 maintain our market position. The CRDM market is characterized by
 significant competition, and in the current market, we believe that
 Medtronics growth has been slightly slower than that of the overall market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Spinal

Spinal
products include thoracolumbar, cervical and interbody spinal devices, and bone
graft substitutes. Spinal net sales for the three and six months ended October
24, 2008 were $829 million and $1.687 billion, an increase of 26 percent and 29
percent, respectively, over the same periods of the prior fiscal year. Foreign
currency translation had a favorable impact on net sales for the three and six
months ended October 24, 2008 of approximately $7 million and $21 million,
respectively, when compared to the same periods of the prior fiscal year. The
growth in the three and six months ended October 24, 2008 was driven by the
third quarter fiscal year 2008 acquisition of Kyphon, which generated revenue
of $146 million and $307 million in the three and six months ended October 24,
2008, respectively. See below and Note 3 to the condensed consolidated
financial statements for further discussion about the acquisition of Kyphon.

Core Spinal
net sales for the three and six months ended October 24, 2008 were $485 million
and $961 million, respectively, both increases of 5 percent over the same
periods of the prior fiscal year. Growth in the periods was primarily based on
continued acceptance of our
products for the thoracolumbar section of the spine. Thoracolumbar net sales
growth for the three and six months ended October 24, 2008 was driven by net
sales of the CD HORIZON LEGACY family of products (CD HORIZON) outside the U.S.
and net sales growth of the Lumbar Dynamic platform of products in the U.S. CD
HORIZON is designed to provide procedural solutions for degenerative,
deformity, or trauma applications using color coded implants, unique minimally
invasive instruments and ergonomic designs. The growth of our Lumbar Dynamic
platform of products, which allows some range in motion as compared to our
fixed stabilization devices, was driven by demand for our CD HORIZON LEGACY
PEEK Rod System in the U.S. Although U.S. net sales in Core Spinal increased
over the same periods of the prior fiscal year, the growth was less than the
overall U.S. market growth. Our market share in the Core Spinal business
continues to experience pressure from the proliferation of smaller, privately
held companies competing in this market.

33

---

Spinal
Biologics net sales for the three and six months ended October 24, 2008 were
$198 million and $419 million, respectively. Net sales for the three months
ended October 24, 2008 were flat in comparison to the same period of the prior
fiscal year, whereas net sales for the six months ended October 24, 2008
increased 8 percent over the same period of the prior fiscal year. For the
three months ended October 24, 2008, we believe growth was negatively impacted
by physician and payor response to a FDA public health notice regarding use of
bone morphogenetic protein (BMP) in cervical procedures and the overall
regulatory scrutiny of off-label use in medical devices. The increase in net
sales for the six months ended October 24, 2008 was driven from the three
months ended July 25, 2008. INFUSE Bone Graft contains a recombinant human bone
morphogenetic protein, or rhBMP-2, that induces the body to grow its own bone,
eliminating the need for a painful second surgery to harvest bone from
elsewhere in the body.

Kyphon net
sales for the three and six months ended October 24, 2008 were $146 million and
$307 million, respectively, were driven primarily by continued acceptance of
balloon kyphoplasty procedures for treating vertebral compression fractures.
Balloon kyphoplasty, using Kyphon instruments, is presently used primarily by
spine specialists, including orthopedic surgeons and neurosurgeons,
interventional radiologists and interventional neuroradiologists, who repair
compression fractures of the spine caused by osteoporosis, cancer or benign
lesions, or trauma, through minimally invasive spine surgeries.

Looking ahead,
we expect our Spinal operating segment should be impacted by the following:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Continued
 acceptance of our products for stabilization of the thoracolumbar and
 cervical sections of the spine, including the CD HORIZON LEGACY 5.5 and the
 VERTEX Max Reconstruction System.                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Continued
 acceptance of our Lumbar dynamic platform of products including the PEEK Rod
 System in the U.S. combined with continued acceptance of Kyphons X-Stop IPD
 system and the Aperius PercLID, for the treatment of mild to moderate lumbar
 spinal stenosis. The X-Stop IPD system is approved worldwide, while the Aperius
 PercLID is approved in markets outside the U.S. In addition, on October 14,
 2008, we announced the U.S. launch of the X-Stop PEEK IPD System, which is a
 version of the X-Stop IPD System made out of polyetheretherketone polymer or
 PEEK.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Continued
 acceptance of the Kyphon instruments for use in balloon kyphoplasty. In
 addition, in November 2008, we announced that we have added an innovative
 bone cement delivery system to our product portfolio with the acquisition of
 the assets and intellectual property of Pabban Development, Inc. This bone
 cement delivery system can be used during the balloon kyphoplasty procedure
 for the treatment of vertebral compression fractures.                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Continued
 regulatory scrutiny of off-label use in medical devices. During the three
 months ended October 24, 2008, the FDA issued a public health notice
 regarding use of BMP in cervical procedures, which was received negatively by
 both physicians and payors. As a result, sales of our INFUSE Bone Graft
 slowed in the quarter. It is uncertain if this trend will continue in
 subsequent quarters.                                                                                                                                                                       

CardioVascular

CardioVascular
products consist of coronary and peripheral stents and related delivery
systems, endovascular stent graft systems, heart valve replacement
technologies, tissue ablation systems, and open heart and coronary bypass
grafting surgical products. CardioVascular net sales for the three and six
months ended October 24, 2008 were $596 million and $1.227 billion, an increase
of 22 percent and 26 percent, respectively, over the same periods of the prior
fiscal year. Foreign currency translation had a favorable impact on net sales
for the three and six months ended October 24, 2008 of approximately $16
million and $54 million, respectively, when compared to the same periods of the
prior fiscal year.

Coronary Stent
and Other Coronary/Peripheral net sales for the three and six months ended
October 24, 2008 were $315 million and $665 million, an increase of 29 percent
and 35 percent, respectively, as compared to the same periods in the prior
fiscal year. The increase in net sales for the three and six months ended
October 24, 2008 was primarily the result of the launch of Endeavor in the U.S.
which began in the fourth quarter of fiscal year 2008. We had drug-eluting
stents commercially available in all global markets except Japan during the six months
ended October 24, 2008. Endeavor generated $57 million and $136 million of
revenue in the U.S for the three and six months ended October 24, 2008,
respectively. Our Endeavor and Endeavor Resolute drug-eluting stents generated
worldwide revenue of $151 million and $326 million for the three and six months
ended October 24, 2008, respectively. Despite the favorable comparison to the
prior year which included no U.S. drug-eluting stent sales, our net sales were
down sequentially compared to the first quarter of fiscal year 2009 due to the
entrance of two new competitive products into the U.S. market during the
quarter.

34

---

Endovascular
net sales for the three and six months ended October 24, 2008 were $95 million
and $182 million, an increase of 36 percent and 32 percent, respectively, as
compared to the same periods in the prior fiscal year. Net sales in the U.S.
for the three and six months ended October 24, 2008, increased 38 percent and
29 percent, respectively, in comparison to the same periods in the prior fiscal
year driven by the recent U.S. launches of the Talent Abdominal and Thoracic
Stent Graft Systems in April 2008 and June 2008, respectively. Net sales
outside the U.S. for both the three and six months ended October 24, 2008
increased 33 percent, in comparison to the same periods in the prior fiscal
year driven by the recent launch outside the U.S. of our next generation
Endurant Abdominal Stent Graft System. The Endurant Abdominal Stent Graft
System expands the applicability of endovascular aortic repair to more patients
with abdominal aortic aneurysms (AAA) by addressing those AAA patients whose
aortas are highly angulated or whose aneurysms have short necks.

Revascularization
and Surgical Therapies net sales for the three and six months ended October 24,
2008 were $112 million and $229 million, an increase of 7 percent and 11
percent, respectively, as compared to the same periods in the prior fiscal
year. This increase was primarily the result of strong growth outside the U.S.
associated with the introduction of new cannulae products.

Structural
Heart Disease net sales for the three and six months ended October 24, 2008
were $74 million and $151 million, an increase of 6 percent and 9 percent,
respectively, as compared to the same periods in the prior fiscal year. This
increase was led by net sales growth outside the U.S. which was driven by sales
of our tissue valves, including the Mosaic, Mosaic Ultra, and Hancock, and net
sales of our atrial fibrillation technologies. Additionally, net sales for the
six months ended October 24, 2008 benefited from the return of the Advantage
Mechanical Valve to markets outside the U.S. which had been suspended for a
portion of the comparable period.

