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<SEC-DOCUMENT>0000897101-05-001490.txt : 20050629
<SEC-HEADER>0000897101-05-001490.hdr.sgml : 20050629
<ACCEPTANCE-DATETIME>20050629163051
ACCESSION NUMBER: 0000897101-05-001490
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 27
CONFORMED PERIOD OF REPORT: 20050429
FILED AS OF DATE: 20050629
DATE AS OF CHANGE: 20050629
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MEDTRONIC INC
CENTRAL INDEX KEY: 0000064670
STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]
IRS NUMBER: 410793183
STATE OF INCORPORATION: MN
FISCAL YEAR END: 0430
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-07707
FILM NUMBER: 05925156
BUSINESS ADDRESS:
STREET 1: 710 MEDTRONIC PKWY
STREET 2: MS LC300
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55432
BUSINESS PHONE: 7635144000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>med052766_10k.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Form 10-K dated April 29, 2005</title>
</HEAD>
<BODY>
<HR noshade color="black" size="3">
<HR noshade color="black" size="3">
<P style="font-weight:bold;text-align:center">
<FONT SIZE="4">UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION</FONT>
<BR>
<FONT SIZE="2">Washington, D.C. 20549</FONT></P>
<HR noshade color="black" width="20%">
<P style="font-weight:bold;text-align:center">
<FONT SIZE="4">FORM 10-K</FONT></P>
<DIV ALIGN="CENTER">
<TABLE WIDTH="70%" BORDER="0" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt;font-weight:bold" VALIGN="TOP">
<TD WIDTH="4%">[X]</TD>
<TD WIDTH="96%">Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.<BR>For the fiscal
year ended April 29, 2005.</TD>
</TR>
<TR style="font-size:10pt;font-weight:bold" VALIGN="TOP">
<TD WIDTH="4%">[ ]</TD>
<TD WIDTH="96%">Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.<BR>For the transition
period from __________ to __________</TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;font-weight:bold;text-align:center">Commission File No. 1-7707</P>
<HR noshade color="black" width="20%">
<P style="font-size:10pt;font-weight:bold;text-align:center"> </P>
<DIV align="center">
<img src="med_blue.gif"></DIV>
<P style="text-align:center">
<FONT SIZE="4"><B>Medtronic, Inc.</B></FONT>
<BR>
<FONT SIZE="2">(Exact name of registrant as specified in charter)</FONT></P>
<DIV ALIGN="CENTER">
<TABLE WIDTH="70%" BORDER="0" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" ALIGN="CENTER" VALIGN="TOP">
<TD WIDTH="50%"><B>Minnesota</B><B>(State of incorporation)</B></TD>
<TD WIDTH="50%"><B>41-0793183</B><B>(I.R.S. Employer Identification No.)</B></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;text-align:center">
<B>710 Medtronic Parkway</B>
<BR>
<B>Minneapolis, Minnesota 55432</B>
<BR>
<B>(Address of principal executive offices)</B>
</P>
<P style="font-size:10pt;text-align:center">
<B></B>
<BR>
<B>Telephone Number: (763) 514-4000</B>
</P>
<P style="font-size:10pt;text-align:center;margin-top:3pt">
<B>Securities registered pursuant to section 12(b) of the Act:</B>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH align="left">Title of each class</TH>
<TH> </TH><TH align=left nowrap>Name of each exchange on which registered</TH>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD width=65%><B>Common stock, par value $0.10 per share</B></TD>
<TD width="2%"> </TD>
<TD width=33%><B>New York Stock Exchange, Inc.</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD><B>Preferred stock purchase rights</B></TD>
<TD> </TD>
<TD><B>New York Stock Exchange, Inc.</B></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;text-align:center">
<B>Securities registered pursuant to section 12(g) of the Act:<BR>None</B>
</P>
<HR noshade color="black" width="20%">
<P style="font-size:10pt">
<B>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 <FONT FACE=wingdings SIZE=2>x</FONT> No <FONT FACE=wingdings SIZE=2>o</FONT>
</B></P>
<P style="font-size:10pt">
<B>Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. <FONT FACE=wingdings SIZE=2>o</FONT></B>
</P>
<P style="font-size:10pt">
<B>Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange
Act of 1934).<BR>Yes <FONT FACE=wingdings SIZE=2>x</FONT> No <FONT FACE=wingdings SIZE=2>o</FONT></B>
</P>
<P style="font-size:10pt">
<B>Aggregate market value of voting stock of Medtronic, Inc. held by nonaffiliates of the Registrant as of October 29,
2004, based on the closing price of $51.11, as reported on the New York Stock Exchange: approximately $61.8 billion.</B>
</P>
<P style="font-size:10pt">
<B>Shares of Common Stock outstanding on June 24, 2005: 1,213,729,424</B>
</P>
<P style="font-size:10pt;text-align:center;margin-top:3pt">
<B>DOCUMENTS INCORPORATED BY REFERENCE</B>
</P>
<P style="font-size:10pt">
<B>Portions of the Registrant’s 2005 Annual Report filed as Exhibit 13 hereto are incorporated by reference into Parts
I and II hereto and portions of Registrant’s Proxy Statement for its 2005 Annual Meeting are incorporated by reference
into Part III.</B>
</P>
<P> </P>
<HR noshade color="black" size="3">
<HR noshade color="black" size="3">
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">
</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">TABLE OF CONTENTS</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH align="left">Item</TH>
<TH> </TH> <TH>Description</TH>
<TH> </TH> <TH>Page</TH>
</TR>
<TR>
<TD>
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD>
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD>
<HR noshade color="black" size="1">
</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD colspan="4" align="center"><B>PART I</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>1.</TD>
<TD> </TD>
<TD><A HREF="#item_1_business">Business</A></TD>
<TD width="2%"> </TD>
<TD>1</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>2.</TD>
<TD> </TD>
<TD><A HREF="#item_2_properties">Properties</A></TD>
<TD> </TD>
<TD>29</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>3.</TD>
<TD> </TD>
<TD><A HREF="#item_3_legal_proceedings">Legal Proceedings</A></TD>
<TD> </TD>
<TD>29</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>4.</TD>
<TD> </TD>
<TD><A HREF="#item_4_submission_of_matters_to_a_vote_of_security_holders">Submission of Matters to a Vote of Security Holders</A></TD>
<TD> </TD>
<TD>32</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD colspan="4" align="center"><B>PART II</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>5.</TD>
<TD> </TD>
<TD><A HREF="#item_5_market_for_medtronics_common_equity">Market for Medtronic’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities</A></TD>
<TD> </TD>
<TD>32</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>6.</TD>
<TD> </TD>
<TD><A HREF="#item_6_selected_financial_data">Selected Financial Data</A></TD>
<TD> </TD>
<TD>32</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>7.</TD>
<TD> </TD>
<TD><A HREF="#item_7_managements_discussion_and_analysis">Management’s Discussion and Analysis of Financial Condition and Results of Operations</A></TD>
<TD> </TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>7A.</TD>
<TD> </TD>
<TD><A HREF="#item_7a_quantitative_and_qualitative_disclosures">Quantitative and Qualitative Disclosures About Market Risk</A></TD>
<TD> </TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>8.</TD>
<TD> </TD>
<TD><A HREF="#item_8_financial_statements_and_supplementary_data">Financial Statements and Supplementary Data</A></TD>
<TD> </TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>9.</TD>
<TD> </TD>
<TD><A HREF="#item_9_changes_in_and_disagreements_with_accountants">Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</A></TD>
<TD> </TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>9A.</TD>
<TD> </TD>
<TD><A HREF="#item_9a_controls_and_procedures">Controls and Procedures</A></TD>
<TD> </TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>9B.</TD>
<TD> </TD>
<TD><A HREF="#item_9b_other_information">Other Information</A></TD>
<TD> </TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD colspan="4" align="center"><B>PART III</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>10.</TD>
<TD> </TD>
<TD><A HREF="#item_10_directors_and_executive_officers">Directors and Executive Officers of the Registrant</A></TD>
<TD> </TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>11.</TD>
<TD> </TD>
<TD><A HREF="#item_11_executive_compensation">Executive Compensation</A></TD>
<TD> </TD>
<TD>34</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>12.</TD>
<TD> </TD>
<TD><A HREF="#item_12_security_ownership_of_certain_beneficial_owners">Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters</A></TD>
<TD> </TD>
<TD>34</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>13.</TD>
<TD> </TD>
<TD><A HREF="#item_13_certain_relationships_and_related_transactions">Certain Relationships and Related Transactions</A></TD>
<TD> </TD>
<TD>34</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>14.</TD>
<TD> </TD>
<TD><A HREF="#item_14_principal_accountant_fees_and_services">Principal Accountant Fees and Services</A></TD>
<TD> </TD>
<TD>34</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD colspan="4" align="center"><B>PART IV</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>15.</TD>
<TD> </TD>
<TD><A HREF="#item_15exhibits_and_financial_statement_schedules">Exhibits and Financial Statement Schedules</A></TD>
<TD> </TD>
<TD>34</TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold;text-align:center"></P>
<P style="font-size:10pt;font-weight:bold">Trademarks and Other Rights</P>
<P style="font-size:10pt"> This Report contains trademarks, service marks, and
registered marks of Medtronic, Inc. and its subsidiaries, (“Medtronic” or the “Company”) and other
companies, as indicated.</P>
<P style="font-size:10pt"> The following are registered and unregistered trademarks
of Medtronic, Inc. and its affiliated companies:</P>
<P style="font-size:10pt"> Access®, Activa®, ADVANTAGE Supra®, AneuRx®,
Attain®, Attain Select™, Aurora™, Bolus Wizard®, Bravo®, BRYAN®, CAPSTONE™, Cardioblate®,
Catalyst™, CD HORIZON®, CD HORIZON LEGACY™, CD HORIZON SEXTANT™, CG Future®, CGMS®, Chronicle®,
Clo-Sur P.A.D.™, Crosslink®, CrossPoint®, Cypher®, Driver®, ECLIPSE®, Endeavor™, EnPulse®,
EnRhythm™, Enterra®, EnTrust™, EVS™, Equestra™, Freestyle®, Gatekeeper™, GEM III®, GFX®,
Guardian®, GuardWire Plus®, Hancock®, HOURGLASS™, INFUSE®, InSync®, InSync Marquis™, InSync Maximo™,
InSync Sentry™, InSync II Marquis™, Intercept™, INTER FIX™, InterStim®, Intrinsic™, Kappa®,
Kinetra®, KOBRA™, Legend®, LIFENET®, LIFEPAK®, LIFEPAK CR™, LT-CAGE®, Magellan®, Marquis®,
MAVERICK™, Maximo®, MAST™, Medtronic CareLink®, Medtronic CareLink™, Medtronic Hall®, Medtronic
StimPilot™, METRx™, Micro-Driver™, Mosaic®, Mosaic Ultra™, MVP™, Multi-Exchange™, NIM-Response®,
NIM-Spine™, Octopus®, OptiVol™, Paradigm®, Paradigm Link®, Pioneer™, PoleStar™, PRESTIGE®,
Racer®, Restore™, SEXTANT™, Sprint Fidelis™, Sprint Quattro®, Sprinter®, SPYDER™, SST™,
Starfish®, StealthStation®, StimPilot™, Stormer®, Strata®, SynchroMed®, Synergy®, Synergy Compact+™,
Synergy Plus+™, Talent™, TransAccess®, TUNA®, U-Clip™, Urchin®, Vertex®, VERTE-STACK®, Vitatron®,
Xcelerant™ and XPS®.</P>
<P style="font-size:10pt"> InductOs™ is a trademark of Wyeth.</P>
<P style="font-size:10pt;font-weight:bold">Annual Meeting and Record Dates</P>
<P style="font-size:10pt"> Medtronic’s Annual Meeting of Shareholders will
be held on Thursday, August 25, 2005 at 10:30 a.m., Central Daylight Time at the Company’s World Headquarters,
710 Medtronic Parkway, Minneapolis (Fridley), Minnesota. The record date for the Annual Meeting is July 1, 2005 and all
shareholders of record at the close of business on that day will be entitled to vote at the Annual Meeting.</P>
<P style="font-size:10pt;font-weight:bold">Medtronic Website</P>
<P style="font-size:10pt"> Our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 are available through our website (<U>www.medtronic.com</U> under the “Investor
Relations” caption) free of charge as soon as reasonably practicable after we electronically file such material with,
or furnish it to, the Securities and Exchange Commission (SEC).</P>
<P style="font-size:10pt"> Information relating to corporate governance at Medtronic,
including our Principles of Corporate Governance, Code of Conduct (including our Code of Ethics for Senior Financial Officers),
Code of Business Conduct and Ethics for Board Members and information concerning our executive officers, directors and Board
committees (including committee charters), and transactions in Medtronic securities by directors and officers, is available
on or through our website at <U>www.medtronic.com</U> under the “Corporate Governance” and “Investor Relations”
captions.</P>
<P style="font-size:10pt"> We are not including the information on our website
as a part of, or incorporating it by reference into, our Form 10-K.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold;text-align:center">PART I</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_1_business">Item 1. Business</A></P>
<P style="font-size:10pt;font-weight:bold">Overview</P>
<P style="font-size:10pt"> Medtronic is the global leader in medical technology,
alleviating pain, restoring health and extending life for millions of people around the world. We are committed to offering
market-leading therapies worldwide to restore patients to fuller, healthier lives. With beginnings in the treatment of heart
disease, we have expanded well beyond our historical core business and today provide a wide range of products and therapies
that help solve many challenging, life-limiting medical conditions. We hold market-leading positions in almost all of the major
markets in which we compete.</P>
<P style="font-size:10pt"> We currently function in five operating segments that
manufacture and sell device-based medical therapies. Our operating segments are:</P>
<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </font></td>
<TD WIDTH=37%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• Cardiac
Rhythm Management (CRM)<BR><BR><BR>
• Spinal,
Ear, Nose and Throat (ENT) and Navigation<BR><BR><BR>
• Neurological
and Diabetes<BR><BR><BR>
• Vascular<BR><BR><BR>
• Cardiac
Surgery
</FONT></TD>
<TD WIDTH=60%><IMG SRC="med52766fy05pi.gif"></TD>
</TR>
</TABLE>
<BR>
<P style="font-size:10pt"> The chart above shows the net sales and percentage
of total net sales contributed by each of our operating segments for the fiscal year ended April 29, 2005 (fiscal year
2005).</P>
<P style="font-size:10pt"> With innovation and market leadership, we have pioneered
advances in medical technology in all of our businesses and enjoyed steady growth. Over the last five years, our net sales
have more than doubled, from $5.016 billion in fiscal year 2000 to $10.055 billion in fiscal year 2005. We attribute
this growth to our continuing commitment to develop or acquire new products to treat an expanding array of medical conditions.</P>
<P style="font-size:10pt"> Medtronic was founded in 1949, incorporated as a Minnesota
corporation in 1957, and today serves physicians, clinicians and patients in more than 120 countries worldwide. Beginning with
the development of the heart pacemaker in the 1950s, we have assembled a broad and diverse portfolio of progressive technology
expertise both through internal development of core technologies as well as acquisitions. We remain committed to a mission
written by our founder more than 40 years ago that directs us “to contribute to human welfare by application of biomedical
engineering in the research, design, manufacture and sale of products that alleviate pain, restore health and extend life.”</P>
<P style="font-size:10pt"> With approximately 33,000 dedicated employees worldwide
personally invested in supporting our Mission, our success in leading global advances in medical technology is the result of
several key strengths:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Broad and deep technological knowledge of microelectronics, implantable devices and techniques, power sources,
coatings, materials, programmable devices and related areas, as well as a tradition of technological pioneering and breakthrough
products that not only yield better medical outcomes, but more cost-effective therapies.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Strong intellectual property portfolio that underlies our key products.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>High product quality standards, backed with stringent systems to ensure consistent performance, that meet or surpass customers’
expectations.</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">1</P>
<HR COLOR="GRAY" SIZE="2">
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<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2"><TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Strong professional collaboration with customers, extensive medical educational programs and thorough clinical research.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Full commitment to superior patient and customer service.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Extensive experience with the regulatory process and sound working relationships with regulators and reimbursement agencies,
including leadership roles in helping shape regulatory policy.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>A proven financial record of sustained growth and continual introduction of new products.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> Our strategic objective is to provide patients and
the medical community with comprehensive, life-long solutions for the management of chronic disease. Our key strengths parallel
the following basic, but well-implemented, strategies that guide our growth and success:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Increase market share in core product lines.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Meet unmet medical needs by leveraging our technologies.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Broaden our global presence in developed and developing markets.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Ensure that people who could benefit from our device therapies increasingly have access to them.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Acquire or invest in breakthrough technologies to treat an increasing number of chronic diseases.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> In this decade, we anticipate that technology advancements,
the Internet and increasing patient participation in treatment decisions will transform the nature of healthcare services and
will result in better care at lower cost to the healthcare system and greater quality of life and convenience to the patient.</P>
<P style="font-size:10pt;font-weight:bold">Cardiac Rhythm Management</P>
<P style="font-size:10pt"> We are the world’s leading supplier of medical
devices for cardiac rhythm management. We pioneered the modern medical device industry by developing the first wearable
external cardiac pacemaker in 1957, and manufactured the first reliable long-term implantable pacing system in 1960. Since
then, we have been the world’s leading producer of cardiac rhythm technology, and from these beginnings, a greater than
$8 billion industry has emerged. Today, our products and technologies treat a wide variety of heart rhythm disorders.</P>
<P style="font-size:10pt"> <B><I>Conditions Treated</I></B>
</P>
<P style="font-size:10pt"> Natural electrical impulses stimulate the heart’s
chambers (atria and ventricles) to rhythmically contract and relax with each heartbeat. Irregularities in the heart’s
normal electrical signals can result in debilitating and life-threatening conditions, including heart failure and sudden cardiac
arrest (SCA), one of the leading causes of death in the United States (U.S.). Physicians rely on our CRM products to correct
these irregularities and restore the heart to its normal rhythm. Our CRM products are designed to treat a broad range of heart
conditions, including those described below.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Tachyarrhythmia — heart rates that are dangerously fast or irregular, including ventricular tachycardia
and fibrillation, which occur in the ventricles (the lower chambers of the heart) and can lead to SCA, as well as atrial arrhythmias,
or rapid and inconsistent beating of the atria (the upper chambers of the heart), which can affect blood flow to the body and
increase the risk of stroke</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Heart Failure — impaired heart function resulting in the inability to pump enough blood to meet the body’s
needs, characterized by difficulty breathing, chronic fatigue and fluid retention </TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Bradycardia — abnormally slow or unsteady heart rhythms (usually less than 60 beats per minute) that cause symptoms
such as dizziness, fainting, fatigue, and shortness of breath</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">2</P>
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<P style="font-size:10pt"> The charts below set forth net sales of our CRM products
as a percentage of our total net sales for each of the last three fiscal years:</P>
<DIV align="center">
<img src="med52766crm.gif"></DIV>
<P style="font-size:10pt"> <B><I>Principal Products</I></B>
</P>
<P style="font-size:10pt"> We offer the broadest array of products in the industry
for the diagnosis and treatment of heart rhythm disorders and heart failure. Because many patients exhibit multiple heart rhythm
problems, we have developed implantable devices that specifically address complex combinations of arrhythmias. In addition
to implantable devices, we also provide external defibrillators, leads, ablation products, electrophysiology catheters, navigation
systems and information systems for the management of patients with our devices. Our CRM devices are currently implanted in
nearly 2.0 million patients worldwide.</P>
<P style="font-size:10pt"> <B><I>Implantable Cardiac Rhythm Devices.</I></B> Bradycardia
is a common condition, with hundreds of thousands of patients diagnosed each year, and millions of people worldwide suffering
from its effects. The only known treatment for this condition is a cardiac pacemaker, a battery-powered device implanted in
the chest that delivers electrical impulses to stimulate the heart to beat at an appropriate rate. Medtronic is the world’s
leading provider of pacing systems, offering the broadest and most complete line of pacemakers, leads and related accessories.
In May 2005, we announced U.S. Food and Drug Administration (FDA) approval of EnRhythm™, our newest dual-chamber pacemaker,
which promotes natural heart activity by significantly reducing unnecessary pacing in the right ventricle. The EnRhythm device
is the first-ever pacemaker to offer an exclusive pacing mode called MVP™ or Managed Ventricular Pacing, which enables
the device to be programmed to minimize pacing pulses to the right ventricle. Clinical studies have shown that unnecessary
pacing in the right ventricle can increase the risk for heart failure and atrial fibrillation. EnRhythm joins our industry
leading pacing product family which includes the EnPulse® pacemaker, the world’s first completely automatic pacemaker.
The EnPulse system incorporates an array of unique features to help physicians optimize pacing therapy and simplify patient
care including a pioneering feature called Atrial Capture Management (ACM), which enables the pacemaker to automatically adjust
the electrical impulses delivered to the heart’s upper right chamber.</P>
<P style="font-size:10pt"> Approximately 3 million people worldwide have tachyarrhythmia.
Tachyarrhythmia is a potentially fatal condition that can lead to SCA, the sudden and complete cessation of heart activity.
SCA is one of the leading causes of death in the U.S., responsible for more than 300,000 deaths annually, with most due to
ventricular fibrillation. Defibrillators are the only therapy proven to stop these life-threatening episodes once they begin.
Implantable cardioverter defibrillators (ICDs) are stopwatch-sized devices that continually monitor the heart and deliver appropriate
therapy when an abnormal heart rhythm is detected. Several large clinical trials have shown implantable defibrillators significantly
improve survival as compared to commonly prescribed antiarrhythmic drugs. In January 2005, the results of the landmark
Sudden Cardiac Death in Heart Failure Trial (SCD-HeFT), sponsored by the National Institutes of Health (NIH), with funding
provided by Medtronic and Wyeth, were published in the <I>New England Journal of Medicine.</I> This 2,521 patient trial, the
largest ICD trial ever conducted, showed ICDs reduced death by 23 percent in people with moderate heart failure compared
to those who did not receive ICDs. Also in January 2005, the Centers for Medicare and Medicaid Services (CMS) expanded coverage
of ICDs for Medicare beneficiaries who meet SCD-HeFT indications. Despite the mounting evidence
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">3</P>
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<P style="font-size:10pt">demonstrated in clinical trials
such as SCD-HeFT, less than 20 percent of all patients who are indicated for an ICD actually receive one, leaving hundreds of thousands of people at an increased risk for
sudden cardiac death. We offer the most comprehensive product choices to treat various kinds of tachyarrhythmias. In August
2004, we announced the FDA approval of our Intrinsic™ dual-chamber ICD, the world’s first ICD with our new pacing
mode MVP, which has been shown to reduce the amount of right ventricular pacing to less than 5 percent, compared to 50 percent
or more from ICDs with typical dual-chamber pacing. In a clinical study of this new mode, 78 percent of patients experienced
ventricular pacing less than 1 percent of the time. For patients with little or no pacing needs, this clinical difference can
be dramatic over a lifetime.</P>
<P style="font-size:10pt"> Heart failure is a large and growing health problem,
afflicting nearly 5 million Americans and 22 million people worldwide. Up to 550,000 new cases are diagnosed each year,
making it the most costly cardiovascular illness in the U.S., with an estimated $38 billion spent on managing heart failure
each year. We have pioneered innovative device-based treatments for this progressive, debilitating disease. For patients suffering
from heart failure, we offer devices that provide cardiac resynchronization therapy (CRT), which improves the efficiency of
the heart by synchronizing the contractions of multiple heart chambers. Our InSync® CRT system is the world’s first
tri-chamber heart device. The InSync III, our third generation cardiac resynchronization device, has advanced programming functions
to help physicians better manage heart failure patients and is available in both Europe and the U.S. In March 2005, the results
of the Cardiac Resynchronization in Heart Failure (CARE-HF) trial were reported at the American College of Cardiology conference
and concurrently published in the <I>New England Journal of Medicine.</I> This 813 patient study was the first of its kind
to show that patients who received Medtronic’s CRT showed a 37 percent reduction in combined all-cause mortality (death)
or unplanned cardiovascular hospitalization. CRT patients in the study also showed a reduction in heart failure hospitalizations
and improved heart failure symptoms.</P>
<P style="font-size:10pt"> The ICD market continues to experience significant
expansion, driven by an increasing body of clinical data that clearly demonstrates the lifesaving benefits of ICD therapy.
In addition to the results of the SCD-HeFT trial referenced above, in May 2004, the results of the Comparison of Medical Therapy,
Pacing, and Defibrillation in Heart Failure (COMPANION) trial were published in the <I>New England Journal of Medicine.</I>
The results of this trial showed a 20 percent risk reduction in combined all-cause mortality or first all-cause hospitalization
for heart failure patients who received a cardiac resynchronization device with defibrillator back-up (CRT-D) and a 36 percent
risk reduction in all-cause mortality for heart failure patients who received a CRT-D. Also building on SCD-HeFT’s strong
clinical data referenced above, in November 2004, compelling cost-effectiveness data was presented at the American Heart Association
Scientific Sessions. The data showed that the cost to add one year of life for these heart failure patients with an implantable
defibrillator is $33,192. Medical therapies that add a patient year of life for $50,000 or less, such as primary coronary stenting,
are commonly considered to be cost-effective treatments, demonstrating that ICDs represent an economically attractive way to
save lives.</P>
<P style="font-size:10pt"> In fiscal year 2005, we introduced several new devices
and features for the growing number of patients with heart failure who are also considered at high risk of SCA. In June 2004,
we launched our highest energy CRT-D device, the InSync Maximo™, which incorporates proven CRT to treat heart failure
and the capacity to deliver high-output defibrillation energy to stop a lethally fast heart rhythm. With 35 joules of delivered
energy and the industry’s fastest charge times, the InSync Maximo provides the highest margin of safety in treating SCA.
In November 2004, we announced FDA approval of the InSync Sentry™ CRT-D, with our exclusive new OptiVol™ feature.
InSync Sentry is the world’s first implantable medical therapy offering automatic fluid status monitoring in the thoracic
cavity, the chest area encompassing the lungs and heart. We believe that this feature will provide an advantage in managing
heart failure, since thoracic fluid accumulation is a primary indicator of worsening heart failure and often results in patient
hospitalizations. In April 2005, we announced FDA approval to add a new feature to both the InSync Maximo and the InSync Sentry.
Sequential biventricular pacing or “V-to-V” (ventricle to ventricle) timing is the new feature that allows physicians
to separately adjust the timing of electrical therapy delivered to the heart failure patient’s two ventricles, which can
optimize the beating of the heart and enhance the flow of blood throughout the body. Both InSync Maximo and
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">4</P>
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<P style="font-size:10pt">InSync Sentry, along with previously approved InSync II Marquis™ system, offer independent, programmable
ventricular outputs and unique heart failure management reports, which are both designed to help physicians better manage each
patient’s specific heart failure condition. All of these systems also offer unique ICD therapies including anti-tachycardia
pacing (ATP) options for the pain-free termination of life-threatening tachyarrhythmias. The continued introduction of these
new CRT-D devices are an important clinical advance since SCA occurs in heart failure patients at six to nine times the rate
observed in the general population.</P>
<P style="font-size:10pt"> Leads and associated delivery systems remain a significant
contributor to our leadership in both the ICD and the heart failure markets. In August 2004, we announced the FDA approval
of the Attain® 4194 Bipolar over-the-wire left-heart lead for use in cardiac resynchronization systems. The Attain 4194
is the fourth generation of left-heart leads designed for use with the Medtronic InSync family of CRT devices and is the first
true bipolar lead that offers the unique advantage of pacing options. In September 2004, we announced the FDA approval of the
Sprint Fidelis™ family of leads, the world’s smallest defibrillation leads. The small size of the Sprint Fidelis
lead helps improve passage into a patient’s venous system for an easier implant and minimizes venous obstruction. In March
2005, we also announced the introduction of the Attain Select™ 6238 TEL Guide Catheter, which aids in the safe implantation
of device leads in the veins that serve the left side of the heart for the treatment of heart failure. This catheter is part
of a family of catheters that are highly specialized and innovatively designed to give physicians a broad range of choices
as they work from outside the body to safely and effectively maneuver in tortuous veins between the lower chambers of the heart.</P>
<P style="font-size:10pt"> We continue to drive rapid technological advancement
in therapies for heart failure and have next-generation devices in development. In March 2005, the results of the Chronicle
Offers Management to Patients with Advanced Signs and Symptoms of Heart Failure (COMPASS-HF) clinical trial were presented
at the American College of Cardiology. COMPASS-HF evaluated the use of a new investigational device, the Chronicle implantable
hemodynamic monitor that is designed to continuously track intracardiac pressure, body temperature, physical activity and heart
rate in patients with heart failure. Study results showed a 22 percent reduction in combined heart failure-related hospitalizations,
emergency department and urgent care visits among Class III and IV heart failure patients whose physicians had regular
access to data transmitted from the Chronicle monitor. Amongst Class III heart failure patients, the reduction was 41
percent, which was statistically significant. Additionally, patient outcomes were improved as demonstrated by a 33 percent
reduction in the proportion of patients that experienced worsening heart failure.</P>
<P style="font-size:10pt"> Most recently, in February 2005, we announced the
European market release of the EnTrust™ ICD. The EnTrust family represents our next step in the delivery of premium implantable
devices, which, in addition to MVP, will include for the first time, anti-tachycardia pacing during charging of the capacitor.
As a result, the device is ready to deliver full power therapy when needed, but not before it attempts to painlessly pace the
patient out of the potentially life-threatening rhythm. We expect to launch EnTrust in the U.S. later this calendar year.</P>
<P style="font-size:10pt"> In May 2005, we announced FDA approval to distribute
a wireless-enabled, in-clinic programmer, the Medtronic CareLink® programmer (Model 2090). The new programmer version will
enable wireless communication with implanted devices using high-speed data connectivity. This approval sets the foundation
for efficient and flexible clinician access to important information retrieved from Medtronic devices that can help guide the
care of chronic disease. Later this fiscal year, we also plan to launch a family of wireless implantable devices, including
ICDs and CRT-Ds in the U.S. These new wireless devices will be compatible with the Medtronic CareLink Service.</P>
<P style="font-size:10pt"> <B><I>Patient Management.</I></B> To
achieve optimal results from our CRM devices, physicians obtain diagnostic and therapeutic data collected by the device and
then tailor various device parameters to meet the individual needs of each patient. This has historically required periodic
office visits, which increase healthcare costs and can inconvenience patients. The Medtronic CareLink Service, currently available
in the U.S., was developed to allow physicians to evaluate patient information remotely via the Internet, offering the potential
for more efficient chronic disease management and better patient outcomes. The Medtronic CareLink Service is the first, and
only, Internet-based service that connects cardiac device
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">5</P>
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<P style="font-size:10pt">patients and physicians for “virtual office visits” allowing patients with our heart devices
to receive medical care from the comfort of their home or even while traveling. Patients using the Medtronic CareLink Service
can send data about their heart and ICD activity to their physician from anywhere in the 50 states by holding a small “antenna”
over their implanted device. The system monitor automatically downloads the data from the “antenna” and sends it
through a standard telephone connection directly to the secure Medtronic CareLink Service. Clinicians access their patients’
data by logging onto the clinician website from any Internet-connected computer in their office, home or while traveling. Patients
also can view information about their device and condition on their own personalized website, and family members or other caregivers
can view this information if granted access by the patient. The Medtronic CareLink Service is currently available to pacemaker
patients with the Kappa® family and EnPulse pacemakers and with any of our mainline ICDs or CRT-Ds. ICD and CRT-D devices
compatible with the Medtronic CareLink Service include the Medtronic GEM III® family, Marquis® family, InSync family,
and Maximo ICDs as well as our InSync Marquis™, InSync II Marquis, InSync Maximo and InSync Sentry CRT-Ds. Today, the
Medtronic CareLink Service is being utilized in more than 540 electrophysiology clinics/practices and more than 35,000 patients
are being monitored with the Medtronic CareLink Service. In the future, thousands of people with our other implantable cardiac
devices potentially could benefit from this innovative system, as it is designed to support all of our implanted cardiac rhythm
devices.</P>
<P style="font-size:10pt"> <B><I>External Defibrillators.</I></B> Each
day nearly 1,000 people die in the U.S. due to SCA; however, many could be saved if they had quicker access to automated external
defibrillators (AEDs). Nationally, the survival rate for victims of SCA is only about 5% because the average response time
to an emergency call for help is six to twelve minutes. Chances of survival are reduced significantly if the victim is not
treated within five minutes. In August 2004, results from the largest-ever clinical trial studying the outcomes of public
access to defibrillation were published in the <I>New England Journal of Medicine.</I> The data indicated that the use of portable
AEDs by trained volunteers can significantly improve the probability of saving lives that otherwise might have been lost to
SCA. Our LIFEPAK® series of external defibrillators offers a broad range of life-saving tools for multiple user needs and
have been incorporated in environments ranging from hospitals to emergency medical units to public places such as airports,
sports arenas, schools and workplaces. Today there are more than 500,000 LIFEPAK devices distributed worldwide. In February
2004, we announced collaborations with Walgreens Co. and Costco Wholesale Corporation to offer AEDs by prescription on their
respective electronic commerce websites, <U>www.walgreens.com</U> and <U>www.costco.com</U>. These partnerships are designed
to help small businesses and consumers more easily access the life saving therapy of AEDs to protect their customers and their
families. In April 2005, we announced the Keep the Beat cause campaign, a nationwide outreach and education program designed
to raise awareness of SCA and the benefits of early defibrillation. The initial phase of the Keep the Beat cause campaign will
raise funds to support Neighborhood Heart Watch, a non-profit organization that will help implement AED programs in schools
across the country. AED placement in schools is important since up to 20 percent of the combined child and adult U.S. population
can be found in schools on any given school day. AED programs in schools could mean the difference between life and death for
students and educators and may make a tremendous impact on a community.</P>
<P style="font-size:10pt"> <B><I>Customers and Competitors</I></B>
</P>
<P style="font-size:10pt"> The primary medical specialists who use our implanted
cardiac rhythm devices include electrophysiologists, implanting cardiologists, heart failure specialists, and cardiovascular
surgeons. We hold the leading market position among implantable cardiac rhythm device manufacturers. The primary customers
for our AED products are schools, governments, businesses, and any other public facility. Our primary competitors in the CRM
business are Guidant Corporation and St. Jude Medical, Inc. Our primary competitors in the AED business are Cardiac Science,
Inc., Zoll Medical Corporation and Royal Philips Electronics.</P>
<P style="font-size:10pt;font-weight:bold">Spinal, Ear, Nose, and Throat and Navigation</P>
<P style="font-size:10pt"> Our Spinal, ENT and Navigation business is well known
for its innovative spinal products, commitment to customers and unsurpassed technical support. Strong partnerships with leading
spinal
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">6</P>
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<P style="font-size:10pt">surgeons help us pioneer new and effective ways to treat spinal conditions, and have propelled us
to a solid position in the worldwide spine market. We entered the spine market with the acquisition of Sofamor Danek in fiscal
year 1999. Also in fiscal year 2000, we acquired Xomed Surgical Products, Inc., a well established ENT surgical product
manufacturing company. Today we offer a wide range of products and therapies to treat a variety of conditions of the cranium
and spine that often dramatically impair the quality of life, as well as to treat diseases and conditions affecting the ear,
nose and throat.</P>
<P style="font-size:10pt"> <B><I> Conditions Treated</I></B>
</P>
<P style="font-size:10pt"> Our Spinal, ENT, and Navigation business offers products
for treatment of the conditions described below.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Spinal conditions — herniated discs, degenerated discs, spinal deformity, spinal tumors, trauma/fracture
and stenosis</td></tr>
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%"> </TD>
<TD WIDTH="92%"> <I>Herniated Disc</i> – A disc herniation occurs when the inner core of the intervertebral disc bulges out through
the outer layer of ligaments that surround the disc. This tear in the outer layer of ligaments causes pain in the back at the
point of herniation. If the protruding disc presses on a spinal nerve, the pain may spread to the area of the body that is
served by that nerve. The terms “ruptured,” “slipped,” and “bulging” are also commonly used to
describe this condition. </TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%"> </TD>
<TD WIDTH="92%"> <I>Degenerated Disc</i> – As part of the natural aging process, intervertebral discs lose their flexibility and
shock absorbing characteristics. The ligaments that surround the discs become brittle and easier to tear. At the same time,
the inner core of the disc starts to dry out and shrink. Over time, these changes can cause the discs to lose their normal
structure and/or function.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD> <I>Spinal Deformity</i> – When viewed from behind, the human spine appears straight and symmetrical. When viewed from the
side, however, the spine is curved. Some curvature in the neck, upper trunk (forward bend), and lower trunk (backward bend)
is normal. These curves help the upper body maintain proper balance and alignment over the pelvis. The term deformity is used
to describe any variation in this natural shape. One form of spinal deformity, scoliosis, involves a side-to-side (lateral)
curvature of the spine. The vertebrae rotate along with the spine as a consequence of a scoliotic curve. Depending on the severity
of the curve, a scoliotic spine may create asymmetries in the shoulders, thoracic spine, and pelvis, leading to an imbalance
of the trunk and significant disfigurement. The causes of scoliosis are numerous, yet for the majority of people who have it,
the cause is not known.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD> <I>Spinal Tumors</i> – Tumors or cancers of the spine and spinal cord are relatively rare. Three types of tumors affect the
spine and spinal cord: primary benign tumors, primary malignant tumors, and metastatic tumors. The term primary is used to
designate a tumor originating from actual spine cells. Secondary spinal tumors, or cancers, which are more commonly called
metastases, spread from other organs in the body.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD> <I>Trauma/Fracture</i> – Trauma to the spine refers to injury that has occurred to bony elements, soft tissues and/or neurological
structures. Stability to the spinal column can be compromised when bony elements are injured or there is disruption to soft
tissues such as ligaments. Instability causes the back to become unable to successfully carry normal loads, which can lead
to permanent deformity, severe pain, and, in some cases, catastrophic neurological injuries. Most often the instability comes
from a fracture in one of the bony parts of the vertebra. Osteoporosis, a condition characterized by loss of bone mass and
structural deterioration of bone tissue, can lead to bone fragility and an increased susceptibility to fracture.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD> <I>Stenosis</i> – A condition caused by a gradual narrowing of the spinal canal, stenosis results from degeneration of both
the facet joints and the intervertebral discs. Bone spurs, called <I>osteophytes</I>, which develop because of the excessive
load on the intervertebral disc, grow into the spinal canal. The facet joints also enlarge as they become arthritic, which
contributes to a decrease in the space available for the nerve roots.</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">7</P>
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<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">ENT conditions — diseases and disorders affecting the ear, nose and throat such as chronic sinusitis and middle-ear
infections</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Navigation products — for use in precision cranial, spinal, ENT, and orthopedic surgeries</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> The charts below set forth net sales of our Spinal,
ENT, and Navigation products as a percentage of our total net sales for each of the last three fiscal years:</P>
<DIV align="center">
<img src="med52766spinal.gif"></DIV>
<P style="font-size:10pt"> <B><I>Principal Products</I></B>
</P>
<P style="font-size:10pt"> Our Spinal, ENT, and Navigation products, used in
surgical procedures of the cranium and spine, include thoracolumbar cervical and interbody, and spinal devices, bone growth
substitutes, surgical navigation tools and surgical products used by ENT physicians.</P>
<P style="font-size:10pt"> <B><I>Spinal.</I></B> Back pain
is the second most cited reason for visits to a healthcare professional, after the common cold. Each year approximately 25 million
Americans experience back pain that is severe enough to visit a healthcare professional. Of the approximately 25 million
Americans, 13 million endure a significant impairment of activity. We are committed to providing spinal surgeons with
the most advanced options for treating low back pain and other spinal conditions.</P>
<P style="font-size:10pt"> Today we offer one of the industry’s broadest lines of
devices, instruments, computerized image guidance products and biomaterials used in the treatment of spinal conditions, including
a wide range of sophisticated internal spinal stabilization devices. Our spinal products are used in spinal fusion of both
the thoracolumbar (mid to lower vertebrae) and cervical (upper spine and neck) regions of the spine. Spinal fusions, which
are currently one of the most common types of spine surgery, join the vertebrae to eliminate pain caused by movement of the
unstable vertebrae. Products used to treat spinal conditions include rods, pedicle screws, hooks, plates, and interbody devices,
such as cages, as well as biologics, which include bone growth substitutes, dowels and wedges.</P>
<P style="font-size:10pt"> Our Spinal business is one of the industry leaders in the quest
to find new surgical techniques that offer the potential to dramatically improve patient recovery by changing how surgeons
access the spine. We have developed a series of Minimal Access Spinal Technologies (MAST<SUP>TM</SUP>) that allow safe, reproducible
access to the spine with minimal disruption of vital muscles and complementary structures. These techniques involve the use
of advanced navigation and instrumentation to allow surgeons to operate with smaller incisions and less tissue damage than
traditional surgeries, thus reducing pain, blood loss and improving recovery periods. MAST techniques have been described as
having the same impact on spinal fusion surgery that arthroscopy had on knee surgery. Our expanding portfolio of minimally
invasive spinal technologies includes the CD HORIZON® SEXTANT™ System, to provide percutaneous spinal fixation, the
METRx™ System, to treat herniated discs and allow minimally invasive access for fusion, the MAST QUADRANT™ Retractor
System, a retractor that allows access to complex degenerative pathology, and the CD HORIZON ECLIPSE® Spinal System, to
correct curvature of the spine in scoliosis patients.</P>
<P style="font-size:10pt"> Introduced in July 2002, INFUSE® Bone Graft with an interbody device has
become what we believe to be the standard of care in spinal fusion therapy. INFUSE Bone Graft contains a recombinant
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">8</P>
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<P style="font-size:10pt">human bone morphogenetic protein,
or rhBMP-2, which induces the body to grow its own bone, eliminating the need for a painful second surgery to harvest bone
from elsewhere in the body. This product resulted from a strategic alliance with Wyeth and demonstrates our commitment to the advancement of science in the spine field. In May 2004, we
announced that the FDA approved the use of INFUSE Bone Graft in the treatment of certain types of acute, open fractures of the tibial shaft,
a long bone in the lower leg. The approval broadens the indications for the use of our revolutionary INFUSE Bone Graft technology.
