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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 January 23, 2009

|                                                       |                  |                    
|------------------------------------------------------ | ---------------- | -------------------
|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 February 27, 2009: 1,119,284,090

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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 |  | 29   | 
|3.      |  | Quantitative and Qualitative Disclosures About Market Risk                             |  | 50   | 
|4.      |  | Controls and Procedures                                                                |  | 51   | 
|PART II
|1.      |  | Legal Proceedings                                                                      |  | 51   | 
|2.      |  | Unregistered Sales of Equity Securities and Use of Proceeds                            |  | 52   | 
|6.      |  | Exhibits                                                                               |  | 53   | 

---



PART I  FINANCIAL
INFORMATION

Item 1. Financial Statements

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

|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------------------- | ------- | ------------------ | - | ------------------ | - | ------------------ | ------- |  | - | ------- | -
|                                                               |  | Three
 months ended                   |         | Nine
 months ended |  
|                                                               |  | January
 23,
 2009                    |         | January
 25,
 2008 |   | January
 23,
 2009 |   | January
 25,
 2008 |        
|                                                               |  | (in
 millions, except per share data) |        
|Net sales                                                      |  | $                                     | 3,494   |                    | $ | 3,405              |   | $                  | 10,770  |  | $ | 9,655   |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Costs and expenses:                                            |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Cost of products sold                                          |  |                                       | 848     |                    |   | 870                |   |                    | 2,586   |  |   | 2,502   |  
|Research and development expense                               |  |                                       | 337     |                    |   | 329                |   |                    | 987     |  |   | 927     |  
|Selling, general and administrative expense                    |  |                                       | 1,257   |                    |   | 1,207              |   |                    | 3,838   |  |   | 3,410   |  
|Special charges                                                |  |                                       |        |                    |   | 78                 |   |                    |        |  |   | 78      |  
|Restructuring charges                                          |  |                                       |        |                    |   |                   |   |                    | 96      |  |   | 14      |  
|Certain litigation charges                                     |  |                                       |        |                    |   | 366                |   |                    | 266     |  |   | 366     |  
|Purchased in-process research and
 development (IPR&D) charges |  |                                       | 72      |                    |   | 310                |   |                    | 90      |  |   | 343     |  
|Other expense, net                                             |  |                                       | 50      |                    |   | 119                |   |                    | 344     |  |   | 248     |  
|Interest (income)/expense, net                                 |  |                                       | (2      | )                  |   | (9                 | ) |                    | 17      |  |   | (114    | )
|Total costs and expenses                                       |  |                                       | 2,562   |                    |   | 3,270              |   |                    | 8,224   |  |   | 7,774   |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Earnings before income taxes                                   |  |                                       | 932     |                    |   | 135                |   |                    | 2,546   |  |   | 1,881   |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Provision for income taxes                                     |  |                                       | 209     |                    |   | 58                 |   |                    | 505     |  |   | 463     |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Net earnings                                                   |  | $                                     | 723     |                    | $ | 77                 |   | $                  | 2,041   |  | $ | 1,418   |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Earnings per share:                                            |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Basic                                                          |  | $                                     | 0.65    |                    | $ | 0.07               |   | $                  | 1.82    |  | $ | 1.25    |  
|Diluted                                                        |  | $                                     | 0.65    |                    | $ | 0.07               |   | $                  | 1.81    |  | $ | 1.24    |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Weighted average shares outstanding:                           |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Basic                                                          |  |                                       | 1,115.0 |                    |   | 1,126.9            |   |                    | 1,118.7 |  |   | 1,132.9 |  
|Diluted                                                        |  |                                       | 1,119.5 |                    |   | 1,135.0            |   |                    | 1,125.6 |  |   | 1,145.3 |  
|                                                               |  |                                       |         |                    |   |                    |   |                    |         |  |   |         |  
|Cash dividends declared per common share                       |  | $                                     | 0.188   |                    | $ | 0.125              |   | $                  | 0.563   |  | $ | 0.375   |  

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

1

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MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                                                                   |  |                                       |        |                  |   |        |  
|------------------------------------------------------------------ |  | ------------------------------------- | ------ | ---------------- | - | ------ | -
|                                                                   |  | January
 23,
 2009                    |        | April
 25,
 2008 |  
|                                                                   |  | (in
 millions, except per share data) |       
|ASSETS                                                             |  |                                       |        |                  |   |        |  
|                                                                  
|Current assets:                                                    |  |                                       |        |                  |   |        |  
|Cash and cash equivalents                                          |  | $                                     | 1,283  |                  | $ | 1,060  |  
|Short-term investments                                             |  |                                       | 460    |                  |   | 553    |  
|Accounts receivable, less allowances of $60
 and $99, respectively |  |                                       | 2,954  |                  |   | 3,287  |  
|Income tax receivable                                              |  |                                       | 50     |                  |   | 73     |  
|Inventories                                                        |  |                                       | 1,429  |                  |   | 1,280  |  
|Deferred tax assets, net                                           |  |                                       | 368    |                  |   | 600    |  
|Prepaid expenses and other current assets                          |  |                                       | 662    |                  |   | 469    |  
|                                                                   |  |                                       |        |                  |   |        |  
|Total current assets                                               |  |                                       | 7,206  |                  |   | 7,322  |  
|                                                                   |  |                                       |        |                  |   |        |  
|Property, plant and equipment                                      |  |                                       | 4,804  |                  |   | 4,743  |  
|Accumulated depreciation                                           |  |                                       | (2,548 | )                |   | (2,522 | )
|Property, plant and equipment, net                                 |  |                                       | 2,256  |                  |   | 2,221  |  
|                                                                   |  |                                       |        |                  |   |        |  
|Goodwill                                                           |  |                                       | 7,744  |                  |   | 7,519  |  
|Other intangible assets, net                                       |  |                                       | 2,186  |                  |   | 2,193  |  
|Long-term investments                                              |  |                                       | 2,641  |                  |   | 2,322  |  
|Long-term deferred tax assets, net                                 |  |                                       | 54     |                  |   | 103    |  
|Other assets                                                       |  |                                       | 677    |                  |   | 518    |  
|                                                                   |  |                                       |        |                  |   |        |  
|Total assets                                                       |  | $                                     | 22,764 |                  | $ | 22,198 |  
|                                                                   |  |                                       |        |                  |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                               |  |                                       |        |                  |   |        |  
|                                                                   |  |                                       |        |                  |   |        |  
|Current liabilities:                                               |  |                                       |        |                  |   |        |  
|Short-term borrowings                                              |  | $                                     | 1,184  |                  | $ | 1,154  |  
|Accounts payable                                                   |  |                                       | 363    |                  |   | 383    |  
|Accrued compensation                                               |  |                                       | 745    |                  |   | 789    |  
|Other accrued expenses                                             |  |                                       | 876    |                  |   | 1,209  |  
|                                                                   |  |                                       |        |                  |   |        |  
|Total current liabilities                                          |  |                                       | 3,168  |                  |   | 3,535  |  
|                                                                   |  |                                       |        |                  |   |        |  
|Long-term debt                                                     |  |                                       | 5,525  |                  |   | 5,802  |  
|Long-term accrued compensation and
 retirement benefits            |  |                                       | 303    |                  |   | 304    |  
|Long-term accrued income taxes                                     |  |                                       | 571    |                  |   | 519    |  
|Other long-term liabilities                                        |  |                                       | 133    |                  |   | 502    |  
|                                                                   |  |                                       |        |                  |   |        |  
|Total liabilities                                                  |  |                                       | 9,700  |                  |   | 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                                                  |  |                                       | 12,987 |                  |   | 11,710 |  
|Accumulated other comprehensive loss                               |  |                                       | (35    | )                |   | (286   | )
|                                                                   |  |                                       |        |                  |   |        |  
|Total shareholders equity                                         |  |                                       | 13,064 |                  |   | 11,536 |  
|                                                                   |  |                                       |        |                  |   |        |  
|Total liabilities and shareholders
equity                         |  | $                                     | 22,764 |                  | $ | 22,198 |  

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

2

---



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

|                                                                                     |  |                    |        |                    |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------ | ------ | ------------------ | - | ------ | -
|                                                                                     |  |                    |        |                    |   |        |  
|                                                                                     |  | Nine
 months ended |       
|                                                                                     |  | January
 23,
 2009 |        | January
 25,
 2008 |  
|                                                                                     |  | (in
 millions)     |       
|Operating Activities:                                                                |  |                    |        |                    |   |        |  
|Net earnings                                                                         |  | $                  | 2,041  |                    | $ | 1,418  |  
|Adjustments to reconcile net earnings to
 net cash provided by operating activities: |  |                    |        |                    |   |        |  
|Depreciation and amortization                                                        |  |                    | 522    |                    |   | 457    |  
|Special charges                                                                      |  |                    |       |                    |   | 78     |  
|IPR&D charges                                                                        |  |                    | 90     |                    |   | 343    |  
|Provision for doubtful accounts                                                      |  |                    | 31     |                    |   | 23     |  
|Deferred income taxes                                                                |  |                    | 103    |                    |   | (144   | )
|Stock-based compensation                                                             |  |                    | 178    |                    |   | 163    |  
|Excess tax benefit from exercise of
 stock-based awards                              |  |                    | (23    | )                  |   | (32    | )
|Change in operating assets and liabilities,
 net of effect of acquisitions:          |  |                    |        |                    |   |        |  
|Accounts receivable                                                                  |  |                    | 252    |                    |   | (159   | )
|Inventories                                                                          |  |                    | (230   | )                  |   | (17    | )
|Accounts payable and accrued liabilities                                             |  |                    | (51    | )                  |   | 320    |  
|Other operating assets and liabilities                                               |  |                    | (158   | )                  |   | 450    |  
|                                                                                    
|Net cash provided by operating activities                                            |  |                    | 2,755  |                    |   | 2,900  |  
|                                                                                     |  |                    |        |                    |   |        |  
|Investing Activities:                                                                |  |                    |        |                    |   |        |  
|Acquisitions, net of cash acquired                                                   |  |                    | (381   | )                  |   | (4,179 | )
|Purchase of intellectual property                                                    |  |                    | (152   | )                  |   | (88    | )
|Additions to property, plant and equipment                                           |  |                    | (378   | )                  |   | (423   | )
|Purchases of marketable securities                                                   |  |                    | (2,246 | )                  |   | (5,759 | )
|Sales and maturities of marketable
 securities                                       |  |                    | 2,182  |                    |   | 7,991  |  
|Other investing activities, net                                                      |  |                    | (270   | )                  |   | (228   | )
|                                                                                    
|Net cash used in investing activities                                                |  |                    | (1,245 | )                  |   | (2,686 | )
|                                                                                     |  |                    |        |                    |   |        |  
|Financing Activities:                                                                |  |                    |        |                    |   |        |  
|Change in short-term borrowings, net                                                 |  |                    | 41     |                    |   | 707    |  
|Issuance of long-term debt                                                           |  |                    |       |                    |   | 300    |  
|Payments on long-term debt                                                           |  |                    | (316   | )                  |   | (172   | )
|Dividends to shareholders                                                            |  |                    | (632   | )                  |   | (425   | )
|Issuance of common stock                                                             |  |                    | 393    |                    |   | 326    |  
|Excess tax benefit from exercise of
 stock-based awards                              |  |                    | 23     |                    |   | 32     |  
|Repurchase of common stock                                                           |  |                    | (726   | )                  |   | (1,464 | )
|                                                                                    
|Net cash used in financing activities                                                |  |                    | (1,217 | )                  |   | (696   | )
|                                                                                     |  |                    |        |                    |   |        |  
|Effect of exchange rate changes on cash and
 cash equivalents                        |  |                    | (70    | )                  |   | (45    | )
|                                                                                    
|Net change in cash and cash equivalents                                              |  |                    | 223    |                    |   | (527   | )
|                                                                                     |  |                    |        |                    |   |        |  
|Cash and cash equivalents at beginning of
 period                                    |  |                    | 1,060  |                    |   | 1,256  |  
|                                                                                    
|Cash and cash equivalents at end of period                                           |  | $                  | 1,283  |                    | $ | 729    |  
|Supplemental Cash Flow Information                                                   |  |                    |        |                    |   |        |  
|Cash Paid For:                                                                       |  |                    |        |                    |   |        |  
|Income taxes                                                                         |  | $                  | 367    |                    | $ | 427    |  
|Interest                                                                             |  |                    | 136    |                    |   | 168    |  
|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

---



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 consolidated financial
statements beginning in the Companys fourth quarter of 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. Based on the Companys
preliminary evaluation, upon adoption of FSP APB 14-1 in fiscal year 2010, the
convertible debt liability will decrease by approximately $520 and 2009 and
2010 interest expense for the convertible debt will increase by approximately
 $154 and $167, respectively. Using diluted weighted average shares outstanding
for the nine months ended January 23, 2009, the Company estimates the impact to diluted earnings per
share as a decrease of $0.09 and $0.10 for fiscal year 2009 and 2010, respectively.

In June 2008,
the FASB issued FSP Emerging Issues Task Force (EITF) Issue No. 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities (FSP EITF No. 03-6-1). FSP EITF No. 03-6-1
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of EPS
pursuant to the two-class method. FSP EITF No. 03-6-1 is effective for the
Company beginning in the first quarter of fiscal year 2010. Upon adoption, all
prior-period EPS data is required to be adjusted retrospectively (including
interim financial statements, summaries of earnings, and selected financial
data) to conform with the provisions of FSP EITF No. 03-6-1.
FSP EITF No. 03-6-1 is applicable to the Company and the Company is
currently evaluating the impact that FSP EITF No. 03-6-1 will have on the
consolidated financial statements.