Looking ahead,
we expect our CardioVascular operating segment should be impacted by the
following:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | U.S.
launch of angioplasty products on the Rapid Exchange delivery system, including
Endeavor Sprint, the Driver and MicroDriver bare-metal stents, and the Sprinter
balloon catheter systems. Rapid Exchange is a type of delivery system that is
used in angioplasty procedures to treat coronary artery disease; it is a
short-, single-wire delivery system that can be used by one operator. The federal court in the Northern District of
California ordered that the injunction preventing our access to the Rapid
Exchange delivery system ended on October 29, 2008. We are optimistic that
access to Rapid Exchange and the recent U.S. market launch of the Endeavor
Sprint on a rapid exchange delivery system will increase usage of our
angioplasty products in the U.S., particularly in light of the recent launch of
two new competitive products in that market.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Continued
 acceptance of Endeavor, which was launched in the U.S. market in February
 2008. Endeavor was the first new drug-eluting stent approved for use in the
 U.S. market in over four years and provides a beneficial safety and efficacy
 profile for treating patients with coronary artery disease. Additionally, we
 anticipate receiving regulatory approval and launching Endeavor in Japan in
 the first half of calendar year 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Continued
 acceptance of Endeavor Resolute in markets outside the U.S. Endeavor Resolute
 combines the proven drug and stent components of Endeavor with Biolinx, a
 proprietary biocompatible polymer specifically engineered for drug-eluting
 stent use. Biolinx facilitates the slower absorption of Zotarolimus while
 providing excellent biocompatibility. The design goal of Endeavor Resolute is
 enhanced safety and efficacy in the most complex lesions and patients.                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Further
 acceptance of the Talent AAA Stent Graft System in the U.S. market. The
 Talent AAA Stent Graft System received FDA approval in April 2008 and was
 launched in the first quarter of fiscal year 2009. Additionally, we
 anticipate further growth in the U.S. from the continued roll-out of the
 Talent Thoracic Stent Graft System, which was initially released in the first
 quarter of fiscal year 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Continued
 sales growth outside the U.S. with continued acceptance of our next
 generation Endurant AAA stent graft and Valiant Thoracic Stent Graft System.
 The Endurant AAA stent graft received CE Mark approval and was commercially
 launched late in the first quarter of fiscal year 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

35

---

Neuromodulation

Neuromodulation
products consist of therapeutic and diagnostic devices, including implantable
neurostimulation systems, implantable drug delivery devices, and urology and
gastroenterology products. Neuromodulation net sales for the three and six
months ended October 24, 2008 were $343 million and $691 million, an increase
of 7 percent and 13 percent, respectively, when compared to the same periods of
the prior fiscal year. Foreign currency translation had a favorable impact on
net sales for the three and six months ended October 24, 2008 of approximately
$4 million and $17 million, respectively, when compared to the same periods of
the prior fiscal year.

Neuro
Implantables is comprised of two product lines: Pain Management and Movement
Disorders. Net sales from Neuro Implantables for the three and six months ended
October 24, 2008 were $271 million and $555 million, an increase of 3 percent
and 11 percent, respectively, when compared to the same periods of the prior
fiscal year. The growth for the three and six months ended October 24, 2008 was
driven by sales of products in Pain Management including worldwide sales of the
the RestoreULTRA neurostimulation system for pain management and sales in the
U.S. of our Specify 5-6-5 surgical lead for spinal cord stimulation. However,
growth in the quarter was hampered by process-related issues in the
manufacturing of our SynchroMed II drug pumps which caused supply constraints
and lower pump related net sales. RestoreULTRA, which was launched in March
2008, is our next generation rechargeable neurostimulator with advanced
programming capabilities and is the thinnest 16-electrode neurostimulator on
the market. Movement Disorders revenue for the three and six months ended
October 24, 2008 was driven by worldwide net sales of Activa Deep Brain
Stimulation (DBS) Therapy. Activa DBS Therapy is used for the treatment of
common movement disorders including Parkinsons disease, essential tremor, and
dystonia.

Net sales of
Gastroenterology and Urology products for the three and six months ended
October 24, 2008 were $72 million and $136 million, an increase of 26 percent
and 24 percent, respectively, when compared to the same periods of the prior
fiscal year. The growth in Gastroenterology and Urology for the three and six
months ended October 24, 2008 was led by worldwide sales of our InterStim II
product.

Looking ahead,
we expect our Neuromodulation operating segment should be impacted by the
following:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Continued
 acceptance of RestoreULTRA, our next generation rechargeable neurostimulator.
 RestoreULTRA also offers an innovative patient programmer that gives patients
 the ability to customize their pain control.                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Continued
 acceptance of our Activa DBS Therapy for the treatment of common movement
 disorders. We continue to educate neurologists and the patient population on
 the benefits that our Activa DBS Therapy offers them. Additionally, we look
 forward to the anticipated launch of Activa PC and RC, our next generation
 neurostimulators, in the second half of fiscal year 2009. Activa PC is a
 primary cell device and Activa RC will be the therapys first rechargeable
 device.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Continued
 acceptance of InterStim Therapy for the treatment of overactive bladder
 and urinary incontinence.                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Continued
 acceptance of InterStim Therapy for the treatment of fecal incontinence
 outside the U.S., and future launch and acceptance within the U.S. We have
 submitted a pre-market approval application in the U.S. for InterStim Therapy
 for the treatment of fecal incontinence and expect approval in the first half
 of fiscal year 2010.                                                                                                                                        

Diabetes

Diabetes
products consist of external insulin pumps and related consumables (together
referred to as Durable Pump Systems), and subcutaneous continuous glucose
monitoring systems. Diabetes net sales for the three and six months ended
October 24, 2008 were $272 million and $541 million, respectively, both an
increase of 11 percent, when compared to the same periods of the prior fiscal
year. Foreign currency translation had a favorable impact on net sales for the
three and six months ended October 24, 2008 of approximately $4 million and $16
million, respectively, when compared to the same periods of the prior fiscal
year.

Durable Pump
Systems net sales for the three and six months ended October 24, 2008 were $243
million and $485 million, an increase of 7 percent and 8 percent, respectively,
when compared to the same periods of the prior fiscal year. For the three and
six months ended October 24, 2008, the increase in net sales resulted from
demand for the Paradigm REAL-Time sensor-augmented pump system and related
consumables. Net sales of Continuous Glucose Monitoring Systems (CGMS) and
other accessories for the three and six months ended October 24, 2008 were $29
million and $56 million, an increase of 54 percent and 50 percent,
respectively, when compared to the same periods of the prior fiscal year.
Growth for each period was driven by strong acceptance of CGMS worldwide and an
increase in U.S. sales of glucose test strips.

36

---

Looking ahead,
we expect our Diabetes operating segment should be impacted by the following:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Continued
 acceptance from both physicians and patients of the Paradigm REAL-Time
 sensor-augmented pump system, which integrates continuous glucose monitoring
 and insulin pump functionality.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Continued
 acceptance of the CGMS iPro, a
 continuous glucose monitoring-enabled diagnostic tool that provides the
 physician and patient with unprecedented insight into their blood-sugar
 levels, which was launched in the U.S. in July 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Future
 acceptance and customer preference for Medtronic products due to the
 alliances with LifeScan, Inc. (Lifescan), a Johnson & Johnson company,
 and Bayer Diabetes Care (Bayer), a member of the Bayer group, which we
 announced on August 21, 2007. The alliances reached with Lifescan (for the
 U.S. market) and Bayer (for markets outside the U.S.) provide for the
 distribution and marketing of blood glucose meters that communicate with
 Medtronics insulin pumps. These alliances provide our customers an
 integrated solution for managing diabetes, thereby improving the quality of
 life and ease of use. We launched our co-developed blood glucose meters with
 Bayer and LifeScan in February 2008 and April 2008, respectively.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Potential
 slowdown in consumer spending. Given the elective nature
of a Diabetes pump for the management of diabetes and the possible high out-of-pocket costs
to the consumer, there is potential exposure to macroeconomic
 pressures which could negatively impact the near-term sales growth within
 Diabetes.                                                                                                                                                                                                                                                                                                                                                                                                                                         

Surgical Technologies

Surgical
Technologies products are used to treat conditions of the ear, nose, and
throat, and certain neurological disorders. Additionally, we manufacture and
sell image-guided surgery systems. Our portfolio consists of powered
tissue-removal systems and other microendoscopy instruments, implantable
devices, nerve monitoring systems, disposable fluid-control products, a
Ménières disease therapy device, hydrocephalus shunt devices, external
drainage systems, cranial fixation devices, neuroendoscopes, dura repair
products, and image-guided surgery systems. Surgical Technologies net sales for
the three and six months ended October 24, 2008 were $213 million and $415
million, an increase of 15 percent and 16 percent, respectively, when compared
to the same periods of the prior fiscal year. Foreign currency translation had
a favorable impact on net sales for the three and six months ended October 24,
2008 of approximately $1 million and $9 million, respectively, when compared to
the same periods of the prior fiscal year.

Core ENT net
sales for the three and six months ended October 24, 2008 were $86 million and
$172 million, respectively, both an increase of 15 percent, when compared to
the same periods of the prior fiscal year. The increase for the three and six
months ended October 24, 2008 reflected the continued success of Fusion EM IGS,
an advanced Image Guidance Surgery System to facilitate sinus surgeries. Fusion
EM IGS is an electromagnetic-based image-guided surgery product that will avoid
line of sight constraints of optical systems. In addition, there was strong
performance in nerve monitoring and drill disposables.

Neurologic
Technologies net sales for the three and six months ended October 24, 2008 were
$80 million and $160 million, an increase of 8 percent and 12 percent,
respectively, when compared to the same periods of the prior fiscal year. The
primary driver of growth for the three and six months ended October 24, 2008
was worldwide increased sales of disposables associated with high-speed powered
surgical drill systems and the EHS Stylus high-speed powered surgical drill
system. Additionally, the Strata valves, used in the treatment of
hydrocephalus, also contributed to the revenue growth.

Navigation net
sales for the three and six months ended October 24, 2008 were $47 million and
$83 million, an increase of 31 percent and 28 percent, respectively, when
compared to the same periods of the prior fiscal year. The increase in net
sales for the three and six months ended October 24, 2008 was based on strong
worldwide net sales of the O-arm Imaging Systems, a multi-dimensional surgical imaging
platform that is optimized for use in spine and orthopedic surgery, and
increased worldwide service revenue.