Since April 2005, we have the right to market InductOs™ Bone Graft (known as INFUSE Bone Graft in the U.S.) for
use with certain sizes of the LT-CAGE® Lumbar Tapered Fusion Device for single-level lumbar spinal fusion in adults.</P>
<P style="font-size:10pt"> The CD HORIZON® LEGACY™ Spinal System, one of the
most comprehensive spinal systems on the market today, has been instrumental in driving growth throughout the fiscal year. The system
provides tools for the treatment of certain types of deformity in patients and specific posterior solutions for smaller patients.
The CD HORIZON LEGACY Spinal System offers multiple rod diameters (6.35, 5.5, 4.5, 3.5 mm), incorporates iliac fixation and provides
implants in both titanium and stainless steel. Our CD HORIZON LEGACY Spinal System has become widely accepted in the U.S., with one in four thoracolumbar fusion surgeries utilizing this technology.</P>
<P style="font-size:10pt"> We are pursuing a broad array of stabilization and
dynamic stabilization solutions for patients suffering from degenerative disc disease. In April 2005, we announced the beginning
of enrollment in the PRESTIGE® LP Cervical Disc clinical trial, our fourth major artificial disc trial. In addition to
the PRESTIGE LP Disc trial, we have three other disc replacement programs currently under investigation in the U.S.: the BRYAN®
Cervical Disc, obtained through the acquisition of Spinal Dynamics Corporation (SDC) in October 2002; the MAVERICK™
Artificial Disc for the lumbar spine; and the PRESTIGE ST Cervical Disc, an internally developed cervical disc. In the second
half of calendar 2004, we announced the completion of patient enrollment in our U.S. pivotal clinical trials for the BRYAN,
MAVERICK and PRESTIGE ST Discs. The BRYAN, MAVERICK, PRESTIGE ST, and PRESTIGE LP Discs are commercially available outside
the U.S.</P>
<P style="font-size:10pt"> Through the settlement with Gary Michelson, M.D. and
Karlin Technology, Inc. (Michelson) (see “Acquisitions and Investments” for further discussion) we acquired approximately
100 issued U.S. patents, more than 110 pending U.S. patent applications and numerous foreign counterparts to these patents.
The patents pertain to novel spinal technology and techniques that have both current application and the potential for future
patentable commercial products.</P>
<P style="font-size:10pt"> <B><I>ENT.</I></B> We are a developer
of products to treat people with diseases of the ear, nose, and throat. Our main products include powered tissue-removal systems
and other microendoscopy instruments, implantable devices, nerve monitoring systems, disposable fluid-control products, image-guided
surgery systems, and a Ménière’s treatment device. We also offer a line of ophthalmic products. These products
are dramatically changing the way ENT medical procedures are performed by replacing highly invasive procedures with new minimally
invasive instruments and techniques.</P>
<P style="font-size:10pt"> <B><I>Navigation.</I></B> Our image
guided surgery systems are sophisticated multi-dimensional imaging and navigation technologies that enable surgeons to optimize
their surgical plans and use this advanced surgical information during precision cranial, spinal, ENT, and orthopedic surgeries.
We are one of the leaders in the field of computer-assisted surgery (CAS) and have installed approximately 2,000 StealthStation<SUP>®</SUP>
Treatment Guidance Systems in hospitals worldwide. In recent years, the pace of innovation in CAS has quickened considerably.
In response, we have developed and delivered new and updated hardware and software solutions to assist with varied surgeries
including total joint replacements, minimally invasive spinal surgery, cranial tumor resection, biopsies, functional neurosurgery
and functional endoscopic sinus surgery.</P>
<BR>
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<P style="font-size:10pt;text-align:center">9</P>
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<P style="font-size:10pt"> <B><I>Customers and Competitors</I></B>
</P>
<P style="font-size:10pt"> The primary medical specialists who use our Spinal
and Navigation products are spinal surgeons, orthopedic surgeons and neurosurgeons. The primary medical specialists who use
our ENT products are ENT surgeons (otolaryngologists). Our primary competitors in the Spinal business are Zimmer Inc.,
Johnson & Johnson, Inc., Stryker Corporation, and Synthes-Stratec, Inc. The primary competitors in our Navigation
business are BrainLAB, Inc. and Stryker Corporation, and the most significant competitors in the ENT business are Gyrus
Group PLC and Stryker Corporation.</P>
<P style="font-size:10pt;font-weight:bold">Neurological and Diabetes</P>
<P style="font-size:10pt"> Our Neurological and Diabetes business develops, manufactures,
and markets devices for neurological disorders, diabetes, gastroenterological disorders and urological disorders. We are a
pioneer in the field of restorative neuroscience, using site-specific neurostimulation and drug delivery to modulate and restore
function of the central nervous system. Through close partnerships with our customers we have developed a unique portfolio
of diagnostic and therapeutic products for the treatment of some of the most debilitating neurological disorders. We are applying
our proprietary stimulation technologies to develop effective therapies for intractable chronic diseases throughout the body,
including chronic pain, gastroenterology and urology, three underserved market segments with large, unmet medical needs. We
are also a world leader in advanced, device-based medical systems for the treatment of diabetes, and we are committed to providing
improved tools and technologies to help people with diabetes live longer, healthier lives.</P>
<P style="font-size:10pt"> In the fourth quarter of fiscal year 2005 we created
a new Obesity Solutions business. The Obesity Solutions business was formed to focus on developing and marketing device technologies
to address the epidemic of obesity. Approximately 65 million Americans are defined as obese and it is estimated that obesity
costs the U.S. healthcare system more than $100 billion per year. Obesity has also been shown to increase the risk of developing
other serious conditions such as diabetes, heart disease, high blood pressure, stroke and cancer.</P>
<P style="font-size:10pt"> <B><I>Conditions Treated</I></B>
</P>
<P style="font-size:10pt"> Our Neurological and Diabetes business offers products
for the treatment of the conditions described below.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Neurological disorders — including Parkinson’s disease, essential tremor, chronic pain, spasticity,
dystonia, hydrocephalus and traumatic brain injury</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Diabetes — inability to control blood glucose levels resulting from a failure of the pancreas to produce sufficient
insulin or the body’s inability to properly use insulin</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Gastroenterology and urology disorders — including gastroparesis, gastroesophageal reflux disease (GERD), incontinence
and enlarged prostate (benign prostatic hyperplasia)</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> The charts below set forth net sales of our Neurological
and Diabetes products as a percentage of our total net sales for each of the last three fiscal years:</P>
<DIV align="center">
<img src="med52766neuro.gif"></DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">10</P>
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<P style="font-size:10pt"> <B><I>Principal Products</I></B>
</P>
<P style="font-size:10pt"> Our Neurological and Diabetes products consist of
therapeutic and diagnostic devices, including implantable neurostimulation systems, external and implantable drug administration
devices, neurosurgery products, urology products, gastroenterology products, hydrocephalic shunts and drainage devices, surgical
instruments, functional diagnostic and sensing equipment and medical systems for the treatment of diabetes.</P>
<P style="font-size:10pt"> <B><I>Neurological.</I></B> We produce implantable
systems that deliver drugs or electrical stimulation to the spinal cord and brain to treat pain and movement disorders. During
fiscal year 2005, we advanced our portfolio of such systems, with the full launch of the SynchroMed® II programmable pump
system. This technology is implanted by physicians for the treatment of chronic pain and the management of severe spasticity
associated with cerebral palsy, multiple sclerosis, stroke, brain injury and spinal cord injury. The SynchroMed II pump’s
smaller size and contoured shape is designed to enhance patient comfort, and the system also enables customized programming
and reduced physician management burden. In December 2004, the FDA approved Prialt, a new biologic manufactured by Elan Corporation,
which is used with both the SynchroMed EL and the SynchroMed II for the treatment of chronic pain. Prialt joins morphine and
baclofen as drugs approved for intrathecal delivery by our implantable neurological pumps. Going forward, we anticipate pursuing
development of drug delivery-based therapies utilizing additional biologics and drug compounds. In February 2005, we entered
into an agreement with Alnylam Pharmaceuticals, Inc. (Alnylam) to collaboratively research such opportunities, specifically
in the area of neurodegenerative disorders such as Huntington’s, Alzheimer’s and Parkinson’s disease. Alnylam
is a Cambridge, Massachusetts-based leader in ribonucleic acid (RNA) interference technologies.</P>
<P style="font-size:10pt"> As in implantable programmable pumps, we are also
a world leader in neurostimulation technology and took steps to improve our range of solutions during fiscal year 2005. In
September 2004, we introduced the Medtronic StimPilot™ System for use during implant procedures involving our deep brain
stimulation (DBS) technologies, including the Kinetra® Neurostimulator and DBS Leads used with the Access® Therapy
Controller. The system is designed to make DBS surgery less difficult and more efficient for medical providers, specifically
through reducing capital costs associated with traditional equipment and integrating imaging and microelectrode recording capabilities
to facilitate optimal therapy targeting within the brain. The StimPilot represents one step of many that we have taken or will
pursue in order to improve patient access to the dramatic benefits of DBS therapy.</P>
<P style="font-size:10pt"> Additionally, in fiscal year 2005 we continued to
make progress in clinical trials designed to extend the application of our neurostimulation technologies to new neurological
disorders from which patients suffer. In September 2004, we announced the first implant in ONSTIM (Occipital Nerve Stimulation
for the Treatment of Intractable Migraine), a preliminary study to evaluate neurostimulation for treatment of chronic migraine
headache. We estimate that approximately 40,000 people in the U.S. do not respond to existing treatments for this condition,
and many may be candidates for an alternative therapy such as that under testing in the ONSTIM trial.</P>
<P style="font-size:10pt"> Other trials we have underway in neurostimulation
include the SANTE (Stimulation of the Anterior Nucleus of the Thalamus for Epilepsy) study for the Intercept™ Epilepsy
Control System, our deep brain stimulation therapy for patients with epilepsy. Epilepsy is a condition that affects more than
2.5 million Americans, and about one-third of these people do not respond to current treatment options and continue to
experience seizures. With the goal of achieving leadership in the area of deep brain stimulation for psychiatric disorders,
we are also evaluating our technologies in patients suffering from treatment-resistant depression and in fiscal year 2006 are
targeting the receipt of a Humanitarian Device Exemption (HDE) from the FDA in order to offer Activa® Deep Brain Stimulation
Therapy for the treatment of chronic, treatment-resistant obsessive-compulsive disorder (OCD).</P>
<P style="font-size:10pt"> We have the medical device industry’s broadest
offering of implantable neurostimulators designed to treat chronic debilitating pain, including our Restore™ Rechargeable
Neurostimulation System, approved in late fiscal year 2005 to deliver therapy through one or two leads surgically placed near
the spinal cord. The Restore system is indicated to manage chronic, difficult-to-treat pain in the trunk and/or multiple limbs
that is associated with failed back syndrome, post laminectomy pain, unsuccessful disc
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">11</P>
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<P style="font-size:10pt">surgery or degenerative disc disease, among others. Unlike a conventional neurostimulation technology,
physicians and patients may use the Restore system to treat such pain using high levels of stimulation without the compromise
of premature, permanent battery depletion. The Restore system is characterized by the most powerful rechargeable battery on
the market, lengthy recharge intervals for patient convenience and advanced, easy-to-use programming capabilities. We expect
the Restore system to represent an increasingly significant portion of our product mix in fiscal year 2006, and to add to our
leading portfolio of neurostimulation technologies for the treatment of chronic pain with the introduction of the Synergy Plus™
and Synergy Compact+™ systems.</P>
<P style="font-size:10pt"> Our Strata® valve is a shunt used in the treatment
of hydrocephalus, an abnormal accumulation of cerebrospinal fluid in the ventricles of the brain. The Strata valve diverts
excess cerebrospinal fluid from the brain cavity to the abdomen where it becomes reabsorbed by the body. Each year, about 180,000
people worldwide receive a hydrocephalic shunt. Our neurological product group also includes powered surgical tools, including
pneumatic and electrical instrumentation devices for surgical dissection of bones, biometals, bioceramics and bioplastics,
as well as instruments for use in orthopedic, otolaryngological, maxillofacial and craniofacial procedures.</P>
<P style="font-size:10pt"> <B><I> Diabetes.</I></B> Diabetes is a condition
in which the body cannot properly use energy from food, resulting in uncontrolled blood sugar levels. Diabetes has been described
as an epidemic, afflicting nearly 200 million people worldwide. Approximately 18 million people have diabetes in
the U.S., where it is now the sixth leading cause of death. Currently, our products serve the insulin dependent population,
which includes over four million people in the U.S. The key to managing diabetes is to maintain tight control of blood glucose
levels. If not well-managed, diabetes can lead to blindness, kidney failure and amputation. In fact, diabetes is the leading
cause of new cases of blindness (among twenty to seventy-four year olds), end-stage renal disease, and non-traumatic lower-limb
amputations in the U.S. Diabetes is also a major factor in both heart disease and impotence. As a result, diabetes is the most
costly, chronic condition facing the U.S. healthcare system, with more than $130 billion spent annually on diabetes and
its complications, including $92 billion in direct medical costs.</P>
<P style="font-size:10pt"> Our diabetes products are used for intensive insulin
management and include external pumps and related disposables, continuous glucose monitoring systems, an implantable insulin
pump (which has received CE Mark, but not yet cleared for marketing in the U.S.) and an implantable glucose sensor, which is
currently in testing and not yet approved for commercialization. Our pumps are primarily used by patients with Type 1
diabetes, which occurs when the pancreas is unable to produce insulin. In order to survive, people with Type 1 diabetes
must administer insulin using injections or an insulin pump. Our therapies are also helpful in managing Type 2 diabetes,
which results from the body’s inability to produce enough insulin or properly use the insulin.</P>
<P style="font-size:10pt"> Our family of Paradigm® insulin infusion pumps
are currently a leading choice in insulin pump therapy. Worn on a belt like a pager, the Paradigm insulin infusion pump offers
a simplified and intuitive menu system to program insulin delivery, making it easier for people with diabetes to manage their
disease without injections. Because pump therapy is more predictable than injections of insulin, it helps diabetes patients
better control their glucose levels within a near-normal range, offering both short-term and long-term health benefits. In
support of this, in July 2004, <I>Diabetes Care</I> published results from a study demonstrating improved HbA1c levels (a measure
of glycemic control) in pediatric patients using a Medtronic insulin pump, relative to patients who continued to use multiple
daily injection therapy.</P>
<P style="font-size:10pt"> In November 2004, we announced the FDA clearance
of our next generation “intelligent” insulin pump and glucose monitoring system. The wireless system is comprised
of a Paradigm 515 or larger reservoir sized Paradigm 715 Insulin Pump with an enhanced Bolus Wizard® calculator, a Paradigm
Link® Blood Glucose Monitor (co-developed with Becton, Dickinson and Company) and access to Medtronic CareLink™ Service
for Diabetes, an online portal through which uploaded glucose values and other information is made available to patients in
order to better enable self-management. In the future, Medtronic CareLink Service for Diabetes is expected to incorporate a
healthcare professional portal to facilitate the exchange of information between patients and their healthcare professionals,
as well as to provide healthcare professionals with online access to consolidated reports and simple tools to assess and refine
therapy. We expect these tools to greatly simplify pump therapy initiation and ongoing “fine tuning” adjustments
associated with improving disease management.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">12</P>
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<P style="font-size:10pt"> Looking forward, we intend to further integrate advanced
diabetes management technologies into our portfolio and with one another. In August 2004, we received FDA approval of our Guardian®
RT technology, a leading continuous glucose monitoring device that provides users with frequent, automated and accurate blood
glucose readings. The Guardian RT and subsequent generation technologies will form the basis of our planned sensor-augmented
and external closed-loop pump technologies. We intend to introduce the world’s first sensor-augmented pump therapy system
(consisting of a Guardian RT and a Paradigm 522 or 722 pump, among ancillary technologies) later this fiscal year. A feasibility
study presented at the annual meeting of the American Diabetes Association in June 2004 highlighted trends toward improved
glucose levels among patients using our sensor-augmented pump technology. We expect to test this technology more extensively
in the upcoming STAR (Sensor Augmented Therapy for A1c Reduction) trials, which evaluate sensor-augmented therapy versus traditional
pump therapy and multiple daily injection therapy. It is our aim to drive acceptance and improved reimbursement for pump therapy
using the results anticipated from the STAR series of trials.</P>
<P style="font-size:10pt"> <B><I>Gastroenterology and Urology.</I></B> Our
diagnostic and therapeutic products for gastroenterology and urology include the Enterra® Therapy for gastroparesis, the
Bravo® pH Monitoring System and Gatekeeper™ Reflux Repair System for the evaluation and treatment of GERD. Our gastroenterology
and urology products also include our InterStim® Therapy device for urinary and bowel control, our TUNA® (transurethral
needle ablation) Therapy for enlarged prostate, and our functional diagnostic equipment.</P>
<P style="font-size:10pt"> During fiscal year 2005, we succeeded in achieving
increased penetration of our minimally invasive and stimulation-based diagnostics and therapies. InterStim therapy for the
treatment of incontinence remains our largest product line in the area of gastroenterology and urology. Thanks to market development
efforts, InterStim therapy is increasingly accepted by physicians as an effective treatment option for bladder control problems.
Likewise, our Bravo pH diagnostic, a minimally invasive technology that encapsulates a small radiotransmitter for use in assessing
pH levels and monitoring gastric reflux, is becoming more widely recognized by physicians and patients for allowing subjects
to enjoy their regular diet and activities without the embarrassment and discomfort associated with traditional pH testing.</P>
<P style="font-size:10pt"> Our Gastroenterology and Urology unit also offers
the minimally invasive TUNA Therapy for treatment of enlarged prostate. TUNA Therapy realized strong growth during fiscal year
2005, and was recognized in the June issue of the <I>Journal of Urology</I> for enabling targeted patient outcomes in a trial
comparing it with an established treatment option (tissue removal surgery).</P>
<P style="font-size:10pt"> <B><I>Customers and Competitors</I></B>
</P>
<P style="font-size:10pt"> The primary medical specialists who use our neurological
products are neurosurgeons, neurologists, pain management specialists, and orthopedic spine surgeons. The primary medical specialists
who use our diabetes products are endocrinologists and internists, and those who use our gastroenterology and urology products
are urologists, urogynecologists and gastroenterologists. Our primary competitors for neurological products are Advanced Neuromodulation
Systems, Inc., Johnson & Johnson, Inc., Boston Scientific Corporation and Stryker Corporation. Our most significant
competitors for diabetes products are Animas Corporation, Roche Ltd. and Smiths Group PLC. Our primary competitors for
gastroenterology and urology products are Boston Scientific Corporation and Urologix, Inc.</P>
<P style="font-size:10pt;font-weight:bold">Vascular</P>
<P style="font-size:10pt"> Our Vascular business offers a full line of innovative,
minimally invasive products and therapies to treat coronary artery disease, peripheral vascular disease, and aortic aneurysms.
The interventional vascular market is large, dynamic and driven by technological innovation. We are committed to building upon
our competitive position in the vascular marketplace by developing and acquiring market-leading products and technologies to
treat vascular disease. We strengthened our Coronary Vascular business and intellectual property position with the acquisition
of Arterial Vascular Engineering (AVE) in fiscal year 1999.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">13</P>
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<P style="font-size:10pt"> <B><I>Conditions Treated</I></B>
</P>
<P style="font-size:10pt"> Our Vascular business offers minimally invasive products
for the treatment of the conditions described below.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Coronary artery disease — deposits of cholesterol and other fatty materials (plaque) on the walls
of the heart’s arteries, causing narrowing or blockage of the vessel and reducing the blood supply to the heart</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Peripheral vascular disease — narrowing or blockage of arteries or veins outside the heart, impeding blood supply
to vital organs</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Abdominal/Thoracic aortic aneurysm (AAA/TAA) — weakening, and ballooning of the abdominal aorta and weakening
or dissection of the thoracic aorta</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> The charts below set forth net sales of our Vascular
business as a percentage of our total net sales for each of the last three fiscal years:</P>
<DIV align="center">
<img src="med52766vascular.gif"></DIV>
<P style="font-size:10pt"> <B><I>Principal Products</I></B>
</P>
<P style="font-size:10pt"> Our Vascular products include coronary, endovascular,
and peripheral stents and related delivery systems, stent graft systems, distal embolic protection systems and a broad line
of balloon angioplasty catheters, guide catheters, guidewires, diagnostic catheters and accessories.</P>
<P style="font-size:10pt"> <B><I>Coronary Stents.</I></B> If a blockage
in a coronary artery prevents the heart from receiving sufficient oxygen, the heart cannot function properly and a heart attack
or stroke may result. Coronary artery disease is commonly treated with balloon angioplasty, a procedure in which a special
balloon is threaded through the coronary artery system to the site of the arterial blockage, where it is inflated, pressing
the obstructive plaque against the wall of the vessel to improve blood flow. In July 2004, we announced the FDA approval of
the Sprinter<SUP>®</SUP> Semi-Compliant Over-the-Wire Balloon dilatation catheters designed to treat the most challenging
coronary lesions. The Sprinter joins the NC Stormer® family of balloons which have been designed to address the needs of
cardiologists in the era of drug-eluting stents.</P>
<P style="font-size:10pt"> Following balloon angioplasty, physicians often place
coronary stents at the blockage site to prop open diseased arteries to maintain blood flow to the heart. Stents are cylindrical,
wire-mesh devices small enough to insert into coronary arteries. Our new-generation coronary stent system, the Driver®,
is the first modular stent to be composed of an advanced cobalt-based alloy, which surpasses the limitations of stainless steel
by creating very strong, ultra-thin struts that offer excellent flexibility and vessel support. The Driver stent launched in
Japan in August 2004 and is now available in all major markets worldwide.</P>
<P style="font-size:10pt"> <B><I>Coating Technologies.</I></B> Like other
companies in the stent market, we are developing stents with drug coatings, known as drug-eluting stents, to inhibit the re-narrowing
or re-clogging of arteries, known as restenosis, after placement of a stent. Our Endeavor™ Drug-Eluting Coronary Stent
combines an innovative delivery system leveraging our discrete technology, our advanced Driver cobalt-alloy stent, an effective
drug — ABT-578 (a rapamycin analogue), and a proprietary polymer coating that controls the release of the drug into
the vessel wall. In May 2002, we entered into a ten year agreement with Abbott
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">14</P>
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<P style="font-size:10pt">Laboratories (Abbott) granting us co-exclusive
use of Abbott’s proprietary immunosuppressant drug ABT-578, as well as the phosphoryl choline coating Abbott has licensed from Biocompatibles International
PLC for use in conjunction with ABT-578. Clinical studies have shown that this proprietary biocompatible polymer is a safe,
polymeric drug-eluting platform.</P>
<P style="font-size:10pt"> Our Endeavor Drug-Eluting Coronary Stent clinical
trial program achieved a number of significant milestones during fiscal year 2005. In May 2004, 12-month data for ENDEAVOR
I was presented at the Paris Course on Revascularization demonstrating favorable results. In March 2005, the positive results
of the ENDEAVOR II Pivital Clinical Trial were presented at the American College of Cardiology annual scientific session. The
ENDEAVOR II trial included 1,197 patients comparing the Endeavor Drug-Eluting Coronary Stent to Medtronic’s Driver cobalt-alloy
stent. In September 2004, we completed patient enrollment in the third clinical trial in our drug-eluting stent program,
ENDEAVOR III, a 436-patient equivalency study comparing our Endeavor Drug-Eluting Coronary Stent to the Johnson &
Johnson, Inc. Cypher<SUP>®</SUP> Sirolimus-eluting stent. We expect to present the results of this trial in October of
this year at the Transcatheter Cardiovascular Therapeutics (TCT) annual symposium. In the fourth quarter of fiscal year 2005,
we began patient enrollment in, ENDEAVOR IV, the fourth and final phase of our U.S. clinical program for the Endeavor Drug-Eluting
Stent. ENDEAVOR IV will include more than 1,500 patients randomized one-to-one against the Taxus Paclitaxel-Eluting Coronary
Stent System from Boston Scientific Corporation. We continue to progress toward the European and U.S. launches of our Endeavor
Drug-Eluting Stent, which will be the first drug-eluting stent utilizing the advanced technology of a cobalt-alloy stent. We
expect to release the Endeavor Drug-Eluting Coronary Stent in Europe and many emerging markets in the first half of fiscal
year 2006 and in the U.S during calendar 2007.</P>
<P style="font-size:10pt"> <B><I>Embolic Protection System.</I></B> Embolic
protection systems are designed to capture debris dislodged from the wall of the vessel, during balloon angioplasty or placement
of a stent, that might otherwise flow downstream toward the heart and result in complications such as a heart attack or stroke.
Our GuardWire Plus® System is the first embolic protection system commercially available in the U.S. and is indicated for
use in vein graft interventions for certain individuals who have previously undergone coronary artery bypass graft surgery.</P>
<P style="font-size:10pt"> <B><I> Endovascular Stent Grafts and Peripheral
Stents.</I></B> Our Vascular product line includes a range of endovascular stent grafts and other peripheral vascular
products. These include the market-leading AneuRx® and Talent™ Stent Grafts for minimally invasive AAA and TAA repair.
Our AneuRx Stent Graft system is available in the U.S. and Europe, while the Talent Stent Graft system is available only in
Europe. In November 2004, we announced the FDA approval of the Xcelerant™ Delivery system for use with the AneuRx
Stent Graft. The Xcelerant Delivery system is designed to provide physicians with a smooth, controlled and more trackable delivery
platform. The Xcelerant Delivery system is also available for use with the Talent Stent Graft in markets outside the U.S. We
also offer balloon expandable and self-expanding biliary stents that are designed to maintain bile flow in liver ducts restricted
or blocked by malignant tumors. In August 2003, we announced FDA clearance of our next generation Aurora™ Self-Expandable
Stent System and in November 2003, our Racer® Biliary Stent became the first cobalt-alloy biliary stent commercially
available for use in the U.S.</P>
<P style="font-size:10pt"> <B><I>Vascular Closure.</I></B> In November 2004,
we announced the acquisition of Angiolink Corporation (Angiolink) (see “Acquisitions and Investments”), a privately
held medical device company focused on developing innovative wound closure solutions for vascular procedures. Angiolink’s
EVS™ (Expanding Vascular Stapling) Vascular Closure System, which received FDA approval in November 2004, is engineered
to close the femoral artery access site after vascular procedures, such as diagnostic angiography, balloon angioplasty and
stenting. Vascular closure is an emerging market and complementary to Medtronic’s coronary and peripheral vascular businesses.
Physicians use vascular closure systems to close arteries used as entry or access sites into the body for vascular procedures,
such as coronary stenting and angioplasty. The EVS system provides safe and effective mechanical closure of arterial puncture
sites without disturbing the lumen, or interior, of the targeted vessel. The system can be used by a single operator and is
designed to apply a titanium staple that stabilizes and closes the artery. The system is designed to quickly stop access site
bleeding and contribute to reducing patient recovery time.
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">15</P>
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<P style="font-size:10pt"></P>
<P style="font-size:10pt"> <B><I>Customers and Competitors</I></B>
</P>
<P style="font-size:10pt"> The primary medical specialists who use our products
for treating coronary artery disease are interventional cardiologists, while products treating peripheral vascular disease
may be used by interventional radiologists, vascular surgeons and interventional cardiologists. Our primary competitors in
the Vascular business are Boston Scientific Corporation, Guidant Corporation and Johnson & Johnson, Inc.</P>
<P style="font-size:10pt;font-weight:bold">Cardiac Surgery</P>
<P style="font-size:10pt"> We have competed in the Cardiac Surgery marketplace
for over two decades, and are a worldwide market leader with solid platforms in revascularization, heart valve repair and replacement,
and blood management. We offer cardiac surgeons the industry’s broadest range of products for use in the operating room.
Together our Cardiac Surgery, CRM and Vascular businesses offer an extensive array of products and services for cardiac care.</P>
<P style="font-size:10pt"> <B><I>Conditions Treated</I></B><I></I>
</P>
<P style="font-size:10pt"> Our cardiac surgery products are used in the treatment
of the conditions described below.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Coronary artery disease — blockage in a coronary artery can prevent the heart from receiving sufficient
oxygen, which prevents the heart from functioning properly and a heart attack or stroke may result</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Heart valve disorders — diseased or damaged heart valves can restrict blood flow or leak, which limits the heart’s
ability to pump blood, causing the heart to work harder to meet the needs of the circulatory system</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> The charts below set forth net sales of our Cardiac
Surgery business as a percentage of our total net sales for each of the last three fiscal years:</P>
<DIV align="center">
<img src="med52766cs.gif"></DIV>
<P style="font-size:10pt"> <B><I>Principal Products</I></B><I></I>
</P>
<P style="font-size:10pt"> Our Cardiac Surgery products consist of positioning
and stabilization systems for beating heart surgery, perfusion systems which warm, oxygenate, and circulate a patient’s
blood during arrested heart surgery, products for the repair and replacement of heart valves, surgical accessories and epicardial
ablation products.</P>
<P style="font-size:10pt"> <B><I>Coronary Artery Bypass Surgery.</I></B> When
physicians determine that they cannot effectively treat a blockage in a coronary artery using balloon angioplasty or a stent,
they typically turn to cardiac surgery to address the problem. The most common surgical procedure used to treat blockage in
a coronary artery is a coronary artery bypass graft (CABG). In a CABG procedure, surgeons re-route the blood flow around the
blockage by attaching a graft, usually from an artery or vein from another part of the patient’s body, as an alternative
pathway to the heart. There are two primary techniques, arrested heart surgery and beating heart surgery described as follows.</P>
<P style="font-size:10pt"> <B><I>Arrested Heart Surgery.</I></B> In a conventional
coronary artery bypass procedure, the patient’s heart is temporarily stopped, or arrested. The patient is placed on a
circulatory support system that temporarily
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">16</P>
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<P style="font-size:10pt">replaces the patient’s heart and lungs and provides blood flow to the body.
We offer a complete line of blood-handling products that form this circulatory support system and maintain and monitor blood circulation
and coagulation status, oxygen supply and body temperature during open heart surgery. As beating heart surgery has become more
popular (see below), the market for arrested heart surgery products has been declining. For patients undergoing cardiac surgery,
who also suffer from atrial arrhythmias, our Cardioblate® Ablation System is designed to allow surgeons to efficiently
restore a normal heart rhythm by neutralizing the cells causing troublesome electrical activity. In December 2004, the first
patient was enrolled in the CAFÉ (Cardioblate Atrial Fibrillation) Study, the world’s first prospective, randomized,
blinded trial to study surgical ablation for the treatment of atrial fibrillation. In May 2005, we announced the U.S. commercial
introduction of Cardioblate® BP2 (Bipolar) System, the latest addition to our Cardioblate surgical ablation systems, which
offers cardiac surgeons new ease and flexibility in creating ablation lines during open heart procedures.</P>
<P style="font-size:10pt"> <B><I>Beating Heart Surgery.</I></B> As an alternative
to conventional bypass surgery, physicians are performing coronary artery bypass surgery on the beating heart to avoid the
complexity and potential risks of arresting the heart. To assist physicians performing beating heart surgery, we offer positioning
and stabilization technologies. These technologies include our Starfish® 2 and Urchin® heart positioners, which use
suction technology to gently lift and position the beating heart to expose arteries on any of its surfaces. These heart positioners
are designed to work in concert with our Octopus® tissue stabilizer, which holds a small area of the cardiac surface tissue
nearly stationary while the surgeon is suturing the bypass grafts to the arteries. It is currently estimated that beating heart
surgeries make up about 20% of the more than 300,000 coronary artery bypass surgeries that take place in the U.S. each year.
In April 2004, the results of a study published in the <I>Journal of the American Medical Association</I> provided
compelling evidence of the benefits of performing CABG surgery while the patient’s heart is still beating.</P>
<P style="font-size:10pt"> <B><I> Heart Valves.</I></B> We offer a
complete line of valve replacement and repair products for damaged or diseased heart valves. Our replacement products include
both tissue and mechanical valves. The valve market continues to shift from mechanical to tissue valves, which is beneficial
to us due to our broad selection of tissue valve products. Our Mosaic® bioprosthetic heart valve is a reduced-profile valve
engineered from porcine tissue incorporating a proven flexible stent. The low profile and flexibility of the stent make it
easier for the surgeon to implant the valve. Earlier this calendar year we released our newest tissue valve, the Mosaic Ultra™.
The Mosaic Ultra valve includes a reduced sewing ring profile that facilitates the use of a larger valve. Other tissue product
offerings include the Freestyle® stentless and Hancock® II stented valves. Our mechanical heart valve offerings include
the Medtronic Hall®, the ADVANTAGE and the ADVANTAGE Supra® bileaflet valves. The ADVANTAGE Supra valve was released
in Europe in November 2003 and is designed to allow the implantation of a larger valve thereby optimizing blood flow. Currently,
the standard ADVANTAGE bileaflet valve is in U.S. clinical evaluation. Our valve repair products include the Duran Flexible
and CG Future® Band Annuloplasty Systems.</P>
<P style="font-size:10pt"> <B><I> Customers and Competitors</I></B><I></I>
</P>
<P style="font-size:10pt"> The principal medical specialists who use our cardiac
surgery products are cardiac surgeons. Our primary competitors in the Cardiac Surgery business are Edwards LifeSciences Corporation,
Guidant Corporation, Johnson & Johnson, Inc., and St. Jude Medical, Inc.</P>
<P style="font-size:10pt;font-weight:bold">Research and Development</P>
<P style="font-size:10pt"> Our research and development staff regularly works
with clinicians at medical and academic institutions in the development of new technologies and the evaluation and testing
of our products. These relationships are valuable in generating data necessary for regulatory compliance. During fiscal years
2005, 2004 and 2003, we spent $951.3 million (9.5% of net sales), $851.5 million (9.4% of net sales) and $749.4 million
(9.8% of net sales), on research and development, respectively. Our research and development activities include improving existing
products and therapies, expanding their applications for use, and developing new products.</P>
<P style="font-size:10pt"> The markets in which we participate are subject to
rapid technological advances. Constant improvement of products and introduction of new products is necessary to maintain market
leadership. Our
</P>
<BR>
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<P style="font-size:10pt;text-align:center">17</P>
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<P style="font-size:10pt">research and development efforts are directed toward maintaining or achieving technological leadership
in each of the markets we serve in order to assure that patients using our devices and therapies receive the most advanced
and effective treatment possible. We are committed to developing technological enhancements and new indications for existing
products, as well as less invasive and new technologies to address unmet patient needs and to help reduce patient care costs
and length of hospital stays. We have not engaged in significant customer or government sponsored research.</P>
<P style="font-size:10pt;font-weight:bold">Acquisitions and Investments</P>
<P style="font-size:10pt"> Our strategy to provide a broad range of therapies
to restore patients to fuller, healthier lives requires a wide variety of technologies, products and capabilities. The rapid
pace of technological development in the medical industry and the specialized expertise required in different areas of medicine
make it difficult for one company alone to develop a broad portfolio of technological solutions. In addition to internally
generated growth through our research and development efforts, historically we have relied, and expect to continue to rely,
upon acquisitions, investments, and alliances to provide access to new technologies both in areas served by our existing businesses
as well as in new areas.</P>
<P style="font-size:10pt"> We expect to make future investments or acquisitions
where we believe that we can stimulate the development of, or acquire, new technologies and products to further our strategic
objectives and strengthen our existing businesses. Mergers and acquisitions of medical technology companies are inherently
risky and no assurance can be given that any of our previous or future acquisitions will be successful or will not materially
adversely affect our consolidated results of operations, financial condition, or cash flows.</P>
<P style="font-size:10pt"> On June 24, 2005, we announced we had entered into an agreement to acquire
all of the outstanding stock of Transneuronix, Inc. (TNI) for approximately $260.0 million in cash, subject to purchase price
increases, which would be triggered by the achievement of certain milestones. We had an existing $28.8
million equity investment in TNI, which is accounted for under the cost method. TNI is a privately-held company that develops
implantable gastric stimulation systems for use in obesity therapy. The acquisition is expected to be completed in the first
quarter of fiscal year 2006.</P>
<P style="font-size:10pt"> On May 18, 2005, we completed the acquisition of substantially
all of the spine-related intellectual property and related contracts, rights, and tangible materials owned by Michelson. The
agreement reached requires a total cash payment of $1,350.0 million for the settlement of all ongoing litigation and the purchase
of a portfolio of more than 100 issued U.S. patents, over 110 pending U.S. patent applications and numerous foreign counterparts
to these patents. A value of $550.0 million was assigned to past damages in the case and recorded in the fourth quarter of
fiscal year 2005, and the remaining $800.0 million will be recorded to the value of the intellectual property purchased and
recorded in the first quarter of fiscal year 2006. Upon reaching a definitive agreement in the fourth quarter of fiscal year
2005, we made a $10.0 million down payment on the intellectual property and upon closing in May of 2005, paid an additional
$1,310.0 million in cash and committed to three future installments of $10.0 million to be paid in May of 2006, 2007 and 2008.
The $1,310.0 million payment was funded with approximately $715.0 million in cash and approximately $595.0 million with the
proceeds from the issuance of commercial paper. The patents pertain to novel spinal technology and techniques that have both
current application and the potential for future patentable commercial products.</P>
<P style="font-size:10pt"> On November 1, 2004, we acquired all of the outstanding
stock of Angiolink, a privately held company that developed wound closure devices for vascular procedures. Angiolink’s
EVS Vascular Closure System, which has received U.S. FDA approval, is engineered to close the femoral artery access site after
vascular procedures, such as diagnostic angiography, balloon angioplasty and stenting. The EVS System provides safe and effective
mechanical closure of arterial puncture sites without disturbing the lumen, or interior, of the targeted vessel. This acquisition
provides us an additional vascular closure offering to our current closure product – the non-invasive Clo-Sur P.A.D.<SUP>TM</SUP>.
The net consideration paid for Angiolink was approximately $42.3 million in cash, subject to purchase price increases, which
would be triggered by the achievement of certain milestones. The net cash purchase price of $42.3 million is a product of the
$45.2 million purchase price, including direct acquisition costs, less $2.9 million of acquired cash.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">18</P>
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<P style="font-size:10pt"> On August 25, 2004 we acquired substantially
all of the assets of Coalescent Surgical, Inc. (Coalescent). Coalescent developed the U-Clip™ Anastomotic Device and the
SPYDER™ Proximal Anastomotic Device. The U-Clip device creates high-quality anastomoses (a seamless connection) without
sutures and is primarily used in coronary artery bypass surgery. The SPYDER device automatically deploys a series of U-Clip
devices when attaching the bypass graft to the aorta. This acquisition is expected to complement our surgical product line
and strategy to develop technologies to promote surgical procedures that produce better patient outcomes, and reduce trauma
and hospitalization. The consideration paid for Coalescent was approximately $59.1 million in cash, including a $5.0 million
milestone payment made in March 2005 for the successful transition of product and technology to us following the acquisition.
The purchase price remains subject to purchase price increases, which would be triggered by the achievement of certain milestones.</P>
<P style="font-size:10pt"> In May 2004, we formed a joint venture with Genzyme
Corporation (Genzyme) to accelerate the development of new treatments for some of the most intractable forms of cardiovascular
disease. The new venture, named MG Biotherapeutics, is working to develop therapies that leverage the complementary strengths
of two industry leaders - Medtronic’s experience developing delivery devices for targeted therapy and leadership in treating
heart disease, as well as imaging and navigational technologies; and Genzyme’s experience developing biological approaches
for cardiac repair and the treatment of heart disease.</P>
<P style="font-size:10pt"> On January 8, 2004, we acquired certain assets
of Radius Medical Inc. (Radius), which was accounted for as a purchase of assets. Radius was a privately held corporation
that specialized in the research, development and manufacture of interventional guidewires and related products for the cardiovascular
marketplace. The assets acquired from Radius broadened and enhanced our existing guidewire product and technology portfolio.