In November
2008, the FASB ratified EITF Issue No. 08-6, Equity Method Investment
Accounting Considerations (EITF No. 08-6). EITF No. 08-6 applies to all
investments accounted for under the equity method and clarifies the accounting
for certain transactions and impairment considerations involving equity method investments.
EITF No. 08-6 is effective for the Company beginning in the first quarter of
fiscal year 2010. The Company is currently evaluating the impact that EITF No.
08-6 will have on the consolidated financial statements.

In November
2008, the FASB ratified EITF Issue No. 08-7, Accounting for Defensive
Intangible Assets (EITF No. 08-7). EITF No. 08-7 applies to defensive
intangible assets, which are acquired intangible assets that an entity does not
intend to actively use but does intend to prevent others from obtaining access
to the asset. EITF No. 08-7 requires an entity to account for defensive
intangible assets as a separate unit of accounting. Defensive intangible assets
should not be included as part of the cost of an entitys existing intangible assets
because the defensive intangible assets are separately identifiable. Defensive
intangible assets must be recognized at fair value in accordance with SFAS No.
141(R) and SFAS No. 157. EITF No. 08-7 is effective for intangible assets
acquired by the Company on or after April 25, 2009. The Company is currently
evaluating the impact that EITF No. 08-7 will have on the consolidated
financial statements.

5

---



In December
2008, the FASB issued FSP SFAS No. 132(R)-1, Employers Disclosures About
Postretirement Benefit Plan Assets (FSP SFAS No. 132(R)-1). FSP SFAS No.
132(R)-1 requires increased disclosures about an entitys postretirement
benefit plan assets. Specifically, FSP SFAS No. 132(R)-1 requires an entity to
disclose information regarding its investment policies and strategies, its
categories of plan assets, its fair value measurements of plan assets, and any
significant concentrations of risk in plan assets. FSP SFAS No. 132(R)-1 is
effective for the Company beginning in the first quarter of fiscal year 2010
but only requires the revised disclosures on a prospective basis. The Company
will provide the additional disclosures necessary to the consolidated financial
statements beginning in the Companys fourth quarter of fiscal year 2010.

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

CryoCath Technologies Inc.

On November
12, 2008, the Company acquired substantially all of the shares of 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, net of cash acquired, was approximately $352
U.S. dollars including the purchase of all 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.

The Company
has accounted for the acquisition of CryoCath as a business combination under U.S. GAAP.
Under business combination accounting, the assets and liabilities of CryoCath
were recorded as of the acquisition date, at their respective fair values, and
consolidated with the Company. The purchase price allocation is based on
estimates of the fair value of assets acquired and liabilities assumed. The
preliminary purchase price has been allocated as follows:

|                                    |  |   |     | 
|----------------------------------- |  | - | --- | 
|Current assets                      |  | $ | 23  | 
|Property, plant and equipment       |  |   | 2   | 
|IPR&D                               |  |   | 72  | 
|Other intangible assets             |  |   | 57  | 
|Goodwill                            |  |   | 227 | 
|Deferred tax assets, long-term      |  |   | 14  | 
|Total assets acquired               |  |   | 395 | 
|                                    |  |   |     | 
|Current liabilities                 |  |   | 25  | 
|Deferred tax liabilities, long-term |  |   | 15  | 
|Total liabilities assumed           |  |   | 40  | 
|Net assets acquired                 |  | $ | 355 | 

6

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In connection with the acquisition of CryoCath, the Company acquired
$57 of technology-based intangible assets with an estimated useful life of 11
years. Also as part of the acquisition, the Company recognized, in total, $72
and $227 of IPR&D and goodwill, respectively. The IPR&D was expensed on
the date of acquisition and primarily relates to the future launch of Arctic
Front into the U.S. market. Various factors contributed to the establishment of
goodwill, including the value of CryoCaths highly trained assembled workforce,
and the expected revenue growth that is attributable to increased market
penetration from future products and customers. The goodwill is not deductible
for tax purposes.

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 $29, net of cash
acquired.

In connection
with the acquisition of Restore, the Company acquired $17 of technology-based
intangible assets with an estimated useful life of 10 years, $8 of net tangible
assets, and $5 of goodwill. The goodwill is not deductible for tax purposes.

The pro forma
impact of the CryoCath and Restore acquisitions was not significant,
individually or in the aggregate, to the results of the Company for the three
and nine months ended January 23, 2009 or January 25, 2008. The results of operations
related to each company have been included in the Companys consolidated
statements of earnings since the date each company was acquired.

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 business combination under U.S. GAAP. Under
business combination 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 | 

7

---



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                       |  |   | 3,177 | 
|Other
 long-term assets        |  |   | 10    | 
|Total assets acquired          |  |   | 4,879 | 
|                               |  |   |       | 
|Current
 liabilities           |  |   | 361   | 
|Deferred tax
 liabilities      |  |   | 282   | 
|Other
 long-term liabilities   |  |   | 33    | 
|Total liabilities
assumed      |  |   | 676   | 
|Net assets
 acquired           |  | $ | 4,203 | 

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 $3,177 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
January 23, 2009 was approximately $18. The Company continues to assess these
liabilities and until 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 nine months ended January 25, 2008 as if the acquisition had
occurred at the beginning of the period presented. The unaudited pro forma
results of operations for the nine month period ended January 25, 2008 is
comprised of (i) Kyphons historical financial information for the six months
ended September 30, 2007, (ii) Medtronics historical financial information for
the six months ended October 27, 2007 and (iii) the Companys actual results
for the three months ended January 25, 2008.

The pro forma
information gives effect to actual combined operating results of the Company
and Kyphon 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.

8

---



|                                             |  |                     |       | 
|-------------------------------------------- |  | ------------------- | ----- | 
|                                             |  | Nine
 months
 ended |      
|(dollars in millions, except per share data) |  | January
 25,
 2008  |      
|Net sales                                    |  | $                   | 9,944 | 
|Net earnings                                 |  | $                   | 1,281 | 
|                                             |  |                     |       | 
|Earnings per
 share:                         |  |                     |       | 
|Basic                                        |  | $                   | 1.13  | 
|Diluted                                      |  | $                   | 1.13  | 

The unaudited
pro forma financial information for the nine months ended January 25, 2008
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 November 1,
2007, the Company recorded an IPR&D charge of $20 related to the
acquisition of Setagon, Inc. (Setagon), a development stage company focused on
commercially developing metallic nanoporous surface modification technology.
The acquisition will provide the Company with exclusive rights to use and
develop Setagons Controllable Elution Systems (CES) technology in the
treatment of cardiovascular disease. Total consideration for Setagon was
approximately $20 in cash, subject to purchase price increases, which would be
triggered by the achievement of certain milestones.

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 nine months ended January 25, 2008.

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 disclosed above, Medtronic periodically acquires certain tangible or
intangible assets in transactions that do not otherwise warrant separate disclosure. 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 January 23, 2009, 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 $115. 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.

9

---



Note 4  Special and Certain Litigation Charges

Special Charges

During the
three and nine months ended January 23, 2009, there were no special charges.

During the
three and nine months ended January 25, 2008, the Company recorded a special
charge of $78 related to the impairment of intangible assets associated with
its benign prostatic hyperplasia, or enlarged prostate, product line purchased
in fiscal year 2002. The development of the market, relative to the Companys
original assumptions, has changed as a result of the broad acceptance of a new
line of drugs to treat the symptoms of an enlarged prostate. After analyzing
the estimated future cash flows utilizing this technology, based on the market
development, the Company determined that the carrying value of these intangible
assets was impaired and a write-down was necessary.

Certain Litigation Charges

The Company
classifies material litigation reserves recognized as certain litigation
charges.

During the
three months ended January 23, 2009, there were no certain litigation charges.

During the
nine months ended January 23, 2009, 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 nine months ended
January 23, 2009 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 the Companys 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 had been paid.

During the
three and nine months ended January 25, 2008, the Company incurred certain
litigation charges of $366. Of the amount recorded, $123 relates to the
settlement of certain lawsuits relating to the Marquis line of implantable
cardioverter defibrillators (ICDs) and cardiac resynchronization
therapy-defibrillators (CRT-Ds) that were subject to a field action announced
on February 10, 2005. The remainder of the charge, $243, relates to an
estimated reserve established for litigation with Cordis.

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.

10

---



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 and third quarters 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 570 have been eliminated as of January 23, 2009. 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 |    
|                            |  | EmployeeTerminationCosts       |     | AssetWrite-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  |  
|Payments                    |  |                                | (19 | )                |   |      |   |   | (19 | )
|Currency
 adjustment, net   |  |                                | (9  | )                |   |      |   |   | (9  | )
|Balance at October 24, 2008 |  | $                              | 70  |                  | $ |      |   | $ | 70  |  
|Payments                    |  |                                | (30 | )                |   |      |   |   | (30 | )
|Currency
 adjustment, net   |  |                                | 4   |                  |   |      |   |   | 4   |  
|Balance at January 23, 2009 |  | $                              | 44  |                  | $ |      |   | $ | 44  |  

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.

11

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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
January 23, 2009 is as follows:

|                                                      |  |      |       |                   |   |                    |  |            |      |   |   |       | 
|----------------------------------------------------- |  | ---- | ----- | ----------------- | - | ------------------ |  | ---------- | ---- | - | - | ----- | 
|                                                      |  | Cost |       | Unrealized
 Gains |   | Unrealized
 Losses |  | Fair Value |     
|Corporate debt securities                             |  | $    | 880   |                   | $ | 6                  |  | $          | (22  | ) | $ | 864   | 
|Auction rate securities                               |  |      | 202   |                   |   |                   |  |            | (71  | ) |   | 131   | 
|Mortgage backed securities                            |  |      | 829   |                   |   | 8                  |  |            | (54  | ) |   | 783   | 
|Government and agency securities                      |  |      | 492   |                   |   | 11                 |  |            |     |   |   | 503   | 
|Certificates of deposit                               |  |      | 2     |                   |   |                   |  |            |     |   |   | 2     | 
|Other asset backed securities                         |  |      | 337   |                   |   |                   |  |            | (25  | ) |   | 312   | 
|Marketable equity securities                          |  |      | 12    |                   |   |                   |  |            | (4   | ) |   | 8     | 
|Cost method, equity method and other
 investments (1) |  |      | 498   |                   |   |                   |  |            |     |   |   | 498   | 
|Total short-term and long-term investments            |  | $    | 3,252 |                   | $ | 25                 |  | $          | (176 | ) | $ | 3,101 | 

(1) Includes
$221 for the 15 percent equity interest in Shandong Weigao Group Medical
Polymer Company Limited (Weigao), which was acquired on December 18, 2008. The
cash paid for the investment was included in other
investing activities, net on the condensed consolidated statement of
cash flows.

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 | 

12

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

|                             |  |                    |     |                  |   |          |  |            |       |  |   |   | 
|---------------------------- |  | ------------------ | --- | ---------------- | - | -------- |  | ---------- | ----- |  | - | - | 
|                             |  | Three months ended |    
|                             |  | January 23, 2009   |     | January 25, 2008 |  
|                             |  | Debt (1)           |     | Equity (2)       |   | Debt (1) |  | Equity (2) |      
|Proceeds from sales          |  | $                  | 861 |                  | $ |         |  | $          | 1,031 |  | $ | 1 | 
|Gross realized gains         |  | $                  | 19  |                  | $ |         |  | $          | 12    |  | $ |  | 
|Gross realized losses        |  | $                  | (2  | )                | $ |         |  | $          |      |  | $ |  | 
|Impairment losses recognized |  | $                  | (12 | )                | $ |         |  | $          |      |  | $ |  | 

|                             |  |                   |       |                  |   |          |   |            |       |   |   |    |  
|---------------------------- |  | ----------------- | ----- | ---------------- | - | -------- | - | ---------- | ----- | - | - | -- | -
|                             |  | Nine months ended |      
|                             |  | January 23, 2009  |       | January 25, 2008 |  
|                             |  | Debt (1)          |       | Equity (2)       |   | Debt (1) |   | Equity (2) |      
|Proceeds from sales          |  | $                 | 2,182 |                  | $ |         |   | $          | 7,966 |   | $ | 25 |  
|Gross realized gains         |  | $                 | 25    |                  | $ |         |   | $          | 26    |   | $ | 16 |  
|Gross realized losses        |  | $                 | (7    | )                | $ |         |   | $          | (4    | ) | $ |   |  
|Impairment losses recognized |  | $                 | (33   | )                | $ | (2       | ) | $          |      |   | $ | (1 | )

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

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

The January
23, 2009 balance of AFS debt securities by contractual maturity is shown in the
following table at fair value. 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.

|                                       |  |                   |       | 
|-------------------------------------- |  | ----------------- | ----- | 
|                                       |  | January 23,
 2009 |      
|Due in one year or less                |  | $                 | 781   | 
|Due after one year through five years  |  |                   | 1,599 | 
|Due after five years through ten years |  |                   | 58    | 
|Due after ten years                    |  |                   | 157   | 
|Total debt securities                  |  | $                 | 2,595 | 
|                                       |  |                   |       | 

As of January
23, 2009, the Company has $273 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 $63. As of January 23, 2009, the
Company has $884 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 $109. 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.

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 three quarters of
fiscal year 2009 and subsequent to the Companys January 23, 2009 quarter-end
continue to indicate significant uncertainty on the part of investors on the
economic outlook for the U.S. and for financial institutions. 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.

For the three
and nine months ended January 23, 2009, the Company recognized an
other-than-temporary impairment loss on AFS debt securities of $12 and $33,
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 further losses. For
additional discussion, see the Liquidity and Capital Resources section of
managements discussion and analysis.