Looking ahead,
we expect our Surgical Technologies operating segment should be impacted by the
following:

|  |                                                                                                                                                                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Continued
 acceptance of our FUSION EM IGS System, which was launched in the U.S. in the
 third quarter of fiscal year 2008.                                                                                                                                             
|  |                                                                                                                                                                                                                                                                          
| | Continued
 outside the U.S. adoption of power systems for sinus procedures, including
 the Straightshot M4 Microdebrider, as well as continued global adoption of
 nerve monitoring for ENT and thyroid procedures.                                                      
|  |                                                                                                                                                                                                                                                                          
| | Continued
 development of the normal pressure hydrocephalus market, resulting in
 increased sales of our shunt products, including the Strata valve, and
 continued acceptance of our Legend high-speed drill systems, electric bone
 mill, and Durepair dura substitute.
|  |                                                                                                                                                                                                                                                                          
| | Continued
 acceptance of the O-arm Imaging System.                                                                                                                                                                                                                       

37

---

|  |                                                                                                                                                                                                                                                                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Further
 integration of Restores Pillar System for the treatment of sleep breathing
 disorders. We anticipate the Pillar System will deliver new growth by
 providing us with a proven office-based procedure in a very fast growing
 segment of the obstructive sleep apnea market.                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                              
| | Potential
 slowdown in consumer and hospital spending given recent economic downturn.
 Given the elective nature of many of the underlying ENT procedures and the
 large capital equipment component of the Surgical Technologies businesses,
 there is potential exposure to macroeconomic pressures which could negatively
 impact the near-term sales growth within Surgical Technologies.

Continued net sales growth in all operating segments is
contingent on our ability to gain further market share, penetrate existing
markets, develop new products, improve existing products and develop new
markets.

Costs and Expenses

The following
is a summary of major costs and expenses as a percent of net sales:

|                                   |  |                     |      |                    |  |                    |   |                    |      |   |  |      |  
|---------------------------------- |  | ------------------- | ---- | ------------------ |  | ------------------ | - | ------------------ | ---- | - |  | ---- | -
|                                   |  | Three
 months ended |      | Six
 months ended  | 
|                                   |  |                     |      |                    | 
|                                   |  | October
 24,
 2008  |      | October
 26,
 2007 |  | October
 24,
 2008 |   | October
 26,
 2007 |     
|                                   |  |                     |      |                    |  |                    |   |                    |     
|Cost of
 products sold             |  |                     | 24.7 | %                  |  | 26.9               | % |                    | 23.9 | % |  | 26.1 | %
|Research
 & development            |  |                     | 9.1  |                    |  | 9.5                |   |                    | 8.9  |   |  | 9.6  |  
|Selling,
 general & administrative |  |                     | 35.4 |                    |  | 35.4               |   |                    | 35.5 |   |  | 35.2 |  
|Restructuring                      |  |                     |     |                    |  |                   |   |                    | 1.3  |   |  | 0.2  |  
|Certain
 litigation                |  |                     | 7.5  |                    |  |                   |   |                    | 3.7  |   |  |     |  
|IPR&D                              |  |                     | 0.5  |                    |  |                   |   |                    | 0.2  |   |  | 0.5  |  
|Other
 expense, net                |  |                     | 4.0  |                    |  | 2.3                |   |                    | 4.0  |   |  | 2.0  |  
|Interest
 expense/(income), net    |  |                     | 0.3  |                    |  | (2.0               | ) |                    | 0.3  |   |  | (1.7 | )

Cost of Products Sold

Cost of
products sold for the three and six months ended October 24, 2008, as a
percentage of net sales, both decreased 2.2 percentage points, when compared to
the same periods in the prior fiscal year. Cost of products sold as a
percentage of net sales in the three months ended October 24, 2008 was
positively impacted by 1.2 percentage points of favorable foreign currency
adjustments, 0.6 of a percentage point from the impact of Kyphon and 0.4 of a
percentage point from less inventory obsolescence in the current period versus
the comparable period in the prior year. Although the three months ended
October 24, 2008 included 1.1 percentage points of inventory write-off from the
anticipated launch of angioplasty products on a rapid exchange delivery system
in the U.S., the comparable three months ended October 26, 2007 included 1.5
percentage points of inventory write-off from the suspension of worldwide
distribution of the Fidelis lead. Cost of products sold as a percentage of net
sales in the six months ended October 24, 2008 was positively impacted by 1.1
percentage points of favorable foreign currency adjustments, 0.5 of a
percentage point from the impact of Kyphon, 0.4 of a percentage point from
product mix and other product costs, and 0.2 of a percentage point from less
inventory obsolescence as stated above.

Research and Development

Consistent
with prior periods, we have continued to invest in the future by spending
aggressively on research and development efforts. For the three and six months
ended October 24, 2008, research and development spending was $326 million and
$650 million, or 9.1 percent and 8.9 percent of net sales, respectively.
Research and development spending for the three and six months ended October
26, 2007 was $298 million and $598 million, or 9.5 percent and 9.6 percent of
net sales, respectively. While our research and development spending for the
three and six months ended October 24, 2008 increased over the prior year in
total, as a percentage of sales it has decreased for both periods. The decrease
is primarily the result of a reclassification of certain expenses to selling,
general, and administrative of $12 million and $23 million, respectively, for
the three and six months ended October 24, 2008 that would have otherwise been
included in research and development in the prior years. We remain committed to
developing technological enhancements and new indications for existing
products, and less invasive and new technologies to address unmet medical
needs. That commitment leads to our initiation and participation in numerous
clinical trials in every fiscal year. Furthermore, we expect our development
activities to help reduce patient care costs and the length of hospital stays
in  the future. In addition to our investment in
research and development, we continue to access new technologies in areas served
by our existing businesses, as well as in new areas, through acquisitions,
licensing agreements, alliances and certain strategic equity investments.

38

---

Selling, General and Administrative

Selling,
general and administrative expense for the three months ended October 24, 2008,
as a percentage of net sales, was flat at 35.4 percent of net sales, as
compared to the same period of the prior fiscal year. For the six months ended
October 24, 2008, there was an increase of 0.3 of a percentage point to 35.5 percent,
as compared to the same period of the prior fiscal year. For the three and six
months ended October 24, 2008, our initiatives to leverage our cost structure
helped reduce selling, general, and administrative expense. However, the
acquisition of Kyphon had a negative impact for the three and six months ended
October 24, 2008 of 0.6 of a percentage point and 0.7 of a percentage point,
respectively, and the reclassification of certain expenses from research and
development had a negative impact of 0.4 of a percentage point and 0.3 of a
percentage point, respectively.

Restructuring, Certain Litigation and
IPR&D Charges

Restructuring,
certain litigation, and IPR&D charges for the three and six months ended
October 24, 2008 and October 26, 2007 were as follows:

|                                                                       |  |                     |     |                   |   |                    |  |                  |      |   |   |     |  
|---------------------------------------------------------------------- |  | ------------------- | --- | ----------------- | - | ------------------ |  | ---------------- | ---- | - | - | --- | -
|                                                                       |  | Three
 months ended |     | Six
 months ended |  
|                                                                       |  |                     |     |                   |  
|(dollars in millions)                                                  |  | October
 24,
 2008  |     | October
 26,2007  |   | October
 24,
 2008 |  | October
 26,2007 |     
|                                                                       |  |                     |     |                   |   |                    |  |                  |     
|Restructuring charges                                                  |  | $                   |    |                   | $ |                   |  | $                | 96   |   | $ | 14  |  
|Certain litigation charges                                             |  |                     | 266 |                   |   |                   |  |                  | 266  |   |   |    |  
|IPR&D charges                                                          |  |                     | 18  |                   |   |                   |  |                  | 18   |   |   | 33  |  
|                                                                       |  |                     |     |                   |   |                    |  |                  |      |   |   |     |  
|Total restructuring, certain litigation and
 IPR&D charges             |  |                     | 284 |                   |   |                   |  |                  | 380  |   |   | 47  |  
|Net tax impact of restructuring, certain
 litigation and IPR&D charges |  |                     | (97 | )                 |   |                   |  |                  | (127 | ) |   | (11 | )
|                                                                       |  |                     |     |                   |   |                    |  |                  |      |   |   |     |  
|Total restructuring, certain litigation and IPR&D charges, net
of
 tax |  | $                   | 187 |                   | $ |                   |  | $                | 253  |   | $ | 36  |  
|                                                                       |  |                     |     |                   |   |                    |  |                  |      |   |   |     |  

Restructuring

Global Realignment Initiative

In fiscal year
2008, as part of a global realignment initiative, we recorded a restructuring
charge which focused on shifting resources to those areas where we have the
greatest opportunities for growth and streamlining operations to drive
operating leverage. The global realignment initiative impacted most businesses
and certain corporate functions. For additional information, see Note 5 to the
condensed consolidated financial statements.