The consideration paid was $5.6 million in cash, including a $0.5 million milestone payment made in fiscal year 2005 for the
successful transfer of assets. The purchase price remains subject to purchase price increases, which would be triggered by
the achievement of certain milestones.</P>
<P style="font-size:10pt"> On January 5, 2004, we acquired substantially
all of the assets of Premier Tool, Inc. (Premier Tool). Premier Tool was a privately held corporation engaged in the engineering
and manufacturing of metal instruments used to implant spinal devices. The assets acquired enhanced our current line of spinal
instrumentation. The consideration paid was approximately $4.0 million in cash.</P>
<P style="font-size:10pt"> On November 19, 2003, we acquired all of the
outstanding stock of Vertelink Corporation (Vertelink). Vertelink was a privately held development stage company that developed
materials and techniques for over-the-wire spinal fixation devices that can achieve multi-level stabilization of the cervical,
thoracic and lumbar spine. Key Vertelink products include the KOBRA™ Fixation System and the SST<SUP>™</SUP> Spinal
Fixation System. Both systems permit surgeons to place spinal instrumentation utilizing tissue-sparing, minimally invasive
methods. At the time of the acquisition, the KOBRA Fixation System was being reviewed by the FDA for 510(k) approval, which
was subsequently obtained during the third quarter of fiscal year 2004. Vertelink’s products enhanced the strategic initiative
of our Spinal business that focuses on MAST.</P>
<P style="font-size:10pt"> The consideration paid for Vertelink was approximately
$28.1 million in cash, including two $3.0 million milestone payments made in fiscal year 2005. The purchase price remains subject
to purchase price increases, which would be triggered by the achievement of certain milestones. In connection with the acquisition
we have allocated $22.0 million of the costs to IPR&D, which was expensed on the date of the acquisition, and the remaining
amount to fixed assets and other intangible assets. In the third and fourth quarters of fiscal year 2005, Vertelink obtained
FDA approval for the KOBRA II System and CE Mark approval for the SST Fixation System, respectively. As a result of attaining
these approvals, we triggered two existing milestone payments in the purchase agreement.</P>
<P style="font-size:10pt"> On September 10, 2003, we acquired substantially
all of the assets of TransVascular, Inc. (TVI). Prior to the acquisition, we had an equity investment in TVI, which was
accounted for under the cost method of accounting. TVI developed and marketed the Pioneer™ Catheter (formerly the CrossPoint®
TransAccess® Catheter System), a proprietary delivery technology for several current and potential intravascular
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">19</P>
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<P style="font-size:10pt">procedures, such as the potential ability to deliver therapeutic agents, including cells, genes and
drugs to precise locations within the vascular system. The Pioneer Catheter received FDA 510(k) clearance in 2002 and is indicated
to facilitate the positioning and placement of catheters within the peripheral vasculature. This strategic acquisition complemented
our commitment to advance therapies and treatments by combining biologic and device therapies.</P>
<P style="font-size:10pt"> The consideration paid was approximately $58.7 million
subject to purchase price increases, which would be triggered by the achievement of certain milestones. The initial consideration
included approximately 1.2 million shares of Medtronic common stock valued at $57.5 million, our prior investment in TVI
and acquisition-related costs. The Medtronic common shares were valued based on the average of our trading share prices several
days before and after the date when the trading share prices to be issued became known.</P>
<P style="font-size:10pt;font-weight:bold">Patents and Licenses</P>
<P style="font-size:10pt"> We rely on a combination of patents, trademarks, copyrights,
trade secrets, and confidentiality agreements to establish and protect our proprietary technology. We have filed and obtained
numerous patents in the U.S. and abroad, and regularly file patent applications worldwide in our continuing effort to establish
and protect our proprietary technology. In addition, we have entered into exclusive and non-exclusive licenses relating to
a wide array of third-party technologies. We have also obtained certain trademarks and trade names for our products to distinguish
our genuine products from our competitors’ products, and we maintain certain details about our processes, products and
strategies as trade secrets. Our efforts to protect our intellectual property and avoid disputes over proprietary rights have
included ongoing review of third-party patents and patent applications.</P>
<P style="font-size:10pt"> There can be no assurance that pending patent applications
will result in issued patents, that patents, trademarks or trade names issued to us or patents licensed by us will not be challenged
or circumvented by competitors, or that such patents, trademarks or trade names will be found to be valid or sufficiently broad
to protect our proprietary technology or to provide us with a competitive advantage.</P>
<P style="font-size:10pt"> We operate in an industry characterized by extensive
patent litigation. Patent litigation can result in significant damage awards and injunctions that could prevent the manufacture
and sale of affected products or result in significant royalty payments in order to continue selling the products. At any given
time, we are generally involved as both a plaintiff and a defendant in a number of patent infringement actions. While it is
not possible to predict the outcome of patent litigation incident to our business, we believe the costs associated with this
litigation could generally have a material adverse impact on our consolidated results of operations, financial position, or
cash flows for any one interim or annual period. See “Item 3 — Legal Proceedings” for additional information.</P>
<P style="font-size:10pt;font-weight:bold">Markets and Distribution Methods</P>
<P style="font-size:10pt"> We sell most of our medical devices through direct
sales representatives in the U.S. and a combination of direct sales representatives and independent distributors in international
markets. The main target markets for our medical devices are the U.S., Western Europe, and Japan. Our primary customers include
physicians, hospitals, other medical institutions and group purchasing organizations.</P>
<P style="font-size:10pt"> Our marketing and sales strategy is focused on rapid,
cost-effective delivery of high-quality products to a diverse group of customers worldwide. To achieve this objective, we organize
our marketing and sales teams around physician specialties. This focus enables us to develop highly knowledgeable and dedicated
sales representatives who are able to foster close professional relationships with physicians and other customers, and enhance
our ability to cross-sell complementary products. We believe that we maintain excellent working relationships with physicians
and others in the medical industry that enable us to gain a detailed understanding of therapeutic and diagnostic developments,
trends and emerging opportunities, and respond quickly to the changing needs of physicians and patients. We attempt to enhance
our presence in the medical community through active participation in medical meetings and by conducting comprehensive training
and educational activities. We believe that these activities contribute to physician expertise and loyalty to our products.</P>
<P style="font-size:10pt"> In keeping with the increased emphasis on cost-effectiveness
in healthcare delivery, the current trend among hospitals and other customers of medical device manufacturers is to consolidate
into larger
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">20</P>
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<P style="font-size:10pt">purchasing groups to enhance purchasing power. As a result, transactions with customers have become
increasingly significant, more complex and tend to involve more long-term contracts than in the past. This enhanced purchasing
power may also lead to pressure on pricing and increased use of preferred vendors. We are not dependent on any single customer
for more than 10% of our total net sales.</P>
<P style="font-size:10pt;font-weight:bold">Competition and Industry</P>
<P style="font-size:10pt"> We compete in both the therapeutic and diagnostic
medical markets in more than 120 countries throughout the world. These markets are characterized by rapid change resulting
from technological advances and scientific discoveries. In the product lines in which we compete, we face a mixture of competitors
ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of products.
In addition, we face competition from providers of alternative medical therapies such as pharmaceutical companies. Competitive
factors include:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">product reliability</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>product performance</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>product technology</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>product quality</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>breadth of product lines</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>product services</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>customer support</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>price</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>reimbursement approval from healthcare insurance providers</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> Major shifts in industry market share have occurred
in connection with product problems, physician advisories and safety alerts, reflecting the importance of product quality in
the medical device industry. In the current environment of managed care, economically motivated buyers, consolidation among
healthcare providers, increased competition and declining reimbursement rates, we have been increasingly required to compete
on the basis of price. In order to continue to compete effectively, we must continue to create or acquire advanced technology,
incorporate this technology into proprietary products, obtain regulatory approvals in a timely matter and manufacture and successfully
market these products.</P>
<P style="font-size:10pt;font-weight:bold">Worldwide Operations</P>
<P style="font-size:10pt"> For financial reporting purposes, net sales and long-lived
assets attributable to significant geographic areas are presented in Note 16 to the consolidated financial statements
and is set forth in Exhibit 13 hereto and which will be included in our fiscal year 2005 Annual Report to Shareholders
(the “2005 Annual Report”).</P>
<P style="font-size:10pt;font-weight:bold">Impact of Business Outside of the U.S.</P>
<P style="font-size:10pt"> Our operations in countries outside the U.S. are accompanied
by certain financial and other risks. Relationships with customers and effective terms of sale frequently vary by country,
often with longer-term receivables than are typical in the U.S. Inventory management is an important business concern due to
the potential for obsolescence, long lead times from sole source providers and currency exposure. Currency exchange rate fluctuations
can affect net sales from, and profitability of, operations outside the U.S. We attempt to hedge these exposures to reduce
the effects of foreign currency fluctuations on net earnings. See the “Market Risk” section of Management’s
Discussion and Analysis of Financial Condition and Results of Operations and Note 4 to the consolidated financial statements,
set forth in Exhibit 13 hereto and which will be included in our 2005 Annual Report. Certain countries also limit or regulate
the repatriation of earnings to the U.S. In general, operations outside the U.S. present complex tax and cash management issues
requiring sophisticated planning and analysis to meet our financial objectives.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">21</P>
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<P style="font-size:10pt;font-weight:bold">Production and Availability of Raw Materials</P>
<P style="font-size:10pt"> We manufacture most of our products at 22 manufacturing
facilities located in various countries throughout the world. The largest of these manufacturing facilities are located in
Arizona, California, Indiana, Ireland, Massachusetts, Mexico, Minnesota, Puerto Rico and Switzerland. We purchase many of the
components and raw materials used in manufacturing these products from numerous suppliers in various countries. For reasons
of quality assurance, sole source availability, or cost effectiveness, certain components and raw materials are available only
from a sole supplier. We work closely with our suppliers to assure continuity of supply while maintaining high quality and
reliability. Due to the FDA’s requirements regarding manufacture of our products, we may not be able to quickly establish
additional or replacement sources for certain components or materials. Generally, we have been able to obtain adequate supplies
of such raw materials and components. However, the reduction or interruption in supply, and an inability to develop alternative
sources for such supply, could adversely affect our operations.</P>
<P style="font-size:10pt;font-weight:bold">Employees</P>
<P style="font-size:10pt"> On April 29, 2005, we employed approximately
33,000 employees. Our employees are vital to our success. We believe we have been successful in attracting and retaining qualified
personnel in a highly competitive labor market due to our competitive compensation and benefits, and our rewarding work environment.
We believe our employee relations are excellent.</P>
<P style="font-size:10pt;font-weight:bold">Seasonality</P>
<P style="font-size:10pt"> Worldwide sales do not reflect any significant degree
of seasonality.</P>
<P style="font-size:10pt;font-weight:bold">Government Regulation and Other Considerations</P>
<P style="font-size:10pt"> Our medical devices are subject to regulation by numerous
government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies requires
us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution
of our medical devices.</P>
<P style="font-size:10pt"> Authorization to commercially distribute a new medical
device in the U.S. is generally received in one of two ways. The first, known as the 510(k) process, requires us to demonstrate
that our new medical device is substantially equivalent to a legally marketed medical device. In this process, we must submit
data that supports our equivalence claim. If human clinical data is required, it must be gathered in compliance with FDA investigational
device exemption regulations. We must receive an order from the FDA finding substantial equivalence to another legally marketed
medical device before we can commercially distribute the new medical device. Modifications to cleared medical devices can be
made without using the 510(k) process if the changes do not significantly affect safety or effectiveness.</P>
<P style="font-size:10pt"> The second, more rigorous process, known as pre-market
approval (PMA), requires us to independently demonstrate that the new medical device is safe and effective. We do this by collecting
data, including human clinical data for the medical device. The FDA will authorize commercial release if it determines there
is reasonable assurance that the medical device is safe and effective. This process is generally much more time-consuming and
expensive than the 510(k) process.</P>
<P style="font-size:10pt"> Both before and after a product is commercially released,
we have ongoing responsibilities under FDA regulations. The FDA reviews design and manufacturing practices, labeling and record
keeping, and manufacturers’ required reports of adverse experience and other information to identify potential problems
with marketed medical devices. We may be subject to periodic inspection by the FDA for compliance with the FDA’s good
manufacturing practice regulations. These regulations, also known as the Quality System Regulations, govern the methods used
in, and the facilities and controls used for, the design, manufacture, packaging and servicing of all finished medical devices
intended for human use. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that
any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain
or seize adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such devices, and require
us to notify health professionals and others that the
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">22</P>
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<P style="font-size:10pt">devices present unreasonable risks of substantial harm to the public health. The FDA may also impose
operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices, and assess
civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the Department
of Justice.</P>
<P style="font-size:10pt"> The FDA administers certain controls over the export
of medical devices from the U.S. International sales of our medical devices that have not received FDA approval are subject
to FDA export requirements. The FDA, in cooperation with U.S. Customs and Border Protection, also administers controls over
the import of medical devices into the U. S. Each foreign country to which we export medical devices also subjects such medical
devices to their own regulatory requirements. Frequently, we obtain regulatory approval for medical devices in foreign countries
first because their regulatory approval is faster or simpler than that of the FDA. However, as a general matter, foreign regulatory
requirements are becoming increasingly stringent. In the European Union, a single regulatory approval process has been created,
and approval is represented by the CE Mark. To obtain a CE Mark in the European Union, defined products must meet minimum standards
of safety and quality (<I>i.e.</I>, the essential requirements) and then comply with one or more of a selection of conformity
routes. A Notified Body assesses the quality management systems of the manufacturer and the product conformity to the essential
and other requirements within the Medical Device Directive.</P>
<P style="font-size:10pt"> To be sold in Japan, medical devices must undergo
thorough safety examinations and demonstrate medical efficacy before they are granted approval, or “<I>shonin</I>”.
The Japanese government, through the Ministry of Health, Labour, and Welfare (MHLW), regulates medical devices under recently
enacted revisions to the Pharmaceutical Affairs Law (PAL). Implementation of PAL and enforcement practices thereunder are evolving,
and compliance guidance from MHLW is still in development. Consequently, companies continue to work on establishing improved
systems for compliance with PAL. Penalties for a company’s noncompliance with PAL could be severe, including revocation
or suspension of a company’s business license and criminal sanctions.</P>
<P style="font-size:10pt"> The process of obtaining approval to distribute medical
products is costly and time-consuming in virtually all of the major markets where we sell medical devices. We cannot assure
that any new medical devices we develop will be approved in a timely or cost-effective manner.</P>
<P style="font-size:10pt"> Federal and state laws protect the confidentiality
of certain patient health information, including patient records, and restrict the use and disclosure of that protected information.
In particular, in December 2000, the U.S. Department of Health and Human Services (HHS) published patient privacy rules
under the Health Insurance Portability and Accountability Act of 1996 (HIPAA privacy rule). This regulation was finalized in
October 2002. The HIPAA privacy rule governs the use and disclosure of protected health information by “Covered Entities,”
which are healthcare providers that submit electronic claims, health plans and healthcare clearinghouses. Other than our MiniMed
subsidiary and our health insurance plans, each of which is a Covered Entity, the HIPAA privacy rule affects us only indirectly.
The patient data that we access, collect and analyze may include protected health information. We are committed to maintaining
patients’ privacy and working with our customers and business partners in their HIPAA compliance efforts. The ongoing
costs and impacts of assuring compliance with the HIPAA privacy rules are not material to our business.</P>
<P style="font-size:10pt"> Government and private sector initiatives to limit
the growth of healthcare costs, including price regulation, competitive pricing, coverage and payment policies, and managed-care
arrangements, are continuing in many countries where we do business, including the U.S. These changes are causing the marketplace
to put increased emphasis on the delivery of more cost-effective medical devices. Government programs, including Medicare and
Medicaid, private healthcare insurance and managed-care plans have attempted to control costs by limiting the amount of reimbursement
they will pay for particular procedures or treatments, and other mechanisms designed to constrain utilization and contain cost,
including, for example, gain sharing, where a supplier of medical goods or services is required to share any realized cost
savings with either the medical provider or payor as a condition of doing business with an entity. This has created an increasing
level of price sensitivity among customers for our products. Some third-party payors must also approve coverage for new or
innovative devices or therapies before they will reimburse healthcare providers who use the medical devices or therapies. Even
though a new
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">23</P>
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<P style="font-size:10pt">medical device may have been cleared for commercial distribution, we may find limited demand for the
device until reimbursement approval has been obtained from governmental and private third-party payors. As a result of our
manufacturing efficiencies and cost controls, we believe we are well-positioned to respond to changes resulting from the worldwide
trend toward cost-containment; however, uncertainty remains as to the nature of any future legislation, making it difficult
for us to predict the potential impact of cost-containment trends on future operating results.</P>
<P style="font-size:10pt"> The delivery of our devices is subject to regulation
by HHS and comparable state and foreign agencies responsible for reimbursement and regulation of healthcare items and services.
U.S. laws and regulations are imposed primarily in connection with the Medicare and Medicaid programs, as well as the government’s
interest in regulating the quality and cost of healthcare. Foreign governments also impose regulations in connection with their
healthcare reimbursement programs and the delivery of healthcare items and services.</P>
<P style="font-size:10pt"> The U.S. federal healthcare laws apply when we submit
a claim on behalf of a federal healthcare program beneficiary, or when a customer submits a claim for an item or service that
is reimbursed under Medicare, Medicaid or other federally-funded healthcare programs. The principal federal laws include those
that prohibit the filing of false or improper claims for federal payment, those that prohibit unlawful inducements for the
referral of business reimbursable under federally-funded healthcare programs (the “Anti-Kickback Law”) and those
that prohibit healthcare service providers seeking reimbursement for providing certain services to a patient who was referred
by a physician that has certain types of direct or indirect financial relationships with the service provider (the “Stark
Law”).</P>
<P style="font-size:10pt"> The laws applicable to us are subject to evolving
interpretations. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations,
Medtronic, its officers and employees, could be subject to severe criminal and civil penalties including, for example, exclusion
from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid.</P>
<P style="font-size:10pt"> We operate in an industry characterized by extensive
patent litigation. Patent litigation can result in significant damage awards and injunctions that could prevent the manufacture
and sale of affected products or result in significant royalty payments in order to continue selling the products. At any given
time, we are generally involved as both a plaintiff and a defendant in a number of patent infringement actions. While it is
not possible to predict the outcome of patent litigation incident to our business, we believe the costs associated with this
litigation could generally have a material adverse impact on our consolidated results of operations, financial position, or
cash flows for any one interim or annual period. See Note 14 to the consolidated financial statements for additional information.</P>
<P style="font-size:10pt"> We operate in an industry susceptible to significant
product liability claims. These claims may be brought by individuals seeking relief or by groups seeking to represent a class.
In addition, product liability claims may be asserted against us in the future based on events we are not aware of at the present
time.</P>
<P style="font-size:10pt"> We are also subject to various environmental laws
and regulations both within and outside the U.S. Like other medical device companies, our operations involve the use of substances
regulated under environmental laws, primarily manufacturing and sterilization processes. We do not expect that compliance with
environmental protection laws will have a material impact on our consolidated results of operations, financial position, or
cash flows.</P>
<P style="font-size:10pt"> At the beginning of fiscal year 2003, we elected to
transition most of our insurable risks to a program of self-insurance, with the exception of director and officer liability
insurance, which was transitioned in fiscal year 2004. This decision was made based on current conditions in the insurance
marketplace that have led to increasingly higher levels of self-insurance retentions, increasing number of coverage limitations
and dramatically higher insurance premium rates. We will continue to monitor the insurance marketplace to evaluate the value
to us of obtaining insurance coverage in the future. Based on historical loss trends, we believe that our self-insurance program
accruals will be adequate to cover future losses. Historical trends, however, may not be indicative of future losses. These
losses could have a material adverse impact on our consolidated results of operations, financial position or cash flows.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">24</P>
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<P style="font-size:10pt">
<B>Cautionary Factors That May Affect Future Results</B> This Annual Report on Form 10-K,
including the information incorporated by reference herein and the exhibits hereto, may include “forward-looking”
statements. Forward-looking statements broadly involve our current expectations or forecasts of future results. 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, mergers and acquisitions, 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,” “project,”
“should,” “will” and similar words or expressions. Any statement that is not a historical fact, including
estimates, projections, future trends and the outcome of events that have not yet occurred, are forward-looking statements.
Our ability to actually achieve results consistent with our current expectations depends significantly on certain factors that
may cause actual future results to differ materially from our current expectations. Some of these factors include:</P>
<P style="font-size:10pt;font-weight:bold">Effective management of and reaction to risks involved in our business, including:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">our ability to successfully complete planned clinical trials to develop and obtain approval for products on
a timely basis;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>our ability to manufacture quality products;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>timing, size, and nature of strategic initiatives, market opportunities, and research and technology platforms available
to us;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>our ability to achieve manufacturing efficiencies, including gross margin benefits from our manufacturing process and supply
chain programs;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>our ability to manage financial assets, including effective cash management;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>price and volume fluctuations in the stock markets and their effect on the market prices of technology and healthcare companies;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>the efficient integration of acquired businesses;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>the trend of consolidation in the medical device industry as well as among our customers, resulting in more significant,
complex, and long-term contracts than in the past, and potentially greater pricing pressures;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>our ability to anticipate and react effectively to the changing managed-care environment;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>our ability to effectively manage our inventory mix and inventory levels;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>our ability to maintain or increase research and development expenditures;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>our ability to maintain or improve our effective tax rate.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;font-weight:bold">Competitive factors, including:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">pricing pressures, both in the U.S. and abroad;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>development of new products by competitors having superior performance compared to our current products;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>technological advances, patents, and registrations obtained by competitors;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>issues with licensors, suppliers, and distributors.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;font-weight:bold">Difficulties and delays inherent in the development, manufacturing, marketing and
sale of medical products, including:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">lengthy and costly regulatory clearance processes, which may result in lost market opportunities or harm product
commercialization;</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">25</P>
<HR COLOR="GRAY" SIZE="2">
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<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2"><TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">our ability to obtain favorable third-party payor reimbursement authorizations for our products;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>the suspension or revocation of authority to manufacture, market or distribute existing products;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>the imposition of additional or different regulatory requirements, such as those affecting manufacturing and labeling;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>ongoing efficacy or safety concerns for existing products;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>field actions or seizure or recall of products;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>the failure to obtain, limitations on the use of, or the loss of patent and other intellectual property rights.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;font-weight:bold">Governmental action, including:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">impact of continued healthcare cost-containment efforts;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>new laws and judicial decisions related to healthcare availability and payment for healthcare products and services or the
marketing and distribution of products;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>changes in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new products and
result in lost market opportunity;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>the impact of more vigorous compliance and enforcement activities;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>changes in the tax and environmental laws affecting our business.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;font-weight:bold">Legal disputes, including:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">disputes over intellectual property rights, including the risk of court ordered injunctions prohibiting our
manufacture or sale of a product following a finding of patent infringement;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>product liability claims;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>claims asserting securities law violations;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>claims asserting violations of federal law in connection with Medicare and/or Medicaid reimbursement;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>derivative shareholder actions;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>claims asserting antitrust violations;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>environmental matters.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;font-weight:bold">General economic conditions, including:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">international and domestic business conditions;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>political instability in foreign countries;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>interest rates;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>foreign currency exchange rates;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>changes in the rate of inflation;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>the market value of our investments in other companies;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>our ability to reduce the impact of these conditions on our results.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <B>Other factors beyond our control, including earthquakes
(particularly in light of the fact that we have significant facilities located near major earthquake fault lines), floods,
fires, explosions, or acts of terrorism or war.</B>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">26</P>
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<P style="font-size:10pt"> You must carefully consider forward-looking statements
and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by
inaccurate assumptions. It is not possible to foresee or identify all factors that may affect our forward-looking statements,
and you should not consider any list of such factors to be an exhaustive list of all risks, uncertainties or potentially inaccurate
assumptions affecting such forward-looking statements.</P>
<P style="font-size:10pt"> We caution you to consider carefully these factors
as well as the specific factors discussed with each specific forward-looking statement in this annual report, including, among
others, those discussed in the above section entitled “Government Regulation and Other Considerations” and in our
other filings with the Securities and Exchange Commission. In some cases, these factors have affected, and in the future (together
with other unknown factors) may affect, our ability to implement our business strategy and could cause actual results to differ
materially from those contemplated by such forward-looking statements. No assurance can be made that any expectation, estimate
or projection contained in a forward-looking statement can be achieved.</P>
<P style="font-size:10pt"> We also caution you that forward-looking statements
speak only as of the date made. We undertake no obligation to update any forward-looking statement, but investors are advised
to consult any further disclosures by us on this subject in our filings with the Securities and Exchange Commission, especially
on Forms 10-K, 10-Q, and 8-K (if any), in which we discuss in more detail various important factors that could cause actual
results to differ from expected or historical results. 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.</P>
<P style="font-size:10pt;font-weight:bold">Executive Officers of Medtronic</P>
<P style="font-size:10pt"> Set forth below are the names and ages of current
executive officers of Medtronic, Inc., as well as information regarding their positions with Medtronic, Inc., their
periods of service in these capacities, and their business experience for the past five or more years. Executive officers generally
serve terms in office of approximately one year. There are no family relationships among any of the officers named, nor is
there any arrangement or understanding pursuant to which any person was selected as an officer.</P>
<P style="font-size:10pt"> <B><I>Arthur D. Collins, Jr.,</I></B> age 57, has
been Chairman of the Board and Chief Executive Officer of the Company since April 2002, was President and Chief Executive
Officer from May 2001 to April 2002, President and Chief Operating Officer from August 1996 to April 2001,
Chief Operating Officer from January 1994 to August 1996 and from June 1992 to January 1994 was Executive
Vice President and President of Medtronic International. He has been a director since August 1994. Prior to joining the
Company, Mr. Collins was Corporate Vice President, Diagnostic Products, at Abbott Laboratories from October 1989
to May 1992 and Divisional Vice President, Diagnostic Products, from May 1984 to October 1989. He is also a
director of U.S. Bancorp and Cargill, Inc., a member of the Board of Overseers of The Wharton School at the University
of Pennsylvania, and Chairman of AdvaMed (Advanced Medical Technology Industry Association).</P>
<P style="font-size:10pt"> <B><I>Susan Alpert, M.D., Ph.D.,</I></B> age 58, has
been Vice President, Chief Quality and Regulatory Officer since May 2004, and was Vice President, Regulatory Affairs and Compliance,
from July 2003 to May 2004. Prior to that, she was Vice President of Regulatory Sciences at C.R. Bard, Inc. from October 2000
to July 2003. She held a variety of positions at the Food & Drug Administration from June 1987 to August 2000.</P>
<P style="font-size:10pt"> <B><I>Jeffrey A. Balagna,</I></B> age 44, has been
Senior Vice President and Chief Information Officer since March 2001. Prior to joining the Company, Mr. Balagna
held several management positions within General Electric Company from June 1997 to March 2001, including General
Manager, Operations for GE Medical Systems Americas and Chief Information Officer, GE Consumer Motors and Controls. Prior to
his tenure at General Electric, Mr. Balagna was Manager, Information Management at Ford Motor Company from October 1995
to June 1997.</P>
<P style="font-size:10pt"> <B><I>Jean-Luc Butel,</I></B> age 48, has been Senior
Vice President and President, Asia Pacific, since September 2003. Prior to that, he was President of Independence Technology,
a Johnson & Johnson Company,
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">27</P>
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<P style="font-size:10pt">from 1999 to 2003. From 1991 to 1999, he worked for Becton Dickinson, initially as General Manager
of its Microbiology business in Japan and then as President of Nippon Becton Dickinson. His last assignment at Becton Dickinson
was President, Worldwide Consumer Healthcare. From 1984 to 1991, Mr. Butel was with Johnson & Johnson and served
multiple roles including General Manager of Fiji, China Project Manager and Marketing Director of the Johnson & Johnson
ophthalmic business in Southeast Asia.</P>
<P style="font-size:10pt"> <B><I>Terrance L. Carlson, </I></B>age 52, has been
Senior Vice President, General Counsel and Secretary since October 2004. Prior to that, he was Senior Vice President, Business
Development, General Counsel and Secretary at PerkinElmer, Inc. from June 1999 to September 2004; Deputy General Counsel
of AlliedSignal (Honeywell International) and General Counsel of AlliedSignal Aerospace from April 1994 to June 1999; and
an associate and partner of Gibson Dunn & Crutcher from November 1978 to April 1994.</P>
<P style="font-size:10pt"> <B><I>Michael F. DeMane,</I></B> age 49, has been
Senior Vice President and President, Spinal, ENT and Navigation, since February 2002 and President, Spinal, since January 2000.
Prior to that, he was President, Interbody Technologies, a division of Sofamor Danek, from June 1998 to December 1999.
Prior to joining the Company in 1998, Mr. DeMane served as Managing Director, Australia and New Zealand, for Smith &
Nephew, Pty. Ltd from April 1996 to June 1998, after a series of research and development and general management
positions with Smith & Nephew Inc.</P>
<P style="font-size:10pt"> <B><I>Gary L. Ellis,</I></B> age 48, has been Senior
Vice President and Chief Financial Officer since May 2005. Prior to that, he was Vice President, Corporate Controller and Treasurer
since October 1999 and Vice President Corporate Controller from August 1994. Mr. Ellis joined Medtronic in 1989 as Assistant
Corporate Controller and was promoted to Vice President of Finance for Medtronic Europe in 1992, until being named as Corporate
Controller in 1994.</P>
<P style="font-size:10pt"> <B><I>Janet S. Fiola,</I></B> age 63, has been Senior
Vice President, Human Resources, since March 1994. She was Vice President, Human Resources, from February 1993 to
March 1994, and was Vice President, Corporate Human Resources, from February 1988 to February 1993.</P>
<P style="font-size:10pt"> <B><I>Robert M. Guezuraga,</I></B> age 56, has been
Senior Vice President and President, Medtronic MiniMed since November 2004. He was Senior Vice President and President Cardiac
Surgery, from August 1999 to November 2004. He served as Vice President and General Manager of Medtronic Physio-Control International,
Inc., from September 1998 to August 1999. Mr. Guezuraga joined the Company after its acquisition of Physio-Control International,
Inc. in September 1998, where he had served as President and Chief Operating Officer since August 1994. Prior to that, Mr. Guezuraga
served as President and CEO of Positron Corporation from 1987 to 1994 and held various management positions within General
Electric Corporation, including GE’s Medical Systems division.</P>
<P style="font-size:10pt"> <B><I>William A. Hawkins,</I></B> age 51, has been
President and Chief Operating Officer since May 2004. He served as Senior Vice President and President, Medtronic Vascular,
from January 2002 to May 2004. He served as President and Chief Executive Officer of Novoste Corporation from 1998
to 2002, and was Corporate Vice President of American Home Products Corporation and President of its Sherwood Davis &
Geck Division from April 1997 to May 1998. He held executive positions with American Home Products, Johnson &
Johnson, Guidant Corporation, Eli Lilly & Co. and Carolina Medical Electronics, having begun his medical technology
career in 1977.</P>
<P style="font-size:10pt"> <B><I>Stephen H. Mahle,</I></B> age 59, has been Executive
Vice President and President, Cardiac Rhythm Management, since May 2004, and prior to that was Senior Vice President and
President, Cardiac Rhythm Management, since January 1998. Prior to that, he was President, Brady Pacing, from 1995 to
1997 and Vice President and General Manager, Brady Pacing, from 1990 to 1995. Mr. Mahle has been with the Company for
32 years and served in various general management positions prior to 1990.</P>
<P style="font-size:10pt"> <B><I>Stephen N. Oesterle, M.D.,</I></B> age 54, has
been Senior Vice President, Medicine and Technology, since January 2002. Prior to that, he was Associate Professor of
Medicine at Harvard Medical School and Director of Invasive Cardiology Services at Massachusetts General Hospital from 1998
to 2002, and was
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">28</P>
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<P style="font-size:10pt">Associate Professor of Medicine at Stanford University and Director of Cardiac Catheterization and
Coronary Intervention Laboratories at the Stanford University Medical Center from 1992 to 1998. Prior to that he held other
academic positions and directed interventional cardiology programs at Georgetown University and in Los Angeles.</P>
<P style="font-size:10pt"> <B><I>Oern R. Stuge, M.D.,</I></B> age 51, has been
Senior Vice President and President of Medtronic Cardiac Surgery since March 1, 2005 and Vice President of Cardiac Rhythm
Management, Western Europe since May, 2002. Prior to that he was Vice President of Neurological, Spinal and Diabetes
for Western Europe from May 2000 to May 2002 and Vice President of Neurological for Europe, Middle East & Africa from May
1998 to May 2000. Prior to joining the Company in 1998, Mr. Stuge worked at Abbott Laboratories where he held regional
director and general manager positions for the various Nordic countries and the Netherlands.</P>
<P style="font-size:10pt"> <B><I>Scott R. Ward,</I></B> age 45, has been Senior
Vice President and President, Medtronic Vascular since May 2004. He served as Senior Vice President and President, Neurological
and Diabetes Business, from February 2002 to May 2004, and was President, Neurological, from January 2000 to
January 2002. He was Vice President and General Manager of Medtronic’s Drug Delivery Business from 1995 to 2000.
Prior to that, Mr. Ward led the Company’s Neurological Ventures in the successful development of new therapies. Mr. Ward
also held various research, regulatory and business development positions since joining Medtronic in 1981.</P>
<P style="font-size:10pt"> <B><I>Barry W. Wilson,</I></B> age 61, has been Senior
Vice President and President, Europe, Middle East, Canada and Emerging Markets since May 2004. Prior to that, Mr. Wilson
was Senior Vice President and President, International, from April 2001 to April 2004, and Senior Vice President, International,
since September 1997. He was President, Europe, Middle East and Africa, from April 1995 to March 2001. Prior
to that, Mr. Wilson was President, International, of the Lederle Division of American Cyanamid/American Home Products
from 1993 to 1995 and President, Europe, of Bristol-Myers Squibb from 1991 to 1993, where he also served internationally in
various general management positions from 1980 to 1991.</P>
<P style="font-size:10pt;font-weight:bold">Website Access</P>
<P style="font-size:10pt"> Our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 are available through our website (<U>www.medtronic.com</U> under the “Investor
Relations” caption) free of charge as soon as reasonably practicable after we electronically file such material with,
or furnish it to, the Securities and Exchange Commission. Also, copies of the reports will be made available, free of charge,
upon written request to our Investor Relations Department.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_2_properties">Item 2. Properties</A></P>
<P style="font-size:10pt"> Our principal offices are owned by us and located
in the Minneapolis, Minnesota metropolitan area. Manufacturing or research facilities are located in Arizona, California, Colorado,
Connecticut, Florida, Indiana, Massachusetts, Michigan, Minnesota, Tennessee, Texas, Utah, Washington, Puerto Rico, Canada,
China, France, Ireland, Mexico, the Netherlands and Switzerland. Our total manufacturing and research space is approximately
3.3 million square feet, of which approximately 75% is owned by us and the balance is leased.</P>
<P style="font-size:10pt"> We also maintain sales and administrative offices
in the U.S. at approximately 90 locations in 40 states or jurisdictions and outside the U.S. at approximately 110 locations
in 35 countries. Most of these locations are leased. We are using substantially all of our currently available productive space
to develop, manufacture and market our products. Our facilities are in good operating condition, suitable for their respective
uses and adequate for current needs.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_3_legal_proceedings">Item 3. Legal Proceedings</A></P>
<P style="font-size:10pt"> A discussion of the Company’s policies with respect
to legal proceedings is discussed in the management's discussion and analysis of financial condition and results of operations set forth in
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">29</P>
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<P style="font-size:10pt">Exhibit 13 incorporated herein by reference, and other loss contingencies are described in Note 14 of the consolidated financial statements.</P>
<P style="font-size:10pt"> On October 6, 1997, Cordis Corporation (Cordis),
a subsidiary of Johnson & Johnson, Inc. (J&J), filed suit in U.S. District Court for the District of Delaware
against Arterial Vascular Engineering, Inc., which Medtronic acquired in January 1999 and which is now known as Medtronic
Vascular, Inc. (Medtronic Vascular). The suit alleged that Medtronic Vascular’s modular stents infringe certain patents
owned by Cordis. Boston Scientific Corporation is also a defendant in this suit. On December 22, 2000, a jury rendered
a verdict that Medtronic Vascular’s previously marketed MicroStent and GFX® stents infringed valid claims of two Cordis
patents and awarded damages to Cordis totaling approximately $270.0 million. On March 28, 2002, the District Court
entered an order in favor of Medtronic Vascular, deciding as a matter of law that Medtronic Vascular’s MicroStent and
GFX stents did not infringe the patents. Cordis appealed, and on August 12, 2003, the Court of Appeals for the Federal
Circuit reversed the District Court’s decision and remanded the case to the District Court for further proceedings. The
District Court thereafter issued a new patent claim construction and a new trial was held in March 2005. On March 14,
2005, the jury found that the previously marketed MicroStent and GFX stent products infringed valid claims of Cordis’
patents. Medtronic Vascular has made post-trial motions challenging the jury’s findings of infringement and validity,
and the District Court has not yet ruled on those motions. Cordis has made a motion to reinstate the previous jury’s verdict
as to damages in the amount of approximately $270.0 million and has asked the District Court to determine pre- and post-judgment
interest on that amount. Medtronic Vascular has opposed entry of judgment on damages on the grounds that it is premature until
the Appellate Court has reviewed the liability findings of the jury. Alternatively, Medtronic Vascular also opposes the interest
rate and method of compounding that Cordis has requested. The District Court has not yet decided the motion and the timing
of a decision is unknown. Since the District Court has not affirmed the jury’s verdict as to liability or damages, Medtronic
has not recorded an expense related to damages in this matter.</P>
<P style="font-size:10pt"> On December 24, 1997, Advanced Cardiovascular
Systems, Inc. (ACS), a subsidiary of Guidant Corporation (Guidant), sued Medtronic Vascular in U.S. District Court for
the Northern District of California alleging that Medtronic Vascular’s modular stents infringe the Lau stent patents held
by ACS, and seeking injunctive relief and monetary damages. Medtronic Vascular denied infringement and in February 1998,
Medtronic Vascular sued ACS in U.S. District Court for the District of Delaware alleging infringement of Medtronic Vascular’s
Boneau stent patents. On January 5, 2005, the District Court found as a matter of law that the ACS products in question
did not infringe any of Medtronic Vascular’s Boneau stent patents. Medtronic Vascular has appealed this finding by the
District Court. In February 2005, following trial, a jury determined that the ACS Lau stent patents were valid and that Medtronic’s
Driver, GFX, MicroStent and S7 stents infringe those patents. Medtronic Vascular has made numerous post-trial motions challenging
the jury’s verdict of infringement and validity and the District Court has not yet ruled on those motions. On June 7 and
8, 2005, the District Court held an evidentiary hearing on Medtronic’s claim that the ACS Lau stent patents are unenforceable
due to inequitable conduct of ACS in obtaining the Lau patents. The District Court has not yet issued a decision on Medtronic’s
defense of inequitable conduct. Issues of damages have been bifurcated and will not be addressed by a jury or the Court until
some undetermined future date.</P>
<P style="font-size:10pt"> On September 12, 2000, Cordis filed an additional
suit against Medtronic Vascular in U.S. District Court for the District of Delaware alleging that Medtronic Vascular’s
S670, S660 and S540 stents infringe the patents asserted in the October 1997 Cordis case above. The Court temporarily
stayed proceedings in this suit until the appeals were decided in the 1997 case. The District Court thereafter lifted that
stay, and Cordis has now added claims that Medtronic Vascular’s S7 and Driver stents infringe the asserted patents. Medtronic
Vascular made a motion to stay the trial proceedings pending arbitration of Medtronic Vascular’s defense that its products
are licensed under a 1997 Agreement between Medtronic Vascular and Cordis. The Court has granted that motion and the District
Court proceedings have been stayed pending an arbitration of the license issues. A panel of three arbitrators has been selected,
and the arbitration proceedings are scheduled to be held in November 2005.</P>
<P style="font-size:10pt"> On January 26, 2001, DePuy/AcroMed, Inc., a subsidiary
of J&J, filed suit in U.S. District Court for the District of Massachusetts alleging that Medtronic Sofamor Danek, Inc.
(MSD) was infringing a
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">30</P>
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<P style="font-size:10pt">patent relating to a design for a thoracolumbar multiaxial screw (MAS). In March 2002, DePuy/AcroMed,
Inc. 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 that those screws do not infringe. On October 1, 2004, a jury
found that the MAS screw, which MSD no longer sells in the U.S., infringes under the doctrine of equivalents. The jury
awarded damages of $21.0 million and on February 9, 2005, the Court entered judgment against MSD, including prejudgment
interest, in the aggregate amount of $24.3 million. The Company has recorded an expense equal to the $24.3 million judgment
in the matter. DePuy/AcroMed, Inc. has appealed the Court’s decisions that the M10, M8 and Vertex screws do not infringe,
and MSD has appealed the jury’s verdict that the MAS screw infringes valid claims of the patent.</P>
<P style="font-size:10pt"> On October 31, 2002, the U.S. Department of Justice
filed a notice that the U.S. was declining to intervene in an action against Medtronic filed under seal in 1998 by two relators,
private attorneys who file suit, under the qui tam provisions of the federal False Claims Act. Relators alleged that Medtronic
defrauded the FDA in obtaining pre-market approval to manufacture and sell Models 4004, 4004M, 4504 and 4504M pacemaker leads
in the late 1980s and early 1990s. Relators further alleged that Medtronic did not provide information about testing of the
pacemaker leads to the FDA in the years after the agency’s approval of the leads. Pursuant to the requirements of the
False Claims Act, the case remained under seal while the U.S. Department of Justice determined whether to intervene in the
action and directly pursue the claims on behalf of the U.S. On June 6, 2003, Medtronic’s motion to dismiss the action
on several grounds was denied by the U.S. District Court, Southern District of Ohio. The Sixth Circuit Court of Appeals accepted
an interlocutory appeal to review that decision, and on April 6, 2005, a panel of the Sixth Circuit reversed the District
Court and remanded the case for dismissal. Relators petitioned the Sixth Circuit for a rehearing on May 23, 2005.</P>
<P style="font-size:10pt"> On May 2, 2003, Cross Medical Products, Inc.