13

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As of January
23, 2009 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 $498 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 (income)/expense, 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
historically lent certain fixed income securities to enhance its investment
income. Those lending activities were 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 April 25, 2008 was $610. Due to the
Companys concerns about the liquidity condition in the fixed income markets,
the Company suspended its lending program in the second quarter of fiscal year
2009 and had no lending activity during the third quarter of fiscal year 2009.

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:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, and certain mortgage
 backed securities 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, and 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.

14

---



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
 January 23, 2009 |                                                     |  |         |     |         |   |      
|                                 |  |                                  | Fair Value Measurements
 Using Inputs Considered as | 
|                                 |  |                                  | Level 1                                             |  | Level 2 |     | Level 3 |  
|Assets:                          |  |                                  |                                                     |  |         |     |         |   |       |  |   |     | 
|Corporate debt securities        |  | $                                | 864                                                 |  | $       | 18  |         | $ | 820   |  | $ | 26  | 
|Auction rate securities          |  |                                  | 131                                                 |  |         |    |         |   |      |  |   | 131 | 
|Mortgage backed securities       |  |                                  | 783                                                 |  |         |    |         |   | 744   |  |   | 39  | 
|Government and agency securities |  |                                  | 503                                                 |  |         | 88  |         |   | 415   |  |   |    | 
|Certificates of deposit          |  |                                  | 2                                                   |  |         |    |         |   | 2     |  |   |    | 
|Other asset backed securities    |  |                                  | 312                                                 |  |         |    |         |   | 296   |  |   | 16  | 
|Marketable equity securities     |  |                                  | 8                                                   |  |         | 8   |         |   |      |  |   |    | 
|Derivative assets                |  |                                  | 496                                                 |  |         | 496 |         |   |      |  |   |    | 
|Total assets                     |  | $                                | 3,099                                               |  | $       | 610 |         | $ | 2,277 |  | $ | 212 | 
|                                 |  |                                  |                                                     |  |         |     |         |   |       |  |   |     | 
|Liabilities:                     |  |                                  |                                                     |  |         |     |         |   |       |  |   |     | 
|Derivative liabilities           |  | $                                | 196                                                 |  | $       | 196 |         | $ |      |  | $ |    | 
|Total liabilities                |  | $                                | 196                                                 |  | $       | 196 |         | $ |      |  | $ |    | 

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
January 23, 2009, these securities were valued primarily using broker quotes or
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
January 23, 2009.

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 |  |   | (33  | )
|Total unrealized losses included in other comprehensive
 income                        |  |   | (80  | )
|Purchases, issuances, and settlements                                                  |  |   | (198 | )
|Net transfers in (out) of Level 3                                                      |  |   | 75   |  
|Balance at January 23, 2009                                                            |  | $ | 212  |  

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

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

During the
three and nine months ended January 23, 2009, 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 FAS 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.

15

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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.

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.

16

---



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 and June 2007, the Company entered into a five year interest rate swap
agreement with a notional amount of $200, and an eight year interest rate swap
agreement with a notional amount of $300, respectively. These interest rate
swap agreements were designated as fair value hedges of the changes in fair
value of a portion of the Companys fixed-rate $400 Senior Notes due 2010 and
fixed-rate $600 Senior Notes due 2015, respectively. The outstanding market
values of these swap agreements were $8 and $27 unrealized gain, respectively,
at April 25, 2008. The unrealized gains of $8 and $27 at April 25, 2008 were
recorded in long-term debt with
the offset recorded in other assets
on the condensed consolidated balance sheets.

In December
2008, the Company terminated the interest rate swap agreements. At that time,
the contracts were in an asset position, resulting in cash receipts of $62, which
included $3 of accrued interest. The gain from terminating the interest rate
swap agreements will increase the outstanding balance of the Senior Notes and
will be amortized as a reduction of interest expense over the remaining life of
the Senior Notes. The cash flows from the termination of these interest rate
swap agreements are reported as operating activities in the condensed
consolidated statement of cash flows.

Contingent Convertible Debentures

As of January
23, 2009, 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 the Companys 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 remaining debentures
for cash at any time.

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 January 23, 2009 and April 25, 2008, outstanding
commercial paper totaled $1,011 and $874, respectively. During the three and
nine months ended January 23, 2009, the weighted average original maturity of
the commercial paper outstanding was approximately 65 days and 48 days,
respectively, and the weighted average interest rate was 1.49 percent and 1.93
percent, respectively. The issuance of commercial paper reduces the amount of
credit available under the Companys existing lines of credit.

Lines of Credit

The Company
has existing unsecured lines of credit of approximately $2,850 with various
banks at January 23, 2009. 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.

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.

17

---



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 January 23, 2009 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:

|                |  |                   |       |                 |   |       | 
|--------------- |  | ----------------- | ----- | --------------- | - | ----- | 
|                |  | January 23,
 2009 |       | April 25,
 2008 |  
|Finished goods  |  | $                 | 853   |                 | $ | 784   | 
|Work in process |  |                   | 249   |                 |   | 250   | 
|Raw materials   |  |                   | 327   |                 |   | 246   | 
|Total           |  | $                 | 1,429 |                 | $ | 1,280 | 

Note 10  Goodwill and Other Intangible Assets

The changes in
the carrying amount of goodwill for the nine months ended January 23, 2009 are
as follows:

|                                     |  |                   |       |  
|------------------------------------ |  | ----------------- | ----- | -
|                                     |  | January 23,
 2009 |      
|Balance at April 25, 2008            |  | $                 | 7,519 |  
|Goodwill as a result of acquisitions |  |                   | 239   |  
|Currency adjustment, net             |  |                   | (14   | )
|Balance at January 23, 2009          |  | $                 | 7,744 |  

Intangible
assets, excluding goodwill, as of January 23, 2009 and April 25, 2008 are as
follows:

|                              |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|----------------------------- |  | ---------------------------------- | ----- | --------------------------- | - | ----- | - | ----- | ---- | - | - | ------ | -
|                              |  | Purchased
 Technology and
 Patents |       | Trademarks
 and
 Tradenames |   | Other |   | Total |     
|As of January 23, 2009:       |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|Amortizable intangible assets |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|Original cost                 |  | $                                  | 2,701 |                             | $ | 373   |   | $     | 245  |   | $ | 3,319  |  
|Accumulated amortization      |  |                                    | (751  | )                           |   | (208  | ) |       | (174 | ) |   | (1,133 | )
|Carrying value                |  | $                                  | 1,950 |                             | $ | 165   |   | $     | 71   |   | $ | 2,186  |  
|                              |  |                                    |       |                             |   |       |   |       |      |   |   |        |  
|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 nine months ended January 23, 2009 was $74 and $209,
respectively, and for the three and nine months ended January 25, 2008 was $64
and $151, respectively.

18

---



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

|               |  |                        |       | 
|-------------- |  | ---------------------- | ----- | 
|Fiscal Year    |  | Amortization 
 Expense |      
|Remaining 2009 |  | $                      | 63    | 
|2010           |  |                        | 271   | 
|2011           |  |                        | 265   | 
|2012           |  |                        | 235   | 
|2013           |  |                        | 220   | 
|Thereafter     |  |                        | 1,132 | 
|               |  | $                      | 2,186 | 

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 nine months ended January 23, 2009 and
January 25, 2008 consist of the following:

|                                       |  |                   |     |                   |   |     |  
|-------------------------------------- |  | ----------------- | --- | ----------------- | - | --- | -
|                                       |  | Nine months ended |    
|                                       |  | January 23,
 2009 |     | January 25,
 2008 |  
|Balance at the beginning of the period |  | $                 | 43  |                   | $ | 34  |  
|Warranty claims provision              |  |                   | 17  |                   |   | 20  |  
|Settlements made                       |  |                   | (23 | )                 |   | (16 | )
|Balance at the end of the period       |  | $                 | 37  |                   | $ | 38  |  

Note 12  Interest (Income)/Expense, net

Interest
income and interest expense for the three and nine months ended January 23,
2009 and January 25, 2008 are as follows:

|                               |  |                    |     |                   |   |                  |   |                  |      |   |   |      |  
|------------------------------ |  | ------------------ | --- | ----------------- | - | ---------------- | - | ---------------- | ---- | - | - | ---- | -
|                               |  | Three months ended |     | Nine months ended |  
|                               |  | January 23, 2009   |     | January 25, 2008  |   | January 23, 2009 |   | January 25, 2008 |     
|Interest income                |  | $                  | (54 | )                 | $ | (84              | ) | $                | (148 | ) | $ | (307 | )
|Interest expense               |  |                    | 52  |                   |   | 75               |   |                  | 165  |   |   | 193  |  
|Interest (income)/expense, net |  | $                  | (2  | )                 | $ | (9               | ) | $                | 17   |   | $ | (114 | )

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.

19

---



Note 13  Income Taxes

During the
three months ended January 23, 2009, the Company recorded $12 in operational
tax benefits for the finalization of certain tax returns and changes to
uncertain tax position reserves. During the comparative three months ended
January 25, 2008, the Company recorded $30 in operational tax benefits for the
finalization of certain tax returns and changes to uncertain tax position
reserves. Lastly, during the nine months ended January 23, 2009, the Company
also recorded a $16 operational 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
related to a retroactive adjustment for the first seven months of calendar year
2008. The research and development credit related to subsequent months is
included in the rate from the second quarter of fiscal year 2009 and forward.
These tax adjustments are operational in nature and are recorded in provision for income taxes on the
condensed consolidated statements of earnings.

As of January
23, 2009, the Company had $480 of gross unrecognized tax benefits and accrued
interest and penalties of $153. If all of the Companys unrecognized tax
benefits were recognized, approximately $398 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 taxesin the condensed
consolidated balance sheet, 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, as described in the preceding paragraph.

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 |         | Nine months ended |  
|(shares in
 millions)                          |  | January 23,
 2009  |         | January 25,
 2008 |   | January 23,
 2009 |  | January 25,
 2008 |        
|Numerator:                                     |  |                    |         |                   |   |                   |  |                   |         |  |   |         | 
|Net earnings                                   |  | $                  | 723     |                   | $ | 77                |  | $                 | 2,041   |  | $ | 1,418   | 
|Denominator:                                   |  |                    |         |                   |   |                   |  |                   |         |  |   |         | 
|Basic  weighted average shares outstanding    |  |                    | 1,115.0 |                   |   | 1,126.9           |  |                   | 1,118.7 |  |   | 1,132.9 | 
|Effect of dilutive securities:                 |  |                    |         |                   |   |                   |  |                   |         |  |   |         | 
|Employee stock options                         |  |                    | 0.3     |                   |   | 7.3               |  |                   | 3.2     |  |   | 10.4    | 
|Other                                          |  |                    | 4.2     |                   |   | 0.8               |  |                   | 3.7     |  |   | 2.0     | 
|Diluted  weighted average shares
 outstanding |  |                    | 1,119.5 |                   |   | 1,135.0           |  |                   | 1,125.6 |  |   | 1,145.3 | 
|                                               |  |                    |         |                   |   |                   |  |                   |         |  |   |         | 
|Basic earnings per share                       |  | $                  | 0.65    |                   | $ | 0.07              |  | $                 | 1.82    |  | $ | 1.25    | 
|Diluted earnings per share                     |  | $                  | 0.65    |                   | $ | 0.07              |  | $                 | 1.81    |  | $ | 1.24    | 

20

---



The
calculation of weighted average diluted shares outstanding excludes options for
approximately 91 million and 62 million common shares for the three and nine
months ended January 23, 2009, respectively, and approximately 43 million and
21 million for the three and nine months ended January 25, 2008, respectively,
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 nine months ended January 23, 2009 and January 25,
2008, 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 January
23, 2009 and January 25, 2008 was $644 and $88, respectively. Comprehensive
income for the nine months ended January 23, 2009 and January 25, 2008 was
$2,292 and $1,361, respectively.

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

|                         |  |                                         |      |                                  |   |                                        |   |                                                           |      |                                             |   |      |   |   |      |  
|------------------------ |  | --------------------------------------- | ---- | -------------------------------- | - | -------------------------------------- | - | --------------------------------------------------------- | ---- | ------------------------------------------- | - | ---- | - | - | ---- | -
|                         |  | Unrealized
 Gain/(Loss) on
 Investments |      | CumulativeTranslationAdjustments |   | Net Change in
 Retirement
 Obligations |   | Unrealized
 Gain/(Loss) on
 Foreign Exchange
 Derivatives |      | Accumulated OtherComprehensiveIncome/(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   |  
|Period Change            |  |                                         | 5    |                                  |   | (28                                    | ) |                                                           | 1    |                                             |   | (57  | ) |   | (79  | )
|Balance January 23, 2009 |  | $                                       | (96  | )                                | $ | 49                                     |   | $                                                         | (173 | )                                           | $ | 185  |   | $ | (35  | )

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/(benefit) on the unrealized gain/(loss) on foreign exchange derivatives
for the three and nine months ended January 23, 2009 was $(36) and $293,
respectively. The tax benefit on the unrealized gain/(loss) on investments for
the three and nine months ended January 23, 2009 was $2 and $34, respectively.
The tax benefit on the net change in retirement obligations was not material
for the three and nine months ended January 23, 2009.

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.