As a
continuation of the global realignment initiative that began in fiscal year
2008, in the first quarter of fiscal year 2009 we incurred $96 million of
incremental restructuring charges, which consists of employee termination costs
of $91 million and asset write-downs of $5 million. The majority of the expense
recognized in the first quarter of fiscal year 2009 is related to the execution
of our global realignment initiative outside the U.S. This includes the
realignment and elimination of personnel throughout Europe and the Emerging
Markets and the closure of an existing facility in the Netherlands that will be
integrated into the U.S. operations. The remainder of the expense is associated
with enhanced severance benefits provided to employees identified in the fourth
quarter of fiscal year 2008. These incremental costs were not accrued in fiscal
year 2008 because the enhanced benefits had not yet been communicated to the
impacted employees.

There were no
restructuring charges in the second quarter of fiscal year 2009.

As of the end
of the first quarter of fiscal year 2009, we had identified approximately 900
positions for elimination through both voluntary and involuntary separation. Of
the 900 positions identified, 410 have been eliminated as of October 24, 2008.
The restructuring initiatives are scheduled to be substantially complete by the
end of fiscal year 2009, and are expected to produce annualized operating
savings of approximately $96 million. These savings will arise mostly from
reduced compensation expense.

39

---

Fiscal Year 2007 Initiative

In fiscal year
2007, we recorded a restructuring charge that was designed to drive
manufacturing efficiencies in our CardioVascular business, downsize our
Physio-Control business due to our voluntary suspension of U.S. shipments, and
rebalance resources within our CRDM business in response to market dynamics.
For additional information, see Note 5 to the condensed consolidated financial
statements.

As a
continuation of our fiscal year 2007 initiatives, in the first quarter of
fiscal year 2008 we incurred $14 million of incremental restructuring charges
associated with compensation provided to employees whose employment terminated
with the Company in the first quarter of fiscal year 2008. These incremental
costs were not accrued in fiscal year 2007 because these benefits had not yet
been communicated to the impacted employees. Included in the total $14 million
restructuring charge is $4 million of incremental defined benefit pension and
post-retirement related expense for those employees who accepted early
retirement packages. For further discussion on the incremental defined benefit
pension and post-retirement related expense, see Note 17 to the condensed
consolidated financial statements.

When the
restructuring initiative began in fiscal year 2007, we identified approximately
900 positions for elimination which were achieved through early retirement
packages offered to employees, voluntary separation, and involuntary
separation, as necessary. As of April 25, 2008, the initiatives begun in the
fourth quarter of fiscal year 2007 were substantially complete.

Certain Litigation

We classify
material litigation reserves recognized as certain litigation charges. During
the three and six months ended October 24, 2008, we incurred certain litigation
charges of $266 million. Of the amount recorded, $229 million relates to
litigation with Cordis Corporation (Cordis), a subsidiary of Johnson &
Johnson (J&J). The Cordis litigation originated in October 1997 and
pertains to patent infringement claims on previous generations of bare metal
stents that are no longer on the market. On September 30, 2008, the U.S.
District Court entered final judgment including accrued interest, totaling approximately
$521 million, to Cordis. We had previously recorded a charge of $243 million
related to this litigation in the third quarter of fiscal year 2008. At the
time the $243 million charge was recorded, the range of potential loss related
to this matter was subject to a high degree of estimation. The amount recorded
represented an estimate of the low end of the range of probable outcomes
related to the matter. Given that the Company and J&J are involved in a
number of litigation matters which span across businesses, we entered into
negotiations with J&J in an attempt to settle some of the additional
litigation simultaneous with the payment of this judgment. Ultimately, the
agreement reached with Cordis required a total cash payment of $472 million,
which included the settlement of several outstanding legal matters between the
parties. The charge of $229 million in the three months ended October 24, 2008
is the net result of $472 million in cash payments, offset by the existing
reserves on the balance sheet including interest accrued on the $243 million
since the date established. The remainder of the certain litigation charge of
$37 million relates to costs for the settlement of litigation that originated
in May 2006 with Fastenetix LLC (Fastenetix), a patent holding company. The
agreement reached with Fastenetix required a total cash payment of $125 million
for the settlement of ongoing litigation and the purchase of patents. Of the
$125 million, $37 million was assigned to past damages in the case and the
remaining $88 million was recorded as purchased intellectual property that has
an estimated useful life of 7 years. As of October 24, 2008, all of these
amounts have been paid. See Note 18 to the condensed consolidated financial
statements for further discussion of these cases.

During the
three and six months ended October 26, 2007, there were no certain litigation
charges.

IPR&D Charges

During the
three and six months ended October 24, 2008, we recorded $18 million of
IPR&D charges related to the purchase of certain intellectual property for
use in our Spinal business. These payments were expensed as IPR&D since
technological feasibility of the underlying project had not yet been reached
and such technology has no future alternative use.

During the first
quarter of fiscal year 2008, we recorded IPR&D charges of $25 million
related to a milestone payment under the existing terms of a royalty bearing,
non-exclusive patent cross-licensing agreement with NeuroPace, Inc. and $8
million from unrelated purchases of certain intellectual property. These
payments were expensed as IPR&D since technological feasibility of the
underlying projects had not yet been reached and such technology has no future
alternative use.

Other Expense, Net

Other expense,
net includes intellectual property amortization expense, royalty income and
expense, realized equity security gains and losses, realized foreign currency
transaction and derivative gains and losses and impairment charges on equity
securities. Other expense, net for the three and six months ended October 24,
2008 increased $71 million and $166 million, to $143 million and $294 million,
respectively, compared to the same periods in the prior fiscal year. The
increase of $71 million for the three months ended October 24, 2008 was
primarily due to currency hedges, which resulted in losses of $41 million in
the current period compared to $15 million in the same period of the prior
fiscal year, $23 million of amortization on intangible assets resulting from
the Kyphon acquisition, and $8 million of incremental royalty expense from
Endeavor royalties. Additionally, the comparative second quarter of fiscal year
2008 included $16 million of gains from the sale of certain equity investments.
The increase of $166 million for the six months ended October 24, 2008 was
primarily due to currency hedges, which resulted in losses of $109 million in
the current period compared to $17 million in the same period of the prior
fiscal year and $46 million of amortization on intangible assets resulting from
the Kyphon acquisition. Additionally, the comparative six months ending October
24, 2008 included $29 million of gains from the sale of certain equity
investments.

40

---

Interest Expense/(Income), Net

Interest
expense/(income), net includes interest earned on our investments, interest
paid on our borrowings, amortization of debt issuance costs and the net
realized gain or loss on the sale or impairment of available-for-sale (AFS)
debt securities. For the three and six months ended October 24, 2008, we had
interest expense/(income), net of $10 million and $19 million, respectively, as
compared to interest expense/(income), net of $(61) million and $(105) million
for the same periods of the prior fiscal year. The decrease in the three and
six months ended October 24, 2008 is the result of the cash used in financing
the Kyphon acquisition, lower interest rates being earned on our short- and
long-term investments, and an $18 million impairment charge recorded on our
marketable securities portfolio due to the decline in market conditions during
the three and six months ended October 24, 2008. See our discussion in the
Liquidity and Capital Resources section of this managements discussion and
analysis for more information regarding our investment portfolio. The Kyphon
acquisition was financed through a combination of approximately $3.303 billion
cash on hand, causing a decrease in interest income, the issuance of $600
million short-term commercial paper and borrowing $300 million through a new long-term
unsecured revolving credit facility, both causing increases to interest
expense.

Income Taxes

|                                                                |  |                     |       |                    |   |                    |   |                    |       |   |   |       |  
|--------------------------------------------------------------- |  | ------------------- | ----- | ------------------ | - | ------------------ | - | ------------------ | ----- | - | - | ----- | -
|                                                                |  | Three
 months ended |       | Six
 months ended  |  
|                                                                |  |                     |       |                    |  
|                                                                |  | October
 24,
 2008  |       | October
 26,
 2007 |   | October
 24,
 2008 |   | October
 26,
 2007 |      
|                                                                |  |                     |       |                    |   |                    |   |                    |      
|(dollars
 in millions)                                          |  |                     |       |                    |   |                    |   |                    |       |   |   |       |  
|Provision
 for Income Taxes                                     |  | $                   | 90    |                    | $ | 202                |   | $                  | 296   |   | $ | 406   |  
|Effective
 tax rate                                             |  |                     | 13.66 | %                  |   | 23.25              | % |                    | 18.34 | % |   | 23.21 | %
|Impact of
 restructuring, certain litigation, and IPR&D charges |  |                     | 6.12  |                    |   |                   |   |                    | 2.87  |   |   | 0.04  |  
|                                                                |  |                     |       |                    |   |                    |   |                    |       |   |   |       |  
|Non-GAAP
 nominal tax rate (1)                                  |  |                     | 19.78 | %                  |   | 23.25              | % |                    | 21.21 | % |   | 23.25 | %
|                                                                |  |                     |       |                    |   |                    |   |                    |       |   |   |       |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|(1) | Non-GAAP
 nominal tax rate is defined as the income tax (benefit) provision as a
 percentage of earnings before income taxes, excluding restructuring, certain
 litigation, and IPR&D charges. We believe that the 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.

Our effective
tax rate for the three and six months ended October 24, 2008 was 13.66 percent
and 18.34 percent, respectively, compared to 23.25 percent and 23.21 percent,
respectively, from the same periods of the prior fiscal year. Our non-GAAP
nominal tax rate for the three and six months ended October 24, 2008 was 19.78
percent and 21.21 percent, respectively, compared to 23.25 percent from the
same periods of the prior fiscal year. The change in our effective tax rate was
primarily due to the impact of restructuring, certain litigation, IPR&D
charges, the impact of tax benefits derived from our international operations,
and the cumulative tax benefit from the retroactive renewal of the research and
development credit (see below). The decrease in the Companys non-GAAP nominal
tax rate for the three and six months ended October 24, 2008 as compared to the
same periods of the prior fiscal year was due to the impact of tax benefits
derived from our international operations and the cumulative tax benefit from
the retroactive renewal of the research and development credit (see below). For
the six months ended October 24, 2008, the benefit derived from our
international operations is approximately 1.25%, with the remainder of the
benefit coming from the research and development credit.