(Cross) sued MSD in the U.S. District Court for the Central District of California. The suit alleges that MSD’s CD HORIZON,
Vertex® and Crosslink® products infringe certain patents owned by Cross. MSD has counterclaimed that Cross’ cervical
plate products infringe certain patents of MSD, and Cross has filed a reply alleging that MSD infringes certain cervical plate
patents of Cross. On May 19, 2004, the Court issued a ruling that held that the MAS, Vertex, M8, M10, CD HORIZON SEXTANT™
and CD HORIZON LEGACY screw products infringe one Cross patent. A hearing on the validity of that patent was held on July 12,
2004, after which the District Court ruled that the patents were valid. Cross made a motion for permanent injunction on the
multiaxial screw products, which the District Court granted on September 20, 2004, but stayed the effect of the injunction
until January 3, 2005. MSD requested an expedited appeal of the ruling and the U.S. Court of Appeals for the Federal Circuit
granted the request. In April 2005, the District Court ruled invalid certain claims in the patents Cross asserted against MSD’s
Crosslink and cervical plate products. The Court also ruled that Cross cervical plate products infringe MSD’s valid patents
and that MSD’s redesigned pedicle screw products infringe one claim of one of the patents owned by Cross. Cross thereafter
moved for an injunction against the redesigned screw products, which the District Court granted on May 24, 2005. The District
Court then stayed the effectiveness of the injunction for 90 days or August 22, 2005. MSD has requested a further stay
from the Court of Appeals for the Federal Circuit and is also awaiting the Federal Circuit's decision on an appeal of the District
Court’s September injunction. Appeals of the various liability rulings are likely to be heard before trial of any remaining
damages claims.</P>
<P style="font-size:10pt"> On August 19, 2003, Edwards Lifesciences LLC
(Edwards) and Endogad Research PTY Limited (Endogad) sued Medtronic Vascular, Cook Incorporated (Cook) and W.L. Gore &
Associates, Inc. (Gore) in the U.S. District Court for the Northern District of California. The suit alleges that a patent
owned by Endogad and licensed to Edwards is infringed by Medtronic Vascular’s AneuRx Stent Graft and/or Talent Endoluminal
Stent Graft System, and by products of Cook and Gore. On June 4, 2004, Medtronic filed suit alleging that the inventor
of the patent had breached a contract with Medtronic and seeking to have Medtronic named as the rightful owner of the patent.
The patent suit brought by Edwards and Endogad has been stayed pending the Court’s determination as to ownership of the
patent in the suit brought by Medtronic against the inventor. The issues as to ownership of the patent will be tried in early
calendar year 2006.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">31</P>
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<P style="font-size:10pt"> On September 4, 2003, Medtronic was informed
by the Department of Justice that the government is investigating allegations that certain payments and other services provided
to physicians by MSD constituted improper inducements under the federal Anti-Kickback Statute. The allegations were made as
part of a civil qui tam complaint brought pursuant to the federal False Claims Act. On November 21, 2003, Medtronic was
served with a government subpoena seeking documents in connection with these allegations. On September 2, 2004, Medtronic
received a copy of a second civil qui tam complaint brought by a second relator asserting similar allegations under the False
Claims Act. The Company views the second complaint as having arisen out of essentially similar facts and circumstances as the
first qui tam complaint, and believes that the second complaint does not materially expand the nature of the existing inquiry
in which the Company is cooperating. The cases remain under seal in the U.S. District Court for the Western District of Tennessee.
The Company is cooperating fully with the investigations and is independently evaluating these matters, the internal processes
associated therewith, and certain employment matters related thereto, in each case under the supervision of a special committee
of the Board.</P>
<P style="font-size:10pt"> On October 2, 2003, ETEX Corporation (ETEX) served MSD, Medtronic
and Medtronic International Ltd. with a Notice and Demand for Arbitration, under the terms of an agreement between Medtronic
and ETEX entered into on March 27, 2002. The arbitration demand alleged breach of the agreement, fraud, deceptive trade
practices and antitrust violations and asked for specific performance and monetary damages. On March 24, 2005 an arbitrator
found in favor of Medtronic on all antitrust, fraud and tort claims alleged by ETEX. The arbitrator, however, upheld termination
of the agreement and awarded ETEX breach of contract damages. After an adjustment for a calculation error in the original arbitration
award, the arbitrator’s final award was $63.6 million, inclusive of interest and a partial award of attorneys’ fees
and costs. In reaching the final award, the arbitrator deemed “as paid” $16.5 million previously owed by ETEX to
Medtronic. The final award was paid subsequent to the end of fiscal year 2005. Medtronic’s equity interest in ETEX remains
unaffected by the arbitrator’s decision.</P>
<P style="font-size:10pt"> On October 2, 2003, Cordis sued Medtronic Vascular
in the U.S. District Court for the Northern District of California, alleging that Medtronic Vascular’s S7 stent delivery
system infringes certain catheter patents owned by Cordis. Pursuant to stipulation of the parties, the Court has stayed the
suit and referred the matter to arbitration. The arbitrators have not yet been selected.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_4_submission_of_matters_to_a_vote_of_security_holders">Item 4. Submission of Matters to a Vote of Security Holders</A></P>
<P style="font-size:10pt"> Not applicable.</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">PART II</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_5_market_for_medtronics_common_equity">Item 5. Market for Medtronic’s Common Equity, Related Shareholder Matters, and
Issuer Purchases of Equity Securities</A></P>
<P style="font-size:10pt"> The information in the section entitled “Price
Range of Medtronic Stock” is incorporated by reference herein to Exhibit 13 hereto and will be included in our 2005
Annual Report.</P>
<P style="font-size:10pt"> In June 2001, our Board of Directors authorized
the repurchase of up to 25 million shares. An additional 30 million shares were authorized for repurchase in October 2003.
We purchase shares pursuant to these programs publicly announced on June 28, 2001 and November 12, 2003, respectively.
As authorized by the Board of Directors each program expires when its total number of authorized shares have been repurchased.
There were no shares repurchased by Medtronic during the fourth quarter of fiscal year 2005.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_6_selected_financial_data">Item 6. Selected Financial Data</A></P>
<P style="font-size:10pt"> The information for the fiscal years 2001 through
2005 in the section entitled “Selected Financial Data” is incorporated herein by reference to Exhibit 13 and
will be included in our 2005 Annual Report.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">32</P>
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<P style="font-size:10pt;font-weight:bold"><A NAME="item_7_managements_discussion_and_analysis">Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations</A></P>
<P style="font-size:10pt"> The information in the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference to Exhibit 13
and will be included in our 2005 Annual Report.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_7a_quantitative_and_qualitative_disclosures">Item 7A. Quantitative and Qualitative Disclosures About Market Risk</A></P>
<P style="font-size:10pt"> The information in the sections entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “Market Risk” as well as Note 4
to the consolidated financial statements is incorporated herein by reference to Exhibit 13 and will be included in our
2005 Annual Report.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_8_financial_statements_and_supplementary_data">Item 8. Financial Statements and Supplementary Data</A></P>
<P style="font-size:10pt"> The Consolidated Financial Statements and Notes thereto,
together with the report of independent registered public accounting firm, are incorporated herein by reference to Exhibit 13
and will be included in our 2005 Annual Report.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_9_changes_in_and_disagreements_with_accountants">Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure</A></P>
<P style="font-size:10pt"> Not applicable.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_9a_controls_and_procedures">Item 9A. Controls and Procedures</A></P>
<P style="font-size:10pt;font-weight:bold">Disclosure Controls and Procedures</P>
<P style="font-size:10pt"> As of April 29, 2005, an evaluation was carried
out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer
(CEO) and the Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in
the Exchange Act Rules 13a-15(e) and 15d -15(e)) as of the end of the period covered by the report. Based on that evaluation,
the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of April 29,
2005.</P>
<P style="font-size:10pt;font-weight:bold">Management’s Report on Internal Control Over Financial Reporting</P>
<P style="font-size:10pt"> Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. Management conducted an evaluation of the effectiveness
of internal control over financial reporting based on the framework in <I>Internal Control</I> – <I>Integrated
Framework</I> issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation,
management concluded that the Company’s internal control over financial reporting was effective as of April 29, 2005.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of April 29,
2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
which is included herein.</P>
<P style="font-size:10pt;font-weight:bold">Changes in Internal Control over Financial Reporting</P>
<P style="font-size:10pt"> There were no significant changes in the Company’s
internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_9b_other_information">Item 9B. Other Information</A></P>
<P style="font-size:10pt"> None.</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">PART III</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_10_directors_and_executive_officers">Item 10. Directors and Executive Officers of the Registrant</A></P>
<P style="font-size:10pt"> The sections entitled “Proposal 1 —
Election of Directors — Directors and Nominees”, “Governance of the Company — Audit Committee
Financial Experts”, and “Section 16(a) Beneficial Ownership Reporting Compliance” of our Proxy Statement
for our 2005 Annual Shareholders’ Meeting are incorporated herein by reference. See also “Executive Officers of Medtronic”
on page 27 herein.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">33</P>
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<P style="font-size:10pt"> We have adopted a written Code of Ethics that applies
to our Chief Executive Officer, Chief Financial Officer, Corporate Controller and Treasurer, and other senior financial officers
performing similar functions who are identified from time to time by the Chief Executive Officer. We have also adopted a written
Code of Business Conduct and Ethics for Board members. The Code of Ethics for senior financial officers, which is part of our
broader Code of Conduct applicable to all employees, and the Code of Business Conduct and Ethics for Board members are posted
on our website, <U>www.medtronic.com</U> under the “Corporate Governance” caption. Any amendments to, or waivers
for executive officers or directors of, these ethic codes will be disclosed on our website promptly following the date of such
amendment or waiver.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_11_executive_compensation">Item 11. Executive Compensation</A></P>
<P style="font-size:10pt"> The sections entitled “Proposal 1 —
Election of Directors — Director Compensation”, “Report of the Compensation Committee on Fiscal 2005 Executive
Compensation”, “Shareholder Return Performance Graph”, and “Executive Compensation” in our Proxy Statement
for our 2005 Annual Shareholders’ Meeting are incorporated herein by reference.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_12_security_ownership_of_certain_beneficial_owners">Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters</A></P>
<P style="font-size:10pt"> The sections entitled “Share Ownership Information”
and “Equity Compensation Plan Information” in our Proxy Statement for our 2005 Annual Shareholders’ Meeting
are incorporated herein by reference.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_13_certain_relationships_and_related_transactions">Item 13. Certain Relationships and Related Transactions</A></P>
<P style="font-size:10pt"> The section entitled “Proposal 1 —
Election of Directors — Certain Relationships and Related Transactions” in our Proxy Statement for our 2005
Annual Shareholders’ Meeting is incorporated herein by reference.</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_14_principal_accountant_fees_and_services">Item 14. Principal Accountant Fees and Services</A></P>
<P style="font-size:10pt"> The section entitled “Audit and Non-Audit Fees”
in our Proxy Statement for our 2005 Annual Shareholders’ Meeting is incorporated herein by reference.</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">PART IV</P>
<P style="font-size:10pt;font-weight:bold"><A NAME="item_15exhibits_and_financial_statement_schedules">Item 15. Exhibits and Financial Statement Schedules</A></P>
<P style="font-size:10pt"> <B><I>(a) 1. Financial Statements</I></B><I></I>
</P>
<P style="font-size:10pt;margin-left:30pt">The following report and consolidated financial statements are incorporated herein
by reference in Item 8.</P>
<P style="font-size:10pt;margin-left:30pt">The sections entitled “Report of Independent Registered Public Accounting Firm”
and “Consolidated Statements of Earnings” — years ended April 29, 2005, April 30, 2004 and April 25,
2003 are set forth in Exhibit 13 hereto and will be included in our 2005 Annual Report.</P>
<P style="font-size:10pt;margin-left:30pt">The section entitled “Consolidated Balance Sheets” — April 29,
2005 and April 30, 2004 is set forth in Exhibit 13 hereto and will be included in our 2005 Annual Report.</P>
<P style="font-size:10pt;margin-left:30pt">The section entitled “Consolidated Statements of Shareholders’ Equity” —
years ended April 29, 2005, April 30, 2004 and April 25, 2003 is set forth in Exhibit 13 hereto and will
be included in our 2005 Annual Report.</P>
<P style="font-size:10pt;margin-left:30pt">The section entitled “Consolidated Statements of Cash Flows” —
years ended April 29, 2005, April 30, 2004 and April 25, 2003 is set forth in Exhibit 13 hereto and will
be included in our 2005 Annual Report.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">34</P>
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<P style="font-size:10pt;margin-left:30pt">The section entitled “Notes to Consolidated Financial Statements” is set
forth in Exhibit 13 hereto and will be included in our 2005 Annual Report.</P>
<P style="font-size:10pt"> <B><I>2. Financial Statement Schedules</I></B><I></I>
</P>
<P style="font-size:10pt"> Schedule II. Valuation and Qualifying Accounts —
years ended April 29, 2005, April 30, 2004 and April 25, 2003 (set forth on page 39 of this report)</P>
<P style="font-size:10pt"> All other schedules are omitted because they are not
applicable or the required information is shown in the financial statements or notes thereto.</P>
<P style="font-size:10pt"> <B><I>3. Exhibits</I></B>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="TOP" style="font-size:10pt">
<TD width="5%"> </TD>
<TD width="7%">3.1</TD>
<TD width="93%">Medtronic Restated Articles of Incorporation, as amended (Exhibit 3.1).(a)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>3.2</TD>
<TD>Medtronic Bylaws, as amended to date. (Exhibit 3.2).(k)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.1</TD>
<TD>Rights Agreement, dated as of October 26, 2000, between Medtronic, Inc. and Wells Fargo Bank Minnesota, National
Association, including as: Exhibit A thereto the form of Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Shares of Medtronic, Inc.; and Exhibit B the form of Preferred Stock Purchase Right
Certificate. (Exhibit 4.1).(c)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.2</TD>
<TD>Indenture, dated as of September 11, 2001, between Medtronic, Inc. and Wells Fargo Bank Minnesota, N.A. (Exhibit 4.2).(d)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.3</TD>
<TD>364-Day Revolving Credit Facility, dated as of January 24, 2002, among Medtronic, Inc. as Borrower, certain of
its subsidiaries as guarantors, Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Sole Lead
Arranger and Sole Book Manager (Exhibit 4.4).(e)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.4</TD>
<TD>Five Year Revolving Credit Facility dated as of January 24, 2002, among Medtronic, Inc. as Borrower, certain of
its subsidiaries as guarantors, Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Sole Lead
Arranger and Sole Book Manager (Exhibit 4.5).(e)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.5</TD>
<TD>First Amendment to 364-Day Revolving Credit Facility, dated as of August 21, 2002 (Exhibit 4.6).(f)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.6</TD>
<TD>First Amendment to Five Year Revolving Credit Facility, dated as of August 21, 2002 (Exhibit 4.7).(f)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.7</TD>
<TD>Second Amendment to 364-Day Revolving Credit Facility, dated as of January 23, 2003 (Exhibit 4.8).(g)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.8</TD>
<TD>Second Amendment to Five Year Revolving Credit Facility, dated as of January 23, 2003 (Exhibit 4.9).(g)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.9</TD>
<TD>Third Amendment to 364-Day Credit Agreement dated January 22, 2004 (Exhibit 4.1).(h)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.10</TD>
<TD>Credit Agreement ($1,000,000,000 Five Year Revolving Credit Facility) dated as of January 20, 2005, among Medtronic,
Inc. as Borrower, certain of its subsidiaries as guarantors, Citicorp USA, Inc., as Administrative Agent and Bank of America,
N.A. as Syndication Agent, and Citigroup Global Markets Inc. and Banc of America Securities LLC as Joint Lead Arrangers and
Joint Book Managers (Exhibit 4.1).(m)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>4.11</TD>
<TD>Form of Indenture between Medtronic, Inc. and Wells Fargo Bank, National Association (Exhibit 4.1).(l)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.1</TD>
<TD>1994 Stock Award Plan, as amended. (Exhibit 10.1).(b)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.2</TD>
<TD>Medtronic Incentive Plan (Exhibit 10.2).(i)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.3</TD>
<TD>Executive Incentive Plan (Appendix C).(j)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>10.4</TD>
<TD>2003 Long-Term Incentive Plan (Appendix B).(j)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>10.5</TD>
<TD>Amendment to 2003 Long-Term Incentive Plan (Exhibit 10.1).(h)</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">35</P>
<HR COLOR="GRAY" SIZE="2">
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<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD width="5%"> </TD>
<TD width="7%">*10.6</TD>
<TD width="93%">Form of Employment Agreement for Medtronic executive officers (Exhibit 10.5).(a)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.7</TD>
<TD>Capital Accumulation Plan Deferral Program (Exhibit 10.6).(a)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.8</TD>
<TD>Executive Nonqualified Supplemental Benefit Plan (Exhibit 10.7).(i)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.9</TD>
<TD>Stock Option Replacement Program (Exhibit 10.8).(a)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.10</TD>
<TD>1998 Outside Director Stock Compensation Plan, as amended. (Exhibit 10.8).(b)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.11</TD>
<TD>Amendments effective October 25, 2001, regarding change in control provisions in the following plans: Management Incentive
Plan, 1998 Outside Director Stock Compensation Plan, Capital Accumulation Plan Deferred Program and Executive Nonqualified
Supplemental Benefit Plan. (Exhibit 10.10)(b)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>10.12</TD>
<TD>Director and Officer Indemnity Trust Agreement. (Exhibit 10.11).(k)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>10.13</TD>
<TD>Asset Purchase Agreement and Settlement Agreement among Medtronic, Inc., Medtronic Sofamor Danek, Inc., SDGI Holdings, Inc.,
Gary K. Michelson, M.D. and Karlin Technology, Inc.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.14</TD>
<TD>Form of Restricted Stock Award Agreement. (Exhibit 10.3).(m)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.15</TD>
<TD>Form of Non-Qualified Stock Option Agreement 2003 Long-Term Incentive Plan (four year vesting). (Exhibit 10.1).(m)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.16</TD>
<TD>Form of Non-Qualified Stock Option Agreement 2003 Long-Term Incentive Plan (immediate vesting). (Exhibit 10.2).(m)</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.17</TD>
<TD>Form of Initial Option Agreement under the Medtronic, Inc. 1998 Outside Director Stock Compensation Plan</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.18</TD>
<TD>Form of Annual Option Agreement under the Medtronic, Inc. 1998 Outside Director Stock Compensation Plan</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.19</TD>
<TD>Form of Replacement Option Agreement under the Medtronic, Inc. 1998 Outside Director Stock Compensation Plan</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.20</TD>
<TD>Form of Restricted Stock Units Award Agreement 2003 Long-Term Incentive Plan</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>*10.21</TD>
<TD>Form of Peformance Share Award Agreement 2003 Long-Term Incentive Plan</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>12.1</TD>
<TD>Computation of ratio of earnings to fixed charges.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>13</TD>
<TD>This exhibit contains the information referenced under Part II, Items 5, 6, 7, 7A and 8.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>21</TD>
<TD>List of Subsidiaries.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>23</TD>
<TD>Consent of Independent Registered Public Accounting Firm.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>24</TD>
<TD>Powers of Attorney.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>31.1</TD>
<TD>Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>31.2</TD>
<TD>Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>32.1</TD>
<TD>Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD> </TD>
<TD>32.2</TD>
<TD>Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
</table>
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>_______________</FONT></P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="96%">Incorporated herein by reference to the cited exhibit in our Annual Report on Form 10-K for the year ended
April 27, 2001, filed with the Commission on July 26, 2001.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(b)</TD>
<TD>Incorporated herein by reference to the cited exhibit in our Annual Report on Form 10-K for the year ended April 26,
2002, filed with the Commission on July 19, 2002.</TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">36</P>
<HR COLOR="GRAY" SIZE="2">
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<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">(c)</TD>
<TD WIDTH="96%">Incorporated herein by reference to the cited exhibit in our Report on Form 8-A, including the exhibits thereto, filed
with the Commission on November 3, 2000.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(d)</TD>
<TD>Incorporated herein by reference to the cited exhibit in our Report on Form 8-K/A, filed with the Commission on November 13,
2001.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(e)</TD>
<TD>Incorporated herein by reference to the cited exhibit in our Quarterly Report on Form 10-Q for the quarter ended January 25,
2002, filed with the Commission on March 8, 2002.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(f)</TD>
<TD>Incorporated herein by reference to the cited exhibit in our Quarterly Report on Form 10-Q for the quarter ended October 25,
2002, filed with the Commission on December 6, 2002.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(g)</TD>
<TD>Incorporated herein by reference to the cited exhibit in our Quarterly Report on Form 10-Q for the quarter ended January 24,
2003, filed with the Commission on March 7, 2003.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(h)</TD>
<TD>Incorporated herein by reference to the cited exhibit in our Quarterly Report on Form 10-Q for the quarter ended July 30,
2004, filed with the Commission on September 2, 2004.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(i)</TD>
<TD>Incorporated herein by reference to the cited exhibit in our Annual Report on Form 10-K for the year ended April 25,
2003, filed with the Commission on July 14, 2003.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(j)</TD>
<TD>Incorporated herein by reference to the cited appendix to our 2003 Proxy Statement, filed with the Commission on July 28,
2003.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(k)</TD>
<TD>Incorporated herein by reference to the cited Exhibit in our Annual Report on Form 10-K for the year ended April 30,
2004, filed with the Commission on June 30, 2004.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(l)</TD>
<TD>Incorporated herein by reference to the cited Exhibit in our registration statement on Amendment No. 2 to Form S-4, filed
with the Commission on January 20, 2005.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(m)</TD>
<TD>Incorporated herein by reference to the cited Exhibit in our Quarterly Report on Form 10-Q for the quarter ended January 20,
2005, filed with the Commission on March 7, 2005.</TD>
</TR>
</TABLE>
<P style="font-size:10pt">*Items that are management contracts or compensatory plans or arrangements required to be filed as
an exhibit pursuant to Item 15(c) of Form 10-K.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">37</P>
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<P style="font-size:10pt;font-weight:bold;text-align:center">SIGNATURES</P>
<P style="font-size:10pt"> Pursuant to the requirements of Section 13 or
15(d) 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.</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD colspan="3"><B>MEDTRONIC, INC.</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD width="46%">Dated: June 29, 2005</TD>
<TD width="2%"> </TD>
<TD width="2%"></TD>
<TD width="2%"> </TD>
<TD width="46%"></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD><B>By:</B></TD>
<TD> </TD>
<TD>/s/ <B>Arthur D. Collins, Jr.</b></td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
<TR><TD colspan=4></td><td><FONT STYLE="font-size:10pt"><B>Arthur D. Collins, Jr.<BR>Chairman of the Board and<BR>Chief Executive Officer </b></FONT></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Pursuant to the requirements of the Securities Exchange
Act of 1934, the report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="top" style="font-size:10pt">
<TD width="46%">Dated: June 29, 2005</TD>
<TD width="2%"> </TD>
<TD width="2%"><B>By:</B></TD>
<TD width="2%"> </TD>
<TD width="46%">/s/<B> Arthur D. Collins, Jr.</b></td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
<TR><TD colspan=4></td><td><FONT STYLE="font-size:10pt"><B>Arthur D. Collins, Jr.<BR>Chairman of the Board and<BR>Chief Executive Officer</B></font></TD>
</TR>
<Tr><td> </td></tr>
<TR VALIGN="top" style="font-size:10pt">
<TD>Dated: June 29, 2005</TD>
<TD> </TD>
<TD><B>By:</B></TD>
<TD> </TD>
<TD>/s/ <B>Gary L. Ellis</b></td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
<TR><TD colspan=4></td><td><FONT STYLE="font-size:10pt"><B>Gary L. Ellis<BR>Senior Vice President and<BR>Chief Financial Officer<BR>(Principal Financial and Accounting Officer)</B></font></TD>
</TR>
<Tr><td> </td></tr>
<TR VALIGN="top" style="font-size:10pt">
<TD> </TD>
<TD> </TD>
<TD colspan="3"><B>Directors</B></TD>
</TR>
<Tr><td> </td></tr>
<TR VALIGN="top" style="font-size:10pt">
<TD> </TD>
<TD> </TD>
<TD colspan=4><B>Richard H. Anderson<BR>Michael R. Bonsignore<BR>William R. Brody, M.D., Ph.D.<BR>Arthur D. Collins, Jr.<BR>Antonio M.
Gotto, Jr., M.D., D.Phil.</B></TD>
<TD> </TD>
<TD></TD>
<TD> </TD>
<TD></TD>
</TR>
<TR VALIGN="top" style="font-size:10pt">
<TD> </TD>
<TD> </TD>
<TD colspan=4><B>Shirley Ann Jackson, Ph.D<BR>Denise M. O’Leary<BR>Robert C. Pozen<BR>Jean-Pierre Rosso<BR>Jack W. Schuler<BR>Gordon
M. Sprenger</B></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Terrance L. Carlson, by signing his name hereto, does
hereby sign this document on behalf of each of the above named directors of the registrant pursuant to powers of attorney duly
executed by such persons.</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="top" style="font-size:10pt">
<TD width="47%">Dated: June 29, 2005</TD>
<TD width="2%"> </TD>
<TD width="4%"><B>By:</B></TD>
<TD width="2%"> </TD>
<TD width="45%">/s/ <B>Terrance L. Carlson</b></td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
<TR><TD colspan=4></td><td><FONT STYLE="font-size:10pt"><B>Terrance L. Carlson<BR>Attorney-In-Fact<BR>Senior Vice President,<BR>General Counsel and Secretary</B></font></TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">38</P>
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<P style="font-size:10pt;font-weight:bold;text-align:center">MEDTRONIC, INC. AND SUBSIDIARIES<BR>SCHEDULE II —
VALUATION AND QUALIFYING ACCOUNTS</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">
<I>(dollars in millions</I>)</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Balance at<BR>Beginning of<BR>Fiscal Year</TH>
<TH> </TH>
<TH colspan="3">Charges/<BR>(Credits) to<BR>Earnings</TH>
<TH> </TH>
<TH colspan="3">Other<BR>Changes<BR>(Debit)<BR>Credit</TH>
<TH> </TH>
<TH colspan="3">Balance<BR>at End of<BR>Fiscal Year</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="50%"></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Allowance for doubtful accounts:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD> Year ended 4/29/05</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">145.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">43.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD nowrap align="right">(21.0</TD>
<TD nowrap>)(a)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">174.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7.4</TD>
<TD nowrap>(b)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD> Year ended 4/30/04</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">99.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">70.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(28.2</TD>
<TD>)(a)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">145.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3.8</TD>
<TD nowrap>(b)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD> Year ended 4/25/03</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">77.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">42.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(25.2</TD>
<TD>)(a)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">99.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">4.6</TD>
<TD>(b)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="96%">Uncollectible accounts written off, less recoveries.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>(b)</TD>
<TD>Reflects primarily the effects of foreign currency fluctuations.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> Commission File No. 1-7707</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">39</P>
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<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>9
<FILENAME>med052766_ex10-13.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 10.19 to Form 10-K dated April 29, 2005</title>
</HEAD>
<body>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 10.13</P>
<P style="font-size:10pt;font-weight:bold;text-align:right"> </P>
<P style="font-size:10pt;font-weight:bold;text-align:right">EXECUTION COPY</P>
<P style="font-size:10pt;font-weight:bold;text-align:right"> </P>
<P style="font-size:10pt;font-weight:bold;text-align:center">ASSET PURCHASE AND SETTLEMENT AGREEMENT</P>
<P style="font-size:10pt;font-weight:bold;text-align:right"> </P>
<P style="font-size:10pt;text-align:center">Dated as of April 21, 2005</P>
<P style="font-size:10pt;font-weight:bold;text-align:right"> </P>
<P style="font-size:10pt;text-align:center">Among</P>
<P style="font-size:10pt;font-weight:bold;text-align:right"> </P>
<P style="font-size:10pt;text-align:center">MEDTRONIC SOFAMOR DANEK, INC.,</P>
<P style="font-size:10pt;text-align:center">SDGI HOLDINGS, INC.,</P>
<P style="font-size:10pt;text-align:center">MEDTRONIC, INC.,</P>
<P style="font-size:10pt;text-align:center">GARY K. MICHELSON, M.D. AND</P>
<P style="font-size:10pt;text-align:center">KARLIN TECHNOLOGY, INC.</P>
<BR>
<BR><BR><BR><BR><BR><BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold;text-align:center">TABLE OF CONTENTS</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="TOP" style="font-size:10pt">
<TD>1. </TD>
<TD width="2%"> </TD>
<TD colspan="2"><A HREF="#definitions">DEFINITIONS</A></TD>
<TD> 1</TD>
<TD width="2%"> </TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>2. </TD>
<TD> </TD>
<TD colspan="2"><A HREF="#purchase_and_sale_of_assets">PURCHASE AND SALE OF ASSETS</A> </TD>
<TD>10</TD>
<TD> </TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD WIDTH="5%"></TD>
<TD WIDTH="2%"> </TD>
<TD WIDTH="5%"><A HREF="#a2.1">2.1.</A></TD>
<TD WIDTH="81%"><A HREF="#a2.1">Purchased Assets</A></TD>
<TD WIDTH="5%">10</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.2">2.2.</A> </TD>
<TD><A HREF="#a2.2">Excluded Assets</A></TD>
<TD>11</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.3">2.3.</A></TD>
<TD><A HREF="#a2.3">Assumed Liabilities</A></TD>
<TD>11</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.4">2.4.</A> </TD>
<TD><A HREF="#a2.4">Excluded Liabilities </A></TD>
<TD>11</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.5">2.5.</A> </TD>
<TD><A HREF="#a2.5">Non-Exclusive Copyright License</A></TD>
<TD>12</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.6">2.6.</A> </TD>
<TD><A HREF="#a2.6">Medtronic-Owned Patent Rights</A> </TD>
<TD>12</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.7">2.7.</A> </TD>
<TD><A HREF="#a2.8">Multi-Lock Patent Rights</A> </TD>
<TD>12</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.8">2.8.</A> </TD>
<TD><A HREF="#a2.8">Inter-Party Agreements and Three-Party Agreement</A> </TD>
<TD>12</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.9">2.9.</A></TD>
<TD><A HREF="#a2.9">Sellers’ Covenant Not To Sue</A></TD>
<TD>13</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a2.10">2.10.</A> </TD>
<TD><A HREF="#a2.10">Former Spine-Tech Agreements</A> </TD>
<TD>13</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>3.</TD>
<TD width="2%"> </TD>
<TD colspan="2"><A HREF="#signing_deposit_closing">SIGNING DEPOSIT; CLOSING</A></TD>
<TD>13</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a3.1">3.1.</A> </TD>
<TD><A HREF="#a3.1">Signing Deposit</A> </TD>
<TD>13</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a3.2">3.2.</A> </TD>
<TD><A HREF="#a3.2">Closing Time and Place</A> </TD>
<TD>14</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a3.3">3.3.</A> </TD>
<TD><A HREF="#a3.3">Closing Payment; Letter of Credit</A> </TD>
<TD>14</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a3.4">3.4.</A> </TD>
<TD><A HREF="#a3.4">Post-Closing Payments</A></TD>
<TD>14</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>4. </TD>
<TD> </TD>
<TD colspan=2><A HREF="#sellers_representations_and_warranties">SELLERS’ REPRESENTATIONS AND WARRANTIES</A></TD>
<TD>15</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.1">4.1.</A></TD>
<TD><A HREF="#a4.1">Organization; Shareholders</A></TD>
<TD>15</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.2">4.2.</A></TD>
<TD><A HREF="#a4.2">Authorization</A></TD>
<TD>15</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.3">4.3.</A></TD>
<TD><A HREF="#a4.3">Noncontravention</A></TD>
<TD>15</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.4">4.4.</A></TD>
<TD><A HREF="#a4.4">Consents</A></TD>
<TD>16</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.5">4.5.</A></TD>
<TD><A HREF="#a4.5">Litigation</A></TD>
<TD>16</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.6">4.6.</A></TD>
<TD><A HREF="#a4.6">Assumed Contracts</A></TD>
<TD>16</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.7">4.7.</A></TD>
<TD><A HREF="#a4.7">Title.</A></TD>
<TD>16</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.8">4.8.</A></TD>
<TD><A HREF="#a4.8">Intellectual Property</A></TD>
<TD>16</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.9">4.9.</A></TD>
<TD><A HREF="#a4.9">Solvency; Fair Consideration</A></TD>
<TD>17</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.10">4.10.</A></TD>
<TD><A HREF="#a4.10">U.S. Taxpayer</A></TD>
<TD>17</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a4.11">4.11.</A></TD>
<TD><A HREF="#a4.11">No Other Representations and Warranties</A></TD>
<TD>17</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>5.</TD>
<TD> </TD>
<TD colspan="2"><A HREF="#medtronic_parties_representations_and_warranties">MEDTRONIC PARTIES’ REPRESENTATIONS AND WARRANTIES</A></TD>
<TD>17</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a5.1">5.1.</A></TD>
<TD><A HREF="#a5.1">Organization</A></TD>
<TD>18</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a5.2">5.2.</A></TD>
<TD><A HREF="#a5.2">Authorization</A></TD>
<TD>18</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a5.3">5.3.</A></TD>
<TD><A HREF="#a5.3">Noncontravention</A></TD>
<TD>18</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a5.4">5.4.</A></TD>
<TD><A HREF="#a5.4">Consents</A> </TD>
<TD>18</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a5.5">5.5.</A></TD>
<TD><A HREF="#a5.5">Litigation</A></TD>
<TD>18</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">-i-</P>
<HR COLOR="GRAY" SIZE="2">
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<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD WIDTH="5%"></TD>
<TD WIDTH="2%"> </TD>
<TD WIDTH="5%"> </TD>
<TD WIDTH="83%"> </TD>
<TD WIDTH="5%"> </TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a5.6">5.6.</A></TD>
<TD><A HREF="#a5.6">Solvency; Fair Consideration</A></TD>
<TD>18</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a5.7">5.7.</A></TD>
<TD><A HREF="#a5.7">No Other Representations and Warranties</A> </TD>
<TD>19</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>6.</TD>
<TD> </TD>
<TD colspan="2"><A HREF="#covenants">COVENANTS</A></TD>
<TD>19</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.1">6.1.</A></TD>
<TD><A HREF="#a6.1">Litigation.</A></TD>
<TD>19</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.2">6.2.</A></TD>
<TD><A HREF="#a6.2">HSR Act</A> </TD>
<TD>19</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.3">6.3.</A></TD>
<TD><A HREF="#a6.3">Closing</A> </TD>
<TD>19</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.4">6.4.</A> </TD>
<TD><A HREF="#a6.4">Protection of the Purchased Assets Pre-Closing</A></TD>
<TD>19</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.5">6.5.</A></TD>
<TD><A HREF="#a6.5">Covenants in Support of Assignment</A> </TD>
<TD>20</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.6">6.6.</A> </TD>
<TD><A HREF="#a6.6">Models and Prototypes</A></TD>
<TD>20</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.7">6.7.</A></TD>
<TD><A HREF="#a6.7">Disclosure of New Subject Invention and New Subject Intellectual Property</A></TD>
<TD>20</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.8">6.8.</A></TD>
<TD><A HREF="#a6.8">Further Assurances</A></TD>
<TD>21</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.9">6.9.</A></TD>