21

---



The following
table presents the components and classification of stock-based compensation
expense recognized for the three and nine months ended January 23, 2009 and
January 25, 2008:

|                                            |  |                    |    |                   |   |                   |  |                   |     |  |   |     | 
|------------------------------------------- |  | ------------------ | -- | ----------------- | - | ----------------- |  | ----------------- | --- |  | - | --- | 
|                                            |  | Three months ended |    | Nine months ended |  
|                                            |  | January 23,
 2009  |    | January 25,
 2008 |   | January 23,
 2009 |  | January 25,
 2008 |    
|Stock options                               |  | $                  | 41 |                   | $ | 46                |  | $                 | 107 |  | $ | 104 | 
|Restricted stock awards                     |  |                    | 25 |                   |   | 22                |  |                   | 59  |  |   | 47  | 
|Employee stock purchase plan                |  |                    | 4  |                   |   | 3                 |  |                   | 12  |  |   | 12  | 
|Total stock-based compensation expense      |  | $                  | 70 |                   | $ | 71                |  | $                 | 178 |  | $ | 163 | 
|                                            |  |                    |    |                   |   |                   |  |                   |     |  |   |     | 
|Cost of products sold                       |  | $                  | 8  |                   | $ | 8                 |  | $                 | 21  |  | $ | 19  | 
|Research and development expense            |  |                    | 17 |                   |   | 17                |  |                   | 43  |  |   | 39  | 
|Selling, general and administrative expense |  |                    | 45 |                   |   | 46                |  |                   | 114 |  |   | 105 | 
|Total stock-based compensation expense      |  | $                  | 70 |                   | $ | 71                |  | $                 | 178 |  | $ | 163 | 

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 nine months ended January 23, 2009, the Company
recognized $4 and $17, respectively, of stock-based compensation expense
associated with the assumed Kyphon awards. For both the three and nine months
ended January 25, 2008, the Company recognized $13 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 nine months ended January 23, 2009
and January 25, 2008:

|                               |  |                       |     |                           |   |                          |   |                   |    |                   |   |                   |   |   |    |   |   |    |  
|------------------------------ |  | --------------------- | --- | ------------------------- | - | ------------------------ | - | ----------------- | -- | ----------------- | - | ----------------- | - | - | -- | - | - | -- | -
|                               |  | U.S. Pension Benefits |     | Non-U.S. Pension Benefits |   | Post-Retirement Benefits |  
|                               |  | Three months ended    |     | Three months ended        |   | Three months ended       |  
|                               |  | January 23,
 2009     |     | January 25,
 2008         |   | January 23,
 2009        |   | January 25,
 2008 |    | January 23,
 2009 |   | January 25,
 2008 |  
|Service cost                   |  | $                     | 18  |                           | $ | 18                       |   | $                 | 8  |                   | $ | 8                 |   | $ | 4  |   | $ | 4  |  
|Interest cost                  |  |                       | 15  |                           |   | 13                       |   |                   | 6  |                   |   | 4                 |   |   | 3  |   |   | 3  |  
|Expected return on plan assets |  |                       | (25 | )                         |   | (21                      | ) |                   | (6 | )                 |   | (5                | ) |   | (3 | ) |   | (3 | )
|Recognized actuarial loss      |  |                       | 1   |                           |   | 3                        |   |                   |   |                   |   | 1                 |   |   |   |   |   | 1  |  
|Net periodic benefit cost      |  |                       | 9   |                           |   | 13                       |   |                   | 8  |                   |   | 8                 |   |   | 4  |   |   | 5  |  
|Special termination benefits   |  |                       |    |                           |   |                         |   |                   |   |                   |   |                  |   |   |   |   |   |   |  
|Total cost for period          |  | $                     | 9   |                           | $ | 13                       |   | $                 | 8  |                   | $ | 8                 |   | $ | 4  |   | $ | 5  |  
|                               |  |                       |     |                           |   |                          |   |                   |    |                   |   |                   |   |   |    |   |   |    |  

|                               |  | U.S. Pension Benefits |     | Non-U.S. Pension Benefits |   | Post-Retirement Benefits |  
|------------------------------ |  | --------------------- | --- | ------------------------- | - | ------------------------ | -
|                               |  | Nine months ended     |     | Nine months ended         |   | Nine months ended        |  
|                               |  | January 23,
 2009     |     | January 25,
 2008         |   | January 23,
 2009        |  
|Service cost                   |  | $                     | 54  |                           | $ | 54                       |  
|Interest cost                  |  |                       | 45  |                           |   | 39                       |  
|Expected return on plan assets |  |                       | (74 | )                         |   | (63                      | )
|Recognized actuarial loss      |  |                       | 3   |                           |   | 9                        |  
|Net periodic benefit cost      |  |                       | 28  |                           |   | 39                       |  
|Special termination benefits   |  |                       |    |                           |   | 3                        |  
|Total cost for period          |  | $                     | 28  |                           | $ | 42                       |  

22

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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 nine months ended January 25, 2008 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.

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. 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 has been
rescheduled to start July 27, 2009, and 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 being
scheduled for early fall 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 (Abbott), 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. 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.

23

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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 U.S. 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. Medtronic filed its principal brief in the appeal on January 26,
2009. Briefing is expected to be completed by early June 2009, after which the
U.S. Court of Appeals for the Federal Circuit will set a date for hearing oral
argument.

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 on
February 6, 2009 challenged the preliminary ruling at a full trial on the
merits. A trial decision is expected on April 8, 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. In France, a trial is
scheduled for July 2009. In Japan, a series of hearings will be held throughout
2009, beginning on February 2, 2009.

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.

24

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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 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 occurred on 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.

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 alleged that MSDs CD Horizon,
Vertex and Crosslink products infringe certain patents owned by Cross. MSD
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. Separately, on February 1, 2006, MSD filed a
lawsuit in the U.S. District Court for the District of New Jersey against
Biomet Inc., the corporate parent of Cross (Biomet) and its subsidiary EBI
Spine, L.P., for patent infringement. On December 12, 2008, Medtronic, through
its subsidiaries, settled the above litigation with Cross and Biomet.

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. The Company paid substantially all
of the $123 in the first quarter of fiscal year 2009. 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 court-ordered procedure
for providing notice to potential class members has commenced and document discovery
is under way. 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.

25

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Sprint Fidelis Product Liability Matters

On October 15,
2007, the Company voluntarily suspended worldwide distribution of its Sprint
Fidelis (Fidelis) family of defibrillation leads. 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 March 2, 2009,
approximately 1,060 lawsuits regarding the Fidelis leads have been filed against
the Company, including approximately 37 putative class action suits reflecting
a total of approximately 2,100 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 300 of the lawsuits have been filed in state court, generally
alleging similar causes of action. Of those state court actions, approximately
280 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 Multi-District Litigation (MDL)
rules. On January 5, 2009, the MDL court entered an order dismissing with prejudice
the master consolidated complaint for individuals and the master consolidated
complaint for third party payors on grounds of federal
preemption. On February 5, 2009, the court denied plaintiffs request to file a
motion for reconsideration of the dismissals with prejudice and granted
plaintiffs request to file a motion seeking permission to amend the master
consolidated complaint for individuals. Plantiffs filed their motion for leave to amend on February 27, 2009; Medtronics opposition to the request to
amend is due March 20, 2009. Discovery in the MDL and the Minnesota state court
continues to be stayed pending further proceedings.

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.

Shareholder Related Matters

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 10(b) of the Securities Exchange Act
of 1934 (the Exchange Act) 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 filed
a motion to dismiss the consolidated class action complaint with prejudice, and
a hearing occurred on 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.

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 similar 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 April 14, 2009. On January 9, 2009, Richard Gulbrandsen
filed a similar shareholder derivative action against both the Company and
certain of its officers, directors, and employees in Hennepin County District
Court in the state of Minnesota, alleging breach of fiduciary duty and other
claims arising from the same subject matter as the Markewich putative 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. On December 29, 2008, the plaintiff
amended the complaint to add similar allegations relating to alleged off-label
promotion of INFUSE Bone Graft and to amend the class to include participants
in the plan from February 15, 2007 to December 12, 2008. The defendants have
filed a motion to dismiss which has been set for hearing on May 13, 2009.

On December
11, 2008, the Minneapolis Firefighters Relief Association filed a putative
class action complaint against the Company and two of its officers in the U.S.
District Court for the District of Minnesota, alleging violations of Section
10(b) of the Exchange Act and Rule 10b-5 thereunder. The complaint is brought
on behalf of persons or entities who purchased securities of Medtronic from
November 19, 2007 through November 17, 2008. The complaint alleges that the
defendants made false and misleading public statements concerning the INFUSE
bone graft product which artificially inflated Medtronics stock price during
the period.

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

26

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Mirowski

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 January 23, 2009, the amount of disputed royalties and interest
related to CRT-D products is $102. This amount has not been accrued because the
outcome is not currently probable under SFAS No. 5.

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 January 23, 2009, the current balance in the interest-bearing escrow account
is $83. 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 nine months ended January 25, 2008 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 |       | Nine
 months ended |  
|                                   |  | January
 23,
 2009  |       | January
 25,
 2008 |   | January
 23,
 2009 |  | January
 25,2008 |       
|Cardiac
 Rhythm Disease Management |  | $                   | 1,169 |                    | $ | 1,218              |  | $                | 3,714  |  | $ | 3,601 | 
|Spinal                             |  |                     | 832   |                    |   | 808                |  |                  | 2,520  |  |   | 2,112 | 
|CardioVascular                     |  |                     | 565   |                    |   | 512                |  |                  | 1,792  |  |   | 1,488 | 
|Neuromodulation                    |  |                     | 354   |                    |   | 320                |  |                  | 1,045  |  |   | 930   | 
|Diabetes                           |  |                     | 277   |                    |   | 258                |  |                  | 818    |  |   | 744   | 
|Surgical
 Technologies             |  |                     | 207   |                    |   | 195                |  |                  | 622    |  |   | 552   | 
|Physio-Control                     |  |                     | 90    |                    |   | 94                 |  |                  | 259    |  |   | 228   | 
|Total Net Sales                    |  | $                   | 3,494 |                    | $ | 3,405              |  | $                | 10,770 |  | $ | 9,655 | 

27

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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 income/(loss) before interest and
income taxes for the three and nine months ended January 23, 2009 is $(3) and
$(20), respectively and for the three and nine months ended January 25, 2008 is
$2 and $(23), respectively.

Geographic information

Net sales to
external customers by geography are as follows:

|                |  |                     |       |                    |   |                    |  |                  |        |  |   |       | 
|--------------- |  | ------------------- | ----- | ------------------ | - | ------------------ |  | ---------------- | ------ |  | - | ----- | 
|                |  | Three
 months ended |       | Nine
 months ended |  
|                |  | January
 23,
 2009  |       | January
 25,
 2008 |   | January
 23,
 2009 |  | January
 25,2008 |       
|United
 States  |  | $                   | 2,176 |                    | $ | 2,098              |  | $                | 6,621  |  | $ | 6,005 | 
|Europe          |  |                     | 824   |                    |   | 838                |  |                  | 2,641  |  |   | 2,294 | 
|Asia Pacific    |  |                     | 382   |                    |   | 346                |  |                  | 1,151  |  |   | 1,025 | 
|Other
 Foreign  |  |                     | 112   |                    |   | 123                |  |                  | 357    |  |   | 331   | 
|Total Net Sales |  | $                   | 3,494 |                    | $ | 3,405              |  | $                | 10,770 |  | $ | 9,655 | 

Note 20  Subsequent Events

On February 6,
2009, the Company acquired Ablation Frontiers, Inc. (AFI), a privately held
company. Under the terms of the agreement announced on January 12, 2009, the
transaction includes an initial up-front payment of $225 plus potential
additional payments contingent upon achievement of certain clinical milestones.

AFI develops
radiofrequency (RF) ablation solutions for treatment of atrial fibrillation.
AFIs system of ablation catheters and RF generator is currently approved in
certain markets outside the U.S. AFI will be part of the Companys CRDM
segment.

On February
20, 2009, the Company acquired Ventor Technologies, Ltd. (Ventor), a privately
held company. The Company acquired Ventor for a payment of $325.

In addition to
the acquisition of AFI and Ventor, on February 23, 2009 the Company announced
it had signed a definitive agreement to acquire CoreValve, Inc. (CoreValve), a
privately held company. The terms of the CoreValve transaction include an
initial upfront payment of $700 plus additional payments contingent upon
achievement of certain milestones. The close of the transaction is contingent
upon regulatory approval in certain jurisdictions.

Both Ventor
and CoreValve have developed transcatheter heart valve technologies for
replacement of the aortic valve. CoreValves technology received CE mark
approval in 2007 and uses a transfemoral approach to delivery of the valve.
Ventors technology is under clinical investigation in Europe and uses a
transapical approach to delivery of the valve. Together these acquisitions will
be part of the Companys CardioVascular segment.

28

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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, or we, us, or our). 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 and in our Quarterly Reports on Form 10-Q for
the fiscal periods ended July 25, 2008 and October 24, 2008. In addition, you
should read this discussion along with our condensed consolidated financial
statements and related Notes thereto as of January 23, 2009.

Financial Trends

Throughout
this financial discussion and analysis, 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 nine months ended January 25, 2008 has
been reclassified to conform to the current presentation of seven operating
segments.

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 third quarter of fiscal year 2009 were $723 million, or $0.65 per
diluted share, as compared to net earnings of $77 million, or $0.07 per diluted
share for the same period in the prior fiscal year. Net earnings for the three
months ended January 23, 2009 include an after-tax IPR&D charge that
decreased net earnings by $72 million. Net earnings for the three months ended
January 25, 2008 included after-tax special, certain litigation, and IPR&D
charges that decreased net earnings by $636 million. See further discussion of
these charges in the Special, Restructuring, Certain Litigation, and IPR&D
Charges section of this managements discussion and analysis. The increase in
net earnings for the three months ended January 23, 2009 was driven primarily
by an increase in net sales, lower IPR&D, and the lack of special or certain
litigation charges in the period.