During the
three and six months ended October 24, 2008, we recorded a $16 million tax
benefit associated with the retroactive renewal and extension of the research
and development credit enacted by the Tax Extenders and Alternative Minimum Tax
Relief Act of 2008. The $16 million tax benefit relates to the first seven
months of calendar year 2008 and was recorded in provision for income taxes on the condensed consolidated
statements of earnings.

41

---

Liquidity and Capital Resources

|                                                                               |  |                    |         |                |   |         |  
|------------------------------------------------------------------------------ |  | ------------------ | ------- | -------------- | - | ------- | -
|(dollars
 in millions)                                                         |  | October
 24,
 2008 |         | April
 25,2008 |  
|                                                                               |  |                    |         |                |  
|Working
 capital                                                               |  | $                  | 3,588   |                | $ | 3,787   |  
|Current
 ratio*                                                                |  |                    | 2.2:1.0 |                |   | 2.1:1.0 |  
|Cash, cash
 equivalents, and short-term investments                            |  | $                  | 1,042   |                | $ | 1,613   |  
|Long-term
 investments in debt securities**                                    |  |                    | 2,545   |                |   | 2,078   |  
|                                                                               |  |                    |         |                |   |         |  
|Cash, cash
 equivalents, short-term investments, and long-term debt securities |  | $                  | 3,587   |                | $ | 3,691   |  
|                                                                               |  |                    |         |                |   |         |  
|Short-term
 borrowings and long-term debt                                      |  | $                  | 6,541   |                | $ | 6,956   |  
|Net cash
 position***                                                          |  | $                  | (2,954  | )              | $ | (3,265  | )

|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Current
 ratio is the ratio of current assets to current liabilities.                                                                                                        
|**  | Long-term
 investments include debt securities with a maturity date greater than one
 year from the end of the period.                                                       
|*** | Net cash
 position is the sum of cash, cash equivalents, short-term investments and
 long-term investments in debt securities less short-term borrowings and
 long-term debt.

We believe our
liquidity remains strong as of October 24, 2008 and our strong balance sheet
and liquidity provide us with flexibility in the future. We believe our
existing cash and investments, as well as our unused lines of credit and
commercial paper capacity of $2.295 billion, if needed, will satisfy our
foreseeable working capital requirements for at least the next twelve months.
However, we periodically consider various financing alternatives and may, from
time to time, seek to take advantage of favorable interest rate environments or
other market conditions. At October 24, 2008, our Standard and Poors Ratings
Group and Moodys Investors Service ratings remain unchanged as compared to the
fiscal year ending April 25, 2008 with long-term debt ratings of AA- and A1,
respectively, and strong short-term debt ratings of A-1+ and P-1.

The increase
in our net cash position in the second quarter of fiscal year 2009 as compared
to the fiscal year ending April 25, 2008, was primarily due to income generated
from operations offset by cash used for litigation settlements, net purchases
of marketable securities, capital expenditures, dividend payments, and share
repurchases.

We have future
contractual obligations and other minimum commercial commitments that are
entered into in the normal course of business. We believe our off-balance sheet
arrangements do not have a material current or anticipated future effect on our
consolidated earnings, financial position, or cash flows. See the Off-Balance
Sheet Arrangements and Long-Term Contractual Obligations section of this
managements discussion and analysis for further information.

Note 18 to the
condensed consolidated financial statements provides information regarding
amounts we have accrued related to significant legal proceedings. In accordance
with SFAS No. 5, we record a liability in our consolidated financial statements
for these actions when a loss is known or considered probable and the amount
can be reasonably estimated. For both the three and six months ended October
24, 2008, we have made significant payments related to certain legal
proceedings. For information regarding these payments, please see the Summary
of Cash Flows section of this managements discussion and analysis for further
information.

At October 24,
2008 and April 25, 2008, approximately $3.314 billion and $3.317 billion,
respectively, of cash, cash equivalents, short-term investments and long-term
investments in debt securities were held by our non-U.S. subsidiaries. These
funds are available for use by worldwide operations; however, if these funds
were repatriated to the U.S. or used for U.S. operations, the amounts would
generally be subject to U.S. tax. As a result, we have not chosen to repatriate
this cash but instead use cash generated from U.S. operations and short- and
long-term borrowings to meet our U.S. cash needs.

We have
investments in marketable debt securities that are classified and accounted for
as available-for-sale. Our debt securities include government securities,
commercial paper, corporate debt securities, bank certificates of deposit, and
mortgage backed and other asset backed securities including auction rate
securities. Market conditions during the first half of fiscal year 2009 and
subsequent to our October 24, 2008 quarter-end continue to indicate significant
uncertainty on the part of investors on the economic outlook for the U.S. and for
financial institutions that have potential exposure to the sub-prime housing
market. This uncertainty has created reduced liquidity across the fixed income
investment market, including certain securities in which we have invested. As a
result, some of our investments have experienced reduced liquidity including
unsuccessful monthly auctions for our auction rate security holdings. During
the third quarter of fiscal year 2008, we reclassified all of our auction rate
fixed income securities, which had a cost basis of $198 million, from short-term investments to long-term
investments on our condensed
consolidated balance sheet due to the fact that they are currently not trading,
and current conditions in the general debt markets have reduced the likelihood
that the securities will successfully auction within the next 12 months. Auction rate securities
that did not successfully auction reset to the maximum rate as prescribed in
the underlying indenture and all of our holdings continue to be current with their
interest payments. Additionally, if we required capital we believe we could
liquidate a substantial amount of our portfolio and incur no material
impairment loss or borrow under our commercial paper program or lines of
credit.

42

---

For the three
and six months ended October 24, 2008, we recognized an other-than-temporary
impairment loss on AFS debt securities of $18 million and $21 million,
respectively. In determining this other-than-temporary impairment loss, we
considered the guidance provided by SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and related guidance. This guidance
specifies that we consider a variety of factors, including the quality and
estimated value of the underlying credit support for our holding and the
financial condition and credit rating of the issuer. Based on our assessment of
the credit quality of the underlying collateral and credit support available to
each of the remaining securities in which we are invested, we believe we have
recorded all necessary other-than-temporary impairments as we have the ability
and the intent to hold these investments long enough to avoid realizing any
further losses. However, as of October 24, 2008, we have $163 million of gross
unrealized losses on our aggregate investments of $3.046 billion; if market
conditions continue to deteriorate further, some of these holdings may
experience other-than-temporary impairment in the future which could have a
material impact on our financial results. Management is required to use
estimates and assumptions in its valuation of our investments, which requires a
high degree of judgment, and therefore actual results could differ materially
from those estimates. See Note 7 to the condensed consolidated financial
statements for additional information regarding fair value measurements under
SFAS No. 157, Fair Value Measurements.

Summary of Cash Flows

|                                                              |  |  |                    |        |                    |   |       |  
|------------------------------------------------------------- |  |  | ------------------ | ------ | ------------------ | - | ----- | -
|                                                              |  |  | Six
 months ended  |       
|                                                              |  |  |                    |       
|(dollars in millions)                                         |  |  | October
 24,
 2008 |        | October
 26,
 2007 |  
|                                                              |  |  |                    |        |                    |  
|Cash
 provided by (used in):                                  |  |  |                    |        |                    |   |       |  
|Operating
 activities                                         |  |  | $                  | 1,620  |                    | $ | 1,805 |  
|Investing
 activities                                         |  |  |                    | (988   | )                  |   | 2,255 |  
|Financing
 activities                                         |  |  |                    | (1,091 | )                  |   | (602  | )
|Effect of
 exchange rate changes on cash and cash equivalents |  |  |                    | (60    | )                  |   | (31   | )
|                                                              |  |  |                    |        |                    |   |       |  
|Net change
 in cash and cash equivalents                      |  |  | $                  | (519   | )                  | $ | 3,427 |  
|                                                              |  |  |                    |        |                    |   |       |  

Operating Activities

Our net cash
provided by operating activities was $1.620 billion for the six months ended
October 24, 2008 compared to $1.805 billion provided by operating activities
for the six months ended October 26, 2007. The $185 million decrease in net
cash provided by operating activities was primarily attributable to payments
for litigation settlements partially offset by gains on foreign currency
contracts and timing of the settlement of foreign currency contracts. In the
first quarter of fiscal year 2009, we paid substantially all of the $123
million settlement for certain lawsuits relating to the Marquis line of ICDs
and CRT-Ds and we paid the $75 million settlement for the Kyphon qui tam complaint,
which we assumed as a liability in the acquisition of Kyphon. For more
information regarding these settlements, refer to Note 15 of the consolidated
financial statements included in the Companys Annual Report on Form 10-K for
the year ended April 25, 2008. In the second quarter of fiscal year 2009, we
paid $472 million in settlement for the Cordis litigation which pertains to
patent infringement claims on previous generations of bare metal stents that
are no longer on the market. We also paid $125 million to Fastenetix for the
settlement of ongoing litigation and the purchase of patents in the second
quarter of fiscal year 2009. Of the $125 million, $37 million was assigned to
past damages in the case and was therefore recorded as a certain litigation
charge in the second quarter of fiscal year 2009. This portion of the $125
million payment is reflected in our cash flow from operations. The remaining
$88 million was recorded as purchased intellectual property and is included in
our cash flow from investing activities. Please see the Restructuring, Certain
Litigation, and IPR&D Charges section of this managements discussion and
analysis for further information.