<TD><A HREF="#a6.9">Patent Prosecution</A></TD>
<TD>21</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.10">6.10.</A></TD>
<TD><A HREF="#a6.10">Third Party Actions</A></TD>
<TD>21</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.11">6.11.</A> </TD>
<TD><A HREF="#a6.11">Patent Counsel; Return of Documents; Tangible Materials</A></TD>
<TD>22</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.12">6.12.</A></TD>
<TD><A HREF="#a6.12">Taxes</A> </TD>
<TD>22</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.13">6.13.</A></TD>
<TD><A HREF="#a6.13">Name Attribution</A></TD>
<TD>23</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.14">6.14. </A></TD>
<TD><A HREF="#a6.14">Confidentiality</A></TD>
<TD>26</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.15">6.15.</A> </TD>
<TD><A HREF="#a6.15">Restricted Activities</A></TD>
<TD>26</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.16">6.16.</A> </TD>
<TD><A HREF="#a6.16">Use of Michelson Logo</A></TD>
<TD>27</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.17">6.17.</A></TD>
<TD><A HREF="#a6.17">Notice of Developments</A></TD>
<TD>27</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.18">6.18.</A> </TD>
<TD><A HREF="#a6.18">Corporate Existence</A> </TD>
<TD>27</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.19">6.19.</A> </TD>
<TD><A HREF="#a6.19">Revival and Reinstatement of Payment Obligations</A> </TD>
<TD>27</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.20">6.20.</A> </TD>
<TD><A HREF="#a6.20">Public Statements</A> </TD>
<TD>28</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.21">6.21.</A> </TD>
<TD><A HREF="#a6.21">FDA Applications</A> </TD>
<TD>28</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.22">6.22.</A></TD>
<TD><A HREF="#a6.22">Post-Closing Reconciliation</A> </TD>
<TD>28</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.23">6.23.</A> </TD>
<TD><A HREF="#a6.23">Covenants Regarding Contractual Obligations</A> </TD>
<TD>28</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.24">6.24.</A></TD>
<TD><A HREF="#a6.24">Remedies </A></TD>
<TD>28</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a6.25">6.25.</A> </TD>
<TD><A HREF="#a6.25">Third Party Confidentiality Agreements</A> </TD>
<TD>28</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>7. </TD>
<TD> </TD>
<TD colspan="2"><A HREF="#closing_conditions">CLOSING CONDITIONS</A></TD>
<TD>28</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a7.1">7.1.</A> </TD>
<TD><A HREF="#a7.1">Conditions to the Medtronic Parties’ Obligation to Close</A> </TD>
<TD>28</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a7.2">7.2.</a> </TD>
<TD><A HREF="#a7.2">Conditions to the Sellers’ Obligation to Close</a> </TD>
<TD>30</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>8.</TD>
<TD> </TD>
<TD colspan="2"><A HREF="#termination">TERMINATION</A></TD>
<TD>31</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a8.1">8.1.</A></TD>
<TD><A HREF="#a8.2">Termination of Agreement</A> </TD>
<TD>31</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a8.2">8.2.</A> </TD>
<TD><A HREF="#a8.2">Effect of Termination</A> </TD>
<TD>32</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>9.</TD>
<TD> </TD>
<TD colspan="2"><A HREF="#indemnification">INDEMNIFICATION</A></TD>
<TD>32</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.1">9.1.</A> </TD>
<TD><A HREF="#a9.1">Indemnification by the Sellers</A> </TD>
<TD>32</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.2">9.2.</A> </TD>
<TD><A HREF="#a9.2">Indemnification by the Buyer</A></TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.3">9.3.</A></TD>
<TD><A HREF="#a9.3">Survival</A> </TD>
<TD>33</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.4">9.4.</A> </TD>
<TD><A HREF="#a9.4">Time for Claims</A> </TD>
<TD>34</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">-ii-</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD WIDTH="5%"></TD>
<TD WIDTH="2%"> </TD>
<TD WIDTH="5%"> </TD>
<TD WIDTH="83%"> </TD>
<TD WIDTH="5%"> </TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.5">9.5.</A></TD>
<TD><A HREF="#a9.5">Notices</A> </TD>
<TD>34</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.6">9.6.</A> </TD>
<TD><A HREF="#a9.6">Third Party Claims</A> </TD>
<TD>34</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.7">9.7.</A> </TD>
<TD><A HREF="#a9.7">LIMITATION OF DAMAGES</A> </TD>
<TD>35</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.8">9.8.</A> </TD>
<TD><A HREF="#a9.8">Exclusive Remedy</A> </TD>
<TD>35</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.9">9.9.</A> </TD>
<TD><A HREF="#a9.9">Knowledge and Investigation</A> </TD>
<TD>35</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.10">9.10.</A></TD>
<TD><A HREF="#a9.10">Letter of Credit</A> </TD>
<TD>35</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a9.11">9.11.</A> </TD>
<TD><A HREF="#a9.11">Duty to Mitigate</A> </TD>
<TD>36</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>10.</TD>
<TD> </TD>
<TD colspan="2"><A HREF="#arbitration">ARBITRATION</A></TD>
<TD>36</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.1">10.1.</A> </TD>
<TD><A HREF="#a10.1">Agreement to Arbitrate</A> </TD>
<TD>36</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.2">10.2.</a></TD>
<TD><A HREF="#a10.2">Appointment and Replacement of Arbitrator</a> </TD>
<TD>36</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.3">10.3.</a> </TD>
<TD><A HREF="#a10.3">Exclusive Dispute Resolution Procedure</a> </TD>
<TD>36</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.4">10.4.</a> </TD>
<TD><A HREF="#a10.4">Demand for Arbitration</a> </TD>
<TD>37</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.5">10.5.</a> </TD>
<TD><A HREF="#a10.5">Applicable Arbitration Procedures and Powers of the Arbitrator</a> </TD>
<TD>37</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.6">10.6.</a> </TD>
<TD><A HREF="#a10.6">Service</a> </TD>
<TD>37</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.7">10.7.</a> </TD>
<TD><A HREF="#a10.7">Preliminary Meeting</a> </TD>
<TD>37</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.8">10.8.</a> </TD>
<TD><A HREF="#a10.8">Discovery</a> </TD>
<TD>37</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.9">10.9.</a> </TD>
<TD><A HREF="#a10.9">Hearing and Prior Proceedings</a> </TD>
<TD>38</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.10">10.10.</a> </TD>
<TD><A HREF="#a10.10">Evidence</a> </TD>
<TD>38</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.11">10.11.</a> </TD>
<TD><A HREF="#a10.11">Awards</a></TD>
<TD>38</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.12">10.12.</a> </TD>
<TD><A HREF="#a10.12">Arbitrator’s Fees</a> </TD>
<TD>39</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.13">10.13.</a> </TD>
<TD><A HREF="#a10.13">Impartiality and Disqualification of Arbitrator; Ex Parte Contacts</a></TD>
<TD>39</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a10.14">10.14.</a> </TD>
<TD><A HREF="#a10.14">Confidentiality</a> </TD>
<TD>39</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>11.</TD>
<TD> </TD>
<TD colspan="2"><A HREF="#releases">RELEASES</A> </TD>
<TD>39</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a11.1">11.1.</A> </TD>
<TD><A HREF="#a11.1">Medtronic Release</A> </TD>
<TD>39</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a11.2">11.2.</A></TD>
<TD><A HREF="#a11.2">Sellers Release</A> </TD>
<TD>40</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a11.3">11.3.</A></TD>
<TD><A HREF="#a11.3">Waiver</A> </TD>
<TD>40</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>12. </TD>
<TD> </TD>
<TD colspan="2"><A HREF="#miscellaneous">MISCELLANEOUS</A></TD>
<TD>41</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.1">12.1.</A> </TD>
<TD><A HREF="#a12.1">Interpretation</A> </TD>
<TD>41</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.2">12.2.</A> </TD>
<TD><A HREF="#a12.2">No Third Party Beneficiaries</A> </TD>
<TD>41</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.3">12.3.</A> </TD>
<TD><A HREF="#a12.3">Entire Agreement</A> </TD>
<TD>41</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.4">12.4.</A> </TD>
<TD><A HREF="#a12.4">Assignment</A> </TD>
<TD>41</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.5">12.5.</A> </TD>
<TD><A HREF="#a12.5">Counterparts</A> </TD>
<TD>41</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.6">12.6.</A> </TD>
<TD><A HREF="#a12.6">Headings</A> </TD>
<TD>41</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.7">12.7.</A> </TD>
<TD><A HREF="#a12.7">Notices</A> </TD>
<TD>42</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.8">12.8.</A> </TD>
<TD><A HREF="#a12.8">Governing Law</A> </TD>
<TD>42</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.9">12.9.</A> </TD>
<TD><A HREF="#a12.9">Jurisdiction; Venue; Service of Process</A> </TD>
<TD>43</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.10">12.10.</A> </TD>
<TD><A HREF="#a12.10">Amendments and Waivers</A> </TD>
<TD>43</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.11">12.11.</A> </TD>
<TD><A HREF="#a12.11">Severability</A> </TD>
<TD>43</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD></TD>
<TD> </TD>
<TD><A HREF="#a12.12">12.12.</A> </TD>
<TD><A HREF="#a12.12">Expenses</A> </TD>
<TD>43</TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">-iii-</P>
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<P style="font-size:10pt">
<U>Exhibits</U>
<BR>Exhibit A — Confirmatory Assignment<BR>Exhibit B — Stipulated Order of Dismissal With Prejudice<BR>Exhibit C —
Michelson Logo<BR>Exhibit D — Patent and Invention Assignments<BR>Exhibit E — Copies of Assumed Contracts<BR>Exhibit
F — Bill of Sale and Assignment<BR>Exhibit G — Assignment and Assumption Agreement</P>
<P style="font-size:10pt">
<U>Schedules</U>
<BR>Schedule 2.1(a) — Encumbrances<BR>Schedule 2.1(b) — Assumed Contracts<BR>Schedule 2.1(c) — Inter-Party Agreements<BR>Schedule
2.1(e) — Patent Prosecution Files<BR>Schedule 2.1(g) — Purchased Claims<BR>Schedule 2.1(h) — Purchased Third
Party Beneficiary Rights<BR>Schedule 2.2(b) — Karlin Instruments Exclusive License<BR>Schedule 2.2(c) — Excluded
Indemnification Rights<BR>Schedule 2.2(d) — Excluded Equitable Rights<BR>Schedule 2.2(f) — Assumed Contract Amounts<BR>Schedule
2.6 — Medtronic-Owned Patent Rights<BR>Schedule 2.7 — Multi-Lock Patent Rights<BR>Schedule 4.1 — Trustees<BR>Schedule
4.3 — Sellers’ Noncontravention<BR>Schedule 4.5 — Sellers’ Litigation<BR>Schedule 4.6A — Assumed Contracts<BR>Schedule
4.6B — Certain Contractual Obligations Not in Force or Effect<BR>Schedule 4.7A — Title<BR>Schedule 4.7B — Possession,
Custody or Control of, and Rights in and to, the Purchased Assets<BR>Schedule 4.8(b) — Scheduled Subject Patent Rights<BR>Schedule
4.8(c) — Scheduled Excluded Patent Rights<BR>Schedule 4.8(d) — Exceptions to Representations Regarding Subject Patent
Rights<BR>Schedule 5.1 — Owners of Stock — the Buyer and MSD<BR>Schedule 5.3 — Medtronic Parties’ Noncontravention<BR>Schedule
5.4 — Medtronic Parties’ Consents<BR>Schedule 5.5 — Medtronic Parties’ Litigation<BR>Schedule 6.13(a) —
Attribution Product Systems<BR>Schedule 6.13(c) — Literature<BR>Schedule 6.15 — Consulting Agreements<BR>Schedule
6.24 – Specified Relief<BR>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">-iv-</P>
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<P style="font-size:10pt"></P>
<P style="font-size:10pt;font-weight:bold;text-align:center">ASSET PURCHASE AND SETTLEMENT AGREEMENT</P>
<P style="font-size:10pt"> This Asset Purchase and Settlement Agreement (“<U>This
Agreement</U>”) dated as of April 21, 2005 (the “<U>Effective Date</U>”) is among Medtronic Sofamor Danek,
Inc., an Indiana corporation formerly known as Sofamor Danek Group, Inc. (“<U>MSD</U>”), SDGI Holdings, Inc., a Delaware
corporation (the “<U>Buyer</U>”), Medtronic, Inc., a Minnesota corporation (“ <U>MDT</U>,” together with
MSD and the Buyer, the “<U>Medtronic Parties</U>”), Gary K. Michelson, M.D. (“<U>Michelson</U>”) and Karlin
Technology, Inc., a California corporation (“ <U>KTI</U>,” together with Michelson, the “<U>Sellers</U>”),
each individually a “<U>Party</U>” and collectively the “<U>Parties</U>” to This Agreement.</P>
<P style="font-size:10pt"> WHEREAS, the Buyer desires to purchase, and the Sellers
desire to assign and sell to the Buyer, certain intellectual property and related agreements, certain license relationships
and certain goodwill of the Sellers, and in connection therewith the Parties desire to settle the Litigation;</P>
<P style="font-size:10pt"> NOW THEREFORE, in consideration of the mutual covenants
and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">1.</TD>
<TD WIDTH="98%"><A NAME="definitions">DEFINITIONS.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> As used herein, the following terms will have the
following meanings:</P>
<P style="font-size:10pt"> “<U>Acquired Subject Intellectual Property</U>”
is defined in Section 6.7(a).</P>
<P style="font-size:10pt"> “<U>Act</U>” is defined in Section 10.5
(Applicable Arbitration Procedures and Powers of the Arbitrator).</P>
<P style="font-size:10pt"> “<U>Action</U>” means any Claim, action,
cause of action or suit (whether in contract or tort or otherwise), litigation (whether at law or in equity, whether civil
or criminal), controversy, assessment, arbitration, investigation, hearing, charge, complaint, demand, patent interference,
opposition, Third Party requested patent re-examination, notice or proceeding, in each case, to, from, by or before any Governmental
Authority, but excluding any action or inaction in the course of the <I>ex parte</I> preparation or prosecution of any Patent
Right.</P>
<P style="font-size:10pt"> “<U>Affiliate</U>” means, with respect to
any specified Person at any time, (a) each Person directly or indirectly controlling, controlled by or under direct or indirect
common control with such specified Person at such time, (b) each Person who is at such time an officer or director of, or direct
or indirect beneficial holder of at least 20% of any class of the voting stock or other voting interests of, such specified
Person and (c) each Person (other than an individual) that is managed by a common group of executive officers or directors
as such specified Person. For purposes of this definition, the terms “controlling,” “controlled by” or
“under common control with” refer to the direct or indirect possession by a Person, or with respect to a Person,
of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise, or the power to elect at least 25%<B> </B>of the directors, managers, general
members or individuals exercising similar authority with respect to such Person. For purposes of This Agreement, by way of
example, GKM Trust is an Affiliate of KTI, and MSD and MDT are Affiliates of the Buyer, as of the Effective Date.</P>
<P style="font-size:10pt"> “<U>Alternate Closing Payment</U>” is defined
in Section 3.3 (Closing Payment; Letter of Credit).</P>
<P style="font-size:10pt"> “<U>Ancillary Agreements</U>” means the
Dismissal Document, the Patent and Invention Assignments, the Assignment and Assumption Agreement, the Bill of Sale and any
other agreements, certificates, instruments and documents executed and delivered pursuant to This Agreement or in connection
herewith, other than the Confirmatory Assignments.</P>
<P style="font-size:10pt"> “<U>Arbitrator</U>” is defined in Section
10.2 (Appointment and Replacement of Arbitrator).</P>
<P style="font-size:10pt"> “<U>Arbitration Action</U>” is defined in
Section 12.9 (Jurisdiction; Venue; Service of Process).</P>
<P style="font-size:10pt"> “<U>Arbitration Parties</U>” is defined
in Section 10.4 (Demand for Arbitration).</P>
<P style="font-size:10pt"> “<U>Arbitration Settlement Offer</U>” is
defined in Section 10.7 (Preliminary Meeting).</P>
<P style="font-size:10pt"> “<U>Assignment and Assumption Agreement</U>”
means the Assignment and Assumption Agreement to be entered into by the Parties at the Closing, the form of which is attached
as <U>Exhibit G</U>.<U></U>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">1</P>
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<P style="font-size:10pt"> “<U>Assumed Contract Amounts</U>” means
all amounts set forth on <U>Schedule 2.2(f)</U> (Assumed Contract Amounts).</P>
<P style="font-size:10pt"> “<U>Assumed Contracts</U>” means the documents
set forth on <U>Schedule 2.1(b)</U> (Assumed Contracts), together with all exhibits, amendments, supplements and modifications
thereto.</P>
<P style="font-size:10pt"> “<U>Assumed Liabilities</U>” is defined
in Section 2.3 (Assumed Liabilities).</P>
<P style="font-size:10pt"> “<U>Attribution Product Systems</U>” means
the products and product systems and surgical techniques listed under the heading “Attribution Product Systems” in
<U>Schedule 6.13(a)</U>, as such list is revised from time to time pursuant to Section 6.13(a) or Section 6.13(b).</P>
<P style="font-size:10pt"> “<U>Bankruptcy Code</U>” means Chapter 11
of Title 11 of the United States Code.</P>
<P style="font-size:10pt"> “<U>Basket</U>” is defined in Section 9.1
(Indemnification by the Sellers).</P>
<P style="font-size:10pt"> “<U>Bilge Drainage Subject Matter</U>” means
what is claimed from the Patent Rights identified on <U>Schedule 4.8(c)</U> as “Bilge Drainage,” including any improvements
thereto.</P>
<P style="font-size:10pt"> “<U>Bill of Sale</U>” means the Bill of
Sale and Assignment to be entered into by the Parties at the Closing, in the form attached as <U>Exhibit F</U>.</P>
<P style="font-size:10pt"> “<U>Bound Party</U>” is defined in Section
6.14 (Confidentiality).</P>
<P style="font-size:10pt"> “<U>Business Day</U>” means any weekday
other than a weekday on which banks located in New York, New York, Los Angeles, California or Minneapolis, Minnesota are authorized
or required to be closed.</P>
<P style="font-size:10pt"> “<U>Buyer</U>” is defined in the Preamble.</P>
<P style="font-size:10pt"> “<U>Buyer’s Disclosure Schedule</U>”
is defined in Section 5 (Buyer’s Representations and Warranties).</P>
<P style="font-size:10pt"> “<U>Claim</U>” means any assertion of right
whatsoever (including all debts, bonds, promises, damages, equitable claims and judgments), liquidated or unliquidated, fixed
or contingent, direct or indirect, or imputed.</P>
<P style="font-size:10pt"> “<U>Claimant</U>” is defined in Section
10.4 (Demand for Arbitration).</P>
<P style="font-size:10pt"> “<U>Closing</U>” is defined in Section 3.2
(Closing Time and Place).</P>
<P style="font-size:10pt"> “<U>Closing Date</U>” means the date on
which the Closing actually occurs.</P>
<P style="font-size:10pt"> “<U>Closing Letter of Credit</U>” is defined
in Section 3.3 (Closing Payment; Letter of Credit).</P>
<P style="font-size:10pt"> “<U>Closing Payment</U>” is defined in Section
3.3 (Closing Payment; Letter of Credit).</P>
<P style="font-size:10pt"> “<U>Code</U>” is defined in Section 4.10
(U.S. Taxpayer).</P>
<P style="font-size:10pt"> “<U>Collateral</U>” is defined in Section
6.7(b).</P>
<P style="font-size:10pt"> “<U>Commercial Launch</U>” means the earlier
of (i) the first commercial sale of a product or product system pursuant to MSD’s customary release, executive approval
procedures and guidelines, and (ii) 90 days after the first commercial sale of a product or product system; commercial sales
do not include sales for use solely in clinical trials, preliminary user groups, customs, specials or other testing purposes.</P>
<P style="font-size:10pt"> “<U>Confidential Information</U>” (i) of
each of the Parties means the non-public information in This Agreement, the Ancillary Agreements and the Termination and Release
Agreement, or the details of the discussions and drafts leading up to the execution of This Agreement, the Ancillary Agreements
or the Termination and Release Agreement, (ii) of the Medtronic Parties means any and all non-public information included in
or relating to the Purchased Assets, the Medtronic-Owned Patent Rights or the Medtronic-Zimmer Agreement and (iii) of the Sellers
means any and all non-public information included in or relating to the Excluded Assets; <U>provided</U>, that in each case
Confidential Information excludes any information that (a) is or becomes a matter of public knowledge through no act of any
Party or their respective Affiliates or Representatives in violation of This Agreement or (b) is disclosed to any of the Parties
on a nonconfidential basis by a Third Party who lawfully obtained such information
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">2</P>
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<P style="font-size:10pt">and is, to the Knowledge of the Sellers or to the Knowledge of the Medtronic Parties, whichever is
the Party receiving such information, under no obligation to maintain the confidentiality of such information.</P>
<P style="font-size:10pt"> “<U>Confirmatory Assignments</U>” is defined
in Section 2.6 (Medtronic-Owned Patent Rights).</P>
<P style="font-size:10pt"> “<U>Consents</U>” is defined in Section
4.4 (Consents).</P>
<P style="font-size:10pt"> “<U>Container Subject Matter</U>” means
what is claimed from the Patent Rights identified on <U>Schedule 4.8(c)</U> as “Container,” including any improvements
thereto.</P>
<P style="font-size:10pt"> “<U>Contractual Obligation</U>” means, with
respect to any Person, any legal, valid and binding contract, agreement, deed, note, debenture, warrant, option, mortgage,
lease, license, commitment, promise, undertaking, arrangement or understanding, whether written or oral, or other document
or instrument to which or by which such Person is a party or otherwise subject or bound or to which or by which any property,
business, operation or right of such Person is subject or bound, in each case as amended or otherwise modified and in effect.</P>
<P style="font-size:10pt"> “<U>Counter-Demand</U>” is defined in Section
10.6 (Service).</P>
<P style="font-size:10pt"> “<U>Demand</U>” is defined in Section 10.4
(Demand for Arbitration).</P>
<P style="font-size:10pt"> “<U>Dismissal Document</U>” means the Stipulated
Order of Dismissal With Prejudice, substantially in the form attached as <U>Exhibit B</U>.</P>
<P style="font-size:10pt"> “<U>Dispute</U>” means any dispute, controversy,
Action, or other issue relating to or arising under or in connection with This Agreement or any of the Ancillary Agreements,
their subject matter, or their interpretation, performance or breach, including (i) the validity, scope and enforceability
of the agreement to arbitrate set forth in Section 10.1 (Agreement to Arbitrate) and (ii) whether the conditions for termination
under Section 8.1 of This Agreement have been met.</P>
<P style="font-size:10pt"> “<U>Document Custodian</U>” means Special
Master Alan Balaran or a Third Party agreeable to the Parties or, if the Parties fail to so agree, a Third Party designated
by the Arbitrator to take possession and custody of the materials delivered pursuant to Section 6.11 (Patent Counsel; Return
of Documents; Tangible Materials), which Third Party shall not be, and shall not be connected with, any law firm involved in
the Litigation.</P>
<P style="font-size:10pt"> “<U>DOJ</U>” means the Antitrust Division
of the United States Department of Justice.</P>
<P style="font-size:10pt"> “<U>Effective Date</U>” is defined in the
Preamble.</P>
<P style="font-size:10pt"> “<U>ElectroStim License Agreement</U>” means
the ElectroStim License Agreement dated as of April 21, 2005 between the Sellers and the Buyer.</P>
<P style="font-size:10pt"> “<U>ElectroStim Patent Rights</U>” means
(a) the Patent Rights identified on <U>Schedule 4.8(c)</U> as “ElectroStim” and any Patent Right claiming priority
thereto and having a specification that does not contain new matter (as defined under U.S. patent law) in relation to any specification
of the “ElectroStim” Patent Rights identified on <U>Schedule 4.8(c)</U>, and (b) any other Patent Rights claiming
any electrostim improvements that Michelson conceives, develops, or reduces to practice after the Effective Date, provided
in each case ((a) and (b)) that the patent claims of such Patent Rights are (i) no broader in any respect than those existing
in “ElectroStim” Patent Rights on <U>Schedule 4.8(c)</U>, or (ii) directed solely to an implant for promoting bone
growth using an electrostim energizer or solely to a method for using such an implant for promoting bone growth using an electrostim
energizer, regardless of whether the patent claims of such Patent Rights are In The IP Field or not In The IP Field. For the
purpose of this definition “electrostim energizer” does not include electrical or magnetic energy generated by the
body.</P>
<P style="font-size:10pt"> “<U>Encumbrance</U>” means any charge, community
or other marital property interest or other interest relating to or arising out of divorce, annulment or other dissolution
of marriage, condition, equitable interest, lien, license, covenant not to sue, option, pledge, security interest, mortgage,
right of first offer or first refusal, buy/sell agreement and any other restriction or covenant with respect to, or condition
governing the use, construction, transfer, receipt of income or exercise of any other attribute of legal or equitable ownership.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">3</P>
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<P style="font-size:10pt"> “<U>Escrow Account</U>” is defined in Section
3.3 (Closing Payment; Letter of Credit).</P>
<P style="font-size:10pt"> “<U>Excluded Assets</U>” is defined in Section
2.2 (Excluded Assets).</P>
<P style="font-size:10pt"> “<U>Excluded Equitable Rights</U>” means
the equitable rights set forth on <U>Schedule 2.2(d)</U> (Excluded Equitable Rights).</P>
<P style="font-size:10pt"> “<U>Excluded Indemnification Rights</U>”
means the indemnification rights set forth on <U>Schedule 2.2(c)</U> (Excluded Indemnification Rights).</P>
<P style="font-size:10pt"> “<U>Excluded Intellectual Property</U>”
means (a) the ElectroStim Patent Rights, the Karlin Instruments Exclusive License Patent Rights, the Meniscal Rivet Patent
Rights, the Rongeur Patent Rights, and the Surgical Gloves Patent Rights; (b) subject to Section 2.9 (Sellers’ Covenant
Not To Sue), any Intellectual Property that Michelson conceives, develops, or reduces to practice after the Effective Date
and that is not In The IP Field; (c) all Patent Rights directed to the “Bilge Drainage Subject Matter”, the “Container
Subject Matter” and the “Paper Clip Subject Matter”; (d) subject to Section 2.9 (Sellers’ Covenant
Not To Sue), any Intellectual Property not In The IP Field in which the Sellers acquire or obtain any right, title, or interest
after the Effective Date; and (e) anything conceived by Michelson after the expiration of the Term.</P>
<P style="font-size:10pt"> “<U>Excluded Liabilities</U>” is defined
in Section 2.4 (Excluded Liabilities).</P>
<P style="font-size:10pt"> “<U>Field</U>” means the diagnosis or treatment
of the Spine, and medical training, education, and procedures relating thereto.</P>
<P style="font-size:10pt"> “<U>Filings</U>” is defined in Section 4.4
(Consents).</P>
<P style="font-size:10pt"> “<U>Former Spine-Tech Agreements</U>” means
the following agreements, together with all exhibits, amendments, supplements and modifications thereto:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="92%">the License Agreement dated as of May 10, 1992 among Spine-Tech, Inc., KTI and Michelson; </TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(b)</TD>
<TD>the Settlement Agreement dated as of June 6, 1999 among Sulzer Spine-Tech, Inc., KTI and Michelson;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(c)</TD>
<TD>the Assignment Agreement dated as of June 6, 1999 among Sulzer Spine-Tech, Inc., KTI and Michelson;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(d)</TD>
<TD>the Three-Party Agreement;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(e)</TD>
<TD>the MultiLock Technology Purchase Agreement dated as of February 28, 2001 by and between Wright Medical Technology,
Inc. and Sulzer Spine-Tech, Inc.; and</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(f)</TD>
<TD>the Award dated as of June 13, 2003 in the arbitration matter between the Sellers and Sulzer Spine-Tech, Inc.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> “<U>FRCP</U>” is defined in Section 10.6
(Service).</P>
<P style="font-size:10pt"> “<U>FTC</U>” means the United States Federal
Trade Commission.</P>
<P style="font-size:10pt"> “<U>Future and Meniscal Covenanted Patent Rights</U>”
means (a) Intellectual Property conceived by Michelson during the Term that is useful in the Field and is not Subject Intellectual
Property and (b) the Meniscal Patent Rights.</P>
<P style="font-size:10pt"> “<U>Governmental Authority</U>” means any
United States federal, state or local or any foreign government, or political subdivision thereof, or any multinational governmental
organization or authority or any governmental authority, agency or commission in each case entitled to exercise any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or power, any court or tribunal (or any department,
bureau or division thereof), or any arbitrator or arbitral body.</P>
<P style="font-size:10pt"> “<U>Governmental Order</U>” means any order,
writ, judgment, injunction, decree, stipulation, ruling, determination or award entered by or with any Governmental Authority,
but excluding any action or inaction in the course of the <I>ex parte</I> preparation or prosecution of any Patent Right and
any order, writ, judgment, injunction, decree, stipulation, ruling, determination or award of general applicability.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">4</P>
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<P style="font-size:10pt"> “<U>Hearing</U>” is defined in Section 10.7
(Preliminary Meeting).</P>
<P style="font-size:10pt"> “<U>HSR Act</U>” means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976.</P>
<P style="font-size:10pt"> “<U>Indemnified Party</U>” means a Person
to whom indemnification is provided under This Agreement.</P>
<P style="font-size:10pt"> “<U>Indemnifying Party</U>” means a Person
providing indemnification under This Agreement.</P>
<P style="font-size:10pt"> “<U>Intellectual Property</U>” means all
rights, title and interests in and to all proprietary rights of every kind and nature relating to or deriving from Patent Rights
or Know-How, but excluding all copyrights and trademarks.</P>
<P style="font-size:10pt"> “<U>Inter-Party Agreements</U>” means the
agreements set forth on <U>Schedule 2.1(c)</U>(Inter-Party Agreements), together with all exhibits, amendments, supplements
and modifications thereto.</P>
<P style="font-size:10pt"> “<U>In The IP Field</U>” means, (a) when
referring to Patent Rights, that one or more claims of the Patent Rights cover one or more products or methods for use in the
Field; <U>provided</U>, that Patent Rights are not “In The IP Field” if (i) the product(s) or method(s) covered by
one or more claims of such Patent Rights are useful in the Field solely due to their general usefulness in the human body and
(ii) the specification for such Patent Rights does not expressly disclose uses in the Field; and (b) when referring to Know-How,
that the Know-How is for products or methods for use in the Field; <U>provided</U>, that Know-How is not “In The IP Field”
if the Know-How is useful in the Field solely due to its general usefulness in the human body.</P>
<P style="font-size:10pt"> “<U>Karlin Instruments Exclusive License Agreement</U>”
means the agreement listed on <U>Schedule 2.2(b)</U> (Karlin Instruments Exclusive License).</P>
<P style="font-size:10pt"> “<U>Karlin Instruments Exclusive License Patent
Rights</U>” means only the existing Patent Rights identified on <U>Schedule 4.8(c)</U> under “Karlin Instruments
Exclusive License”.</P>
<P style="font-size:10pt"> “<U>Know-How</U>” means ideas, concepts,
inventions, know-how, trade secrets, technical knowledge, discoveries, developments, innovations, improvements, processes,
methods, data, formulas, information, research and development, compositions, techniques, and designs regardless of whether
or not protected or entitled to protection under the patent, copyright or other laws of any jurisdiction.</P>
<P style="font-size:10pt"> “<U>Knowledge of the Medtronic Parties</U>”
means the actual knowledge of any of Arthur Collins (Chairman and CEO of MDT), Robert Ryan (CFO of MDT), Terrance Carlson (Secretary
and General Counsel of MDT), Michael DeMane (Senior Vice President of MDT), Todd Sheldon (Vice President and Senior Legal Counsel
of MSD), Shawn McCormick (CFO of MSD and a director of the Buyer) or Michael Burrage (Vice President of the Buyer).</P>
<P style="font-size:10pt"> “<U>Knowledge of the Sellers</U>” means
the actual knowledge of any of Michelson or Mary Burch (President and CFO of KTI).</P>
<P style="font-size:10pt"> “<U>KTI</U>” is defined in the Preamble.</P>
<P style="font-size:10pt"> “<U>Legal Requirement</U>” means any United
States federal, state or local or foreign law, statute, standard, ordinance, code, rule, regulation, resolution or promulgation,
or any Governmental Order, or any license, franchise, permit or similar right granted under any of the foregoing, or any similar
provision having the force or effect of law.</P>
<P style="font-size:10pt"> “<U>Liability</U>” means, with respect to
any Person, any liability or obligation of such Person whether known or unknown, whether asserted or unasserted, whether determined,
determinable or otherwise, whether strict, absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
whether incurred or consequential, whether due or to become due and whether or not required under U.S. generally accepted accounting
principles to be accrued on the financial statements of such Person.</P>
<P style="font-size:10pt"> “<U>Literature</U>” means those specific
materials of the types listed in <U>Schedule 6.13(c)</U> as revised from time to time, disseminated or made available by or
on behalf of any of the Medtronic Parties or their Affiliates, excluding any materials (including drafts of such materials
not disseminated or made available to any Third Party other than a Representative of any of the Medtronic Parties or their
Affiliates) that
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">5</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">are: (i) documents actually filed with the Securities and Exchange Commission or any other Governmental
Authority by any of the Medtronic Parties or their Affiliates, including any substantially complete reprints and record copies
thereof; (ii) analyst presentations where any of the Medtronic Parties or their Affiliates is invited as a participant, but
excluding analyst presentations hosted by or on the behalf of any of the Medtronic Parties or their Affiliates; (iii) materials
published by Third Parties not for or on behalf of any of the Medtronic Parties or their Affiliates, but not copies or reprints
thereof provided to a Third Party by or on behalf of any of the Medtronic Parties; (iv) useful articles (as that term is defined
in 17 U.S.C. § 101) not intended primarily to convey product or educational information, including shirts, pens, notepads,
hats, x-ray bags and similar items; (v) product packaging or labeling, including instrument and implant trays; (vi) materials
intended for internal use of the Medtronic Parties or their Affiliates, including emails, sales reports, quality control documents
and lab reports, but excluding sales training booklets and further excluding such internal materials which are disseminated
as or as part of an external mass mailing (i.e. 25 or more Third Party disseminations); (vii) clinical studies materials sent
to clinical sites pursuant to IDE clinical studies or other studies sponsored by the Medtronic Parties or their Affiliates;
(viii) price lists, pricing bids, vendor pricing proposals, shipping materials invoices and other billing, coding or accounting
documents or resources; (ix) correspondence, excluding attachments or enclosures which are otherwise Literature, and further
excluding external mass mailings (i.e. 25 or more Third Party disseminations); (x) contracts or agreements; (xi) documents
covered by the unwaived attorney-client or work product privileges; or (xii) Third Party anonymous market research questionnaires
in which the source of the communication is not identified to be any of the Medtronic Parties or their Affiliates.</P>
<P style="font-size:10pt"> “<U>Litigation</U>” means the action entitled
<I>Medtronic Sofamor Danek, Inc. v. Gary Karlin Michelson M.D. et al.,</I> Civil Action No. 01-2373 in the United States District
Court for the Western District of Tennessee, including <I>Medtronic Sofamor Danek v. Michelson and KTI</I>, U.S. District Court,
District of Minnesota, filed January 15, 2002, <I>Medtronic Sofamor Danek v. Michelson and KTI</I> , U.S. District Court,
Northern District of Georgia, filed Feb. 20, 2003 and <I>Medtronic Sofamor Danek v. Michelson and KTI</I>, U.S. District Court,
Northern District of Florida, filed November 26, 2003, and the action entitled <I>Medtronic Sofamor Danek, Inc., and Medtronic,
Inc. v. GKM Trust et. al.,</I> Civil Action No. 03-2055 in the United States District Court for the Western District of Tennessee,
together with all Claims, defenses, counterclaims and causes of action arising therefrom.</P>
<P style="font-size:10pt"> “<U>Litigation Materials</U>” is defined
in Section 6.11(b) (Patent Counsel; Return of Documents; Tangible Materials).</P>
<P style="font-size:10pt"> “<U>Losses</U>” means all Actions, Claims,
Liabilities, damages, judgments, amounts paid in settlement, assessments, Taxes, losses, fines, penalties, expenses, costs
and fees (including reasonable attorneys’ fees).</P>
<P style="font-size:10pt"> “<U>MDT</U>” is defined in the Preamble.</P>
<P style="font-size:10pt"> “<U>Medtronic-Owned Patent Rights</U>” is
defined in Section 2.6 (Medtronic-Owned Patent Rights).</P>
<P style="font-size:10pt"> “<U>Medtronic Parties</U>” is defined in
the Preamble.</P>
<P style="font-size:10pt"> “<U>Medtronic Released Parties</U>” is defined
in Section 11.2 (Sellers Release).</P>
<P style="font-size:10pt"> “<U>Medtronic Releasing Parties</U>” is
defined in Section 11.1 (Medtronic Release).</P>
<P style="font-size:10pt"> “<U>Medtronic-Zimmer Agreement</U>” means
the Cross-License Agreement dated as of April 21, 2005 between Zimmer Spine, Inc., the Medtronic Parties and Sofamor Danek
Holdings, Inc.</P>
<P style="font-size:10pt"> “<U>Meniscal Rivet Patent Rights</U>” means
(a) the Patent Rights identified on Schedule 4.8(c) as “Meniscal Rivet” and all Patent Rights claiming priority thereto
or having a specification that does not contain new matter (as defined under U.S. patent law) in relation to any specification
of the “Meniscal Rivet” Patent Rights identified on <U>Schedule 4.8(c)</U>, and (b) any other Patent Rights claiming
any meniscal rivet improvements that Michelson conceives, develops, or reduces to practice after the Effective Date, provided
in each case ((a) and (b)) that the claims of such Patent Rights are (i) no broader in any respect than those existing in “Meniscal
Rivet” Patent Rights on <U>Schedule 4.8(c)</U>, or (ii) directed to a meniscal rivet not in the Field or a method for
using such meniscal rivet not in the Field.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">6</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt"> “<U>Michelson</U>” is defined in the Preamble.</P>
<P style="font-size:10pt"> “<U>Michelson Logo</U>” means the logo depicted
on <U>Exhibit C</U>, as modified from time to time in accordance with Section 6.13(j).</P>
<P style="font-size:10pt"> “<U>Michelson Released Parties</U>” is defined
in Section 11.1 (Medtronic Release).</P>
<P style="font-size:10pt"> “<U>Michelson Releasing Parties</U>” is
defined in Section 11.2 (Sellers Release).</P>
<P style="font-size:10pt"> “<U>Michelson-Zimmer Agreement</U>” means
the Attribution and Indemnification Agreement dated as of April 21, 2005 between Zimmer Holdings, Inc. and Zimmer-Spine,
Inc. and the Sellers.</P>
<P style="font-size:10pt"> “<U>MSD</U>” is defined in the Preamble.</P>
<P style="font-size:10pt"> “<U>Multi-Lock Patent Rights</U>” is defined
in Section 2.7 (Multi-Lock Patent Rights).</P>
<P style="font-size:10pt"> “<U>New Product System</U>” means a new
or modified product or product system useful in the Field that is not listed in the original <U>Schedule 6.13(a)</U> and that
has its Commercial Launch in its new or modified form after October 1, 2003 by any of the Medtronic Parties or their Affiliates.