Net earnings
for the nine months ended January 23, 2009 were $2.041 billion, or $1.81 per
diluted share, as compared to net earnings of $1.418 billion, or $1.24 per
diluted share for the same period in the prior fiscal year, representing an
increase of 44 percent and 46 percent, respectively. Net earnings for the nine
months ended January 23, 2009 included after-tax restructuring, certain
litigation and IPR&D charges that decreased net earnings by $325 million.
Net earnings for the nine months ended January 25, 2008 included after-tax
special, restructuring, certain litigation and IPR&D charges that decreased
net earnings by $672 million. See further discussion of these charges in the
Special, Restructuring, Certain Litigation, and IPR&D Charges section of
this managements discussion and analysis. The increase in net earnings for the
nine months ended January 23, 2009 was driven primarily by an increase in net
sales and a decrease in special, certain litigation and IPR&D charges.

The table
below illustrates net sales by operating segment for the three and nine months
ended January 23, 2009 and January 25, 2008:

|                                   |  |                    |       |                    |   |                   |  |                    |    |                  |   |           |  |   |       |  |  |    |  
|---------------------------------- |  | ------------------ | ----- | ------------------ | - | ----------------- |  | ------------------ | -- | ---------------- | - | --------- |  | - | ----- |  |  | -- | -
|                                   |  | Three months ended |       |                    |   | Nine months ended |  |                    |   
|(dollars in millions)              |  | January
 23,
 2009 |       | January
 25,
 2008 |   | %
 Change         |  | January
 23,
 2009 |    | January
 25,2008 |   | %
 Change | 
|Cardiac
 Rhythm Disease Management |  | $                  | 1,169 |                    | $ | 1,218             |  |                    | (4 | )%               | $ | 3,714     |  | $ | 3,601 |  |  | 3  | %
|Spinal                             |  |                    | 832   |                    |   | 808               |  |                    | 3  |                  |   | 2,520     |  |   | 2,112 |  |  | 19 |  
|CardioVascular                     |  |                    | 565   |                    |   | 512               |  |                    | 10 |                  |   | 1,792     |  |   | 1,488 |  |  | 20 |  
|Neuromodulation                    |  |                    | 354   |                    |   | 320               |  |                    | 11 |                  |   | 1,045     |  |   | 930   |  |  | 12 |  
|Diabetes                           |  |                    | 277   |                    |   | 258               |  |                    | 7  |                  |   | 818       |  |   | 744   |  |  | 10 |  
|Surgical
 Technologies             |  |                    | 207   |                    |   | 195               |  |                    | 6  |                  |   | 622       |  |   | 552   |  |  | 13 |  
|Physio-Control                     |  |                    | 90    |                    |   | 94                |  |                    | (4 | )                |   | 259       |  |   | 228   |  |  | 14 |  
|Total Net Sales                    |  | $                  | 3,494 |                    | $ | 3,405             |  |                    | 3  | %                | $ | 10,770    |  | $ | 9,655 |  |  | 12 | %

29

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Net sales for
the three and nine months ended January 23, 2009 were $3.494 billion and
$10.770 billion, an increase of 3 percent and 12 percent, respectively, from
the same periods in the prior fiscal year. Foreign currency translation had an
(unfavorable)/favorable impact of $(110) million and $111 million on net sales
for the three and nine months ended January 23, 2009, 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 continued demand for the Endeavor
drug eluting stent (Endeavor) in our CardioVascular business, and sales growth
in the Neuromodulation, Diabetes and Surgical Technologies businesses. 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.

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 so that we may resume unrestricted distribution of all products. 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:

30

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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.

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.

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 22.44 percent
and 19.84 percent for the three and nine months ended January 23, 2009,
respectively. Excluding the impact of the restructuring, certain litigation,
and IPR&D charges in the three and nine months ended January 23, 2009, our
operational and tax strategies have resulted in a non-GAAP nominal tax rate of
20.83 percent and 21.08 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
nine months ended January 23, 2009 of approximately $10 million and $30
million, respectively. See discussion of the tax rate and the tax adjustments
in the Income Taxes section of this managements discussion and analysis.

31

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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 $7.744 billion and $7.519 billion as of January 23, 2009
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 January 23, 2009, 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 $2.186 billion and $2.193 billion as of
January 23, 2009 and April 25, 2008, respectively.

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 nine months ended January 23, 2009

On November
12, 2008, we acquired substantially all of the shares of 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, net of cash acquired, was approximately $352 million U.S.
dollars including the purchase of all 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.

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 $29 million, net of cash acquired.

The pro forma
impact of the CryoCath and Restore acquisitions was not significant,
individually or in the aggregate, to our results for the three and nine months
ended January 23, 2009 or January 25, 2008. The results of operations related
to each company have been included in our consolidated statements of earnings
since the date each company was acquired.

Three and nine months ended January 25, 2008

On November 2,
2007, we consummated the acquisition of Kyphon and it became our wholly owned
subsidiary. 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 (IPD) procedure for treating the symptoms of lumbar
spinal stenosis. It is expected that the acquisition of Kyphon will add to the
growth of our existing Spinal business by extending its product offerings into
some of the fastest growing product segments of the spine market, enabling us
to provide physicians with a broader range of therapies for use at all stages
of the care continuum.

32

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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 $4.203 billion 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. As of the
date of the transaction, the existing credit and term loan facilities were
fully paid and terminated. The senior convertible notes were converted by the
holders in the weeks following the close of the transaction and have been
included in the total purchase consideration above. In addition, the total
consideration includes the estimated 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 $3.303 billion cash on hand,
the issuance of $600 million short-term commercial paper and borrowing $300
million through a new long-term unsecured revolving credit facility.

The results of
operations related to Kyphon have been included in our condensed consolidated
statements of earnings since the date of the acquisition and include the full
amortization of a $34 million inventory write-up recorded as part of the Kyphon
acquisition accounting. The pro forma impact of Kyphon was significant to our
results for the three and nine months ended January 25, 2008. See Note 3 to the
condensed consolidated financial statements for the unaudited pro forma results
of operations for the nine months ended January 25, 2008.

On November 1,
2007, we recorded an IPR&D charge of $20 million related to the acquisition
of Setagon, Inc. (Setagon), a development stage company focused on commercially
developing metallic nanoporous surface modification technology. The acquisition
will provide us with exclusive rights to use and develop Setagons Controllable
Elution Systems (CES) technology in the treatment of cardiovascular disease.
Total consideration for Setagon was approximately $20 million in cash, subject
to purchase price increases, which would be triggered by the achievement of
certain milestones.

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 nine months
ended January 25, 2008.

In addition to
the acquisitions disclosed above, we periodically acquire certain tangible or intangible
assets in transactions that do not otherwise warrant separate disclosure. 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 Acquisitions

On February 6,
2009, we acquired Ablation Frontiers, Inc. (AFI), a privately held company.
Under the terms of the agreement announced on January 12, 2009, the transaction
includes an initial up-front payment of $225 million plus potential additional
payments contingent upon achievement of certain clinical milestones. AFI
develops radiofrequency (RF) ablation solutions for treatment of atrial
fibrillation. AFIs system of ablation catheters and RF generator is currently
approved in certain markets outside the U.S. AFI will be part of our CRDM
segment

On February
20, 2009, we acquired Ventor Technologies, Ltd. (Ventor), a privately held
company. We acquired Ventor for a payment of $325.

In addition to
the acquisition of AFI and Ventor, on February 23, 2009 it was announced that
we had signed a definitive agreement to acquire CoreValve, Inc. (CoreValve), a
privately held company. The terms of the CoreValve transaction include an
initial upfront payment of $700 plus additional payments contingent upon
achievement of certain milestones. The close of the transaction is contingent
upon regulatory approval in certain jurisdictions.

Both Ventor
and CoreValve have developed transcatheter heart valve technologies for
replacement of the aortic valve. CoreValves technology received CE mark
approval in 2007 and uses a transfemoral approach to delivery of the valve.
Ventors technology is under clinical investigation in Europe and uses a
transapical approach to delivery of the valve. Together these acquisitions will
be part of our CardioVascular segment.

33

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NET SALES

The table
below illustrates net sales by operating segment for the three and nine months
ended January 23, 2009 and January 25, 2008:

|                                         |  |                     |       |                     |   |                    |  |                     |    |                     |   |         |  |   |       |  |  |     |  
|---------------------------------------- |  | ------------------- | ----- | ------------------- | - | ------------------ |  | ------------------- | -- | ------------------- | - | ------- |  | - | ----- |  |  | --- | -
|                                         |  | Three
 months ended |       |                     |   | Nine
 months ended |  |                     |   
|(dollars in millions)                    |  | January
 23, 
 2009 |       | January
 25, 
 2008 |   | %Change            |  | January
 23, 
 2009 |    | January
 25, 
 2008 |   | %Change | 
|Pacing Systems                           |  | $                   | 457   |                     | $ | 478                |  |                     | (4 | )%                  | $ | 1,490   |  | $ | 1,468 |  |  | 1   | %
|Defibrillation Systems                   |  |                     | 694   |                     |   | 726                |  |                     | (4 | )                   |   | 2,182   |  |   | 2,091 |  |  | 4   |  
|Other                                    |  |                     | 18    |                     |   | 14                 |  |                     | 29 |                     |   | 42      |  |   | 42    |  |  |    |  
|CARDIAC RHYTHM DISEASE MANAGEMENT        |  |                     | 1,169 |                     |   | 1,218              |  |                     | (4 | )                   |   | 3,714   |  |   | 3,601 |  |  | 3   |  
|Core Spine                               |  |                     | 479   |                     |   | 455                |  |                     | 5  |                     |   | 1,441   |  |   | 1,371 |  |  | 5   |  
|Biologics                                |  |                     | 205   |                     |   | 206                |  |                     |   |                     |   | 624     |  |   | 594   |  |  | 5   |  
|Kyphon                                   |  |                     | 148   |                     |   | 147                |  |                     | 1  |                     |   | 455     |  |   | 147   |  |  | 210 |  
|SPINAL                                   |  |                     | 832   |                     |   | 808                |  |                     | 3  |                     |   | 2,520   |  |   | 2,112 |  |  | 19  |  
|Coronary Stents                          |  |                     | 186   |                     |   | 157                |  |                     | 18 |                     |   | 630     |  |   | 459   |  |  | 37  |  
|Other Coronary/Peripheral                |  |                     | 110   |                     |   | 103                |  |                     | 7  |                     |   | 330     |  |   | 294   |  |  | 12  |  
|Endovascular                             |  |                     | 99    |                     |   | 70                 |  |                     | 41 |                     |   | 281     |  |   | 208   |  |  | 35  |  
|Revascularization and Surgical
Therapies |  |                     | 103   |                     |   | 109                |  |                     | (6 | )                   |   | 332     |  |   | 316   |  |  | 5   |  
|Structural Heart Disease                 |  |                     | 67    |                     |   | 73                 |  |                     | (8 | )                   |   | 219     |  |   | 211   |  |  | 4   |  
|CARDIOVASCULAR                           |  |                     | 565   |                     |   | 512                |  |                     | 10 |                     |   | 1,792   |  |   | 1,488 |  |  | 20  |  
|Neuro Implantables                       |  |                     | 283   |                     |   | 260                |  |                     | 9  |                     |   | 837     |  |   | 760   |  |  | 10  |  
|Gastroenterology & Urology               |  |                     | 71    |                     |   | 60                 |  |                     | 18 |                     |   | 208     |  |   | 170   |  |  | 22  |  
|NEUROMODULATION                          |  |                     | 354   |                     |   | 320                |  |                     | 11 |                     |   | 1,045   |  |   | 930   |  |  | 12  |  
|DIABETES                                 |  |                     | 277   |                     |   | 258                |  |                     | 7  |                     |   | 818     |  |   | 744   |  |  | 10  |  
|Core ENT                                 |  |                     | 83    |                     |   | 81                 |  |                     | 2  |                     |   | 255     |  |   | 231   |  |  | 10  |  
|Neurologic Technologies                  |  |                     | 78    |                     |   | 73                 |  |                     | 7  |                     |   | 238     |  |   | 216   |  |  | 10  |  
|Navigation                               |  |                     | 46    |                     |   | 41                 |  |                     | 12 |                     |   | 129     |  |   | 105   |  |  | 23  |  
|SURGICAL TECHNOLOGIES                    |  |                     | 207   |                     |   | 195                |  |                     | 6  |                     |   | 622     |  |   | 552   |  |  | 13  |  
|PHYSIO-CONTROL                           |  |                     | 90    |                     |   | 94                 |  |                     | (4 | )                   |   | 259     |  |   | 228   |  |  | 14  |  
|TOTAL                                    |  | $                   | 3,494 |                     | $ | 3,405              |  |                     | 3  | %                   | $ | 10,770  |  | $ | 9,655 |  |  | 12  | %

Net sales for
the three and nine months ended January 23, 2009 were (unfavorably)/favorably
impacted by foreign currency translation of $(110) million and $111 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 Item 3  Quantitative and
Qualitative Disclosures About Market Risk in this Quarterly Report on Form
10-Q 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 nine
months ended January 23, 2009 were $1.169 billion and $3.714 billion, a
decrease of 4 percent and an increase of 3 percent, respectively, when compared
to the same periods of the prior fiscal year. Foreign currency translation had
an (unfavorable)/favorable impact on net sales for the three and nine months
ended January 23, 2009 of approximately $(38) million and $56 million when
compared to the same periods of the prior fiscal year.