Investing Activities

Our net cash
used in investing activities was $988 million for the six months ended October
24, 2008 compared to $2.255 billion provided by investing activities for the
six months ended October 26, 2007. The use of cash in the three months ended
October 24, 2008 is primarily related to the movement of cash to marketable
securities to take advantage of higher yields. The large inflow of cash in the
three months ended October 26, 2007 is primarily related to the liquidation of
marketable securities in anticipation of the close of the Kyphon acquisition
which took place in the third quarter of fiscal year 2008.

43

---

Financing Activities

Our net cash
used in financing activities was $1.091 billion for the six months ended
October 24, 2008 compared to $602 million for the six months ended October 26,
2007. The $489 million increase in net cash used in financing activities was
primarily attributable to the repayment of cash used for short-term and
long-term debt and an increase in cash used for dividend payments to
shareholders. These cash outflows were partially offset by a decrease in cash
used for stock repurchases.

Off-Balance Sheet Arrangements and Long-Term
Contractual Obligations

We acquire
assets still in development, enter into research and development arrangements
and sponsor certain clinical trials that often require milestone and/or royalty
payments to a third-party, contingent upon the occurrence of certain future
events. Milestone payments may be required contingent upon the successful
achievement of an important point in the development life cycle of a product or
upon certain pre-designated levels of achievement in clinical trials. In
addition, if required by the arrangement, we may have to make royalty payments
based on a percentage of sales related to the product under development or in
the event that regulatory approval for marketing is obtained. In situations
where we have no ability to influence the achievement of the milestone or
otherwise avoid the payment, we have included those milestone or minimum
royalty payments in the following table. However, the majority of these
arrangements give us the discretion to unilaterally make the decision to stop
development of a product or cease progress of a clinical trial, which would
allow us to avoid making the contingent payments. Although we are unlikely to
cease development if a device successfully achieves clinical testing
objectives, these payments are not included in the table of contractual
obligations because of the contingent nature of these payments and our ability
to avoid them if we decided to pursue a different path of development or
testing.

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

We believe our
off-balance sheet arrangements do not have a material current or anticipated
future effect on our consolidated earnings, financial position or cash flows.
Presented below is a summary of contractual obligations and other minimum
commercial commitments as of October 24, 2008. See Note 8 to the condensed
consolidated financial statements for additional information regarding
long-term debt. See Note 13 to the condensed consolidated financial statements
for additional information regarding accrued income tax obligations, which are
not reflected in the table below.

|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|---------------------------------------------------------------------------------- |  | ------------------------ | ----- | --------------- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | ---------- | --- |  | - | ----- |  | - | --- | 
|                                                                                   |  | Maturity
 by Fiscal Year |      
|                                                                                   |  |                          |      
|                                                                                   |  | Total                    |       | Remaining
 2009 |   | 2010  |  | 2011 |       | 2012 |   | 2013  |  | Thereafter |    
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |    
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|(dollars
 in millions)                                                            
|Contractual obligations related to off-balance sheet
 arrangements:                |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|Foreign currency contracts (1)                                                     |  | $                        | 6,241 |                 | $ | 3,684 |  | $    | 1,896 |      | $ | 661   |  | $          |    |  | $ |      |  | $ |    | 
|Operating leases (2)                                                               |  |                          | 257   |                 |   | 57    |  |      | 69    |      |   | 43    |  |            | 24  |  |   | 18    |  |   | 46  | 
|Inventory purchases (3)                                                            |  |                          | 706   |                 |   | 146   |  |      | 283   |      |   | 113   |  |            | 37  |  |   | 34    |  |   | 93  | 
|Commitments to fund minority investments/contingent acquisition
 consideration (4) |  |                          | 472   |                 |   | 250   |  |      | 56    |      |   | 28    |  |            | 32  |  |   | 24    |  |   | 82  | 
|Interest payments (5)                                                              |  |                          | 479   |                 |   | 57    |  |      | 115   |      |   | 106   |  |            | 64  |  |   | 64    |  |   | 73  | 
|Other (6)                                                                          |  |                          | 225   |                 |   | 27    |  |      | 57    |      |   | 37    |  |            | 25  |  |   | 11    |  |   | 68  | 
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|Total                                                                              |  | $                        | 8,380 |                 | $ | 4,221 |  | $    | 2,476 |      | $ | 988   |  | $          | 182 |  | $ | 151   |  | $ | 362 | 
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|Contractual obligations reflected in the balance
 sheet:                           |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|Long-term debt, excluding capitalleases (7)                                        |  | $                        | 5,456 |                 | $ |      |  | $    |      |      | $ | 2,609 |  | $          | 15  |  | $ | 2,200 |  | $ | 632 | 
|Capital leases (8)                                                                 |  |                          | 78    |                 |   | 11    |  |      | 13    |      |   | 16    |  |            | 17  |  |   | 20    |  |   | 1   | 
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|Total                                                                              |  | $                        | 5,534 |                 | $ | 11    |  | $    | 13    |      | $ | 2,625 |  | $          | 32  |  | $ | 2,220 |  | $ | 633 | 
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 

44

---

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As these
 obligations were entered into as hedges, the majority of these obligations
 will be offset by losses/gains on the related assets, liabilities and
 transactions being hedged.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | Certain
 leases require us to pay real estate taxes, insurance, maintenance, and other
 operating expenses associated with the leased premises. These future costs
 are not included in the schedule above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | We have
 included inventory purchase commitments which are legally binding and specify
 minimum purchase quantities. These purchase commitments do not exceed our
 projected requirements and are in the normal course of business. These
 commitments do not include open purchase orders.                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(4) | Certain
 commitments related to the funding of minority investments and/or previous
 acquisitions are contingent upon the achievement of certain product-related
 milestones and various other favorable operational conditions. While it is
 not certain if and/or when these payments will be made, the maturity dates
 included in this table reflect our best estimates. These commitments also
 include our agreement to purchase a 15 percent equity interest in Shandong
 Weigao Group Medical Polymer Company Limited (Weigao) for approximately $220
 million. We expect to close the transaction in the third quarter of fiscal
 year 2009.                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(5) | Interest
 payments in the table above reflect the interest on our outstanding debt,
 including the $4.400 billion of Senior Convertible Notes, $1.000 billion of
 Senior Notes and $15 million of Contingent Convertible Debentures. The
 interest rate on each outstanding obligation varies and interest is payable
 semi-annually. The interest rate is 1.500 percent on the $2.200 billion
 Senior Convertible Notes due 2011 and 1.625 percent on the $2.200 billion
 Senior Convertible Notes due 2013, 4.375 percent on the $400 million of
 Senior Notes due 2010, 4.750 percent on the $600 million of Senior Notes due
 2015, and 1.250 percent on the Contingent Convertible Debentures due 2021.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(6) | These
 obligations include certain research and development arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(7) | Long-term
 debt in the table above includes $4.400 billion Senior Convertible Notes
 issued in April 2006, and $1.000 billion Senior Notes issued in September
 2005 and $15 million related to our Contingent Convertible Debentures. The
 table above also includes the impact of the five year interest rate swap
 entered into in November 2005 and the eight year interest rate swap agreement
 entered into in June 2007.                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(8) | Capital lease
 obligations include a sale-leaseback agreement entered into in fiscal year
 2006 whereby certain manufacturing equipment was sold and is being leased by
 us over a seven year period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Debt and Capital

Our capital
structure consists of equity and interest-bearing debt. Interest-bearing debt
as a percentage of total interest-bearing debt and equity was 34 percent at
October 24, 2008 in comparison to 38 percent at April 25, 2008.

Share Repurchase Program

In June 2007,
our Board of Directors authorized the repurchase of up to 50 million shares of
our common stock. In addition, in April 2006, the Board of Directors made a
special authorization for the repurchase of up to 50 million shares in
connection with the $4.400 billion Senior Convertible Note offering.

Shares are
repurchased from time to time to support our stock-based compensation programs
and to take advantage of favorable market conditions. During the three and six
months ended October 24, 2008, we repurchased approximately 9.5 million and
12.9 million shares, respectively, at an average price per share of $48.64 and
$49.35, respectively. As of October 24, 2008, we have approximately 21.4
million shares remaining under current buyback authorizations approved by the
Board of Directors.

Financing Arrangements

We have used a
combination of bank borrowings and commercial paper to fund our short-term
needs. Short-term debt, including the current portion of our capital lease
obligations, at October 24, 2008 was $1.018 billion compared to $1.154 billion
at April 25, 2008. We utilize a combination of contingent convertible
debentures, senior convertible notes, and senior notes to meet our long-term
financing needs. Long-term debt at October 24, 2008 was $5.523 billion compared
to $5.802 billion at April 25, 2008. For more information on our financing
arrangements, see Note 8 to the condensed consolidated financial statements.