Each modification of a New Product System is a different New Product System for purposes of this definition.</P>
<P style="font-size:10pt"> “<U>New Subject Invention</U>” is defined
in Section 6.7 (Disclosure of New Subject Inventions and New Subject Intellectual Property).</P>
<P style="font-size:10pt"> “<U>Notices</U>” is defined in Section 4.4
(Consents).</P>
<P style="font-size:10pt"> “<U>Organizational Documents</U>” means,
with respect to any Person (other than an individual), (a) the certificate or articles of incorporation or organization
and any joint venture, limited liability company, operating or partnership agreement, trust agreement and instrument and
other similar documents adopted or filed in connection with the creation, formation or organization of such Person and (b) all
by-laws, voting agreements and similar documents, instruments or agreements relating to the organization or governance of such
Person, in each case as amended or supplemented.</P>
<P style="font-size:10pt"> “<U>Other Party</U>” is defined in Section
6.14 (Confidentiality).</P>
<P style="font-size:10pt"> “<U>Paper Clip Subject Matter</U>” means
what is claimed from the Patent Rights identified on <U>Schedule 4.8(c)</U> as “Paper Clip,” including any improvements
thereto.</P>
<P style="font-size:10pt"> “<U>Party</U>” and “ <U>Parties</U>”
are defined in the Preamble.</P>
<P style="font-size:10pt"> “<U>Patent and Invention Assignments</U>”
means the patent and invention assignments to be entered into by the Parties at the Closing, the forms of which are attached
as <U>Exhibit D</U>.</P>
<P style="font-size:10pt"> “<U>Patent Prosecution Files</U>” means
the files identified in <U>Schedule 2.1(e)</U> (Patent Prosecution Files).</P>
<P style="font-size:10pt"> “<U>Patent Rights</U>” means (i) any and
all U.S. and foreign: (a) patents (including utility and design patents); (b) patent applications (including utility and design
patent applications), including all provisional applications, substitutions, continuations, continuations-in-part, divisions,
renewals, and all patents granted thereon; and (c) patents-of-addition, reissues, reexaminations and extensions or restorations
by existing or future extension or restoration mechanisms, including supplementary protection certificates or the equivalent
thereof, and (ii) any other form of government-issued right substantially equivalent to any of the foregoing now or hereafter
recognized including, for example, statutory invention disclosures or the like.</P>
<P style="font-size:10pt"> “<U>Person</U>” means any individual or
corporation, association, partnership, limited liability company, joint venture, joint stock or other company, business trust,
trust, organization, Governmental Authority or other entity of any kind.</P>
<P style="font-size:10pt"> “<U>Post-Closing Payment</U>” is defined
in Section 3.4 (Post-Closing Payments).</P>
<P style="font-size:10pt"> “<U>Post-Closing Letter of Credit</U>” is
defined in Section 3.4 (Post-Closing Payments).</P>
<P style="font-size:10pt"> “<U>Pre-Hearing Meeting</U>” is defined
in Section 10.7 (Preliminary Meeting).</P>
<P style="font-size:10pt"> “<U>Preliminary Meeting</U>” is defined
in Section 10.7 (Preliminary Meeting).</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">7</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt"> “<U>Protective Order Materials</U>” is defined
in Section 6.11(b) (Patent Counsel; Return of Documents; Tangible Materials).</P>
<P style="font-size:10pt"> “<U>Potential Arbitrators</U>” is defined
in Section 10.2 (Appointment and Replacement of Arbitrator).</P>
<P style="font-size:10pt"> “<U>Public Statement</U>” is defined in
Section 6.20 (Public Statements).</P>
<P style="font-size:10pt"> “<U>Purchased Assets</U>” is defined in
Section 2.1 (Purchased Assets).</P>
<P style="font-size:10pt"> “<U>Purchased Claims</U>” means the Claims
set forth on <U>Schedule 2.1(g)</U> (Purchased Claims) and all rights of recovery, rights of set off, rights of recoupment
and other rights of every type or nature relating thereto.</P>
<P style="font-size:10pt"> “<U>Purchased Third Party Beneficiary Rights</U>”
means the third party beneficiary rights set forth on <U>Schedule 2.1(h)</U> (Purchased Third Party Beneficiary Rights).</P>
<P style="font-size:10pt"> “<U>Representative</U>” means, with respect
to any Person, any director, officer, employee, agent, consultant, advisor, partner, trustee or other representative of such
Person, including legal counsel, accountants and financial advisors.</P>
<P style="font-size:10pt"> “<U>Respondent</U>” is defined in Section
10.4 (Demand for Arbitration).</P>
<P style="font-size:10pt"> “<U>Response</U>” is defined in Section
10.6 (Service).</P>
<P style="font-size:10pt"> “<U>Restricted Field</U>” is defined in
Section 6.15 (Restricted Activities).</P>
<P style="font-size:10pt"> “<U>Retention Period</U>” is defined in
Section 6.11(b) (Patent Counsel; Return of Documents; Tangible Materials).</P>
<P style="font-size:10pt"> “<U>Revised Attribution Product System List</U>”
is defined in Section 6.13(a) (Name Attribution).</P>
<P style="font-size:10pt"> “<U>Rongeur Patent Rights</U>” means (a)
the Patent Rights identified on <U>Schedule 4.8(c)</U> as “Rongeur” and all Patent Rights claiming priority thereto
or having a specification that does not contain new matter (as defined under U.S. patent law) in relation to any specification
of the “Rongeur” Patent Rights identified on <U>Schedule 4.8(c)</U>, and (b) any other Patent Rights claiming any
rongeur improvements that Michelson conceives, develops, or reduces to practice after the Effective Date, provided in each
case ((a) and (b)) that the patent claims of such Patent Rights are (i) no broader in any respect than those existing in “Rongeur”
Patent Rights on <U>Schedule 4.8(c)</U>, (ii) directed to a rongeur or a method for making or using such a rongeur, or (iii)
not In The IP Field.</P>
<P style="font-size:10pt"> “<U>Scheduling Order</U>” is defined in
Section 10.7 (Preliminary Meeting).</P>
<P style="font-size:10pt"> “<U>Sellers</U>” are defined in the Preamble.</P>
<P style="font-size:10pt"> “<U>Sellers’ Disclosure Schedule</U>”
is defined in Section 4 (Sellers’ Representations and Warranties).</P>
<P style="font-size:10pt"> “<U>Set-Off Amounts</U>” is defined in Section
3.1 (Signing Deposit).</P>
<P style="font-size:10pt"> “<U>Signing Deposit</U>” is defined in Section
3.1 (Signing Deposit).</P>
<P style="font-size:10pt"> “<U>Special Master Materials</U>” is defined
in Section 6.11(b) (Patent Counsel; Return of Documents; Tangible Materials).</P>
<P style="font-size:10pt"> “<U>Specified Relief</U>” means the relief
set forth in <U>Schedule 6.24</U> (Specified Relief).</P>
<P style="font-size:10pt"> “<U>Spine</U>” means the spine (including
all bones and nucleus materials from the base of the skull to the coccyx) and the portions of nerves, muscles, tendons, ligaments,
veins, arteries, and other vessels adjacent thereto.</P>
<P style="font-size:10pt"> “<U>Subject Intellectual Property</U>” means:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="92%">all Patent Rights identified on <U>Schedule 4.8(b)</U>;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(b)</TD>
<TD>all Patent Rights claiming priority to, or incorporating a substantial portion of or all of the same specification as, the
Patent Rights identified on <U>Schedule 4.8(b)</U>, and all foreign counterpart Patent Rights thereof, but excluding the ElectroStim Patent Rights, Medtronic-Owned Patent Rights, and Multi-Lock Patent
Rights;
</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">8</P>
<HR COLOR="GRAY" SIZE="2">
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<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%"> </TD>
<TD width="4%"> </TD>
<TD> </TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(c)</TD>
<TD>all Intellectual Property In The IP Field in which the Sellers have any rights, title, or interests as of the Closing, but
excluding the Excluded Intellectual Property, Medtronic-Owned Intellectual Property, the Multi-Lock Patent Rights and rights
being transferred by assignment and assumption of the Assumed Contracts;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(d)</TD>
<TD>all Intellectual Property In The IP Field conceived by Michelson prior to the Closing in which the Sellers acquire or otherwise
obtain any rights, title, or interests after the Closing (including any reversion of rights), but excluding the Excluded Intellectual
Property and the Medtronic-Owned Intellectual Property;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(e)</TD>
<TD>all Intellectual Property In The IP Field conceived by Michelson during the Term, but excluding the Excluded Intellectual
Property; and</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(f)</TD>
<TD>all other Intellectual Property In The IP Field that the Sellers otherwise acquire or obtain any rights, title, or interests
in during the Term; but excluding the Excluded Intellectual Property and the Medtronic-Owned Intellectual Property.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> “<U>Surgical Gloves Patent Rights</U>” means
(a) the Patent Rights identified on <U>Schedule 4.8(c)</U> as “Surgical Glove” and all Patent Rights claiming priority
thereto or having a specification that does not contain new matter (as defined under U.S. patent law) in relation to any specification
of the “Surgical Gloves” Patent Rights identified on <U>Schedule 4.8(c)</U>, and (b) any other Patent Rights claiming
any surgical glove improvements that Michelson conceives, develops, or reduces to practice after the Effective Date, provided
in each case ((a) and (b)) that the claims of such Patent Rights are (i) no broader in any respect than those existing in “Surgical
Gloves” Patent Rights on <U>Schedule 4.8(c)</U>, (ii) directed to surgical gloves or a method for making or using such
surgical gloves, or (iii) not In The IP Field.</P>
<P style="font-size:10pt"> “<U>Tangible Materials</U>” means documents,
files (including electronic files), diagrams, drawings, plans, specifications, designs, schematics, records, reports, lab or
research notebooks, drawings, flow charts, specifications, written descriptions, invention disclosures, source code, data,
photographs of three-dimensional prototypes and models, or other written, graphic or tangible materials or embodiments (other
than three-dimensional prototypes and models) relating to the Subject Intellectual Property, and all correspondence relating
to the prosecution of the Subject Intellectual Property and non-privileged, non-work product correspondence relating to the
Assumed Contracts and Purchased Third Party Beneficiary Rights, in each case, within the possession, custody or control of
the Sellers or their Affiliates.</P>
<P style="font-size:10pt"> “<U>Tax</U>” or “ <U>Taxes</U>”
means any and all federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, capital stock, franchise, profits, withholding, social security (or similar,
including FICA), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax of any kind, including any interest, penalty or addition thereto, whether
disputed or not.</P>
<P style="font-size:10pt"> “<U>Tax Return</U>” means any return, declaration,
report, Claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto,
and any amendment thereto filed with any Governmental Authority responsible for Taxes.</P>
<P style="font-size:10pt"> “<U>Term</U>” means the period beginning
at the Closing and ending on the fifteenth anniversary of the Closing.</P>
<P style="font-size:10pt"> “<U>Termination and Release Agreement</U>”
means the Termination and Release Agreement dated as of April 21, 2005 among Zimmer Holdings, Inc. and Zimmer Spine, Inc.,
the Sellers, the Medtronic Parties, and Sofamor Danek Holdings, Inc.</P>
<P style="font-size:10pt"> “<U>Termination Date</U>” is defined in
Section 8.1 (Termination of Agreement).</P>
<P style="font-size:10pt"> “<U>Third Party</U>” means any Person other
than the Parties and their Affiliates.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">9</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt"> “<U>Third Party Attribution Transfer</U>”
means any written license, assignment, covenant not to sue or transfer to or as to a Third Party relating to any Patent Rights
included in the Subject Intellectual Property, Excluded Intellectual Property, Multi-Lock Patent Rights, or Medtronic-Owned
Patent Rights.</P>
<P style="font-size:10pt"> “<U>Third Party Claim</U>” means any Claim
by a Third Party with respect to any matter that may give rise to a Claim for indemnification under This Agreement.</P>
<P style="font-size:10pt"> “<U>This Agreement</U>” is defined in the
Preamble.</P>
<P style="font-size:10pt"> “<U>Three-Party Agreement</U>” means the
Agreement dated as of January 18, 2001 among Michelson, Sofamor Danek Holdings, Inc. and Wright Medical Technology, Inc.</P>
<P style="font-size:10pt"> “<U>Voidable Transfer</U>” is defined in
Section 6.19 (Revival and Reinstatement of Payment Obligations).</P>
<P style="font-size:10pt"> “<U>Wright Design Patent Assignment</U>”
means the Design Patent Assignment by Gary K. Michelson – Anterior Cervical Plate dated January 24, 2001 to Wright
Medical Technology, Inc.</P>
<P style="font-size:10pt"> “<U>Wright Multi-Lock Assignment</U>” means
the Patent Assignment by Gary K. Michelson – Multi-Lock Anterior Cervical Plating System dated January 24, 2001 to
Wright Medical Technology, Inc.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">2.</TD>
<TD WIDTH="98%"><A NAME="purchase_and_sale_of_assets">PURCHASE AND SALE OF ASSETS.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a2.1">2.1.</A> <U>Purchased Assets.</U> On
the terms and subject to the conditions of This Agreement, the Sellers shall, and hereby do, sell, assign, transfer and deliver
to the Buyer effective as of the Closing, and the Buyer shall, and hereby does, purchase and accept from the Sellers effective
as of the Closing, all of the rights, title and interests of the Sellers in and to the following assets, properties and rights,
free and clear of all Claims and Encumbrances, other than those Claims and Encumbrances listed on <U>Schedule 2.1(a)</U> and
those Claims and Encumbrances imposed or asserted by or for the benefit of the Buyer or any of its Affiliates, but excluding
the Excluded Assets as set forth in Section 2.2 (Excluded Assets), the Medtronic-Owned Patent Rights as set forth in Section
2.6 (Medtronic-Owned Patent Rights), and the Multi-Lock Patent Rights as set forth in Section 2.7 (Multi-Lock Patent Rights):</P>
<P style="font-size:10pt;padding-left:30"> (a) the Subject Intellectual
Property;</P>
<P style="font-size:10pt;padding-left:30"> (b) the Assumed Contracts
(subject to the equitable rights of the Sellers and their Affiliates set forth in Sections 2.2(c) and 2.2(d) and the rights
of the Sellers and their Affiliates set forth in Section 2.2(f)); <U>provided</U>, that if the terms of any Assumed Contract
require that the consent of a Third Party be obtained in connection with the assignment or transfer to the Buyer of such rights
under such Assumed Contract, then such rights under such Assumed Contract will be deemed not to have been assigned and transferred
to the Buyer under This Agreement until such consent has been obtained; <U>provided</U>, <U>further</U>, that if such consent
has not been obtained as of the Closing, the Sellers will hold such rights under such Assumed Contract in trust for the benefit
of the Buyer until such consent is obtained and any rights under such Assumed Contract will be subject to the Sellers’
obligations in Section 6.5 (Covenants in Support of Assignment);</P>
<P style="font-size:10pt;padding-left:30"> (c) the Inter-Party Agreements;</P>
<P style="font-size:10pt;padding-left:30"> (d) any Actions, rights
of recovery, rights of set off, rights of recoupment and other rights of every type or nature relating to the Purchased Assets
listed in clauses (a) and (b) above (subject to the equitable rights of the Sellers and their Affiliates set forth in Sections
2.2(c) and 2.2(d) and the rights of the Sellers and their Affiliates set forth in Section 2.2(f)), including all rights to
recovery for damages for Intellectual Property infringement arising before the Closing;</P>
<P style="font-size:10pt;padding-left:30"> (e) originals of the Patent
Prosecution Files and a copy of all other Tangible Materials;</P>
<P style="font-size:10pt;padding-left:30"> (f) all assignable inventor
moral rights under the Subject Intellectual Property;</P>
<P style="font-size:10pt;padding-left:30"> (g) the Purchased Claims;</P>
<P style="font-size:10pt;padding-left:30"> (h) the Purchased Third
Party Beneficiary Rights; and</P>
<P style="font-size:10pt;padding-left:30"> (i) all goodwill relating
solely to the Assumed Contracts and the licensing of the Subject Intellectual Property.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">10</P>
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<P style="font-size:10pt"> All of the assets, properties and rights described
in paragraphs (a) through (i) of this Section 2.1, together with the Sellers’ rights, title and interest therein, are
collectively referred to in This Agreement as the “<U>Purchased Assets</U>.”</P>
<P style="font-size:10pt"> <A NAME="a2.2">2.2.</A> <U>Excluded Assets.</U> At
the Closing, the Sellers shall retain, and the Buyer shall not purchase under This Agreement, any of the Sellers’ rights,
title and interests in or to any assets of the Sellers whatsoever other than the Purchased Assets (the rights, title and interests
to such assets are collectively referred to as the “<U>Excluded Assets</U>”). By way of example and without limiting
the foregoing, the Purchased Assets shall not include any of the Sellers’ rights, title and interests in or to any of
the following (each of which is included in the definition of “Excluded Assets”):</P>
<P style="font-size:10pt;padding-left:30"> (a) the Excluded Intellectual
Property;</P>
<P style="font-size:10pt;padding-left:30"> (b) the Karlin Instruments
Exclusive License Agreement;</P>
<P style="font-size:10pt;padding-left:30"> (c) the Excluded Indemnification
Rights;</P>
<P style="font-size:10pt;padding-left:30"> (d) the Excluded Equitable
Rights;</P>
<P style="font-size:10pt;padding-left:30"> (e) all three-dimensional
models and prototypes of the Sellers;</P>
<P style="font-size:10pt;padding-left:30"> (f) the Assumed Contract
Amounts;</P>
<P style="font-size:10pt;padding-left:30"> (g) all materials protected
by the attorney-client privilege, the work product doctrine, or other applicable privileges (in each case, other than all correspondence
relating to the prosecution of the Subject Intellectual Property);</P>
<P style="font-size:10pt;padding-left:30"> (h) This Agreement and
any of the Ancillary Agreement;</P>
<P style="font-size:10pt;padding-left:30"> (i) the Michelson-Zimmer
Agreement;</P>
<P style="font-size:10pt;padding-left:30"> (a) the Termination and
Release Agreement; or</P>
<P style="font-size:10pt;padding-left:30"> (b) the ElectroStim License
Agreement.</P>
<P style="font-size:10pt"> <A NAME="a2.3">2.3.</A> <U>Assumed Liabilities.</U>
From and after the Closing, on the terms and subject to the conditions of This Agreement, the Buyer shall
assume and satisfy or perform when due only the following Liabilities of the Sellers:</P>
<P style="font-size:10pt;padding-left:30"> (a) all Liabilities of
the Sellers under any of the Assumed Contracts to the extent arising out of or relating to facts or circumstances existing
or occurring after the Closing; and</P>
<P style="font-size:10pt;padding-left:30"> (b) all Liabilities of
the Sellers under any of the Inter-Party Agreements arising out of or relating to facts or circumstances existing or occurring
before, at or after the Closing</P>
<P style="font-size:10pt"> (collectively, the “<U>Assumed Liabilities</U>”).</P>
<P style="font-size:10pt"> <A NAME="a2.4">2.4.</A> <U>Excluded Liabilities.</U>
The Buyer does not hereby assume or covenant to satisfy any Liability of the Sellers whatsoever other than
the Assumed Liabilities (collectively, the “<U>Excluded Liabilities</U>”). By way of example and without limiting
the foregoing, the Buyer does not assume any of the following (each of which is included within the definition of “Excluded
Liabilities”):</P>
<P style="font-size:10pt;padding-left:30"> (a) any Liability of any
Seller arising out of or relating to facts or circumstances existing or occurring before, at or after the Closing to the extent
relating to the Excluded Assets;</P>
<P style="font-size:10pt;padding-left:30"> (b) except as otherwise
provided in Section 6.12 (Taxes), any Liability of any Seller for any Taxes whether or not relating to the Purchased Assets
and whether or not incurred before the Closing;</P>
<P style="font-size:10pt;padding-left:30"> (c) any Liability of any
Seller for making payments or providing benefits of any kind to his or its employees or former employees, including as a result
of the sale of the Purchased Assets;</P>
<P style="font-size:10pt;padding-left:30"> (d) any Liability of any
Seller for fees, costs and expenses incurred in connection with the Litigation;</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">11</P>
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<P style="font-size:10pt;padding-left:30"> (e) except as otherwise
expressly provided in This Agreement, any Liability of any Seller for fees, costs and expenses incurred in connection with
This Agreement or any of the Ancillary Agreements, the making or performance of This Agreement or any of the Ancillary Agreements
and the transactions contemplated hereby and thereby;</P>
<P style="font-size:10pt;padding-left:30"> (f) any Liability expressly
imposed upon any Seller by the terms of This Agreement; or</P>
<P style="font-size:10pt;padding-left:30"> (g) any Liability of any
Seller for fees, costs and expenses incurred prior to Closing in connection with the prosecution of the Patent Rights included
within the Purchased Assets or any other Liability of Sellers to Martin & Ferraro LLP incurred prior to Closing.</P>
<P style="font-size:10pt"> <A NAME="a2.5">2.5.</A> <U>Non-Exclusive Copyright
License.</U> Effective as of the Closing, the Sellers hereby grant the Buyer and its Affiliates an irrevocable,
perpetual, worldwide, fully-paid, royalty-free, unconditional, transferable, non-exclusive license, with the unlimited right
to grant sublicenses through multiple tiers, under any Seller’s copyrights and licensable copyright moral rights in any
works included in the Purchased Assets to reproduce, make derivative works of (and register such derivative works), distribute,
publicly perform, publicly display, transmit, and otherwise exploit such works in any manner and in any medium. Effective as
of the Closing, the Sellers hereby irrevocably waive all moral rights in the Purchased Assets that are not assigned or licensed
to the Buyer at the Closing.</P>
<P style="font-size:10pt"> <A NAME="a2.6">2.6.</A> <U>Medtronic-Owned Patent Rights.</U>
Effective as of the Closing, the Sellers acknowledge and agree that the Patent Rights listed on <U>Schedule
2.6</U>, and all future U.S. and foreign patent applications, including any continuation, division, reissue or reexamination
thereof (the “<U>Medtronic-Owned Patent Rights</U>”), are already owned by the Buyer or its Affiliates, and accordingly
are not Subject Intellectual Property. The Buyer’s assumption of the Inter-Party Agreements will not affect the ownership
of the Medtronic-Owned Patent Rights in any way. To the extent the assignment of any Medtronic-Owned Patent Right has not been
recorded with the appropriate patent office, the Sellers will execute at the Closing confirmatory assignments, the form of
which is attached as <U>Exhibit A</U> (with such changes as may be necessary for the assignment to be suitable for recording
in each jurisdiction and each recordable right or interest relating to such Medtronic-Owned Patent Rights), relating to such
Medtronic-Owned Patent Rights (the “<U>Confirmatory Assignments</U>”), nd following the Closing, at the Buyer’s
expense, such further confirmatory assignments as may be reasonably necessary.</P>
<P style="font-size:10pt"> <A NAME="a2.7">2.7.</A> <U>Multi-Lock Patent Rights</U>. Effective
as of the Closing, the Buyer and the Sellers acknowledge and agree that the Patent Rights listed on <U>Schedule 2.7</U>, and
all other rights granted under the Wright Multi-Lock Assignment and the Wright Design Patent Assignment (such Patent Rights
and other rights collectively, the “<U>Multi-Lock Patent Rights</U>”), as subject to the Medtronic-Zimmer Agreement
and the rights of Michelson set forth on <U>Schedule 2.1(h)</U>, are already owned by a Third Party as of the Effective Date,
and accordingly are not Subject Intellectual Property or Purchased Assets.</P>
<P style="font-size:10pt"> <A NAME="a2.8">2.8.</A> <U>Inter-Party Agreements and Three-Party
Agreement</U>.</P>
<P style="font-size:10pt;padding-left:30"> (a) Beginning on the Effective
Date and so long as this Agreement has not been terminated prior to Closing pursuant to Section 8.1 (Termination of Agreement),
(i) the Medtronic Parties and their Affiliates shall have no obligation to pay any amounts or provide any reports to the Sellers
pursuant to the Inter-Party Agreements or the Three-Party Agreement (other than amounts previously paid and reports previously
provided prior to the Effective Date), and (ii) no Party shall seek to terminate or allege any breach by another Party or its
Affiliates under any of the Inter-Party Agreements or the Three-Party Agreement. If this Agreement is terminated prior to the
Closing pursuant to Section 8.1 (Termination of Agreement), then (A) any royalties and reports otherwise due pursuant
to the Inter-Party Agreements or the Three-Party Agreement for the period from and including January 1, 2005 through the
date of such termination shall become due, and (B) the Sellers shall set off against the Signing Deposit any amounts that are
or become due and payable by the Medtronic Parties or their Affiliates for the periods from and including January 1, 2005
in accordance with Section 3.1 (Signing Deposit). If the amount of the Signing Deposit is not sufficient to cover the amounts
otherwise due pursuant to the Inter-Party Agreements and the Three-Party Agreement for the period from and including January 1,
2005 through the date of such termination, the Medtronic Parties and their Affiliates may pay the difference at any time within
five Business
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">12</P>
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<P style="font-size:10pt">Days of such termination notwithstanding anything in the Inter-Party Agreements or the Three-Party
Agreement that would require earlier payment. Nothing in this Section 2.8(a) affects timing of payments or reports due
pursuant to the Inter-Party Agreements or the Three-Party Agreement for periods other than the period from and including January 1,
2005 through the date of such termination.</P>
<P style="font-size:10pt;padding-left:30"> (b) If This Agreement is
not terminated prior to the Closing pursuant to Section 8.1 (Termination of Agreement), and the Closing occurs, each of the
Parties, on behalf of itself and its Affiliates, acknowledges and agrees that from and after the Closing, none of the Sellers
or the Buyer, or any of their Affiliates, shall have any Liability to the other Parties with respect to the Inter-Party Agreements
or the Three-Party Agreement, including any Liability for any royalties for any time period.</P>
<P style="font-size:10pt"> <A NAME="a2.9">2.9.</A> <U> <U>Sellers’ Covenant
Not To Sue.</U></U> </P>
<P style="font-size:10pt;padding-left:30"> (a) <U>Covenant</U>. Effective
as of the Closing, the Sellers hereby irrevocably and perpetually covenant and warrant that the Sellers shall not, and shall
cause their Affiliates, successors, and assigns not to, sue or commence any Action against the Buyer or its Affiliates or their
customers for past or future infringement or misappropriation of any Future and Meniscal Covenanted Patent Rights anywhere
in the world for making, having made, using, selling, offering to sell, importing, or exporting of products or services or
practicing methods in the Field.</P>
<P style="font-size:10pt;padding-left:30"> (b) <U>Limited Right to
Extend Covenant to Third Parties</U>. The covenant not to sue in Section 2.9(a) shall inure to the benefit of the respective
successors and permitted assigns of the Buyer and its Affiliates, and may be extended by the Buyer and its Affiliates (i) with
respect to any product line in the Field, to any Third Party that acquires substantially all the assets relating to such product
line, and (ii) to any Third Party to whom the Buyer grants a license under the Subject Intellectual Property, but extended
solely with respect to the Third Party’s products and methods licensed under the Subject Intellectual Property.</P>
<P style="font-size:10pt;padding-left:30"> (c) <U>Springing Non-Exclusive
License</U>. The covenant not to sue in Section 2.9(a) shall run with the Future and Meniscal Covenanted Patent Rights and
shall be binding on any Third Party acquiring or licensing any of the Future and Meniscal Covenanted Patent Rights. In the
event that the Sellers assign, sell, exclusively license, or otherwise transfer any of the Future and Meniscal Covenanted Patent
Rights, then the covenant not to sue granted in Section 2.9(a) (Covenant) shall automatically be converted as of such transaction
into an irrevocable, perpetual, fully paid-up, royalty-free, worldwide, non-exclusive license under the Future and Meniscal
Covenanted Patent Rights, to make, have made, use, sell, offer to sell, import and export products and services, and practice
methods in the Field and such assignment, sale, exclusive license or other transfer shall be granted subject to such non-exclusive
license. In such event, the Buyer may sublicense this license (i) with respect to any product line in the Field, to any Third
Party that acquires substantially all the assets relating to such product line, and (ii) to any Third Party to whom the Buyer
grants a license in the Field under the Subject Intellectual Property, but sublicensed solely with respect to the Third Party’s
products and methods licensed in the Field under the Subject Intellectual Property.</P>
<P style="font-size:10pt"> <A NAME="a2.10">2.10.</A> <U>Former Spine-Tech Agreements.</U>
Pursuant to the terms of the Termination and Release Agreement, effective immediately prior to the Closing
the Parties shall terminate, with respect to any other party to the Termination and Release Agreement, all of their respective
rights, obligations and liabilities under each of the Former Spine-Tech Agreements.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">3.</TD>
<TD WIDTH="98%"><A NAME="signing_deposit_closing">SIGNING DEPOSIT; CLOSING.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a3.1">3.1.</A> <U>Signing Deposit.</U> Within
one Business Day of the Effective Date, the Buyer shall pay to the Sellers an aggregate amount equal to $10 million (the “
<U>Signing Deposit</U>”) by wire transfers of immediately available funds to accounts and in accordance with allocations
as notified by the Sellers to the Buyer, as a deposit for the purchase of the Purchased Assets that shall be refundable to
the Buyer subject to the Sellers’ right of set off set forth in the following sentence. If This Agreement is terminated
in accordance with Section 8.1 (Termination of Agreement) prior to the Closing, then the Sellers shall set off against the
Signing Deposit any amounts that are or become due and payable by the Medtronic
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">13</P>
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<P style="font-size:10pt">Parties or their Affiliates to the Sellers pursuant to the Inter-Party Agreements or the Three-Party
Agreement at any time from and including January 1, 2005 through and including the date that is 180 days after the date
of such termination. In such event, to the extent that the amount of the Signing Deposit exceeds the amounts that may be set
off against it pursuant to the previous sentence (the “<U>Set-Off Amounts</U>”), then within five Business Days after
the date that is 180 days after the date of such termination the Sellers shall refund to the Buyer an amount equal to the difference
between the Signing Deposit and the Set-Off Amounts. Upon receipt of the Signing Deposit the Sellers shall execute and deliver
to the Buyer a receipt for such Signing Deposit. Upon the occurrence of the Closing, the Signing Deposit shall become non-refundable.</P>
<P style="font-size:10pt"> <A NAME="a3.2">3.2.</A> <U>Closing Time and Place.</U>
Subject to the satisfaction (or written waiver by the appropriate Party) of each of the closing conditions
set forth in Sections 7.1 (Conditions to the Medtronic Parties’ Obligation to Close) and 7.2 (Conditions to the Sellers’
Obligation to Close), the closing of the purchase and sale of the Purchased Assets (the “<U>Closing</U>”) shall take
place at the offices of Kirkland & Ellis LLP at 777 South Figueroa Street, Los Angeles, California 90017 commencing at
10:00 a.m. Pacific Time on the fifth Business Day following satisfaction or waiver by the appropriate Party of all of the conditions
set forth in Sections 7.1 and 7.2 (except for, but nevertheless subject to the satisfaction or waiver of conditions that, by
their nature, are to be satisfied at the Closing), or at such other date as the Buyer and the Sellers may agree in writing.</P>
<P style="font-size:10pt"> <A NAME="a3.3">3.3.</A> <U>Closing Payment; Letter
of Credit.</U> At the Closing, (a) the Buyer shall pay to the Sellers an aggregate amount equal to $1.31
billion (the “<U>Closing Payment</U>”) by wire transfers of immediately available funds to accounts and in accordance
with allocations as notified by the Sellers to the Buyer no later than the second Business Day before the Closing and (b) the
Sellers shall deliver to and for the benefit of the Buyer a straight, irrevocable documentary letter of credit in the aggregate
principal amount of $100 million issued by any money center bank reasonably acceptable to the Buyer, in form and substance
reasonably acceptable to the Buyer (the “<U>Closing Letter of Credit</U>”). In lieu of the foregoing, at the reasonable
request of the Sellers provided to the Buyer no later than the second Business Day before the Closing, the Buyer shall (i)
pay to the Sellers an aggregate amount equal to $1.21 billion (the “<U>Alternate Closing Payment</U>”) by wire transfers
of immediately available funds to accounts and in accordance with allocations as notified by the Sellers to the Buyer no later
than the second Business Day before the Closing and (ii) pay $100 million to the escrow agent by wire transfer of immediately
available funds to a commercial escrow account established pursuant to an escrow agreement between the Parties in form and
substance reasonably acceptable to the Parties (the “<U>Escrow Account</U>”). The Sellers shall have the right to
substitute an Escrow Account or a Closing Letter of Credit (in each case consistent with the foregoing provisions of this Section
3.3), as applicable, from time to time, during the period that the Sellers are required to provide such security pursuant to
Section 9.10 (Letter of Credit), upon reasonable notice to the Buyer. The Closing Letter of Credit or the Escrow Account,
as applicable, shall be maintained for the period required pursuant to Section 9.10 (Letter of Credit) and thereafter the funds
in the Escrow Account shall be released to the Sellers or the Closing Letter of Credit shall be terminated, as the case may
be. Upon receipt of the Closing Payment or the Alternate Closing Payment, as applicable, the Sellers shall execute and deliver
to the Buyer a receipt for the Closing Payment or the Alternate Closing Payment, as applicable.</P>
<P style="font-size:10pt"> <A NAME="a3.4">3.4.</A> <U>Post-Closing Payments.</U>
(a) On each of the first three anniversaries of the Closing, the Buyer shall pay to Michelson an amount equal
to $10 million (each, a “ <U>Post-Closing Payment</U>”), for an aggregate amount equal to $30 million, by wire transfer
of immediately available funds to accounts and in accordance with allocations as notified by the Sellers to the Buyer no later
than the second Business Day before the applicable payment date and (b) on each of the first five anniversaries of the Closing,
the Sellers shall deliver to and for the benefit of the Buyer a straight, irrevocable documentary letter of credit in the principal
amount of $10 million issued by any money center bank reasonably acceptable to the Buyer, in form and substance reasonably
acceptable to the Buyer (each, a “ <U>Post-Closing Letter of Credit</U>”), for an aggregate principal amount equal
to $50 million. In lieu of the foregoing, at the reasonable request of the Sellers, on each of the first, second, and third
anniversaries of the Closing the Buyer shall deliver a Post-Closing Payment to the Escrow Account, and on each of the fourth
and fifth anniversary of Closing the Sellers shall pay $10 million to the Escrow Account. Notwithstanding the
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">14</P>
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<P style="font-size:10pt">foregoing, a Post-Closing Letter of Credit or the Sellers’ obligation to pay $10 million to the
Escrow Account will be required on the fifth anniversary of the Closing only if there are any outstanding Claims seeking indemnification
on such date and the principal amount of such Post-Closing Letter of Credit or the amount of such payment by the Sellers to
be delivered to the Escrow Account will be determined in accordance with the proviso in Section 9.10(b) (Letter of Credit).
Upon receipt of each Post-Closing Payment, Michelson shall execute and deliver to the Buyer a receipt for such Post-Closing
Payment. If any Post-Closing Payment is not paid when due and the corresponding Post-Closing Letter of Credit has been delivered
to the Buyer when due, such overdue Post-Closing Payment shall accrue interest annually at the Prime Rate (as listed in the
Money Rates Table in <I>The Wall Street Journal</I> as of such due date) plus 2%, compounded quarterly, from such due date
until paid.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">4.</TD>
<TD WIDTH="98%"><A NAME="sellers_representations_and_warranties">SELLERS’ REPRESENTATIONS AND WARRANTIES.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> The Sellers jointly and severally represent and warrant
to the Medtronic Parties that the statements contained in this Section 4 are correct and complete as of the Effective
Date and, unless a date is specified in such representation and warranty, will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the Effective Date throughout this Section 4),
except as set forth in the Sellers’ disclosure schedule accompanying This Agreement (the “<U>Sellers’ Disclosure
Schedule</U>”). The Sellers’ Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 4.</P>
<P style="font-size:10pt"> <A NAME="a4.1">4.1.</A> <U>Organization; Shareholders.</U>
KTI is a California corporation duly organized, validly existing and in good standing under the laws of the
State of California. GKM Trust, a Cook Island trust (“<U>GKM Trust</U>”), is the sole record owner of any outstanding
capital stock of, other equity interests in, and rights to acquire any interest in the capital stock of or other equity interest
in KTI (the “<U>KTI Shares</U>”). All of the trustees of GKM Trust are listed on <U>Schedule 4.1</U> and such trustees
are the only Persons that have the right or power to vote or dispose of any of the KTI Shares.</P>
<P style="font-size:10pt"> <A NAME="a4.2">4.2.</A> <U>Authorization.</U> Each
of the Sellers has the power and authority (including, with respect to KTI, full corporate power and authority) to execute
and deliver This Agreement and each Ancillary Agreement to which he or it is a party and to perform his or its respective obligations
under This Agreement and under each such Ancillary Agreement. All corporate actions or proceedings to be taken by or on the
part of KTI, including approval of the sole shareholder of KTI, to authorize and permit the execution and delivery by KTI of
This Agreement and each of the Ancillary Agreements to which it is a party and to perform its respective obligations under
This Agreement and under such Ancillary Agreements have been duly taken. This Agreement has been duly executed and delivered
by each of the Sellers and constitutes the legal, valid and binding obligation of each of the Sellers, enforceable in accordance
with its terms and conditions subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general
application affecting the rights and remedies of creditors and to general principles of equity. Each of the Ancillary Agreements
to which any of the Sellers is a party will be, as of the Closing, duly executed and delivered by such Seller and will constitute,
as of the Closing, the legal, valid and binding obligation of such Seller, enforceable in accordance with its terms and conditions
subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application affecting the rights
and remedies of creditors and to general principles of equity.</P>
<P style="font-size:10pt"> <A NAME="a4.3">4.3.</A> <U>Noncontravention.</U> Except
as set forth on <U>Schedule 4.3</U>, neither the execution and delivery of This Agreement and the Ancillary Agreements nor
the consummation of the transactions contemplated hereby and thereby by the Sellers will (i) conflict with or result in a breach
of or default under the Organizational Documents of KTI, (ii) violate any material Legal Requirement to which any of the Sellers
or any of their assets or property is subject, (iii) conflict with or result in a breach of, default under, right to accelerate
payment under or obligation to make any payment pursuant to or loss of material rights under, or modify or terminate any of
the Assumed Contracts or any other material Contractual Obligation (other than the Inter-Party Agreements) by which any of
the Sellers or any of their assets or property is bound or subject, (iv) result in the creation or imposition of any Encumbrance
upon or forfeiture of any of the Purchased Assets (other than any Encumbrances imposed by This Agreement), or (v) to the Knowledge
of the Sellers, result in the creation of any Claim that could result in the creation or imposition of any Encumbrance upon or forfeiture of any of the Purchased Assets
(other than any Encumbrances imposed by This Agreement).
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">15</P>
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<P style="font-size:10pt"> <A NAME="a4.4">4.4.</A> <U>Consents.</U> Except
for filings required under the HSR Act, no approval, authorization, permit, license, waiver or consent is required from any
Third Party (including any Governmental Authority) (collectively, the “<U>Consents</U>”) and no filing or notice
is required to be made with or given to any Third Party (including any Governmental Authority) (respectively, the “<U>Filings</U>”
and the “<U>Notices</U>”) for the Sellers to accomplish the transactions contemplated by This Agreement and the Ancillary
Agreements.<U></U>
</P>
<P style="font-size:10pt"> <A NAME="a4.5">4.5.</A> <U>Litigation.</U> Except
for the Litigation or as set forth on <U>Schedule 4.5</U>, there is no Action (including any Action relating to or arising
out of divorce, annulment or other dissolution of marriage) pending or, to the Knowledge of the Sellers, threatened in writing
against or involving any of the Sellers or their Affiliates or <I>in rem</I> Action that could reasonably be expected to adversely
affect (i) the Purchased Assets or (ii) the ability of the Sellers to consummate the Closing or perform any material obligations
under This Agreement or the Ancillary Agreements. For purposes of this Section 4.5, threatened Actions shall include requests
for interference, Third Party requests for re-examination and requests for oppositions. Except in connection with the Litigation
or as set forth on <U>Schedule 4.5</U>, there is no Governmental Order (including any Governmental Order relating to or arising
out of divorce, annulment or other dissolution of marriage) issued or, to the Knowledge of the Sellers, threatened in writing
that could reasonably be expected to affect the ability of the Sellers to consummate the Closing or perform any material obligations
under This Agreement or the Ancillary Agreements.<U></U>
</P>
<P style="font-size:10pt"> <A NAME="a4.6">4.6.</A> <U>Assumed Contracts.</U> Copies
of the Assumed Contracts to which the Medtronic Parties are not a party are attached hereto as part of <U>Exhibit E</U>, and
such copies are correct and complete. Except as set forth on <U>Schedule 4.6A</U>: (i) the Sellers are not, and to the Knowledge
of the Sellers no Third Party to any Assumed Contract is, in violation of or in default, in any material respect, under any
Assumed Contract and (ii) no event or circumstance has occurred that constitutes or, after notice or lapse of time or both,
would constitute a material violation or default thereunder on the part of the Sellers or, to the Knowledge of the Sellers,
any Third Party thereto, or which would result in a right to accelerate payment under or a loss of material rights under or
modify or terminate any such Assumed Contract that has not been duly cured or waived None of the agreements listed on <U>Schedule
4.6B</U> is in force or effect.</P>
<P style="font-size:10pt"> <A NAME="a4.7">4.7.</A> <U> <U>Title.</U></U> </P>
<P style="font-size:10pt;padding-left:30"> (a) Except as set forth
on <U>Schedule 4.7A</U>, the Sellers own all rights, title and interests in and to the Purchased Assets and have the full right
and power to sell, transfer and assign good and marketable title to all the Purchased Assets, free and clear of all Encumbrances
and, to the Knowledge of the Sellers, all Claims. The Sellers have delivered to the Buyer correct and complete copies of all
items identified on <U>Schedule 4.7A</U> (together with all amendments, addendums, supplements, and other modifications) to
which any of the Sellers is a party and to which none of the Medtronic Parties or any Affiliate of the Medtronic Parties is
a party. Except as set forth on <U>Schedule 4.7B</U>, none of the Purchased Assets is in the possession, custody or control
of any Person other than the Sellers, the Medtronic Parties or any Affiliate of the Medtronic Parties.</P>
<P style="font-size:10pt;padding-left:30"> (b) Except (i) as set forth
on <U>Schedule 4.7B</U> or (ii) pursuant to the Assumed Contracts, no Person other than the Sellers, the Medtronic Parties
or any Affiliate of the Medtronic Parties has any rights, title or interests in any Purchased Asset.</P>
<P style="font-size:10pt"> <A NAME="a4.8">4.8.</A> <U> <U>Intellectual Property.</U></U>
</P>
<P style="font-size:10pt;padding-left:30"> (a) <U>Completeness</U>.
The Patent Rights of the Subject Intellectual Property identified on <U>Schedule 4.8(b)</U>, the Patent Rights of the Excluded
Intellectual Property identified on <U>Schedule 4.8(c)</U>, the Medtronic-Owned Patent Rights identified on <U>Schedule 2.6</U>,
and the Multi-Lock Patent Rights identified on <U>Schedule 2.7</U> are the only Patent Rights for which Michelson is listed
as an inventor. The Purchased Assets and the Patent Rights of the Excluded Intellectual Property identified on <U>Schedule
4.8(c)</U> constitute the only Patent Rights in which the Sellers or their Affiliates have any rights, title or interests,
including any rights under licenses or covenants not to sue, other than the use rights a retail consumer has by the purchase
of consumer goods and services.<U></U>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">16</P>
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<P style="font-size:10pt;padding-left:30"> (b) Scheduled Subject Patent<U>
Rights</U>. <U>Schedule 4.8(b)</U> identifies each Patent Right in which the Sellers have any rights, title, or interests included
within the definition of Subject Intellectual Property as existing as of March 15, 2005. The Sellers have provided the
Buyer with access to correct and complete copies of all such Patent Rights.</P>
<P style="font-size:10pt;padding-left:30"> (c) <U>Scheduled Excluded
Patent Rights</U>. <U>Schedule 4.8(c)</U> identifies each Patent Right in which the Sellers have any rights, title, or interests
included within the definition of Excluded Intellectual Property as existing as of March 7, 2005. The Sellers have provided
the Buyer with access to correct and complete copies of all such Patent Rights.<U></U>
</P>
<P style="font-size:10pt;padding-left:30"> (d) <U>Representations
Regarding Subject Patent Rights</U>. Except as disclosed in <U>Schedule 4.8(d)</U>, with respect to each patent and patent
application required to be identified on <U>Schedule 4.8(b)</U> (Scheduled Subject Patent Rights), to the Knowledge of the
Sellers:<U></U>
</P>
<P style="font-size:10pt;padding-left:60"> (i) each issued, unexpired
patent is valid and enforceable and has been properly obtained in accordance with all applicable rules and regulations governing
the prosecution of applications for such patent, and the Sellers and their Representatives have not engaged in any fraud or
other misconduct with regard to the prosecution or procurement of such patent;<U></U>
</P>
<P style="font-size:10pt;padding-left:60"> (ii) for each issued, unexpired
patent or pending patent application, in all material respects, (A) all necessary application, annuity, maintenance and renewal
fees in connection with all patent and patent applications have been paid and (B) all necessary documents and certificates
in connection therewith have been filed with the relevant authority for the purpose of maintaining the patent registrations
or applications; and<U></U>
</P>
<P style="font-size:10pt;padding-left:60"> (iii) no issued, unexpired
patent is undergoing cancellation, re-examination, termination or withdrawal proceedings.</P>
<P style="font-size:10pt;padding-left:30"> (e) <U>Michelson Logo</U>.
To the Knowledge of the Sellers, the Buyer’s use of the Michelson Logo as required by This Agreement does not and will
not infringe the trademark or copyright rights of any Third Party.</P>
<P style="font-size:10pt"> <A NAME="a4.9">4.9.</A> <U>Solvency; Fair Consideration.</U>
Each of the Sellers is solvent. For each of the Sellers, the sum of his or its assets, at a fair valuation,
is greater than the sum of his or its debts, and each of the Sellers is able, and will be able immediately following the consummation
of the transactions contemplated by This Agreement, generally to pay his or its debts as they become due. The obligations of
each Seller under This Agreement will not render such Seller insolvent. Each Seller is receiving fair consideration and reasonably
equivalent value in exchange for the assets transferred by such Seller to the Buyer and the obligations incurred by such Seller
and its Affiliates pursuant to This Agreement. Neither the transactions contemplated by This Agreement nor the obligations
of KTI shall cause KTI to be left with unreasonably small capital.</P>
<P style="font-size:10pt"> <A NAME="a4.10">4.10.</A> <U>U.S. Taxpayer.</U> Each
Seller is a United States person within the meaning of Section 7701(a)(3) of the Internal Revenue Code of 1986, as amended
(the “ <U>Code</U>”).</P>
<P style="font-size:10pt"> <A NAME="a4.11">4.11.</A> <U>No Other Representations
and Warranties.</U> Except as expressly set forth in Section 4 of This Agreement or in the Sellers’
Closing Certificate, none of the Sellers makes any representation or warranty, express or implied, at law or in equity, with
respect to the Purchased Assets, This Agreement or otherwise.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">5.</TD>
<TD WIDTH="98%"><A NAME="medtronic_parties_representations_and_warranties">MEDTRONIC PARTIES’ REPRESENTATIONS AND WARRANTIES.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> The Medtronic Parties jointly and severally represent
and warrant to the Sellers that the statements contained in this Section 5 are correct and complete as of the Effective
Date and, unless a date is specified in such representation and warranty, will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the Effective Date throughout this Section 5),
except as set forth in the Buyer’s disclosure schedule accompanying This Agreement (the “<U>Buyer’s Disclosure
Schedule</U>”). The Buyer’s Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 5.</P>
<P style="font-size:10pt">
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">17</P>
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<P style="font-size:10pt"> <A NAME="a5.1">5.1.</A> <U>Organization.</U> The Buyer is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware. MDT is a Minnesota corporation duly
organized, validly existing and in good standing under the laws of the State of Minnesota. MSD is an Indiana corporation duly
organized, validly existing and in good standing under the laws of the State of Indiana. <U>Schedule 5.1</U> lists all of the
record owners of any outstanding capital stock of, other equity interests in, and rights to acquire any interest in the capital
stock of, or other equity interest in, the Buyer and MSD. </P>
<P style="font-size:10pt"> <A NAME="a5.2">5.2.</A> <U>Authorization.</U> Each
Medtronic Party has the full corporate power and authority to execute and deliver This Agreement and each Ancillary Agreement
to which it is a party and to perform its respective obligations under This Agreement and under each such Ancillary Agreement.