34

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Worldwide net
sales of Defibrillation Systems, our largest product line, for the three and
nine months ended January 23, 2009 were $694 million and $2.182 billion, a
decrease of 4 percent and an increase of 4 percent, respectively, when compared
to the same periods of the prior fiscal year. The decrease in net sales for the
three months ended January 23, 2009 was primarily a result of a decrease in net
sales in the U.S. due to significant competition and an unfavorable impact from
foreign currency translation on sales outside the U.S. Net sales growth for the
nine months ended January 23, 2009 was primarily a result of net sales growth
outside the U.S., specifically from 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. In addition, net sales for the comparative nine months ended
January 25, 2008 were negatively impacted by our voluntary suspension of
worldwide distribution of Fidelis leads in the second quarter of fiscal year
2008.

Pacing Systems
net sales for the three and nine months ended January 23, 2009 were $457
million and $1.490 billion, a decrease of 4 percent and an increase of 1 percent,
respectively, when compared to the same periods of the prior fiscal year. The
decrease in net sales for the three months ended January 23, 2009 was primarily
a result of a decrease in net sales in the U.S. due to significant competition
and an unfavorable impact from foreign currency translation on sales outside
the U.S. Net sales growth for the nine months ended January 23, 2009 was
primarily a result of net 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.

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. We expect to launch the Secura ICD and the
 Consulta CRT-D in Japan in the fourth 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.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Physician
 reimbursement in the U.S. for OptiVol Fluid Status Monitoring, which became effective January 1, 2009. OptiVol Fluid Status
 Monitoring is found on certain Medtronic CRT-Ds and ICDs and uses low
 electrical pulses that travel across the thoracic cavity to measure the level
 of resistance, indicating fluid in the chest which is a common symptom of
 heart failure. OptiVols ability to measure fluid status trends over time can
 provide important insights that are used in conjunction with ongoing
 monitoring of other patient symptoms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | 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. EnRhythm MRI became available in select European
 countries in November 2008. We expect to launch EnRhythm MRI in the U.S. in
 fiscal year 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | The recent
 U.S. launch of the Reveal XT Insertable Cardiac Monitor (ICM) which offers
 comprehensive remote monitoring capabilities, via the Medtronic CareLink
 Network, and which allows physicians to confirm or rule out an abnormal heart
 rhythm. The Reveal XT ICM became commercially available in the U.S. in
 February 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Our recent
 investments in two novel atrial fibrillation technology platforms. During the
 third quarter of fiscal year 2009, we acquired 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. See Note 3 to the condensed consolidated
 financial statements for additional information. In addition, on February 6,
 2009, we acquired AFI, a privately held company that develops RF ablation
 solutions for treatment of atrial fibrillation. AFIs system of ablation
 catheters and RF generator is currently approved in certain markets outside
 the U.S. See Note 20 to the condensed consolidated financial statements for
 additional information.                                                                                                                                   

35

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| |   |                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
 increase 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 nine months ended January
23, 2009 were $832 million and $2.520 billion, an increase of 3 percent and 19
percent, respectively, over the same periods of the prior fiscal year. Foreign
currency translation had an (unfavorable)/favorable impact on net sales for the
three and nine months ended January 23, 2009 of approximately $(11) million and
$11 million when compared to the same periods of the prior fiscal year. The growth
in the nine months ended January 23, 2009 was driven by the third quarter
fiscal year 2008 acquisition of Kyphon, which generated revenue of $455 million
and $147 million in the nine months ended January 23, 2009 and January 25,
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 nine months ended January 23, 2009 were $479
million and $1.441 billion, 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 nine months ended
January 23, 2009 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. Net sales
growth in the U.S. was also driven by net sales of our MAST family of products,
which includes a comprehensive offering of minimal-access procedural solutions.
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. In addition, Core Spinal net sales growth for both the three and nine
months ended January 23, 2009 was positively impacted from our joint venture
with Shandong Weigao Group Medical Polymer Company Limited (Weigao). The joint
venture entity, which distributes Medtronics spinal products and Weigaos
orthopedic products in China, commenced operations in September 2008.

Spinal
Biologics net sales for the three and nine months ended January 23, 2009 were
$205 million and $624 million, respectively. Net sales for the three months
ended January 23, 2009 were flat in comparison to the same period of the prior
fiscal year, whereas net sales for the nine months ended January 23, 2009 increased
5 percent over the same period of the prior fiscal year. For both the three
months ended October 24, 2008 and January 23, 2009, we believe growth was
negatively impacted by several external factors including, a public health
notice from the FDA regarding the off-label use of recombinant human bone
morphogenic protein in the cervical spine that was issued in July 2008, a
previously disclosed government investigation, negative newspaper stories, and
a whistleblower lawsuit filed against a number of spine surgeons and
distributors of INFUSE bone graft. The increase in net sales for the nine
months ended January 23, 2009 was driven from net sales in 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 nine months ended January 23, 2009 were $148 million
and $455 million, an increase of 1 percent and 210 percent, respectively, when
compared to the same periods of the prior fiscal year. Kyphon was acquired in
the third quarter of fiscal year 2008 and therefore net sales for the
comparative nine months ended January 25, 2008 only includes three months of
net sales. Kyphon net sales were driven primarily by continued acceptance of
balloon kyphoplasty procedures for treating vertebral compression fractures in
the U.S. 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 section of
 the spine, including the CD HORIZON LEGACY 5.5 and PEEK 6.35 Rod Systems.      
| |   |                                                                                                                                                                         
| |  | Increased
 presence outside the U.S. as a result of our joint venture with Weigao to
 distribute Medtronics spinal products and Weigaos orthopedic products in
 China.

36

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continued
 regulatory scrutiny of off-label use in medical devices. During the nine
 months ended January 23, 2009, the FDA issued a public health notice
 regarding use of bone morphogenic protein in cervical procedures, which was
 received negatively by both physicians and payors. As a result, sales of our
 INFUSE Bone Graft remained flat in comparison to the same period in the prior
 year. 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 nine
months ended January 23, 2009 were $565 million and $1.792 billion, an increase
of 10 percent and 20 percent, respectively, over the same periods of the prior
fiscal year. Foreign currency translation had an (unfavorable)/favorable impact
on net sales for the three and nine months ended January 23, 2009 of
approximately $(27) million and $27 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 nine months ended
January 23, 2009 were $296 million and $960 million, an increase of 14 percent
and 27 percent, respectively, as compared to the same periods in the prior
fiscal year. The increase in net sales for the three and nine months ended
January 23, 2009 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
nine months ended January 23, 2009. Endeavor and Endeavor Resolute drug-eluting
stents generated worldwide revenue of $126 million and $453 million for the
three and nine months ended January 23, 2009, respectively.

Endovascular
net sales for the three and nine months ended January 23, 2009 were $99 million
and $281 million, an increase of 41 percent and 35 percent, respectively, as
compared to the same periods in the prior fiscal year. Net sales in the U.S.
for the three and nine months ended January 23, 2009 increased 65 percent and
40 percent, respectively, in comparison to the same periods in the prior fiscal
year driven by the 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 the three and nine months ended January 23, 2009 increased 23 percent
and 29 percent, respectively, in comparison to the same periods in the prior
fiscal year driven by the recent launch 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 nine months ended January
23, 2009 were $103 million and $332 million, a decrease of 6 percent and an
increase of 5 percent, respectively, as compared to the same periods in the
prior fiscal year. The decrease in the three months ended January 23, 2009 is
due to a decline in the sales of our cardiopulmonary products outside the U.S.
due to increased competition and sales price pressure. The increase for the
nine months ended January 23, 2009 was primarily the result of growth outside
the U.S. associated with sales of our cannulae and beating heart products.

Structural
Heart Disease net sales for the three and nine months ended January 23, 2009
were $67 million and $219 million, a decrease of 8 percent and an increase of 4
percent, respectively, as compared to the same periods in the prior fiscal
year. The decrease in the three months ended January 23, 2009 was due to the
entrance of three new competitive tissue valve products into the U.S. market
during the past twelve months. The increase in the nine months ended January
23, 2009 was led by net sales growth outside the U.S. which 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. Net sales of our atrial
fibrillation technologies outside the U.S. also contributed to the increase in
sales for the nine months ended January 23, 2009.

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

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continued
 acceptance in the U.S. 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 be lifted on October 29, 2008. Although supply constraints
 during the quarter limited the penetration of Rapid Exchange to our full account
 base, we believe that access to Rapid Exchange and the recent U.S. market
 launch of the Endeavor Sprint and five other angioplasty products 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.

37

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 fiscal year 2010.                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | 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.                                                                                                                                                                               

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 nine
months ended January 23, 2009 were $354 million and $1.045 billion, an increase
of 11 percent and 12 percent, respectively, when compared to the same periods
of the prior fiscal year. Foreign currency translation had an
(unfavorable)/favorable impact on net sales for the three and nine months ended
January 23, 2009 of approximately $(9) million and $9 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 nine months
ended January 23, 2009 were $283 million and $837 million, an increase of 9
percent and 10 percent, respectively, when compared to the same periods of the
prior fiscal year. Although we experienced solid growth in the period, we
believe it was weakened by the launch of a competitive product in the period.
The growth for the three and nine months ended January 23, 2009 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. 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 nine months ended January 23, 2009 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 nine months ended
January 23, 2009 were $71 million and $208 million, an increase of 18 percent
and 22 percent, respectively, when compared to the same periods of the prior
fiscal year. The growth in Gastroenterology and Urology for the three and nine
months ended January 23, 2009 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 in the U.S., our next
 generation neurostimulators, in the fourth quarter of fiscal year 2009.
 Activa PC and RC were launched in Europe in January 2009. Activa PC is a
 primary cell device and Activa RC is the therapys first rechargeable device.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Continued
 acceptance of InterStim Therapy for the treatment of overactive bladder and
 urinary incontinence.                                                                                                                                                                                                                                                                                                                                                                                                                                                 

38

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| |   |                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 early 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 nine months ended
January 23, 2009 were $277 million and $818 million, an increase of 7 percent
and 10 percent, respectively, when compared to the same periods of the prior
fiscal year. Foreign currency translation had an (unfavorable)/favorable impact
on net sales for the three and nine months ended January 23, 2009 of
approximately $(12) million and $4 million, respectively, when compared to the
same periods of the prior fiscal year.

Durable Pump
Systems net sales for the three and nine months ended January 23, 2009 were
$243 million and $727 million, an increase of 3 percent and 6 percent,
respectively, when compared to the same periods of the prior fiscal year. In
addition to the continued growth by Durable Pump Systems, net sales of
Continuous Glucose Monitoring Systems (CGMS) and other accessories for the
three and nine months ended January 23, 2009 were $34 million and $91 million,
an increase of 60 percent and 54 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.

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 and improved U.S. reimbursement 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Continued
 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 nine months ended January 23, 2009 were $207 million and $622
million, an increase of 6 percent and 13 percent, respectively, when compared
to the same periods of the prior fiscal year. Foreign currency translation had
an (unfavorable)/favorable impact on net sales for the three and nine months
ended January 23, 2009 of approximately $(8) million and $1 million,
respectively, when compared to the same periods of the prior fiscal year.

39

---



Core ENT net
sales for the three and nine months ended January 23, 2009 were $83 million and
$255 million, an increase of 2 percent and 10 percent, respectively, when
compared to the same periods of the prior fiscal year. The increase for the
three and nine months ended January 23, 2009
reflected the continued net sales growth 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 nine months ended January 23, 2009
were $78 million and $238 million, an increase of 7 percent and 10 percent,
respectively, when compared to the same periods of the prior fiscal year. The
primary driver of growth for the three and nine months ended January 23, 2009
was worldwide increased sales of disposables associated with high-speed drill systems including 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 nine months ended January 23, 2009 were $46 million and
$129 million, an increase of 12 percent and 23 percent, respectively, when
compared to the same periods of the prior fiscal year. The increase in net
sales for the three and nine months ended January 23, 2009 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
 adoption  of power systems for sinus procedures outside the U.S., as well as
 continued global adoption of nerve monitoring for ENT and thyroid procedures.                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Launch of new products including
 the Integrated Power Console, Spine Shaver, and the NIM 3.0, a next
 generation nerve monitoring system.                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Continued
 acceptance of the O-arm Imaging System.                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | 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 as a result of the 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 |      | Nine
 months ended  | 
|                                   |  | January
 23, 
 2009 |      | January
 25, 
 2008 |  | January
 23, 
 2009 |   | January
 25, 
 2008 |     
|Cost of
 products sold             |  |                     | 24.3 | %                   |  | 25.6                | % |                     | 24.0 | % |  | 25.9 | %
|Research
 & development            |  |                     | 9.6  |                     |  | 9.7                 |   |                     | 9.2  |   |  | 9.6  |  
|Selling,
 general & administrative |  |                     | 36.0 |                     |  | 35.4                |   |                     | 35.6 |   |  | 35.3 |  
|Special
 charges                   |  |                     |     |                     |  | 2.3                 |   |                     |     |   |  | 0.8  |  
|Restructuring                      |  |                     |     |                     |  |                    |   |                     | 0.9  |   |  | 0.1  |  
|Certain
 litigation                |  |                     |     |                     |  | 10.7                |   |                     | 2.5  |   |  | 3.8  |  
|IPR&D                              |  |                     | 2.1  |                     |  | 9.1                 |   |                     | 0.8  |   |  | 3.6  |  
|Other
 expense, net                |  |                     | 1.4  |                     |  | 3.5                 |   |                     | 3.2  |   |  | 2.6  |  
|Interest
 (income)/expense, net    |  |                     | (0.1 | )                   |  | (0.3                | ) |                     | 0.2  |   |  | (1.2 | )

40

---



Cost of Products Sold

Cost of
products sold for the three and nine months ended January 23, 2009, as a
percentage of net sales, decreased 1.3 percentage points and 1.9 percentage
points, respectively, 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
January 23, 2009 was positively impacted by 0.3 of a percentage point of
favorable manufacturing variances. In addition, cost of products sold as a
percentage of net sales in the comparative three months ended January 25, 2008
was negatively impacted by 1.0 percentage point as a result of the $34 million
increase in cost of products sold related to the step-up to fair value of
inventory acquired in the acquisition of Kyphon. Cost of products sold as a
percentage of net sales in the nine months ended January 23, 2009 was
positively impacted by 0.7 of a percentage point of favorable foreign currency
adjustments, 0.3 of a percentage point of favorable manufacturing variances, and
0.5 of a percentage point from other product costs. In addition, cost of
products sold as a percentage of net sales in the comparative nine months ended
January 25, 2008 was negatively impacted by 0.4 of a percentage point as a
result of the $34 million increase in cost of products sold related to the
step-up to fair value of inventory acquired in the acquisition of Kyphon.