Credit Arrangements and Debt Ratings

We have
existing unsecured lines of credit of approximately $2.802 billion with various
banks at October 24, 2008. The existing lines of credit include a five-year
$1.750 billion syndicated credit facility dated December 20, 2006 that will
expire on December 20, 2011 (Credit Facility). The Credit Facility provides
backup funding for the commercial paper program and may also be used for
general corporate purposes.

45

---

The Credit
Facility provides us with the ability to increase its capacity by an additional
$500 million at any time during the life of the five-year term of the
agreement. We can also request the extension of the Credit Facility maturity
date for one additional year on December 20, 2008, the second anniversary of
the date of this facility.

As of October
24, 2008 and April 25, 2008, we have unused credit lines and commercial paper
capacity of approximately $2.295 billion and $1.945 billion, respectively.

We maintain a
commercial paper program that allows us to have a maximum of
$2.250 billion in commercial paper outstanding, with maturities up to
364 days from the date of issuance. As of October 24, 2008 and April 25,
2008, outstanding commercial paper totaled $853 million and $874 million,
respectively. During the three and six months ended October 24, 2008, the
weighted average original maturity of the commercial paper outstanding was
approximately 47 days and 40 days, respectively, and the weighted average interest
rate was 2.14 percent for both periods. The issuance of commercial paper
reduces the amount of credit available under our existing lines of credit.

In connection
with the issuance of the contingent convertible debentures, Senior Notes,
Senior Convertible Notes and commercial paper, Standard and Poors Ratings
Group and Moodys Investors Service issued us strong long-term debt ratings of
AA- and A1, respectively, and strong short-term debt ratings of A-1+ and P-1,
respectively. These ratings remain unchanged as compared to the fiscal year
ending April 25, 2008. For more information on credit arrangements, see Note 8
to the condensed consolidated financial statements.

Operations Outside of the United States

The table
below illustrates U.S. net sales versus net sales outside the U.S. for the
three and six months ended October 24, 2008 and October 26, 2007:

|                      |  |                     |       |                   |   |                  |  |                  |       |  |   |       | 
|--------------------- |  | ------------------- | ----- | ----------------- | - | ---------------- |  | ---------------- | ----- |  | - | ----- | 
|                      |  | Three
 months ended |       | Six months
 ended |  
|                      |  |                     |       |                   |  
|(dollars in millions) |  | October
 24,2008    |       | October
 26,2007  |   | October
 24,2008 |  | October
 26,2007 |      
|                      |  |                     |       |                   |   |                  |  |                  |      
|U.S. net
 sales       |  | $                   | 2,196 |                   | $ | 1,958            |  | $                | 4,445 |  | $ | 3,906 | 
|Non-U.S. net
 sales   |  |                     | 1,374 |                   |   | 1,166            |  |                  | 2,831 |  |   | 2,344 | 
|                      |  |                     |       |                   |   |                  |  |                  |       |  |   |       | 
|Total net
 sales      |  | $                   | 3,570 |                   | $ | 3,124            |  | $                | 7,276 |  | $ | 6,250 | 
|                      |  |                     |       |                   |   |                  |  |                  |       |  |   |       | 

For the three
and six months ended October 24, 2008, consolidated net sales outside the U.S.
grew 18 percent and 21 percent, respectively, over the same periods of the
prior year. For the three and six months ended October 24, 2008, growth outside
the U.S. was 6 percent and 7 percent, respectively, higher than net sales
growth in the U.S. primarily as a result of the CRDM, CardioVascular, and
Spinal businesses. Overall, for the three and six months ended October 24,
2008, outside of the U.S. net sales were led by CardioVasculars Endeavor
Resolute and CRDMs Defibrillator Systems. The acquisition of Kyphon increased
the sales for the Spinal business outside of the U.S. as well.

Net sales
outside the U.S. are accompanied by certain financial risks, such as collection
of receivables, which typically have longer payment terms. Outstanding
receivables from customers outside the U.S. totaled $1.508 billion at October
24, 2008, or 50 percent, of total outstanding accounts receivable, and $1.800
billion at April 25, 2008, or 53 percent, of total outstanding accounts
receivable.

Cautionary Factors That May Affect Future
Results

Certain
statements contained in this Quarterly Report on Form 10-Q and other written
and oral statements made from time to time by us do not relate strictly to historical
or current facts. As such, they are considered forward-looking statements
which provide current expectations or forecasts of future events. Our
forward-looking statements generally relate to our growth strategies, financial
results, product development, regulatory approvals, competitive strengths, the
scope of our intellectual property rights, litigation, mergers and
acquisitions, integration of our acquisitions, including Kyphon, divestitures,
market acceptance or continued acceptance of our products, accounting
estimates, financing activities, ongoing contractual obligations, and sales
efforts. Such statements can be identified by the use of terminology such as
anticipate, believe, could, estimate, expect, forecast,
intend,
may, plan, possible, potential, project, should,
will and similar
words or expressions. One must carefully consider forward-looking statements
that may be affected by inaccurate assumptions, and understand that such
statements involve a variety of risks and uncertainties, known and unknown,
including, among others, risks related to competition in the medical device
industry, reduction or interruption in our supply, quality problems and price
decreases for our products and services, and international operations, as well
as those discussed in the section entitled Risk Factors in our Annual Report
on Form 10-K for the year ended April 25, 2008. Consequently, no
forward-looking statement can be guaranteed
and actual results may vary materially. We intend to take advantage of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995
regarding our forward-looking statements, and are including this sentence for
the express purpose of enabling us to use the protections of the safe harbor
with respect to all forward-looking statements.

46

---

We undertake
no obligation to update any forward-looking statement, but investors are
advised to consult any further disclosures by us in our filings with the
Securities and Exchange Commission, especially on Forms 10-K, 10-Q, and 8-K (if
any), in which we may discuss in more detail various important factors that
could cause actual results to differ from expected or historical results. It is
not possible to foresee or identify all such factors. As such, investors should
not consider any list of such factors to be an exhaustive statement of all
risks, uncertainties or potentially inaccurate assumptions.

Item 3. Quantitative and
Qualitative Disclosures About Market Risk

Due to the
global nature of our operations, we are subject to the exposures that arise
from foreign currency exchange rate fluctuations. In a period where the U.S.
dollar is strengthening as compared to other currencies, our revenues and
expenses denominated in foreign currency are translated into a lower value than
they would be in an otherwise constant environment. Based on our experience in
the three months ended October 24, 2008, we expect the second half of the
fiscal year will result in a stronger dollar than in the prior fiscal year. As
a result, we would anticipate revenue growth rates, and to a lesser extent,
earnings will be negatively affected by these changes in currency exchange
rates. We manage these exposures using operational and economic hedges as well
as derivative financial instruments. The primary currencies hedged are the Euro
and the Japanese Yen.

Our objective
in managing exposure to foreign currency fluctuations is to minimize earnings
and cash flow volatility associated with foreign exchange rate changes. We
enter into various contracts, principally forward contracts that change in
value as foreign exchange rates change, to protect the value of existing
foreign currency assets, liabilities, net investments, and probable
commitments. The gains and losses on these contracts offset changes in the
value of the related exposures. It is our policy to enter into foreign currency
hedging transactions only to the extent true exposures exist; we do not enter
into foreign currency transactions for speculative purposes.

We had foreign
exchange derivative contracts outstanding in notional amounts of $6.241 billion
and $6.613 billion at October 24, 2008 and April 25, 2008, respectively. The
fair value of these contracts at October 24, 2008 was $417 million more than
the original contract value. A sensitivity analysis of changes in the fair
value of all foreign exchange derivative contracts at October 24, 2008
indicates that, if the U.S. dollar uniformly strengthened/weakened by 10
percent against all currencies, the fair value of these contracts would
increase/decrease by $602 million, respectively. Any gains and losses on the
fair value of derivative contracts would be largely offset by gains and losses
on the underlying transactions. These offsetting gains and losses are not reflected
in the above analysis. We are also exposed to interest rate changes affecting
principally our investments in interest rate sensitive instruments. A
sensitivity analysis of the impact on our interest rate sensitive financial
instruments of a hypothetical 10 percent change in short-term interest rates
compared to interest rates at October 24, 2008 indicates that the fair value of
these instruments would correspondingly change by $28 million.

We have
investments in marketable debt securities that are classified and accounted for
as available-for-sale. Our debt securities include government securities,
commercial paper, corporate debt securities, bank certificates of deposit, and
mortgage backed and other asset backed securities including auction rate securities.
For a discussion of current market conditions and the impact on Medtronic,
please see the Liquidity and Capital Resources section of managements
discussion and analysis.

We lend
certain fixed income securities to enhance our investment income. These lending
activities are indemnified against counterparty risk and collateralized at an
average rate of 102 percent, with the collateral determined based on the
underlying securities and creditworthiness of the borrowers. The value of the
securities on loan at October 24, 2008 and April 25, 2008 was $0 and
$610 million, respectively.

Item 4. Controls and
Procedures

Evaluation of disclosure controls and procedures

Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934 (the Exchange Act)) and changes in the
Companys internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of the period covered by
this quarterly report, our disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act) are effective and are adequately designed
to ensure that information required to be disclosed by us in the reports we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in applicable rules and forms.

47

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Changes in internal control

There have
been no changes in the Companys internal control over financial reporting during
the period covered by this Quarterly Report on Form 10-Q that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.