All corporate actions or proceedings to be taken by or on the part of each Medtronic Party to authorize and permit the execution
and delivery by such Medtronic Party of This Agreement and each of the Ancillary Agreements to which it is a party and to perform
its respective obligations under This Agreement and under such Ancillary Agreements have been duly taken. This Agreement has
been duly executed and delivered by each Medtronic Party and constitutes the legal, valid and binding obligation of such Medtronic
Party, enforceable in accordance with its terms and conditions subject to bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application affecting the rights and remedies of creditors and to general principles of equity.
Each of the Ancillary Agreements to which each Medtronic Party is a party will be, as of the Closing, duly executed and delivered
by such Medtronic Party and will constitute, as of the Closing, the legal, valid and binding obligation of such Medtronic Party,
enforceable in accordance with its terms and conditions subject to bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application affecting the rights and remedies of creditors and to general principles of equity.</P>
<P style="font-size:10pt"> <A NAME="a5.3">5.3.</A> <U>Noncontravention.</U> Except
as set forth on <U>Schedule 5.3</U>, neither the execution and delivery of This Agreement and the Ancillary Agreements nor
the consummation of the transactions contemplated hereby and thereby by any Medtronic Party will (i) conflict with or result
in a breach of or default under the Organizational Documents of such Medtronic Party, (ii) violate any material Legal Requirement
to which such Medtronic Party or any of its assets or property is subject or (iii) conflict with or result in a breach of,
default under, right to accelerate payment under or obligation to make any payment pursuant to or loss of material rights under,
or modify or terminate any material Contractual Obligation (other than the Inter-Party Agreements and the Assumed Contracts
to which any Medtronic Party is a party) by which any of the Medtronic Parties or any of their assets or property is bound
or subject.</P>
<P style="font-size:10pt"> <A NAME="a5.4">5.4.</A> <U>Consents.</U> Except
for filings required under the HSR Act and as set forth on <U>Schedule 5.4</U>, no Consents, Filings or Notices are required
for the Medtronic Parties to accomplish the transactions contemplated by This Agreement and the Ancillary Agreements.<U></U>
</P>
<P style="font-size:10pt"> <A NAME="a5.5">5.5.</A> <U>Litigation.</U> Except
for the Litigation or as set forth on <U>Schedule 5.5</U>, there is no Action or Governmental Order pending or issued or, to
the Knowledge of the Medtronic Parties, threatened in writing against or involving any of the Medtronic Parties or their Affiliates
that could reasonably be expected to adversely affect the ability of the Buyer to consummate the Closing or the Medtronic Parties
to perform any material obligations under This Agreement or the Ancillary Agreements.</P>
<P style="font-size:10pt"> <A NAME="a5.6">5.6.</A> <U>Solvency; Fair Consideration.</U>
Each of the Medtronic Parties is solvent. For each of the Medtronic Parties, the sum of such Medtronic Party’s
assets, at a fair valuation, is greater than the sum of such Medtronic Party’s debts, and such Medtronic Party is able,
and will be able immediately following the consummation of the transactions contemplated by This Agreement, generally to pay
its debts as they become due. The obligations of each of the Medtronic Parties under This Agreement will not render such Medtronic
Party insolvent. To the Knowledge of the Medtronic Parties, each Medtronic Party is receiving fair consideration and reasonably
equivalent value in exchange for the funds transferred to the Sellers and the obligations incurred by such Medtronic Party,
as applicable, and its Affiliates pursuant to This Agreement. Neither the transactions contemplated by This Agreement nor the
payment or other obligations of each of the Medtronic Parties pursuant to This Agreement shall cause such Medtronic Party to
be left with unreasonably small capital. The transfer of funds from the Buyer to the Sellers under This Agreement is not on
account of any antecedent debt of the Buyer to the Sellers.</P>
<P style="font-size:10pt">
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">18</P>
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<P style="font-size:10pt"> <A NAME="a5.7">5.7.</A> <U>No Other Representations and Warranties.</U> Except as
expressly set forth in Section 5 of This Agreement or in the Medtronic Parties’ Closing Certificate, none of the
Medtronic Parties makes any representation or warranty, express or implied, at law or in equity with respect to This Agreement,
or otherwise.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">6.</TD>
<TD WIDTH="98%"><A NAME="covenants">COVENANTS.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a6.1">6.1.</A> <U>Litigation.</U> </P>
<P style="font-size:10pt;padding-left:30"> (a) At or immediately after
the Sellers’ receipt of the Closing Payment or the Alternate Closing Payment, as applicable, each of the Parties shall
execute and file the Dismissal Document. </P>
<P style="font-size:10pt;padding-left:30"> (b) The Parties agree that
upon the Closing all matters involved in the Litigation will have been fully and finally resolved and that all Claims in the
Litigation will be dismissed with prejudice. In particular, the Sellers agree that from and after the Closing, they will not
oppose a request made by the Medtronic Parties to the District Court Judge or Magistrate Judge in the Litigation to withdraw
the “Order for Plaintiff to Show Cause” issued by the Magistrate Judge dated September 30, 2003 and the “Report
and Recommendation on Defendant’s Motion for Contempt Sanctions for Violation of Preliminary Injunction Order” issued
by the Magistrate Judge dated July 26, 2004. Upon the Closing, the Sellers shall not seek attorneys’ fees or other
compensation or remedy in regard to any Claim of contempt associated with the Litigation.</P>
<P style="font-size:10pt"> <A NAME="a6.2">6.2.</A> <U>HSR Act.</U> Each
of the Parties will use commercially reasonable efforts to, and will cause their respective Affiliates to use commercially
reasonable efforts to, (i) file within 5 Business Days after the Effective Date any Notification and Report Form and related
material that he or it may be required to file with the FTC and the DOJ under the HSR Act in connection with the transactions
contemplated by This Agreement and the Ancillary Agreements, (ii) supply the other Parties with any information that may be
reasonably required in order to make such filings, (iii) respond as promptly as practicable to any inquiries received from
the FTC or the DOJ for additional information or documentation related thereto and (iv) obtain early termination of the applicable
waiting period under the HSR Act for the transactions contemplated by This Agreement and the Ancillary Agreements. The filing
fees required by the HSR Act shall be borne by the Buyer. Notwithstanding anything to the contrary in This Agreement, none
of the Medtronic Parties or any of their Affiliates shall be required to sell, hold separate, license or otherwise dispose
of any of their assets or properties or any of the Purchased Assets or rights thereunder, or conduct their business in a specified
manner or to agree to do any of the foregoing, whether as a condition to obtaining any Consents from any Governmental Authority
or any other Person or for any other reason, and the failure of the Medtronic Parties or any of their Affiliates to do or to
agree to do any of the foregoing shall not constitute a breach of any provision of This Agreement or any of the Ancillary Agreements.<U></U>
</P>
<P style="font-size:10pt"> <A NAME="a6.3">6.3.</A> <U>Closing.</U> Subject
to the terms and conditions of This Agreement, each of the Parties will use its commercially reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable in order to consummate
and make effective the transactions contemplated by This Agreement, including satisfaction, but not waiver, of the closing
conditions set forth in Sections 7.1 (Conditions to the Medtronic Parties’ Obligation to Close) and 7.2 (Conditions to
the Sellers’ Obligation to Close).</P>
<P style="font-size:10pt"> <A NAME="a6.4">6.4.</A> <U>Protection of the Purchased
Assets Pre-Closing.</U> </P>
<P style="font-size:10pt;padding-left:30"> (a) From the Effective
Date until the Closing, the Sellers shall, and shall cause their Affiliates and Representatives<B> </B>to:</P>
<P style="font-size:10pt;padding-left:60"> (i) use commercially reasonable
efforts consistent with past practice to preserve and to maintain and protect their rights, title and interests in and to any
confidentiality of the Purchased Assets and the confidentiality of New Subject Inventions; <U>provided</U>, that the Sellers
shall not, and shall cause their Affiliates and Representatives<B> </B>not to, initiate any Action relating to the Purchased
Assets without the prior written consent of the Buyer;</P>
<P style="font-size:10pt;padding-left:60"> (ii) use commercially reasonable
efforts consistent with past practice to pay or otherwise satisfy all of its and their respective Liabilities in respect of
the Purchased Assets; and</P>
<P style="font-size:10pt;padding-left:60"> (iii) comply with all material
Legal Requirements applicable to the Purchased Assets.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">19</P>
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<P style="font-size:10pt;padding-left:30"> (b) From the Effective
Date until the Closing, the Sellers shall not, and shall cause their Affiliates not to, sell, assign, transfer, license, or
create or in any way encourage the imposition of any Claim or Encumbrance not disclosed in This Agreement upon any Purchased
Assets, or agree to do any of the foregoing, except pursuant to This Agreement.</P>
<P style="font-size:10pt;padding-left:30"> (c) From the Effective
Date until the Closing, if an interference is declared involving any Patent Right included in the Subject Intellectual Property,
and notice of such declaration shall have been received by Martin & Ferraro LLP at least six weeks prior to the Closing,
the Sellers shall deliver to the Buyer available documents in support of the factual statements necessary to support a preliminary
statement as required by 37 C.F.R. §1.622 <I>et seq.</I>
</P>
<P style="font-size:10pt"> <A NAME="a6.5">6.5.</A> <U>Covenants in Support of
Assignment.</U> To the extent the Sellers cannot transfer and assign any of the Purchased Assets to the Buyer
at the Closing for any reason, then the Sellers will, and will cause their Affiliates to, assign and transfer such Purchased
Assets to the Buyer at the first opportunity to do so. To the extent that any of the Sellers’ rights, title or interests
in any Subject Intellectual Property (including Subject Intellectual Property that the Sellers have rights to under any Assumed
Contract) cannot be assigned and transferred by the Sellers to the Buyer, then the Sellers hereby grant to the Buyer and its
Affiliates, effective as of the Closing, an irrevocable, perpetual, worldwide, exclusive (even as to the Sellers and subject
to the Claims and Encumbrances set forth on <U>Schedule 2.1(a)</U>) license under such rights, title and interests in any Subject
Intellectual Property, with the right to sublicense through multiple tiers, to make, have made, use, sell, offer to sell, import
and export products, product systems and processes and to reproduce, distribute, modify, enforce and otherwise exploit such
rights, title and interests in any Subject Intellectual Property in any manner for any purpose.</P>
<P style="font-size:10pt"> <A NAME="a6.6">6.6.</A> <U>Models and Prototypes.</U>
At the Closing, the Sellers will provide the Buyer with electronic copies of digital photographs of all existing
models and prototypes relating to the Subject Intellectual Property, together with whatever indices exist from the Litigation
organizing such photographs. The Sellers will not be obligated, however, to deliver the actual three-dimensional models and
prototypes to the Buyer. For a period of 25 years following the Effective Date, (i) at the Buyer’s reasonable request,
the Sellers shall give the Buyer temporary access upon reasonable notice to such models or prototypes if needed for prosecution
of or defense or enforcement of any Subject Intellectual Property and (ii) prior to any of the Sellers destroying or disposing
of any such models and prototypes, such Seller will notify the Buyer of his or its intent to destroy or dispose of such prototypes,
and if requested by the Buyer, shall either deliver such model or prototype to the Buyer or ensure the Buyer of continued access
to such model or prototype.</P>
<P style="font-size:10pt"> <A NAME="a6.7">6.7.</A> <U>Disclosure of New Subject
Invention and New Subject Intellectual Property.</U> Following the Closing:</P>
<P style="font-size:10pt;padding-left:30"> (a) Within 30 days after
the creation of any written description or model or prototype of an invention conceived by Michelson included within the definition
of Subject Intellectual Property (a “<U>New Subject Invention</U>”) and at least 30 days before disclosing the New
Subject Invention to any Third Party other than a Representative under an obligation to maintain the confidentiality of such
New Subject Invention, the Sellers shall deliver to the Buyer a written description or a model or prototype of the New Subject
Invention in sufficient detail to enable a reasonable person of ordinary skill in the Field to understand the nature of the
New Subject Invention being disclosed and (if appropriate) to prepare and prosecute one or more patent application(s) (or pursue
other protection) with respect to such New Subject Invention. Within 30 days after obtaining or acquiring any new Subject Intellectual
Property not conceived by Michelson (“ <U>Acquired Subject Intellectual Property</U>”), the Sellers shall deliver
to the Buyer such Acquired Subject Intellectual Property. The Buyer shall return the originals of any models or prototypes
that the Sellers provide to the Buyer as soon as practicable after examining or reproducing such models and prototypes as the
Buyer reasonably deems necessary to fully understand the disclosed New Subject Invention or Acquired Subject Intellectual Property,
as applicable. In any event, the Buyer shall return such models and prototypes to the Sellers within 30 days after receiving
them. Thereafter, at the Buyer’s request, the Sellers will give the Buyer temporary access to such models or prototypes
if needed for prosecution
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">20</P>
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<P style="font-size:10pt;padding-left:30">of or defense or enforcement of any New Subject Invention or Acquired Subject Intellectual Property.
All reasonable out-of-pocket expenses incurred by the Sellers relating to the disclosure of a New Subject Invention or Acquired
Subject Intellectual Property, including all conception and reduction to practice of a New Subject Invention or Acquired Subject
Intellectual Property will be promptly reimbursed by the Buyer, and in any event within 30 days of receipt of reasonable documentation
thereof. No Party shall have any obligation to conceive, acquire, or commercialize Intellectual Property of any kind. Nothing
in this Section 6.7 shall limit the obligations of any Party under Section 6.14 (Confidentiality).</P>
<P style="font-size:10pt;padding-left:30"> (b) As security for the
performance of the Sellers’ obligation to assign to the Buyer Subject Intellectual Property conceived, acquired or otherwise
obtained by Michelson after the Closing during the Term (the “ <U>Secured Obligations</U>”), the Sellers hereby create
a security interest in favor of the Buyer in all of the Sellers’ rights, title and interests in and to Subject Intellectual
Property conceived, acquired or otherwise obtained by Michelson after the Closing during the Term (the “<U>Collateral</U>”).
The Sellers hereby authorize the Buyer, on the Sellers’ behalf, to execute and deliver and file and record in the proper
filing and recording places, all such instruments, including Uniform Commercial Code financing statements covering the Collateral,
and take all such other actions as the Buyer deems reasonably necessary for perfecting or otherwise confirming its security
interest in the Collateral under any applicable Legal Requirement. At the Sellers’ request, the Buyer shall execute and
deliver and file and record in the proper filing and recording places, all such instruments, including Uniform Commercial Code
termination statements covering any of the Sellers’ assets or properties that is not Collateral, and take all such other
actions as the Sellers deem reasonably necessary for terminating or otherwise releasing the Buyer’s security interest
in any of the Sellers’ assets or properties that is not Collateral under any applicable Legal Requirement.</P>
<P style="font-size:10pt"> <A NAME="a6.8">6.8.</A> <U>Further Assurances.</U>
Following the Closing at the Buyer’s expense, the Sellers shall take such further actions that are reasonably
necessary to accomplish the complete transfer and assignment of the Sellers’ rights, title and interests in and to the
Purchased Assets to the Buyer, and to assist the Buyer as reasonably necessary with the lawful filing and prosecution of Patent
Rights, interferences<I>,</I> and oppositions, and with the Buyer’s determination of whether to continue requests for
interferences with respect to the Subject Intellectual Property conceived by Michelson. During the period between the Effective
Date and the Closing, the Sellers will notify the Buyer in writing within 10 Business Days after any Seller becomes aware that
any interference is declared involving any of the Patent Rights included within the Subject Intellectual Property. Subject
to any of the Sellers’ post-Closing obligations under the Assumed Contracts, the Sellers shall not, and shall cause their
Affiliates not to, assist any Third Party in the assertion of any Patent Rights In The IP Field (other than the Excluded Intellectual
Property) against the Medtronic Parties or their Affiliates, other than under subpoena or other legal process.</P>
<P style="font-size:10pt"> <A NAME="a6.9">6.9.</A> <U>Patent Prosecution.</U>
Following the Closing, the Sellers will have no right or obligation to file, prosecute or maintain any Patent
Rights included in the Purchased Assets.</P>
<P style="font-size:10pt"> <A NAME="a6.10">6.10.</A> <U>Third Party Actions.</U>
Following the Closing and subject to Third Party rights under the Assumed Contracts, the Buyer will have
the sole and exclusive right and discretion to enforce the rights, title and interests in and to the Purchased Assets against
Third Parties. Following the Closing and subject to Third Party rights under the Assumed Contracts, the Buyer will decide whether
or not to institute any proceeding against any Third Party with respect to any alleged infringement or misappropriation of
the rights, title and interests in and to the Purchased Assets in its sole and absolute discretion and will keep all proceeds
of any such proceedings. If a Medtronic Party is unable to enforce any obligation or other right under an Assumed Contract
without a Seller being party to an Action, then Michelson or KTI shall voluntarily join as a party in such Action as necessary
to enforce any obligation or other right under an Assumed Contract; <U>provided</U>, that the Buyer agrees in advance to reimburse
the Sellers for their reasonable fees, costs and expenses relating thereto. Following the Closing, Michelson shall not testify
(whether by declaration, affidavit, or in person) and the Sellers shall not assist any Third Party in challenging the validity,
enforceability or value (other than for Tax matters) of the Purchased Assets, in each case other than under subpoena or similar
legal order.<I> </I>The Medtronic Parties and their Affiliates shall not assist any Third Party in asserting any Claim or Action
relating to the Field (other than for Tax matters) against the Sellers or their Affiliates, other than under subpoena or similar
order.</P>
<P style="font-size:10pt">
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">21</P>
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<P style="font-size:10pt"><A NAME="a6.11">6.11.</A> <U>Patent Counsel; Return of Documents; Tangible Materials.</U> </P>
<P style="font-size:10pt;padding-left:30"> (a) Based on the facts
and circumstances existing as of the Effective Date, each of the Parties consents to any other Party’s engagement of Martin
& Ferraro LLP and agree that no conflict of interest exists with respect to Martin & Ferraro LLP’s simultaneous
patent prosecution representation of (i) the Medtronic Parties with respect to the Purchased Assets and the Medtronic-Owned
Patent Rights and (ii) the Sellers with respect to the Patent Rights in the Excluded Intellectual Property. The Sellers agree
that they will have no right to monitor the prosecution of Subject Intellectual Property after the Closing nor any right to
have access to any non-public document or file pertaining to such prosecution without the prior consent of the Buyer. Following
the Closing, the Sellers shall not initiate consultation with Martin & Ferraro LLP, directly or indirectly, on any prosecution,
maintenance or enforcement matter related to the Subject Intellectual Property without the prior consent of the Buyer.</P>
<P style="font-size:10pt;padding-left:30"> (b) The Sellers shall cause
Kirkland & Ellis LLP and Jeffer, Mangels, Butler & Marmaro LLP to deliver to the Document Custodian, within 90 days
after the Closing, materials received or maintained in their files falling within Paragraph 36 of the Amended Protective Order
in the Litigation other than (i) any Litigation materials that are protected by the attorney-client privilege, the work product
doctrine or other applicable privileges, or (ii) materials falling within Paragraph 37 of the Amended Protective Order in the
Litigation (the “<U>Protective Order Materials</U>”). The Parties shall, within 90 days after the Closing, instruct
Special Master Balaran to deliver to the Document Custodian the USB 2.0 hard drives and any other media containing the electronic
files produced for inspection by the Medtronic Parties during the course of the Litigation (the “ <U>Special Master Materials</U>”)
(the Special Master Materials and the Protective Order Materials are jointly referred to as the “<U>Litigation Materials</U>”).
The Parties shall instruct the Document Custodian to hold the Litigation Materials until the applicable statute of limitations
expires relating to any Claim any of the Medtronic Parties or their respective Affiliates could assert for fraud in the inducement
relating to This Agreement, to rescind This Agreement, or for material breach of This Agreement (the “ <U>Retention Period</U>”),
at which time the Document Custodian shall, at the Buyer’s election, either destroy the Litigation Materials or deliver
the Litigation Materials to the Buyer. During the Retention Period, the Document Custodian shall grant the Sellers and their
Representatives access to such Litigation Materials that the Arbitrator determines is necessary for the Sellers and their Representatives
to defend against any Action or Claim initiated by the Buyer or any of its Affiliates against any Seller for fraud in the inducement
relating to This Agreement, to rescind This Agreement or for material breach of This Agreement, in which case the Retention
Period shall be extended until final resolution of any such Action(s) or Claim(s). Prior to the expiration of the Retention
Period, the Buyer may instruct the Document Custodian to either destroy the Litigation Materials or deliver the Litigation
Materials to the Buyer if the Buyer delivers to the Sellers an acknowledgement by the Medtronic Parties on behalf of themselves
and their respective Affiliates that all applicable statutes of limitation have expired and an unconditional release from the
Medtronic Parties and their respective Affiliates of any and all Actions and Claims for fraud in the inducement relating to
This Agreement, to rescind This Agreement, and for material breach of This Agreement. Notwithstanding any other provision in
This Agreement, the United States District Court for the Western District of Tennessee shall retain exclusive jurisdiction
to interpret, modify, or enforce the terms of the Amended Protective Order in the Litigation.</P>
<P style="font-size:10pt;padding-left:30"> (c) Upon reasonable request
by the Buyer, the Sellers shall, at the Buyer’s cost and expense, as soon as reasonably practicable deliver an additional
copy of any Tangible Materials that are in the possession of any of the Sellers or their Affiliates or Representatives.</P>
<P style="font-size:10pt"> <A NAME="a6.12">6.12.</A> <U>Taxes.</U> The
Buyer shall promptly pay all stamp Taxes, conveyance Taxes, transfer Taxes, use Taxes, sales Taxes, filing fees, recording
fees, reporting fees and other similar taxes and fees, if any, imposed upon, or resulting from, the transfer of the Purchased
Assets under This Agreement and the filing of any instruments relating to such transfer and all filing and recording fees payable
to the U.S. Patent and Trademark Office (and similar foreign agencies) in connection with the transfer of the Purchased Assets.
In no event shall this Section 6.12 or any other section of This Agreement be construed to impose upon the Buyer or any
of its Affiliates the obligation to pay any income Taxes or
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">22</P>
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<P style="font-size:10pt">Taxes other than those transfer Taxes and filing and recording fees specifically described in the
preceding sentence of any of the Sellers or any of their Affiliates relating to the transactions contemplated by This Agreement.</P>
<P style="font-size:10pt"> <A NAME="a6.13">6.13.</A> <U>Name Attribution.</U> </P>
<P style="font-size:10pt;padding-left:30"> (a) Beginning 60 days after
the Closing and ending upon the expiration of the Term, the Medtronic Parties shall include, or cause to be included, the Michelson
Logo (or such other attribution agreed to in writing by the Parties) in all Literature for or referencing an Attribution Product
System. During each October and each April during the Term, the Medtronic Parties shall provide Michelson with one original
copy of each different item of Literature relating to the Field that any of the Medtronic Parties or their Affiliates, or any
Person acting on behalf of any of them, disseminated or made available to a Third Party, or to any member of the sales, marketing,
or advertising forces of any of the Medtronic Parties or their Affiliates, during the six previous calendar months (April –
September for the October disclosure and October – March for the April disclosure, but the initial period will commence
60 days after the Closing). During the Term, Michelson may from time to time (but no more frequently than twice in any calendar
year) provide to the Medtronic Parties a revised list of Attribution Product Systems (a “<U>Revised Attribution Product
System List</U>”); <U>provided</U>, <U>however</U>, that each of the items on a Revised Attribution Product System List
is a product or product system of any of the Medtronic Parties or their Affiliates that practices or includes a feature that
is covered by any patent claim of a Patent Right in any of the Purchased Assets, Multi-Lock Patent Rights or Medtronic-Owned
Patent Rights. The Medtronic Parties may contest a new item in a Revised Attribution Product System List by providing notice
of such contest to Michelson within 30 days after notice of the Revised Attribution Product System List. If Michelson and the
Medtronic Parties cannot resolve this issue within 30 days after the Medtronic Parties’ notice that they are contesting
the Revised Attribution Product System List, the Parties shall submit the Dispute to arbitration pursuant to Section 10
(Arbitration). A Revised Attribution Product System List becomes controlling as to Attribution Product Systems (A) 60 days
after notice of it by Michelson, with respect to items not contested as in the immediately preceding sentence, and (B) within
60 days after resolution of the Parties’ Dispute over an item by arbitration pursuant to Section 10 (Arbitration)
or otherwise, with respect to items contested as in the immediately preceding sentence. Notwithstanding anything else in This
Agreement, the Medtronic Parties cannot and shall not contest any item in a Revised Attribution Product System List that has
previously appeared in <U>Schedule 6.13(a)</U>, as such list is revised from time to time pursuant to Section 6.13(a)
or Section 6.13(b).</P>
<P style="font-size:10pt;padding-left:30"> (b) Except for New Product
Systems whose Commercial Launch occurred during the period from October 1, 2003 and ending 60 days prior to the Closing,
at least 60 days prior to the Commercial Launch of a prospective New Product System the Medtronic Parties shall provide to
Michelson a description of each prospective New Product System along with any draft or non-draft Literature to date and reasonably
sufficient information, and at the request of Michelson a sample product or product system to examine for a reasonable period,
to allow Michelson to review the New Product System and make a determination that it is an Attribution Product System. Upon
a determination by the Medtronic Parties or an agreement of the Parties that it is an Attribution Product System, the Medtronic
Parties shall, within 10 Business Days thereafter, deliver to Michelson a Revised Attribution Product List reflecting the determination
or agreement. The Parties are considering use of Martin & Ferraro LLP as a neutral initial reviewing party. If Michelson
provides notice within 30 days after receipt of the description and Literature referred to in the first sentence of this Section
6.13(b), that the New Product System is an Attribution Product System and if the Medtronic Parties disagree and this Dispute
is not resolved within 30 days after Michelson’s notice, or such other time frame that the Parties may agree in writing,
the Parties shall submit the Dispute to arbitration pursuant to Section 10 (Arbitration) and the Medtronic Parties shall
not be required to provide attribution on Literature relating to such New Product System unless and until a final determination
by the Arbitrator with regard to that Dispute. The Parties acknowledge and agree that a New Product System will not require
attribution under This Agreement until the Commercial Launch of such new or modified product or product system.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">23</P>
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<P style="font-size:10pt;padding-left:30"> (c) The Medtronic Parties
shall ensure that the Michelson Logo (or such other attribution agreed to in writing by the Parties) appears, in the expression
specified opposite the applicable category of Literature in <U>Schedule 6.13(c),</U>on each item of Literature for or referencing
an Attribution Product System. The Medtronic Parties or their Affiliates may also use a symbol, logo or trademark of the Medtronic
Parties or their Affiliates or any other lawful means as an indication of origin for any Attribution Product System. The Medtronic
Parties acknowledge that the damages from a failure of any of them or their Affiliates to comply with the provisions of Section 6.13
are difficult to calculate. Therefore, to avoid the difficulty and inconvenience of gathering the information necessary to
calculate the damages resulting from such a failure to comply, and to avoid future disputes about the amount of such damages,
the Parties agree that (except with respect to the power to issue an order with respect to any New Product System set forth
in Section 6.13(b)),<B> </B>Michelson’s sole and exclusive remedy for any such failure to comply with the provisions of
Section 6.13 will be liquidated damages (which are not, will not be characterized by the Parties as, and will not be deemed
to be a penalty) in the amount and nature specified opposite the applicable category of Literature in <U>Schedule 6.13(c)</U>.
No liquidated damages will be due with respect to any Literature where (i) an identical copy of it was sent to Michelson before
its dissemination with a request for a decision from Michelson as to whether the attribution or lack thereof is appropriate
and to which Michelson did not raise an objection within 15 days or (ii) such Literature did not include a trade, product,
product system or company name used by any of the Medtronic Parties or their Affiliates or any Person claiming rights as a
result of a Third Party Attribution Transfer. In all instances, the Medtronic Parties shall use commercially reasonable efforts
to make sure that the Michelson Logo is visible, unobstructed, not obscured, and fairly rendered.</P>
<P style="font-size:10pt;padding-left:30"> (d) Notwithstanding the
exception in (iii) of the definition of Literature, neither the Medtronic Parties nor their Affiliates shall publish materials
through a Third Party in order to attempt to avoid the obligations of Section 6.13. If any of the Medtronic Parties or their
Affiliates provides materials or consideration to a Third Party publisher for use in a Third Party publication pursuant to
a written agreement or understanding regarding the use of such materials, then the Medtronic Parties shall (i) ensure that
any materials provided to such Third Party by Medtronic have the appropriate attribution as required by This Agreement and
(ii) request in any such agreement or understanding that the Third Party include the attribution as appropriate under This
Agreement. Medtronic shall use commercially reasonable efforts to ensure that Third Party publishers who acknowledge contributions
from Medtronic also provide appropriate attribution as required by This Agreement in published articles and papers. Medtronic
shall have no affirmative obligation to enforce or ensure that such Third Party actually includes the Michelson Logo pursuant
to Section 6.13(d)(ii) hereof and shall have no liability to Michelson under Section 6.13(d)(ii) for any act or omission
of a Third Party.</P>
<P style="font-size:10pt;padding-left:30"> (e) The definition of “Literature”
and the exclusions included in such definition are intended to encompass all currently known forms of promotional or educational
materials disseminated or made available to Third Parties by any of the Medtronic Parties or their Affiliates. In the event
a new form of dissemination of promotional or educational materials is developed during the Term upon notice by any of the
Parties, the Parties shall meet and confer within 30 days thereafter as to (i) whether such materials are of such a nature
that they should be excluded based on similar rationale to the exclusions in the definition of Literature, and (ii) if not,
the appropriate expression and mode of liquidated damages to be assessed in the future. If the Parties are not able to come
to terms during such 30-day period, then the Parties shall submit the Dispute to arbitration pursuant to Section 10 (Arbitration).
In the event that the Arbitrator makes a final determination that the type of dissemination is to be treated as Literature
in the future, the Arbitrator shall decide upon an appropriate expression of name attribution and liquidated damages and injunctive
relief associated therewith.</P>
<P style="font-size:10pt;padding-left:30"> (f) Any materials distributed
by the Medtronic Parties or their Affiliates prior to 60 days after the Closing will not be subject to liquidated damages or
injunctive relief pursuant to This Agreement or otherwise. Notwithstanding the immediately preceding sentence, the Medtronic
Parties shall use good faith and reasonable commercial efforts to (i) cease dissemination of non-conforming
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">24</P>
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<P style="font-size:10pt;padding-left:30">Literature after the Closing, and (ii) conform existing materials in Medtronic’s central inventory
in Memphis between the Effective Date and 60 days after the Closing. Notwithstanding anything else in This Agreement, the Medtronic
Parties shall not be liable for liquidated damages for errors in conforming existing materials in Medtronic’s central
inventory in Memphis at the Closing that had appropriate attribution pursuant to the court’s order in the Litigation and
are distributed within 180 days after the Closing.</P>
<P style="font-size:10pt;padding-left:30"> (g) The Medtronic Parties
shall conspicuously display, or cause to be conspicuously displayed, the Michelson Logo (or such other attribution agreed to
in writing by the Parties) in connection with any displays to Third Parties of the Tangible Materials that are part of the
Purchased Assets identified in Section 2.1(e).</P>
<P style="font-size:10pt;padding-left:30"> (h) In any Third Party
Attribution Transfer, the Person granting the Third Party Attribution Transfer shall require any Third Party receiving the
benefit of the Third Party Attribution Transfer to agree, in a written Contractual Obligation against the Third Party, to provide
name attribution on a basis no less stringent, including at least all rights, obligations, and liquidated damages under Section
6.13, than if a Medtronic Party was providing any product, service, or Literature provided by or on behalf of the Third Party
or on behalf of any Person with rights through the Third Party, with the writing memorializing the Contractual Obligation expressly
identifying Michelson as a third-party beneficiary of the name attribution obligations with an independent right of enforcement
without the need to join any other Person. The immediately preceding sentence does not apply to the current term of any Assumed
Contract that is not amended after the Effective Date. If Michelson is unable to enforce any name attribution obligations under
an Assumed Contract without a Medtronic Party being part of an Action, then such Medtronic Party or an Affiliate of such Medtronic
Party shall voluntarily join or otherwise participate in an Action as necessary to enforce the name attribution obligations
of Third Parties; <U>provided</U>, that Michelson agrees in advance to reimburse such Medtronic Party for its reasonable fees,
costs and expenses relating thereto. None of the Medtronic Parties shall have any affirmative obligation to enforce or ensure
that such Third Party actually includes the Michelson Logo pursuant to any Contractual Obligation or otherwise, and none of
the Medtronic Parties shall have any liability to Michelson for any act or omission of a Third Party. Notwithstanding anything
else in This Agreement, the Person granting the Third Party Attribution Transfer shall have (i) the right to agree with the
Third Party in good faith to determine which products and product systems require attribution under any Third Party Attribution
Transfer, which will be at least the products and product systems that practice or include a feature that is covered by an
issued and unexpired patent claim of a Patent Right in the Purchased Assets, Multi-Lock Patent Rights or Medtronic-Owned Patent
Rights and (ii) the right to grant one Third Party Attribution Transfer as part of a transaction that involves multiple business
segments of MDT without requiring any attribution as provided in This Agreement.</P>
<P style="font-size:10pt;padding-left:30"> (i) The Medtronic Parties
and their Affiliates shall use commercially reasonable efforts to ensure that all product systems with which they use the Michelson
Logo (i) meet or exceed the Medtronic Parties’ current standards of quality and performance relating to similar products,
with which the Sellers are generally familiar, and standards of quality and performance generally accepted in the industry,
(ii) meet or exceed standards of quality and performance of any applicable governmental agency, and (iii) comply with all applicable
laws, rules, and regulations. The Sellers’ sole and exclusive remedy for any failure of the Medtronic Parties and their
Affiliates to comply with the immediately preceding sentence is that Michelson may require that the name attribution under
this Section 6.13 not be made on any product system (and such product system is deemed removed from the then-current list of
Attribution Product Systems), and in response the Medtronic Parties and their Affiliates shall comply with the requirement
within 60 days on a rolling basis. Once a product or product system is removed from the list of Attribution Product Systems,
it cannot be replaced without the express, written consent of the Medtronic Parties.</P>
<P style="font-size:10pt;padding-left:30"> (j) Michelson may revise
the Michelson Logo, temporarily or permanently, and with respect to some or all uses required or permitted under This Agreement,
in response to any Claim that a use
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">25</P>
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<P style="font-size:10pt;padding-left:30">of the Michelson Logo as required or permitted under This Agreement violates a Legal Requirement.
If Michelson so revises the Michelson Logo, or requests that the Michelson Logo or other attribution not be used in a way required
or permitted by This Agreement, the Medtronic Parties shall use the new Michelson Logo or comply with the request as promptly
as commercially practicable. The cessation of attribution or change of Michelson Logo may, for 30 days, be accomplished through
the use of stickers where possible, unless Michelson determines in his reasonable discretion that such use of stickers would
not avoid liability based upon the asserted Legal Requirement.</P>
<P style="font-size:10pt;padding-left:30"> (k) Any disclosures by
any of the Medtronic Parties or their Affiliates pursuant to this Section 6.13 shall be deemed to be Confidential Information
of the Medtronic Parties.</P>
<P style="font-size:10pt;padding-left:30"> (l) In the event any of
the Medtronic Parties or their Affiliates conduct or sponsor an IDE clinical study or other study that involves Subject Intellectual
Property or Medtronic-Owned Patent Rights or MultiLock Patent Rights, such Medtronic Party or Medtronic Party Affiliate shall
include within the materials sent to clinical sites a stand-alone notification describing Michelson’s intellectual property
contributions with a request that such clinical sites include a reference to Michelson’s intellectual property contributions
in any press releases, articles or other public information when referring to such studies.</P>
<P style="font-size:10pt;padding-left:30"> (m) The rights and obligations
of the Parties pursuant to this Section 6.13 shall terminate upon expiration of the Term; <U>provided</U>, that (i) the rights
and obligations of the Parties pursuant to Section 6.13(k) shall survive the expiration of the Term and (ii) the Sellers’
rights to pursue Third Parties or to pursue liquidated damages remedies set forth in this Section 6.13 for any breach by the
Medtronic Parties or their Affiliates occurring during the Term shall survive the expiration of the Term.</P>
<P style="font-size:10pt"> <A NAME="a6.14">6.14.</A> <U>Confidentiality.</U> Each
of the Parties acknowledges that the preservation of the confidentiality of the Confidential Information of the other Parties
is an essential premise of the bargain between the Parties and that the Parties would be unwilling to enter into This Agreement
in the absence of this Section 6.14. Accordingly, from and after the Closing, except as otherwise contemplated by This Agreement,
each Party (the “<U>Bound Party</U>”) shall not, and shall cause its Affiliates and Representatives not to, without
the prior written consent of the other Parties to whom the Confidential Information belongs (the “<U>Other Parties</U>”),
disclose the Confidential Information of the Other Parties to any Person other than the Bound Party’s Representatives
who are informed of and bound by this confidentiality obligation or use the Confidential Information; <U>provided</U>, that
this Section 6.14 does not prohibit any disclosure (a) reasonably believed by the Bound Party to be required by any applicable
Legal Requirement, provided that the Bound Party provides reasonable prior notice of the disclosure to the Other Parties to
allow such Other Parties, if they desire, to contest the disclosure before it is made, (b) to Third Parties who are parties
to any of the Assumed Contracts, to the extent reasonably necessary with respect to the Bound Party’s rights or obligations
under the Assumed Contracts, including informing the Third Parties that the Assumed Contracts have been assigned and assumed,
or (c) made in furtherance of the enforcement or interpretation of any rights, remedy, or provision in, relating to or arising
under This Agreement, the Ancillary Agreements or the transactions contemplated in This Agreement or the Ancillary Agreements.</P>
<P style="font-size:10pt"> <A NAME="a6.15">6.15.</A> <U>Restricted Activities.</U>
As a material inducement to the Buyer’s purchase of the Purchased Assets under This Agreement, including
goodwill, each of the Sellers hereby covenants and agrees that from and after the Closing until the expiration of the Term,
none of the Sellers will, either directly or indirectly, (a) engage in, or (b) own, manage, operate, control, be employed by,
consult with, or assist, any Third Party or any Affiliate of any Seller engaged in, the practice, development, production,
manufacture, sale, licensing, sublicensing or servicing of products, techniques or procedures in the Field in any geographic
area in which the Buyer or any of its Affiliates conducts any business in the Field (collectively, the “<U>Restricted
Field</U>”); <U>provided</U>, that this Section 6.15 does not prohibit (i) ownership of less than 10% of the outstanding
stock of any publicly traded corporation or less than 20% of the equity interest of any hospital, medical clinic or center,
or other provider of medical services, (ii) participating
</P>
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<P style="font-size:10pt">in speaking engagements at, writing textbooks, treatises or articles for, or teaching at colleges,
universities, hospitals, charitable organizations or trade or industry conferences, or the like, including with respect to
devices or methods that are the subject of the Restricted Field, (iii) practicing medicine as a licensed physician or surgeon,
including the use of devices or methods that are the subject of the Restricted Field as part of such practice, (iv) performance
under consulting agreements set forth on <U>Schedule 6.15</U>, as such agreements are in effect on the Effective Date, (v)
licensing or assigning the Excluded Intellectual Property, (vi) other commercial exploitation of the Excluded Intellectual
Property so long as such other commercial exploitation does not infringe or misappropriate any Purchased Assets, (vii) serving
on any boards of directors of any not-for-profit organizations or any other similar charitable foundations, (viii) serving
as an officer of any not-for-profit organizations or any other similar charitable foundations so long as the activities or
the results of the activities of such organizations or foundations are not directed to the Field other than solely due to their
general application to the human body, (ix) making unrestricted gifts of cash, securities or other property to not-for-profit
organizations or any other similar charitable foundations that are not Affiliates of Michelson, including those engaged in
research in the Field, (x) making gifts of cash, securities or other property to not-for-profit organizations or any other
similar charitable foundations so long as the activities or the results of the activities of such organizations or foundations
are not directed to the Field other than solely due to their general application to the human body or (xi) consulting with
or assisting any Third Party or any Affiliate of any Seller in the Field solely with respect to the Excluded Intellectual Property
or consulting with or assisting any Third Party or any Affiliate of any Seller outside the Field. The Sellers agree that the
covenants of this Section 6.15 are reasonable and valid. If the final judgment of a court of competent jurisdiction declares
that any term or provision of this Section 6.15 is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability will have the power to reduce the scope, duration or area of the term or provision,
to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that
is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision,
and This Agreement will be enforceable as so modified after the expiration of the time within which the judgment may be appealed.</P>
<P style="font-size:10pt"> <A NAME="a6.16">6.16.</A> <U>Use of Michelson Logo.</U>
The Sellers shall not, and shall not permit any Affiliate or Third Party to, use the Michelson Logo (or any
other logo confusingly similar thereto) in connection with any products other than products in the medical field that use or
incorporate ideas conceived or developed by Michelson. All goodwill associated with use of the Michelson Logo shall inure to
the benefit of Michelson.</P>
<P style="font-size:10pt"> <A NAME="a6.17">6.17.</A> <U>Notice of Developments.</U>
From the Effective Date until the Closing, the Sellers will give the Buyer prompt written notice upon becoming
aware of any material development affecting the Purchased Assets and Excluded Intellectual Property (including claim amendments
since March 7, 2005) or any event or circumstance that could reasonably be expected to result in a material breach of,
or inaccuracy in, any of the Sellers’ representations and warranties; <U>provided</U>, that no such disclosure will be
deemed to prevent or cure any such breach of, or inaccuracy in, amend or supplement any Schedule to, or otherwise disclose
any exception to, any of the representations and warranties set forth in This Agreement, unless, notwithstanding such disclosure,
the Buyer consummates the Closing, in which case each such disclosed breach of, or inaccuracy in, the Sellers’ representations
and warranties shall be deemed waived by the Buyer and shall not be a source of Losses for which the Sellers provide indemnification
pursuant to Section 9 (Indemnification).</P>
<P style="font-size:10pt"> <A NAME="a6.18">6.18.</A> <U>Corporate Existence.</U>
For a period of two years following the Closing, KTI shall not dissolve or liquidate.</P>
<P style="font-size:10pt"> <A NAME="a6.19">6.19.</A> <U>Revival and Reinstatement
of Payment Obligations.</U> If any payment by the Buyer to the Sellers under This Agreement, in whole or
in part, should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors’
rights, including provisions of the Bankruptcy Code relating to fraudulent transfers, preferences, or other voidable or recoverable
payments of money or transfers of property (collectively, a “<U>Voidable Transfer</U>”), and if the Sellers are required
to repay or restore, in whole or in part, any such Voidable Transfer, or elect to do so upon the reasonable advice of their
counsel, then, to the extent of the amount of such Voidable Transfer that the
</P>
<BR>
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<P style="font-size:10pt;text-align:center">27</P>
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<P style="font-size:10pt">Sellers are required or elect to repay or restore, and as to reasonable costs, expenses, and attorneys’
fees of the Sellers incurred with respect thereto, the liability of the Buyer to the Sellers automatically shall be revived,
reinstated, and restored and shall exist as though such Voidable Transfer had never been made.</P>
<P style="font-size:10pt"> <A NAME="a6.20">6.20.</A> <U>Public Statements.</U>
None of the Parties shall make any public statement, whether in a press release, interview, article, book,
press conference, speaking engagement, or otherwise, relating to the terms of This Agreement or the Ancillary Agreements or
the details of the discussions and drafts leading up to the execution of This Agreement and the Ancillary Agreements (each,
a “<U>Public Statement</U>”) without the prior consent of the other Parties, which consent shall not be unreasonably
withheld; <U>provided</U>, that any Party may make such Public Statement it believes in good faith is required by applicable
Legal Requirements or the requirements of any national securities exchange or quotation system on which such Party’s securities
are listed or quoted for trading, in which case the disclosing Party will provide the other Parties with the reasonable opportunity
to review in advance such Public Statement, where practicable; <U>provided</U>, <U>further</U>, in the event that any Party
makes a Public Statement in accordance with this Section 6.20, any Party may repeat any of the information set forth in such
Public Statement. In addition, if any Party makes a Public Statement not in accordance with this Section 6.20, then any
Party not Affiliated with the Party making such Public Statement may repeat any of the information set forth in such Public
Statement.</P>
<P style="font-size:10pt"> <A NAME="a6.21">6.21.</A> <U>FDA Applications.</U> Effective
as of the Closing, the Sellers hereby assign any rights that they may have in any Food and Drug Administration or any similar
U.S. or foreign regulatory agency application for or approval of the use or sale of products (e.g., FDA 510(k) applications)
covered by one or more patent claims of the Subject Intellectual Property.</P>
<P style="font-size:10pt"> <A NAME="a6.22">6.22.</A> <U>Post-Closing Reconciliation.</U>
If, from time to time after the Closing, any of the Medtronic Parties or any of their Affiliates receives
or collects any Assumed Contract Amounts, it shall promptly pay such Assumed Contract Amounts to the Sellers. If, from time
to time after the Closing, any of the Sellers or any of their Affiliates receives or collects any amounts due under the Assumed
Contracts that are attributable to the period from and after the Closing, he or it shall promptly pay such amounts to the Medtronic
Parties.</P>
<P style="font-size:10pt"> <A NAME="a6.23">6.23.</A> <U>Covenants Regarding Contractual
Obligations.</U> After Closing, the Sellers shall continue honoring any remaining non-delegable obligations
under the Assumed Contracts, including confidentiality obligations thereunder. The Medtronic Parties shall not interfere with
the Sellers’ performance of such obligations.</P>
<P style="font-size:10pt"> <A NAME="a6.24">6.24.</A> <U>Remedies.</U> Effective
as of the Closing, the Sellers agree that the only remedy they may seek or obtain pursuant to the Excluded Equitable Rights
and to the Excluded Indemnification Rights shall be the Specified Relief. Effective as of the Closing, the Sellers have no
right to terminate any of the underlying agreements, alter any of the licenses thereunder, seek enjoinment or alteration of
any other provision or otherwise disturb the Buyer’s benefit of the bargain of having been assigned the Sellers’
contracts identified in <U>Schedule 2.2(c)</U> and <U>Schedule 2.2(d)</U>, other than seeking the Specified Relief.</P>
<P style="font-size:10pt"> <A NAME="a6.25">6.25.</A> <U>Third Party Confidentiality
Agreements.</U> In the event there are any confidentiality agreements among any of the Parties and their
Affiliates and any Third Party, the Parties agree that, to the extent permitted by law, any confidentiality obligations between
the Parties and their Affiliates shall be superseded and replaced by This Agreement, effective at the Closing.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">(7)</TD>
<TD WIDTH="98%"><A NAME="closing_conditions">CLOSING CONDITIONS.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a7.1">7.1.</A> <U>Conditions to the Medtronic
Parties’ Obligation to Close.</U> The obligation of the Medtronic Parties to consummate the Closing
is subject to satisfaction of the following conditions:</P>
<P style="font-size:10pt;padding-left:30"> (a) <U>Representations
and Warranties</U>. The representations and warranties of the Sellers contained in Section 4 of This Agreement will be
true and correct in all material respects at and as of the Closing with the same force and effect as if made as of the Closing,
other than representations and warranties that expressly speak only as of a specific date or time, which will be true and correct
in all material respects as of such specified date and time;</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">28</P>
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<P style="font-size:10pt;padding-left:30"> (b) <U>No Injunctions</U>.