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 nine months
ended January 23, 2009, research and development spending was $337 million and
$987 million, or 9.6 percent and 9.2 percent of net sales, respectively.
Research and development spending for the three and nine months ended January
25, 2008 was $329 million and $927 million, or 9.7 percent and 9.6 percent of
net sales, respectively. While our research and development spending for the
three and nine months ended January 23, 2009 increased over the prior year in
total, as a percentage of net sales it has decreased for both periods. The
decrease is primarily the result of a reclassification of $11 million and $34
million in certain expenses to selling, general, and administrative expense for
the three and nine months ended January 23, 2009, respectively. These expenses
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.

Selling, General and Administrative

Selling,
general and administrative expense for the three months ended January 23, 2009,
as a percentage of net sales increased by 0.6 of a percentage point to 36.0
percent, as compared to the same period of the prior fiscal year. For the nine
months ended January 23, 2009, there was an increase of 0.3 of a percentage
point to 35.6 percent, as compared to the same period of the prior fiscal year.
For both the three and nine months ended January 23, 2009, the reclassification
of certain expenses from research and development (noted above) had a negative
impact of 0.3 of a percentage point. In addition, for the three and nine months
ended January 23, 2009, foreign exchange had a negative impact of 0.2 and 0.1
of a percentage point, respectively. We continue to drive our initiatives to
leverage our cost structure in order to help reduce selling, general, and
administrative expense.

Special, Restructuring, Certain Litigation
and IPR&D Charges

Special,
restructuring, certain litigation, and IPR&D charges for the three and nine
months ended January 23, 2009 and January 25, 2008 were as follows:

|                                                                                |  |                     |    |                    |   |                    |   |                    |      |   |   |      |  
|------------------------------------------------------------------------------- |  | ------------------- | -- | ------------------ | - | ------------------ | - | ------------------ | ---- | - | - | ---- | -
|                                                                                |  | Three
 months ended |    | Nine
 months ended |  
|(dollars
 in millions)                                                          |  | January
 23,
 2009  |    | January
 25,
 2008 |   | January
 23,
 2009 |   | January
 25,
 2008 |     
|Special charges                                                                 |  | $                   |   |                    | $ | 78                 |   | $                  |     |   | $ | 78   |  
|Restructuring charges                                                           |  |                     |   |                    |   |                   |   |                    | 96   |   |   | 14   |  
|Certain litigation charges                                                      |  |                     |   |                    |   | 366                |   |                    | 266  |   |   | 366  |  
|IPR&D charges                                                                   |  |                     | 72 |                    |   | 310                |   |                    | 90   |   |   | 343  |  
|Total special, restructuring, certain
 litigation and IPR&D charges             |  |                     | 72 |                    |   | 754                |   |                    | 452  |   |   | 801  |  
|Net tax impact of special, restructuring, certain litigation and
 IPR&D charges |  |                     |   |                    |   | (118               | ) |                    | (127 | ) |   | (129 | )
|Total special, restructuring, certain litigation and IPR&D
 charges, net of tax |  | $                   | 72 |                    | $ | 636                |   | $                  | 325  |   | $ | 672  |  

41

---



Special

During the
three and nine months ended January 23, 2009, there were no special charges.

During the
three and nine months ended January 25, 2008, we recorded a special charge
related to the impairment of intangible assets associated with our benign
prostatic hyperplasia, or enlarged prostate, product line purchased in fiscal
year 2002. The development of the market, relative to our original assumptions,
has changed as a result of the broad acceptance of a new line of drugs to treat
the symptoms of an enlarged prostate. After analyzing the estimated future cash
flows utilizing this technology, based on the market development, we determined
that the carrying value of these intangible assets was impaired and a write
down of $78 million was necessary. See Note 4 to the condensed consolidated
financial statements for further discussion of this special charge.

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 and third quarters 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, 570 have been eliminated as of January 23, 2009.
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.

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.

42

---



Certain Litigation

We classify
material litigation reserves recognized as certain litigation charges. During
the three months ended January 23, 2009, there were no certain litigation
charges. During the nine months ended January 23, 2009, 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 nine months ended January 23, 2009
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
had been paid.

During the
three and nine months ended January 25, 2008, we incurred certain litigation
charges of $366 million. Of the amount recorded, $123 million relates to the
settlement of certain lawsuits relating to the Marquis line of ICDs and CRT-Ds
that were subject to a field action announced on February 10, 2005. The
remainder of the charge, $243 million, relates to an estimated reserve
established for litigation with Cordis. In May 2008, we paid substantially all
of the settlement for certain lawsuits relating to the Marquis line of ICDs and
CRT-Ds.

IPR&D Charges

During the
three months ended January 23, 2009, we recorded $72 million of IPR&D
charges related to technology acquired through the purchase of CryoCath that
had not yet reached technological feasibility and had no future alternative
use.

During the nine
months ended January 23, 2009, we recorded $90 million of IPR&D charges of
which $72 million related to CryoCath and $18 million 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
projects had not yet been reached and such technology has no future alternative
use. See Note 3 to the condensed consolidated financial statements for further
discussion of these IPR&D charges.

During the
three months ended January 25, 2008, we recorded $310 million of IPR&D
charges of which $290 million related to technology acquired through the
purchase of Kyphon that had not yet reached technological feasibility and had
no future alternative use and $20 million related to the purchase of
intellectual property from Setagon, Inc. that had not yet reached technological
feasibility and had no future alternative use.

During the
nine months ended January 25, 2008, we recorded $343 million of IPR&D
charges of which $290 million related to Kyphon, $20 million related to the
purchase of intellectual property from Setagon, Inc., $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. See Note 3 to the condensed consolidated financial statements for further
discussion of these IPR&D charges.

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 nine months ended January 23,
2009 decreased $69 million and increased $96 million, to $50 million and $344
million, respectively, compared to the same periods in the prior fiscal year.
The decrease of $69 million for the three months ended January 23, 2009 was
primarily due to currency hedges, which resulted in income of $31 million in
the current period compared to losses of $41 million in the same period of the
prior fiscal year, partially offset by incremental expense from Endeavor royalties. The increase of $96 million for the nine
months ended January 23, 2009 was primarily due to currency hedges, which
resulted in losses of $78 million in the current period compared to $58 million
in the same period of the prior fiscal year and $69 million of amortization on
intangible assets related to the Kyphon acquisition in the current period
compared to $23 million in the same period of the prior fiscal year. The
current period also included incremental expense from
Endeavor royalties.

43

---



Interest (Income)/Expense, Net

Interest
(income)/expense, 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 nine months ended January 23, 2009, we had
interest (income)/expense, net of $(2) million and $17 million, respectively,
as compared to interest (income)/expense, net of $(9) million and $(114)
million for the same periods of the prior fiscal year. The decrease in interest
income, net during the three months ended January 23, 2009 is the result of
lower interest rates being earned on our short- and long-term investments, and
a $12 million impairment charge recorded on our marketable securities portfolio
due to the decline in market conditions during the three months ended January
23, 2009. These decreases were partially offset by net gains on sales of AFS debt
securities of $17 million during the three months ended January 23, 2009. The
change from interest income, net of $114 million in the nine months ended
January 25, 2008 to interest expense, net of $17 million in the nine months
ended January 23, 2009, is the result of lower interest rates being earned on
our short- and long-term investments, and a $33 million impairment charge
recorded on our marketable securities portfolio due to the decline in market
conditions during the nine months ended January 23, 2009. These decreases in
interest income were partially offset by net gains on sales of AFS debt securities of $18
million during the nine months ended January 23, 2009. In addition, interest
expense, net for the nine months ended January 23, 2009 was also impacted by
the $3.303 billion of cash used in partially financing the Kyphon acquisition.
See our discussion in the Liquidity and Capital Resources section of this
managements discussion and analysis for more information regarding our
investment portfolio.

INCOME TAXES

|                                                                         |  |                     |       |                    |   |                    |   |                    |       |   |   |       |  
|------------------------------------------------------------------------ |  | ------------------- | ----- | ------------------ | - | ------------------ | - | ------------------ | ----- | - | - | ----- | -
|                                                                         |  | Three
 months ended |       | Nine
 months ended |  
|(dollars in millions)                                                    |  | January
 23,
 2009  |       | January
 25,
 2008 |   | January
 23,
 2009 |   | January
 25,
 2008 |      
|Provision for Income Taxes                                               |  | $                   | 209   |                    | $ | 58                 |   | $                  | 505   |   | $ | 463   |  
|Effective tax rate                                                       |  |                     | 22.44 | %                  |   | 42.77              | % |                    | 19.84 | % |   | 24.61 | %
|Impact of special, restructuring, certain
 litigation, and IPR&D charges |  |                     | (1.61 | )                  |   | (22.93             | ) |                    | 1.24  |   |   | (2.49 | )
|Non-GAAP nominal tax rate (1)                                            |  |                     | 20.83 | %                  |   | 19.84              | % |                    | 21.08 | % |   | 22.12 | %

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(1) | 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 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 nine months ended January 23, 2009 was 22.44 percent
and 19.84 percent, respectively, compared to 42.77 percent and 24.61 percent,
respectively, from the same periods of the prior fiscal year. The change in our
effective tax rate was primarily due to the impact of special, restructuring,
certain litigation, and IPR&D charges, the impact of tax benefits derived from
our international operations, and operational tax benefits discussed below. Our
non-GAAP nominal tax rate for the three and nine months ended January 23, 2009
was 20.83 percent and 21.08 percent, respectively, compared to 19.84 percent
and 22.12 percent from the same periods of the prior fiscal year. The change in
the Companys non-GAAP nominal tax rate for the three and nine months ended
January 23, 2009 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
operational tax benefits discussed below.

During the
three months ended January 23, 2009, we recorded $12 million in operational tax
benefits for the finalization of certain tax returns and changes to uncertain
tax position reserves. During the comparative three months ended January 25,
2008, we recorded $30 million in operational tax benefits for the finalization
of certain tax returns and changes to uncertain tax position reserves. Lastly,
during the nine months ended January 23, 2009, we also recorded a $16 million
operational 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 related
to a retroactive adjustment for the first seven months of calendar year 2008.
The research and development credit related to subsequent months is included in
the rate from the second quarter of fiscal year 2009 and forward. These tax
adjustments are operational in nature and are recorded in provision for income taxes on the
condensed consolidated statements of earnings.
Excluding the impact of operational tax adjustments, the Companys non-GAAP
nominal tax rate would have been 22.00% for the three and nine months ended
January 23, 2009 compared to 23.25% for the same periods of the prior fiscal
year. The decrease is primarily due to the income tax benefit derived from our
international operations. See Note 13 to the condensed consolidated financial
statements for further information.

44

---



LIQUIDITY AND CAPITAL RESOURCES

|                                                                               |  |                    |         |                  |   |         |  
|------------------------------------------------------------------------------ |  | ------------------ | ------- | ---------------- | - | ------- | -
|(dollars in millions)                                                          |  | January
 23,
 2009 |         | April
 25,
 2008 |  
|Working
 capital                                                               |  | $                  | 4,038   |                  | $ | 3,787   |  
|Current
 ratio*                                                                |  |                    | 2.3:1.0 |                  |   | 2.1:1.0 |  
|Cash, cash
 equivalents, and short-term investments                            |  | $                  | 1,743   |                  | $ | 1,613   |  
|Long-term
 investments in debt securities**                                    |  |                    | 2,135   |                  |   | 2,078   |  
|Cash, cash
 equivalents, short-term investments, and long-term debt securities |  | $                  | 3,878   |                  | $ | 3,691   |  
|Short-term
 borrowings and long-term debt                                      |  | $                  | 6,709   |                  | $ | 6,956   |  
|Net cash
 position***                                                          |  | $                  | (2,831  | )                | $ | (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 January 23, 2009 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 $2.179 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 January 23, 2009, 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 third 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, capital expenditures,
dividend payments, share repurchases, the acquisition of CryoCath (see Note 3
to the condensed consolidated financial statements for further information),
and the purchase of a 15 percent equity interest in Weigao (see the Summary of
Cash Flows section of this managements discussion and analysis).

Subsequent to
January 23, 2009, we announced the acquisitions of AFI, Ventor, and CoreValve
(see Note 20 to the condensed consolidated financial statements for further
information). Based on each transactions terms, the upfront cash payments
required subsequent to the third quarter total $1.250 billion.

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, if any, 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 the nine months ended January 23,
2009, 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 January 23,
2009 and April 25, 2008, approximately $3.570 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. Long-term investments also
include $100 million of cash invested in government securities
held in an indemnification trust established for self-insurance coverage for our directors and
officers. These investments are restricted and are the property of the trust and can only be used to indemnify or advance expenses related to
claims against our directors and/or officers.