PART II  OTHER INFORMATION

Item 1. Legal Proceedings

A discussion
of the Companys policies with respect to legal proceedings is discussed in the
managements discussion and analysis and our legal proceedings and other loss
contingencies are described in Note 18 of the condensed consolidated financial
statements. The description of our legal proceedings in Note 18 of the
condensed consolidated financial statements to this filing is incorporated
herein by reference.

On October 24,
2005, the Company received a subpoena from the Office of the United States
Attorney for the District of Massachusetts issued under the Health Insurance
Portability & Accountability Act of 1996 requesting documents the Company
may have, if any, relating to pacemakers and defibrillators and related
components; monitoring equipment and services; a provision of benefits, if any,
to persons in a position to recommend purchases of such devices; and the
Companys training and compliance materials relating to the fraud and abuse and
federal Anti-Kickback statutes. In September 2008, the United States Attorneys
office for the District of Massachusetts informed Medtronic that it is no
longer pursuing its investigation of Medtronic, related to the October 24, 2005
subpoena. On September 5, 2008, Medtronic received a subpoena from the Office
of Inspector General for the Department of Health and Human Services in the
District of Minnesota, requesting production of substantially the same
materials covered in the 2005 Massachusetts subpoena. Medtronic is in the
process of responding to the subpoena and will comply as required with the
terms of that subpoena.

The Company
has received two letter requests from Senator Charles Grassley of the U.S.
Senate Committee on Finance. On September 20, 2007, Senator Grassley sent a
letter requesting information about financial ties between the medical device
industry and practicing physicians. On October 16, 2007, Senator Grassley sent
a letter requesting information about the Companys decision to suspend
distribution of its Sprint Fidelis family of defibrillation leads. On September
30, 2008, Senator Grassley sent a letter with follow-up requests to the
September 20, 2007 letter requesting information on financial ties with
physicians who use INFUSE Bone Graft. On October 16, 2008, Senators Grassley
and Kohl sent a joint letter requesting information about the Cardiac Research
Foundation and Columbia University. The Company is cooperating with the
information requests.

On September
25, 2007, the Company received a letter from the SEC requesting information
relating to any potential violations of the U.S. Foreign Corrupt Practices Act
in connection with the sale of medical devices in an unspecified number of
foreign countries, including Greece, Poland and Germany. Turkey, Italy and
Malaysia have since been added to the inquiry. The letter notes that the
Company is a significant participant in the medical device industry, and seeks
any information concerning certain types of payments made directly or
indirectly to government-employed doctors. A number of competitors have publicly
disclosed receiving similar letters. On November 16, 2007, the Company received
a letter from the Department of Justice requesting any information provided to
the SEC. The Company is cooperating with both requests.

On or about
October 31, 2007, the Company received a letter from the United States
Attorneys Office for the Eastern District of Pennsylvania requesting documents
relating to the Companys relationship with one of its customers and any
payments or things of value provided by the Company to physicians, physician
groups, hospitals, medical practices or other entities relating to the purchase
of the Companys cardiac resynchronization therapy devices and cardiac stents.
The Company is complying with the investigation.

In late June
2008, the Company received a subpoena issued by the United States Attorneys
Office for the District of Massachusetts pursuant to the Health Insurance
Portability & Accountability Act of 1996, relating to the Companys
marketing of biliary stents. Medtronic is complying with the terms of the
subpoena.

On October 6,
2008, Medtronic received a subpoena from the United States Attorneys Office
for the District of Massachusetts pursuant to the Health Insurance Portability
& Accountability Act of 1996 requesting production of documents relating to
Medtronics INFUSE Bone Graft product. Medtronic is in the process of
responding to that subpoena and will comply as required with the terms of the
subpoena.

48

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Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following
table provides information about the shares repurchased by Medtronic during the
second quarter of fiscal year 2009:

|                  |  |                                         |           |                                   |   |                                                                                |  |                                                                            |           |  |  |            | 
|----------------- |  | --------------------------------------- | --------- | --------------------------------- | - | ------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------- | --------- |  |  | ---------- | 
|Fiscal
 Period    |  | Total
 Number of 
 Shares Purchased (1) |           | Average
 Price 
 Paid per 
 Share |   | Total
 Number of Shares 
 Purchased as a Part of
 Publicly Announced 
 Program |  | Maximum
 Number 
 of Shares that May
 Yet Be Purchased 
 Under the Program |          
|                  |  |                                         |           |                                   |   |                                                                                |  |                                                                            |          
|07/26/08-08/22/08 |  |                                         | 1,630,000 |                                   | $ | 55.25                                                                          |  |                                                                            | 1,630,000 |  |  | 29,307,684 | 
|08/23/08-09/26/08 |  |                                         | 3,678,200 |                                   |   | 52.73                                                                          |  |                                                                            | 3,678,200 |  |  | 25,629,484 | 
|09/27/08-10/24/08 |  |                                         | 4,223,100 |                                   |   | 42.54                                                                          |  |                                                                            | 4,223,100 |  |  | 21,406,384 | 
|                  |  |                                         |           |                                   |   |                                                                                |  |                                                                            |           |  |  |            | 
|Total             |  |                                         | 9,531,300 |                                   | $ | 48.64                                                                          |  |                                                                            | 9,531,300 |  |  | 21,406,384 | 
|                  |  |                                         |           |                                   |   |                                                                                |  |                                                                            |           |  |  |            | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(1) | In June
 2007, our Board of Directors authorized the repurchase of up to 50 million
 shares of our common stock. In addition, in April 2006, the Board of
 Directors made a special authorization for the repurchase of up to 50 million
 shares in connection with the $4.400 billion Senior Convertible Note
 offering. As authorized by the Board of Directors, each program expires when
 its total number of authorized shares has been repurchased.

Item 4. Submission of
Matters to a Vote of Security Holders

At the
Companys 2008 Annual Meeting of Shareholders held on August 21, 2008, the
shareholders voted on the following:

(a) To elect
six Directors of the Company to serve for one-year terms, as follows:

| |                            |  |             |  |                     | 
| | -------------------------- |  | ----------- |  | ------------------- | 
| | Director                   |  | Votes For   |  | Authority
 Withheld | 
| |                            |  |             |  |                     | 
| | Victor J. Dzau, M.D.       |  | 898,020,754 |  | 56,210,690          | 
| | William A. Hawkins         |  | 902,168,500 |  | 52,062,944          | 
| | Shirley Ann Jackson, Ph.D. |  | 898,433,631 |  | 55,797,813          | 
| | Denise M. OLeary          |  | 907,874,086 |  | 46,357,358          | 
| | Jean-Pierre Rosso          |  | 907,817,524 |  | 46,413,920          | 
| | Jack W. Schuler            |  | 831,978,064 |  | 122,253,380         | 
| |                            |  |             |  |                     | 

|                                                                                                                                                    |  |             |  |                |  |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | -------------- |  | ---------- | 
|                                                                                                                                                    |  | Voted For   |  | Voted
 Against |  | Abstain    | 
|                                                                                                                                                    |  |             |  |                |  |            | 
|(b) To
 ratify the appointment of PricewaterhouseCoopers 
 LLP as Medtronics independent registered public accounting 
 firm for fiscal year 2009. |  | 934,325,241 |  | 9,988,956      |  | 9,917,247  | 
|                                                                                                                                                    |  |             |  |                |  |            | 
|(c) To
 approve the Medtronic, Inc. 2008 Stock Award and Incentive Plan.                                                                            |  | 737,969,076 |  | 71,297,826     |  | 11,944,467 | 
|                                                                                                                                                    |  |             |  |                |  |            | 

Item 6. Exhibits

|    |          |                                                                                                                      
|--- | -------- | ---------------------------------------------------------------------------------------------------------------------
|(a) | Exhibits
|    |         
|    | 10.1     | Form of Non-Employee Director Initial Option Agreement under the Medtronic, Inc. 2008 Stock Award and Incentive Plan.
|    |          |                                                                                                                      
|    | 10.2     | Form of Non-Employee Director Annual Option Agreement under the Medtronic, Inc. 2008 Stock Award and Incentive Plan. 
|    |          |                                                                                                                      
|    | 10.3     | Form of Non-Employee Director Deferred Unit Award Agreement 2008 Stock Award and Incentive Plan.                     
|    |          |                                                                                                                      
|    | 12.1     | Medtronic,
 Inc. Computation of Ratio of Earnings to Fixed Charges.                                                  
|    |          |                                                                                                                      
|    | 31.1     | Certification
 of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
 Act of 2002.                
|    |          |                                                                                                                      
|    | 31.2     | Certification
 of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
 Act of 2002.                
|    |          |                                                                                                                      
|    | 32.1     | Certification
 of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002.                
|    |          |                                                                                                                      
|    | 32.2     | Certification
 of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002.                
|    |          |                                                                                                                      

| |  | 
| |  | 
| | 

49

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SIGNATURES

Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                        |                                      
|----------------------- | -------------------------------------
|                        | Medtronic,
 Inc.                     
|                        | (Registrant)                         
|                        |                                      
|Date:
 December 3, 2008 | /s/   William
 A. Hawkins            
|                        |                                      
|                        | William A.
 Hawkins                  
|                        | Chairman and
 Chief Executive Officer
|                        |                                      
|Date:
 December 3, 2008 | /s/   Gary
 L. Ellis                 
|                        |                                      
|                        | Gary L.
 Ellis                       
|                        | Senior Vice
 President and           
|                        | Chief
 Financial Officer             

50

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