45

---



The IRS
recently issued guidance that expands the ability of a U.S. corporation to
obtain financing from its foreign subsidiaries without the financing acting as
a deemed repatriation of cash. At January 23, 2009, Medtronic, Inc., our parent
corporation, had outstanding borrowings of approximately $903 million from one
of our non-U.S. subsidiaries. The proceeds of this inter-company note were used
to reduce short-term borrowings (also reduced cash and short-term investments
as of January 23, 2009). Subsequent to the quarter ended January 23, 2009, we
repaid this inter-company note to our foreign subsidiary using proceeds from
short-term borrowings. None of these borrowings acted as a repatriation of cash
to the U.S.

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 three quarters of fiscal year
2009 and subsequent to our January 23, 2009 quarter-end continue to indicate
significant uncertainty on the part of investors on the economic outlook for
the U.S. and for financial institutions. 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. Although certain securities are illiquid, 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.

For the three
and nine months ended January 23, 2009, we recognized an other-than-temporary
impairment loss on AFS debt securities of $12 million and $33 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 further
losses. However, as of January 23, 2009, we have $172 million of gross
unrealized losses on our aggregate short-term and long-term investments of
$2.595 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

|                                                              |  |                    |        |                    |   |        |  
|------------------------------------------------------------- |  | ------------------ | ------ | ------------------ | - | ------ | -
|                                                              |  | Nine
 months ended |       
|(dollars in millions)                                         |  | January
 23,
 2009 |        | January
 25,
 2008 |  
|Cash
 provided by (used in):                                  |  |                    |        |                    |   |        |  
|Operating
 activities                                         |  | $                  | 2,755  |                    | $ | 2,900  |  
|Investing
 activities                                         |  |                    | (1,245 | )                  |   | (2,686 | )
|Financing
 activities                                         |  |                    | (1,217 | )                  |   | (696   | )
|Effect of
 exchange rate changes on cash and cash equivalents |  |                    | (70    | )                  |   | (45    | )
|Net change
 in cash and cash equivalents                      |  | $                  | 223    |                    | $ | (527   | )

Operating Activities

Our net cash
provided by operating activities was $2.755 billion for the nine months ended
January 23, 2009 compared to $2.900 billion provided by operating activities
for the nine months ended January 25, 2008. The $145 million decrease in net
cash provided by operating activities was primarily attributable to payments
for litigation settlements partially offset by continued increases in cash
flows from operations. 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 of the Cordis
litigation, which pertains to patent infringement claims on previous
generations of bare metal stents that are no longer on the market, and paid
$125 million to Fastenetix for the settlement of ongoing litigation and the
purchase of patents. Of the $125 million paid to Fastenetix, $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. The $37 million is reflected in our cash flow from operations, while the
remaining $88 million is recorded as purchased intellectual property and
included in 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.

46

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Investing Activities

Our net cash
used in investing activities was $1.245 billion for the nine months ended
January 23, 2009 compared to $2.686 billion used in investing activities for
the nine months ended January 25, 2008. The decrease in cash used for investing
activities in the nine months ended January 23, 2009 is primarily related to a
decrease in cash used for acquisitions partially offset by net purchases of
marketable securities in the current period as compared to net proceeds in the
comparable nine months ended January 25, 2008. The large inflow of cash related
to the net sales of marketable securities in the nine months ended January 25,
2008 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. The $1.245 billion net cash used in
investing activities for the nine months ended January 23, 2009 includes $352
million, net of cash acquired, used for the acquisition of Cryocath, which was
completed on December 18, 2008. See Note 3 for additional information regarding
the acquisition of Cryocath. Other investing activities for the nine months
ended January 23, 2009 also includes $221 million of cash used to purchase a 15
percent equity interest in Weigao, which was acquired on December 18, 2008.

Financing Activities

Our net cash
used in financing activities was $1.217 billion for the nine months ended
January 23, 2009 compared to $696 million for the nine months ended January 25,
2008. The $521 million increase in net cash used in financing activities was
primarily attributable to the repayment of short-term and long-term debt that
was borrowed in the comparable period 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. The net cash provided by the
issuance of short-term debt and long-term debt for the nine months ended
January 25, 2008 is primarily due to the acquisition of Kyphon which was
consummated on November 2, 2007. The transaction was financed through a
combination of $3.303 billion of cash on hand, the issuance of $600 million
short-term commercial paper and borrowing $300 million through a long-term
unsecured revolving credit facility.

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 January 23, 2009. 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.

47

---



|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|---------------------------------------------------------------------------------- |  | ------------------------ | ----- | --------------- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | ---------- | --- |  | - | ----- |  | - | --- | 
|                                                                                   |  | 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)                                                     |  | $                        | 6,100 |                 | $ | 1,889 |  | $    | 2,461 |      | $ | 1,501 |  | $          | 249 |  | $ |      |  | $ |    | 
|Operating leases (2)                                                               |  |                          | 252   |                 |   | 39    |  |      | 73    |      |   | 45    |  |            | 26  |  |   | 20    |  |   | 49  | 
|Inventory purchases (3)                                                            |  |                          | 621   |                 |   | 86    |  |      | 259   |      |   | 113   |  |            | 36  |  |   | 33    |  |   | 94  | 
|Commitments to fund minority investments/contingent
 acquisition consideration (4) |  |                          | 216   |                 |   | 15    |  |      | 50    |      |   | 20    |  |            | 24  |  |   | 24    |  |   | 83  | 
|Interest payments (5)                                                              |  |                          | 479   |                 |   | 57    |  |      | 115   |      |   | 106   |  |            | 64  |  |   | 64    |  |   | 73  | 
|Other (6)                                                                          |  |                          | 222   |                 |   | 16    |  |      | 55    |      |   | 46    |  |            | 32  |  |   | 14    |  |   | 59  | 
|Total                                                                              |  | $                        | 7,890 |                 | $ | 2,102 |  | $    | 3,013 |      | $ | 1,831 |  | $          | 431 |  | $ | 155   |  | $ | 358 | 
|                                                                                   |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|Contractual obligations reflected in the balance
sheet:                            |  |                          |       |                 |   |       |  |      |       |      |   |       |  |            |     |  |   |       |  |   |     | 
|Long-term debt, excluding capital leases
 (7)                                      |  | $                        | 5,415 |                 | $ |      |  | $    |      |      | $ | 2,600 |  | $          | 15  |  | $ | 2,200 |  | $ | 600 | 
|Capital leases (8)                                                                 |  |                          | 67    |                 |   |      |  |      | 13    |      |   | 16    |  |            | 17  |  |   | 20    |  |   | 1   | 
|Total                                                                              |  | $                        | 5,482 |                 | $ |      |  | $    | 13    |      | $ | 2,616 |  | $          | 32  |  | $ | 2,220 |  | $ | 601 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(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
 excludes the remaining fair value from the five year interest rate swap
 entered into in November 2005 and the eight year interest rate swap agreement
 entered into in June 2007 that were terminated in December 2008. See Note 8
 to the condensed consolidated financial statements for additional information
 regarding the interest rate swap agreement terminations.                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(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 January
23, 2009 in comparison to 38 percent at April 25, 2008.

48

---



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 nine months
ended January 23, 2009, we repurchased approximately 2.6 million and
15.5 million shares, respectively, at an average price per share of $35.03
and $46.98, respectively. As of January 23, 2009, we have approximately
18.8 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 January 23, 2009 was $1.184 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 January 23, 2009 was $5.525 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 $2.850 billion with various banks at January
23, 2009. 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.

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.

As of January 23, 2009 and
April 25, 2008, we have unused credit lines and commercial paper capacity of
approximately $2.179 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 January 23, 2009 and April 25, 2008, outstanding commercial
paper totaled $1.011 billion and $874 million, respectively. During the three
and nine months ended January 23, 2009, the weighted average original maturity
of the commercial paper outstanding was approximately 65 days and 48 days,
respectively, and the weighted average interest rate was 1.49 percent and 1.93
percent, respectively. 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 nine months
ended January 23, 2009 and January 25, 2008:

|                       |  |                     |       |                     |   |                     |  |                     |        |  |   |       | 
|---------------------- |  | ------------------- | ----- | ------------------- | - | ------------------- |  | ------------------- | ------ |  | - | ----- | 
|                       |  | Three
 months ended |       | Nine
 months ended  |  
|(dollars
 in millions) |  | January
 23, 
 2009 |       | January
 25, 
 2008 |   | January
 23, 
 2009 |  | January
 25, 
 2008 |       
|U.S. net sales         |  | $                   | 2,176 |                     | $ | 2,098               |  | $                   | 6,621  |  | $ | 6,005 | 
|Non-U.S. net sales     |  |                     | 1,318 |                     |   | 1,307               |  |                     | 4,149  |  |   | 3,650 | 
|Total net sales        |  | $                   | 3,494 |                     | $ | 3,405               |  | $                   | 10,770 |  | $ | 9,655 | 

49

---



For the three and nine
months ended January 23, 2009, consolidated net sales outside the U.S. grew 1
percent and 14 percent, respectively, over the same periods of the prior year.
For the three months ended January 23, 2009, growth outside the U.S. was 3
percent lower than net sales growth in the U.S. due to an unfavorable foreign
currency translation impact of $110 million. For the nine months ended January
23, 2009, growth outside the U.S. was 4 percent higher than net sales growth in
the U.S. Foreign currency translation had a favorable impact of $111 million on
net sales for the nine months ended January 23, 2009. Overall, for the three
and nine months ended January 23, 2009, net sales growth outside of the U.S.
was led by the Neuromodulation, Diabetes, and Surgical Technologies businesses.
In addition, the acquisition of Kyphon in the third quarter of fiscal year 2008 increased the
sales growth outside the U.S. as the comparative nine months ended January 25, 2008 only includes
three months of Kyphon net sales.

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 $1.501 billion at January 23, 2009, 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.

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
nine months ended January 23, 2009, we expect the fourth quarter 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 $6.101 billion and
$6.613 billion at January 23, 2009 and April 25, 2008, respectively. The fair
value of these contracts at January 23, 2009 was $300 million more than the
original contract value. A sensitivity analysis of changes in the fair value of
all foreign exchange derivative contracts at January 23, 2009 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 $579
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 January 23, 2009 indicates that the fair value of these
instruments would correspondingly change by $19 million.

50

---



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 historically lent certain fixed income
securities to enhance our investment income. These lending activities were
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 April 25, 2008 was $610 million. Due to our concerns about the
liquidity condition in the fixed income markets, we suspended our lending
program in the second quarter of fiscal year 2009 and had no lending activity
during the third quarter of fiscal year 2009.

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.

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 the subpoena.

Beginning on September 20,
2007, the Company has received letter requests from Senator Grassley of the
U.S. Senate Finance Committee requesting information on a variety of subjects,
including financial ties between the medical device industry and practicing
physicians; the Companys decision to suspend distribution of its Sprint
Fidelis family of defibrillation leads; financial ties between the Company and
physicians who use INFUSE Bone Graft; the Cardiac Research Foundation and
Columbia University; and certain communications regarding INFUSE Bone Graft.
The Company has cooperated, and will continue to cooperate with, the Senators
requests.

51

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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.
Since that time the SEC and Department of Justice have made additional requests
for information from the Company. The Company is cooperating with the 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 will
comply as required with the terms of the letter.

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 will comply as required 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 will comply as required with
the terms of the subpoena.

On December 18, 2008,
Medtronic received a civil investigative demand from the Massachusetts Attorney
Generals Office, requesting production of documents related to Medtronics
INFUSE Bone Graft product. Medtronic is in the process of responding to the
demand and will comply as required with the terms of the demand.

On February 9, 2009, the
Company received letter notice that the United States Department of Justice in
the Southern District of Texas is investigating marketing practices,
reimbursement advice of the Company and appropriateness of therapy delivery
relating to the Companys cardiac surgical ablation devices. The Company is in
the process of responding to the requests of the government, and will comply as
required with the investigation.

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 third 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 |          
|10/25/08-11/21/08 |  |                                        | 2,568,300 |                                  | $ | 35.03                                                                        |  |                                                                          | 2,568,300 |  |  | 18,838,084 | 
|11/22/08-12/26/08 |  |                                        |          |                                  |   |                                                                             |  |                                                                          |          |  |  | 18,838,084 | 
|12/27/08-1/23/09  |  |                                        |          |                                  |   |                                                                             |  |                                                                          |          |  |  | 18,838,084 | 
|Total             |  |                                        | 2,568,300 |                                  | $ | 35.03                                                                        |  |                                                                          | 2,568,300 |  |  | 18,838,084 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(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.

52

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Item 6. Exhibits

|    |          |                                                                                                      
|--- | -------- | -----------------------------------------------------------------------------------------------------
|(a) | Exhibits
|    |          |                                                                                                      
|    | 3.1      | Medtronic Restated
 Articles of Incorporation, as amended (Exhibit 3.1)(a).                          
|    |          |                                                                                                      
|    | 10.1     | Form of Amendment to
 Change of Control Employment Agreement for Medtronic Executive Officers.       
|    |          |                                                                                                      
|    | 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.

|                                                                                                                                                                                      |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|(a) Incorporated herein by
 reference to the cited exhibit in our Quarterly Report on Form 10-Q for the
 quarter ended July 27, 2007, filed with the Commission on September 5, 2007.
|                                                                                                                                                                                     
|                                                                                                                                                                                      | 

53

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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: March 4, 2009 | /s/ William A. Hawkins               
|                    | William A. Hawkins                   
|                    | Chairman and Chief
 Executive Officer
|                    |                                      
|Date: March 4, 2009 | /s/ Gary L. Ellis                    
|                    | Gary L. Ellis                        
|                    | Senior Vice President and            
|                    | Chief Financial Officer              

54

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