No Governmental Order shall be issued and outstanding that would (i) prevent consummation of the transactions contemplated
by This Agreement and the Ancillary Agreements or (ii) cause the transactions contemplated by This Agreement and the Ancillary
Agreements to be rescinded following consummation;</P>
<P style="font-size:10pt;padding-left:30"> (c) <U>Performance</U>.
The Sellers shall have performed and complied in all material respects with all of their covenants, agreements and obligations
contained in This Agreement and the Ancillary Agreements that are required to be performed or complied with by them at or before
the Closing; </P>
<P style="font-size:10pt;padding-left:30"> (d) <U>Antitrust Matters</U>.
All applicable waiting periods (and any extensions thereof) under the HSR Act and any applicable foreign antitrust laws and
regulations<B> </B>shall have expired or otherwise been terminated;</P>
<P style="font-size:10pt;padding-left:30"> (e) <U>Closing Documents
and Certificates</U>. The Buyer shall have received each of the following agreements, documents, certificates and instruments:</P>
<P style="font-size:10pt;padding-left:60"> (i) a certificate dated
the Closing Date and executed by the Sellers certifying that each of the conditions specified in paragraphs (a) and (c) of
this Section 7.1 is satisfied in all respects as of the Closing;</P>
<P style="font-size:10pt;padding-left:60"> (ii) the Assignment and
Assumption Agreement duly executed by the Sellers as of the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (iii) the Bill of Sale
duly executed by the Sellers as of the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (iv) separate Patent and
Invention Assignments, substantially in the form of <U>Exhibit D</U>, with such changes as may be necessary for the assignment
to be suitable for recording in each jurisdiction and each recordable right or interest relating to the patents included in
the Purchased Assets, duly executed by the appropriate Sellers as of the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (v) written certification
from the Secretary or an Assistant Secretary of KTI dated as of the Closing Date as to (i) the incumbency and specimen signature
of each officer of KTI executing This Agreement or any of the Ancillary Agreements, (ii) the certificate of incorporation and
by-laws of KTI, each as amended, restated and in effect as of the Closing Date and (iii) the resolutions adopted by the Board
of Directors and the shareholders of KTI authorizing the execution, delivery and performance of This Agreement and the consummation
of the transactions contemplated hereby, each as amended, modified and in effect as of the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (vi) a certificate of good
standing of KTI issued by the California Secretary of State as of a date recent to the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (vii) the Dismissal Document,
duly executed by the Sellers as of the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (viii) the Confirmatory
Assignments, duly executed by the appropriate Sellers as of the Closing Date</P>
<P style="font-size:10pt;padding-left:60"> (ix) a letter from the
Sellers instructing the law firm of Martin & Ferraro LLP to deliver the originals of the Patent Prosecution Files to the
Buyer and to instruct, as agent of the Sellers, any patent counsel or agents to do the same;</P>
<P style="font-size:10pt;padding-left:60"> (x) a completed and executed
original U.S. Internal Revenue Service Form W-9 (or successor thereto) from each Seller certifying therein that such Seller
is a United States person within the meaning of the Code;</P>
<P style="font-size:10pt;padding-left:60"> (xi) such other documents
that the Buyer may reasonably request to transfer the Purchased Assets to the Buyer and otherwise effect the transactions contemplated
by This Agreement and the Ancillary Agreements;</P>
<P style="font-size:10pt;padding-left:60"> (xii) executed stipulations
of dismissal for the Purchased Claims; and</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">29</P>
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<P style="font-size:10pt;padding-left:30"> (f) <U>Letter of Credit</U>.
Unless the Parties shall have established an escrow arrangement pursuant to Section 3.3 (Closing Payment; Letter of Credit),
the Buyer shall have received the Closing Letter of Credit.</P>
<P style="font-size:10pt">The Buyer may waive any condition specified in this Section 7.1 if it executes a writing so stating
at or before the Closing, and such waiver shall not be considered a waiver of any other provision in This Agreement unless
the writing specifically so states.</P>
<P style="font-size:10pt"> <A NAME="a7.2">7.2.</A> <U>Conditions to the Sellers’
Obligation to Close.</U> The obligation of the Sellers to consummate the Closing is subject to satisfaction
of the following conditions:</P>
<P style="font-size:10pt;padding-left:30"> (a) <U>Closing Payment;
Alternate Closing Payment</U>. The Sellers shall have received either the Closing Payment or the Alternate Closing Payment,
as applicable;</P>
<P style="font-size:10pt;padding-left:30"> (b) <U>Representations
and Warranties</U>. The representations and warranties of the Buyer contained in Section 5 of This Agreement will be true
and correct in all material respects at and as of the Closing with the same force and effect as if made as of the Closing,
other than representations and warranties that expressly speak only as of a specific date or time, which will be true and correct
in all material respects as of such specified date and time;</P>
<P style="font-size:10pt;padding-left:30"> (c) <U>No Injunctions</U>.
No Governmental Order shall be issued and outstanding that would (i) prevent consummation of the transactions contemplated
by This Agreement and the Ancillary Agreements or (ii) cause the transactions contemplated by This Agreement and the Ancillary
Agreements to be rescinded following consummation;</P>
<P style="font-size:10pt;padding-left:30"> (d) <U>Performance</U>.
The Medtronic Parties shall have performed and complied in all material respects with all of their respective covenants, agreements
and obligations contained in This Agreement and the Ancillary Agreements that are required to be performed or complied with
by them at or before the Closing;</P>
<P style="font-size:10pt;padding-left:30"> (e) <U>Antitrust Matters</U>.
All applicable waiting periods (and any extensions thereof) under the HSR Act and any applicable foreign antitrust laws and
regulations<B> </B>shall have expired or otherwise been terminated; and</P>
<P style="font-size:10pt;padding-left:30"> (f) <U>Closing Documents
and Certificates</U>. The Sellers shall have received each of the following agreements, documents, certificates and instruments:</P>
<P style="font-size:10pt;padding-left:60"> (i) a certificate dated
the Closing Date and executed by the Buyer certifying that each of the conditions specified in paragraphs (b) and (d) of this
Section 7.2 is satisfied in all respects as of the Closing;</P>
<P style="font-size:10pt;padding-left:60"> (ii) the Ancillary Agreements
to which any Medtronic Party is a party duly executed by the Medtronic Parties, where applicable;</P>
<P style="font-size:10pt;padding-left:60"> (iii) written certification
from the Secretary or an Assistant Secretary of each Medtronic Party dated as of the Closing Date as to (i) the incumbency
and specimen signature of each officer of such Medtronic Party executing This Agreement or any of the Ancillary Agreements,
(ii) the certificate of incorporation and by-laws of such Medtronic Party, each as amended, restated and in effect as of the
Closing Date and (iii) the resolutions adopted by the Board of Directors and, if applicable, the shareholders of such Medtronic
Party authorizing the execution, delivery and performance of This Agreement and the consummation of the transactions contemplated
hereby, each as amended, modified and in effect as of the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (iv) a certificate of good
standing of MSD issued by the Indiana Secretary of State as of a date recent to the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (v) a certificate of good
standing of the Buyer issued by the Delaware Secretary of State as of a date recent to the Closing Date;</P>
<P style="font-size:10pt;padding-left:60"> (vi) a certificate of good
standing of MDT issued by the Minnesota Secretary of State as of a date recent to the Closing Date;</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">30</P>
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<P style="font-size:10pt;padding-left:60"> (vii) the Dismissal Document,
duly executed by the Medtronic Parties as of the Closing Date; and</P>
<P style="font-size:10pt;padding-left:60"> (viii) such other documents
that the Sellers may reasonably request to effect the transactions contemplated by This Agreement and the Ancillary Agreements.</P>
<P style="font-size:10pt">The Sellers may waive any condition specified in this Section 7.2 if they execute a writing so stating
at or before the Closing, and such waiver shall not be considered a waiver of any other provision in This Agreement unless
the writing specifically so states.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">8.</TD>
<TD WIDTH="98%"><A NAME="termination">TERMINATION.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a8.1">8.1.</A> <U>Termination of Agreement.</U>
This Agreement may be terminated (the date on which the Agreement is terminated, the “<U>Termination
Date</U>”) at any time before the Closing:</P>
<P style="font-size:10pt;padding-left:30"> (a) by mutual written consent
of the Buyer and the Sellers;</P>
<P style="font-size:10pt;padding-left:30"> (b) by either the Buyer
or the Sellers by providing written notice to the other at any time after June 30, 2005 if the Closing shall not have
occurred by reason of the failure of any condition set forth in Section 7.1 (Conditions to the Medtronic Parties’
Obligation to Close), in the case of the Buyer, or Section 7.2 (Conditions to the Sellers’ Obligation to Close),
in the case of the Sellers, to be satisfied (unless such failure is the result of one or more breaches or violations of, or
inaccuracy in, any covenant, agreement, representation or warranty of This Agreement by the terminating Party);</P>
<P style="font-size:10pt;padding-left:30"> (c) by either the Buyer
or the Sellers if a final nonappealable Governmental Order permanently enjoining or otherwise prohibiting the Closing will
have been issued by a Governmental Authority of competent jurisdiction;</P>
<P style="font-size:10pt;padding-left:30"> (d) by the Buyer if either
(i) there will have been a material breach of, or inaccuracy in, any representation or warranty of any of the Sellers
contained in Section 4 of This Agreement as of the Effective Date or as of any subsequent date (other than representations
or warranties that expressly speak only as of a specific date or time, with respect to which the Buyer’ right to terminate
will arise only in the event of a material breach of, or inaccuracy in, such representation or warranty as of such specified
date or time) or (ii) any of the Sellers will have breached or violated in any material respect any of their respective
covenants and agreements contained in This Agreement, which breach or violation would give rise, or could reasonably be expected
to give rise, to a failure of a condition set forth in Section 7.1 (Conditions to the Medtronic Parties’ Obligation
to Close) and cannot be or has not been cured on or before the later of (i) five Business Days following satisfaction of the
closing conditions set forth in Sections 7.1(d) and 7.2(e) and (ii) 10 days after the Buyer notifies the Sellers of such breach
or violation;</P>
<P style="font-size:10pt;padding-left:30"> (e) by the Sellers if either
(i) there will have been a material breach of, or inaccuracy in, any representation or warranty of the Buyer contained
in Section 5 of This Agreement as of the Effective Date or as of any subsequent date (other than representations or warranties
that expressly speak only as of a specific date or time, with respect to which the Sellers’ right to terminate will arise
only in the event of a material breach of, or inaccuracy in, such representation or warranty as of such specified date or time)
or (ii) the Buyer will have breached or violated in any material respect any of its covenants and agreements contained
in This Agreement, which breach or violation would give rise, or could reasonably be expected to give rise, to a failure of
a condition set forth in Section 7.2 (Conditions to the Sellers’ Obligation to Close) and cannot be or has not been
cured on or before the later of (i) five Business Days following satisfaction of the closing conditions set forth in Sections
7.1(d) and 7.2(e) and (ii) 10 days after the Sellers notify the Buyer of such breach or violation; or</P>
<P style="font-size:10pt;padding-left:30"> (f) by determination of
the Arbitrator if there is a Dispute between the Parties as to whether the conditions for termination under this Section 8.1
have been met.</P>
<P style="font-size:10pt">
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">31</P>
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<P style="font-size:10pt"> <A NAME="a8.2">8.2.</A> <U>Effect of Termination.</U> In the event of the termination
of This Agreement pursuant to Section 8.1 (Termination of Agreement), This Agreement (other than Section 2.8(a) (Inter-Party
Agreements and Three-Party Agreement), Section 3.1 (Signing Deposit), Section 6.20 (Public Statements)<B> </B>and Section
12.8 (Governing Law) and, in each case, related definitions) will then be null and void and have no further force and effect
and all other rights and Liabilities of the Parties will terminate without any Liability of any Party to any other Party, except
for Liabilities arising with respect to willful breaches under This Agreement by any Party on or before the Termination Date.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">9.</TD>
<TD WIDTH="98%"><A NAME="indemnification">INDEMNIFICATION.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a9.1">9.1.</A> <U>Indemnification by the Sellers.</U>
From and after the Closing, the Sellers shall jointly and severally indemnify, defend and hold harmless the
Medtronic Parties and their respective Affiliates and Representatives against all Losses relating to or arising out of:</P>
<P style="font-size:10pt;padding-left:30"> (a) (i) the breach of any
representation or warranty of the Sellers under Section 4 of This Agreement or in the closing certificate referenced in
Section 7.1(e)(i) (the “<U>Sellers’ Closing Certificate</U>”) (except as otherwise provided in the proviso
of Section 6.17 (Notice of Developments) or (ii) the breach of any covenant or obligation of the Sellers in This Agreement
or any of the Ancillary Agreements;</P>
<P style="font-size:10pt;padding-left:30"> (b) the Medtronic Parties’
use of the Michelson Logo in material conformity with This Agreement;</P>
<P style="font-size:10pt;padding-left:30"> (c) any Liability of any
Seller that may be imposed on any Medtronic Party under any doctrine of de facto merger or successor liability or similar legal
doctrine, but excluding any Assumed Liability;</P>
<P style="font-size:10pt;padding-left:30"> (d) any Third Party Claim
arising under or relating to a right of first refusal to acquire any of the Purchased Assets other than any such Third Party
Claim that is intentionally precipitated by any Medtronic Party; <U>provided</U> ¸ that a Third Party Claim asserted
in response to an Action (other than a declaratory judgment Action pertaining to such right of first refusal) initiated by
any Medtronic Party shall be deemed not to be “intentionally precipitated by” any Medtronic Party; or</P>
<P style="font-size:10pt;padding-left:30"> (e) any Contractual Obligation
of the Sellers to make any payments to any Third Party arising out of or relating to the payment to the Sellers of the Closing
Payment or the Alternate Closing Payment, as applicable, or any of the Post-Closing Payments;</P>
<P style="font-size:10pt">
<U>provided</U>, <U>however</U>, that (A) the Sellers shall not have any obligation to indemnify, defend or hold harmless the
Medtronic Parties or their Affiliates and Representatives against any Losses relating to or arising out of the breach of any
representation or warranty of the Sellers set forth in Sections 4.4 (Consents), 4.5 (Litigation), 4.6 (Assumed Contracts),
4.7(a) (Title), 4.8(a) (Intellectual Property), 4.8(b) (Intellectual Property), 4.8(c) (Intellectual Property), 4.8(d)(ii)
(Intellectual Property), 4.8(d)(iii) (Intellectual Property), 4.8(e) (Intellectual Property) and 4.9 (Solvency; Fair Consideration)
of This Agreement or in the corresponding representations and warranties set forth in the Sellers’ Closing Certificate
until the Medtronic Parties and their respective Affiliates and Representatives, collectively, have suffered Losses by reason
of all such breaches of at least $25,000,000 (the “<U>Basket</U>”) (after which point the Sellers will be obligated
to indemnify the Medtronic Parties and their Affiliates and Representatives against all such Losses, including the amount of
the Basket and not only to the extent such Losses exceed the Basket), and (B) there will be a $300,000,000 aggregate ceiling
on the obligation of the Sellers to indemnify the Medtronic Parties and their respective Affiliates and Representatives against
Losses relating to or arising out of breaches of the Sellers’ representations and warranties set forth in Section 4
of This Agreement or the Sellers’ Closing Certificate. No Claim for indemnification for breach by any Seller of any representation
or warranty set forth in Section 4.8(d)(i) may be brought unless such Claim arises from, and only to the extent such Claim
arises from, (i) a Third Party Claim (including a defense to a Claim of infringement brought by any of the Medtronic Parties
or their Affiliates) or (ii) the failure by any Medtronic Party to bring an Action for patent infringement against a Third
Party due to an assessment by such Medtronic Party that such Action cannot be brought because of a breach of a representation
or warranty by any of the Sellers set forth in Section 4.8(d)(i).</P>
<P style="font-size:10pt">
</P>
<BR>
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<P style="font-size:10pt;text-align:center">32</P>
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<P style="font-size:10pt"> <A NAME="a9.2">9.2.</A> <U>Indemnification by the Buyer.</U> From and after the Closing,
the Medtronic Parties shall jointly and severally indemnify, defend and hold harmless the Sellers and their respective Affiliates
and Representatives against all Losses relating to or arising out of:</P>
<P style="font-size:10pt;padding-left:30"> (a) the breach of any representation
or warranty of the Medtronic Parties in Section 5 of This Agreement or in the closing certificate referenced in Section 7.2(f)(i)
(the “<U>Medtronic Parties’ Closing Certificate</U>”) or the breach of any covenant or obligation of the Medtronic
Parties in This Agreement or any of the Ancillary Agreements;</P>
<P style="font-size:10pt;padding-left:30"> (b) any and all Assumed
Liabilities;</P>
<P style="font-size:10pt;padding-left:30"> (c) any Claims or Actions
by any Third Party arising out of or relating to the design, manufacture, distribution, sale, promotion, advertising, import,
export, lease, commercialization or use by the Medtronic Parties of or relating to products, product systems or procedures
in the Field or other products, product systems or procedures derived from or based on the Purchased Assets, the Medtronic-Owned
Patent Rights or the Multi-Lock Patent Rights, except to the extent the circumstances giving rise to such Claims or Actions
constitute a breach of any representation, warranty or covenant of any of the Sellers under This Agreement or the Sellers’
Closing Certificate (without regard to the expiration of the applicable survival period for such representations or warranties)
or relate to alleged medical malpractice by Michelson;</P>
<P style="font-size:10pt;padding-left:30"> (d) any Claims or Actions
by any Third Party under any Assumed Contracts initiated after the Closing based on any acts or omissions of the Sellers occurring
or existing before the Closing, except to the extent the circumstances giving rise to such Claims or Actions constitute a breach
of any representation, warranty or covenant of any of the Sellers under This Agreement or the Sellers’ Closing Certificate
(without regard to the expiration of the applicable survival period for such representations or warranties); or</P>
<P style="font-size:10pt;padding-left:30"> (e) any Claims or Actions
by any Third Party for product liability, product warranty or similar Claim or Action arising out of or relating to the licensing
or sublicensing by the Medtronic Parties of products, product systems or procedures in the Field or other products, product
systems or procedures derived from or based on the Purchased Assets, the Medtronic-Owned Patent Rights or the Multi-Lock Patent
Rights, except to the extent the circumstances giving rise to such Claims or Actions constitute a breach of any representation,
warranty or covenant of any of the Sellers under This Agreement or the Sellers’ Closing Certificate (without regard to
the expiration of the applicable survival period for such representations or warranties) or relate to alleged medical malpractice
by Michelson;</P>
<P style="font-size:10pt">
<U>provided</U>, <U>however</U>, that (A) the Medtronic Parties have no obligation to indemnify, defend, or hold harmless the
Sellers or their respective Affiliates or Representatives against any Losses relating to or arising out of the breach of any
representation or warranty of the Medtronic Parties in This Agreement or in the corresponding representations and warranties
set forth in the Medtronic Parties’ Closing Certificate unless and until the Sellers and their respective Affiliates and
Representatives, collectively, have suffered Losses by reason of all such breaches of at least the Basket (after which point
the Medtronic Parties will be obligated to indemnify the Sellers and their Affiliates and Representatives against all such
Losses, including the amount of the Basket and not only to the extent such Losses exceed the Basket), and (B) there will be
a $300,000,000 aggregate ceiling on the obligation of the Medtronic Parties to indemnify the Sellers and their respective Affiliates
and Representatives against Losses relating to or arising out of breaches of the Medtronic Parties’ representations and
warranties set forth in Section 5 of This Agreement or in the Medtronic Parties’ Closing Certificate.</P>
<P style="font-size:10pt"> <A NAME="a9.3">9.3.</A> <U>Survival.</U> The
terms of This Agreement and all provisions hereof, including all representations, warranties, promises, agreements and covenants,
are contractual and not mere recitals and shall survive the execution and delivery of This Agreement and the Closing under
This Agreement and, except as expressly stated herein, shall continue in full force and effect thereafter; <U>provided</U>,
that (i) the representations and warranties set forth in Sections 4.1 (Organization; Shareholders), 4.2 (Authorization), 4.3
(Noncontravention), 4.7 (Title), 4.8(d)(i) (Intellectual Property) and 4.10 (U.S. Taxpayer) (including, in each case, the corresponding
representations and warranties set forth in the Sellers’
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">33</P>
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<P style="font-size:10pt">Closing Certificate), and Sections 5.1 (Organization), 5.2 (Authorization) and 5.3 (Noncontravention)
(including, in each case, the corresponding representations and warranties set forth in the Medtronic Parties’ Closing
Certificate) shall only survive until the fifth anniversary of the Closing and (ii) the other representations and warranties
set forth in This Agreement shall only survive until the third anniversary of the Closing; <U>provided</U>, <U>further</U>,
that if any Claim seeking indemnification has been timely made in accordance with Section 9.4 (Time for Claims) but has not
been finally determined by the end of the applicable survival period set forth above, the representations and warranties set
forth in This Agreement shall, for purposes of such Claim (and only such Claim), survive until final determination of such
Claim.</P>
<P style="font-size:10pt"> <A NAME="a9.4">9.4.</A> <U>Time for Claims.</U> No
Claim may be made seeking indemnification pursuant to This Agreement unless a written notice thereof is provided to the Indemnifying
Party (i) at any time before the expiration of the applicable survival period set forth in Section 9.3 (Survival), in the case
of any breach of any of the representations or warranties in This Agreement, and (ii) at any time, in the case of any other
Claim seeking indemnification pursuant to This Agreement.</P>
<P style="font-size:10pt"> <A NAME="a9.5">9.5.</A> <U>Notices.</U> If
an Indemnified Party intends to seek indemnification pursuant to This Agreement, such Indemnified Party shall promptly notify
the Indemnifying Party in writing of the Claim for which indemnification is sought, including any Third Party Claims in respect
of which indemnification is sought under This Agreement, in each case within the applicable time periods specified in Section
9.4 (Time for Claims). Any such notice shall set forth in reasonable detail, in light of the circumstances then known to the
Indemnified Party, the facts, circumstances and basis of the Claim and, if the Claim relates to a Third Party Claim, shall
include copies of all papers served upon or received by the Indemnified Party relating thereto. Any delay in the provision
of such notice and accompanying materials shall not affect any rights under This Agreement except to the extent that the Indemnifying
Party is actually and materially prejudiced thereby.</P>
<P style="font-size:10pt"> <A NAME="a9.6">9.6.</A> <U>Third Party Claims.</U>
The Indemnifying Party will be entitled to participate in the defense of any Third Party Claim that is the
subject of a notice given by the Indemnified Party pursuant to Section 9.5 (Notices). In addition, the Indemnifying Party will
have the right to defend the Indemnified Party against the Third Party Claim with counsel of the Indemnifying Party’s
choice reasonably satisfactory to the Indemnified Party so long as:</P>
<P style="font-size:10pt;padding-left:30"> (a) the Indemnifying Party
gives written notice to the Indemnified Party within 10 Business Days after the Indemnified Party has given notice of the Third
Party Claim that the Indemnifying Party will indemnify the Indemnified Party against the entirety of any and all Losses the
Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of or caused by the Third Party Claim;</P>
<P style="font-size:10pt;padding-left:30"> (b) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable relief against the Indemnified Party;</P>
<P style="font-size:10pt;padding-left:30"> (c) the Indemnified Party
has not been advised by counsel that an actual or potential conflict exists between the Indemnified Party and the Indemnifying
Party in connection with the defense of the Third Party Claim;</P>
<P style="font-size:10pt;padding-left:30"> (d) the Third Party Claim
does not relate to or otherwise arise in connection with any criminal or regulatory enforcement Action; and</P>
<P style="font-size:10pt;padding-left:30"> (e) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.</P>
<P style="font-size:10pt;margin-left:28.8pt"> If any of the foregoing conditions
is not satisfied, the Indemnified Party may assume control of the defense of the Third Party Claim with counsel of its choice
and the Indemnified Party’s reasonable legal fees and expenses shall constitute part of the Losses indemnified under This
Agreement, provided, that such Claim for indemnification is agreed by the Indemnifying Party or otherwise determined in the
Indemnified Party’s favor by the Arbitrator. The Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim; <U>provided</U>, that the Indemnifying Party will pay the
fees and expenses of separate
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">34</P>
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<P style="font-size:10pt">co-counsel retained by the Indemnified Party that are incurred prior to Indemnifying Party’s
assumption of control of the defense of the Third Party Claim. The Indemnifying Party will not consent to the entry of any
judgment or enter into any compromise or settlement with respect to the Third Party Claim without the prior written consent
of the Indemnified Party unless such judgment, compromise or settlement (i) provides for the payment by the Indemnifying Party
of money as sole relief for the claimant, (ii) results in the full and general release of the Indemnified Party from all Liabilities
arising or relating to, or in connection with, the Third Party Claim and (iii) involves no finding or admission of any violation
of Legal Requirements or the rights of any Person and no effect on any other Claims that may be made against the Indemnified
Party. If the Indemnifying Party does not deliver the notice contemplated hereby within 10 Business Days after the Indemnified
Party has given notice of the Third Party Claim, or otherwise at any time fails to conduct the defense of the Third Party Claim
actively and diligently, the Indemnified Party may defend, and may consent to the entry of any judgment or enter into any compromise
or settlement with respect to, the Third Party Claim in any manner it may deem appropriate (and the Indemnified Party need
not consult with, or obtain any consent from, the Indemnifying Party in connection therewith). If the Indemnifying Party is
entitled to assume control of the defense of the Third Party Claim hereunder, and conducts the defense of the Third Party Claim
actively and diligently but any of the other conditions set forth in clauses (a) through (e) of this Section 9.6 is or becomes
unsatisfied, the Indemnified Party may defend, and may consent to the entry of any judgment or enter into any compromise or
settlement with respect to, the Third Party Claim; <U>provided</U>, that the Indemnifying Party will not be bound by the entry
of any such judgment consented to, or any such compromise or settlement effected, without its prior written consent (which
consent will not be unreasonably withheld or delayed). Notwithstanding anything to the contrary in This Agreement, in the event
that a Third Party Claim is asserted against one or more Medtronic Indemnified Parties and the potential for indemnification
arises from or relates to an actual or alleged breach of the Sellers’ representations and warranties set forth in Section
4.8(d)(i) of This Agreement, then the response to and defense of such Claim shall be managed as follows. The Medtronic Indemnified
Parties will have the sole and exclusive right to defend, settle or agree to entry of judgment of such Third Party Claim with
counsel of its choice. However, any such judgment, settlement or finding by any court or arbitral body shall not be dispositive
or admissible evidence<B> </B>with respect to determining whether the Sellers have breached any of their representations or
warranties in Section 4.8(d)(i) of This Agreement.</P>
<P style="font-size:10pt"> <A NAME="a9.7">9.7.</A> <U>LIMITATION OF DAMAGES.</U>
THE PARTIES SHALL ONLY BE LIABLE FOR ACTUAL DAMAGES (INCLUDING DIMINUTION OF VALUE OF THE PURCHASED ASSETS)
AND SHALL NOT BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL OR<B> </B>PUNITIVE DAMAGES OF ANY KIND RELATING TO OR ARISING OUT
OF THIS AGREEMENT OR THE ANCILLARY AGREEMENTS, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THE LIMITATION SET FORTH IN THIS SECTION SHALL NOT APPLY TO CLAIMS FOR AMOUNTS PAID WITH RESPECT TO INDEMNIFICATION FOR LOSSES
ARISING FROM THIRD PARTY CLAIMS.</P>
<P style="font-size:10pt"> <A NAME="a9.8">9.8.</A> <U>Exclusive Remedy.</U> Except
as expressly stated otherwise in This Agreement, the indemnities set forth in this Section 9 shall be the exclusive remedy
for any Claims, whether Third Party Claims or direct Claims between the Parties, relating to or arising out of This Agreement,
the Ancillary Agreements or the transactions contemplated hereby or thereby.</P>
<P style="font-size:10pt"> <A NAME="a9.9">9.9.</A> <U>Knowledge and Investigation.</U>
Except as expressly set forth in the proviso to Section 6.17 (Notice of Developments), the right of any Indemnified
Party to indemnification pursuant to this Section 9 will not be affected by any investigation conducted or knowledge acquired
(or capable of being acquired) at any time, whether before or after the execution and delivery of This Agreement or the Closing,
with respect to the accuracy of any representation or warranty, or performance of or compliance with any covenant or agreement
under This Agreement.</P>
<P style="font-size:10pt"> <A NAME="a9.10">9.10.</A> <U>Letter of Credit.</U> For
as long as any amounts are outstanding under the Closing Letter of Credit or any Post-Closing Letter of Credit (collectively,
the “ <U>LOCs</U>”), or Escrow Account, as applicable, any and all amounts payable by the Sellers as Indemnifying
Parties to a Medtronic Indemnified
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">35</P>
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<P style="font-size:10pt">Party shall be paid in cash first out of the LOCs or the Escrow Account, as applicable, and thereafter
by the Sellers in accordance with payment instructions provided by the Buyer. The existence of the LOCs or the Escrow Account,
as applicable, shall not be deemed to limit the amount of any allowable Claims by any Medtronic Indemnified Party pursuant
to This Agreement for Losses in excess of the outstanding amounts under the LOCs or the Escrow Account, as applicable. The
Sellers shall cause the principal amounts under each of the LOCs or the Escrow Account, as applicable, to remain outstanding
until the earlier of (a) such time as the entire principal amount of such LOC or the Escrow Account, as applicable, has been
used to pay the Medtronic Indemnified Parties in accordance with a decision of the Arbitrator and (b) the fifth anniversary
of the Closing and thereafter the funds in the Escrow Account shall be released to the Sellers or the LOCs shall be terminated,
as the case may be; <U>provided</U>, that<B> </B>if any Claim seeking indemnification has been timely made in accordance with
Section 9.4 (Time for Claims) but has not been finally determined by the Arbitrator by the fifth anniversary of the Closing,
then the Sellers shall cause the principal amounts under each of the LOCs or the Escrow Account, as applicable, to remain outstanding
until such final determination of each such Claim in an aggregate principal amount sufficient to satisfy the aggregate amount
of Losses to which the Medtronic Indemnified Parties reasonably estimate (and provide the Sellers prior notice of) they may
be entitled to recover from the Sellers in respect of all such Claims.</P>
<P style="font-size:10pt"> <A NAME="a9.11">9.11.</A> <U>Duty to Mitigate.</U> The
Parties acknowledge that in determining the amount of any Loss to which any Indemnified Party is entitled to indemnification
under this Section 9, the Arbitrator shall take into account the degree to which such Indemnified Party took or failed to take
action to mitigate such Loss.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">10.</TD>
<TD WIDTH="98%"><A NAME="arbitration">ARBITRATION.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a10.1">10.1.</A> <U>Agreement to Arbitrate.</U>
To expedite the resolution of Disputes that may arise between the Parties, the Parties, on behalf of themselves
and their respective Affiliates, agree that any and all Disputes shall be submitted to final and binding arbitration pursuant
to the procedures set forth in this Section 10. The Parties consent to the exclusive jurisdiction of the Arbitrator to finally
resolve any and all Disputes, including a Dispute under Section 8.1(f), and waive any and all resort to any court in connection
with any and all Disputes, regardless of the legal or equitable theory upon which such Disputes may be based, except for the
enforcement, vacation or remand of any arbitration award or arbitration order. Any dispute concerning whether any Dispute is
arbitrable pursuant to This Agreement shall be resolved by the Arbitrator and not by any court.</P>
<P style="font-size:10pt"> <A NAME="a10.2">10.2.</A> <U>Appointment and Replacement
of Arbitrator.</U> MSD, on behalf of the Medtronic Parties, and the Sellers shall appoint an arbitrator pursuant
to the provisions of this Section 10.2 promptly after the execution of This Agreement. That arbitrator or a replacement selected
pursuant to this Section 10.2 (in either case, the “<U>Arbitrator</U>”) shall be retained by the Medtronic Parties
and the Sellers as the Arbitrator for the Term. The Arbitrator shall be appointed according to the following procedure: the
Sellers shall provide to the Medtronic Parties a list of ten individuals (“<U>Potential Arbitrators</U>”) who are
all able and willing to fulfill the duties of the Arbitrator under this Section 10, who have not previously represented any
of the Parties or their Affiliates, and who are either (i) former judges of a United States District Court or a United States
Court of Appeals, or (ii) intellectual property attorneys with at least 20 years of experience in intellectual property litigation.
Of the Potential Arbitrators, the Sellers will provide at least four suggestions from each category. MSD, on behalf of the
Medtronic Parties, shall then have 30 days to select one name from the list of Potential Arbitrators and inform the Sellers
of the selection. If the Medtronic Parties fail or refuse to select one name from the list of Potential Arbitrators, the Sellers
shall have the power to select the Arbitrator from the list of Potential Arbitrators. Should the Arbitrator (including any
replacement) at any time be unable or unwilling to fulfill his or her duties, or be disqualified pursuant to Section 10.13,
the Parties will appoint a replacement (who will then be the “Arbitrator”) following this same procedure.</P>
<P style="font-size:10pt"> <A NAME="a10.3">10.3.</A> <U>Exclusive Dispute Resolution
Procedure.</U> The arbitration procedure contained in this Section 10 shall be the exclusive dispute
resolution procedure available to the Parties with respect to any and all Disputes.</P>
<P style="font-size:10pt">
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">36</P>
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<P style="font-size:10pt"> <A NAME="a10.4">10.4.</A> <U>Demand for Arbitration.</U> Any arbitration proceeding
shall commence with the service by a Party or Parties (the “<U>Claimant</U>”) of a demand for arbitration (the “<U>Demand</U>”).
The Demand shall be served on the Party or Parties against whom arbitration is sought (the “<U>Respondent</U>”) and
on the Arbitrator and shall specify in reasonable detail the nature of the claim or claims and the relief requested for each
claim. The service of the Demand shall conform with the notice provisions of Section 12.7 (Notices). As used herein, “<U>Arbitration
Parties</U>” means the Claimant and Respondent.</P>
<P style="font-size:10pt"> <A NAME="a10.5">10.5.</A> <U>Applicable Arbitration
Procedures and Powers of the Arbitrator.</U> The Arbitrator shall conduct the arbitration proceeding in accordance
with the provisions of This Agreement and the provisions of the Federal Arbitration Act (the “<U>Act</U>”). Any procedure,
rule or standard specified in This Agreement will control over any conflicting procedure, rule or standard in the Act. The
Arbitrator shall have full power to make such orders, rules and regulations relating to the arbitration proceeding as he or
she deems just and expedient, including the power to order any of the Parties to perform or refrain from any act within the
scope of the Dispute, the power to enter and modify protective orders, the power to retain experts, and the power to appoint
referees and special masters.</P>
<P style="font-size:10pt"> <A NAME="a10.6">10.6.</A> <U>Service.</U> Unless
otherwise agreed, the Respondent shall have 20 days from the date of service of the Demand to serve a response to the Demand
(the “<U>Response</U>”) and any counter-demand for arbitration (the “<U>Counter-Demand</U>”), and the
Claimant shall have 20 days from the date of service of the Counter-Demand to serve a response to the Counter-Demand. Federal
Rule of Civil Procedure (“<U>FRCP</U>”) 6(a) shall govern the computation of any period of time prescribed or allowed
by this Section 10 or by the Arbitrator. Service of all papers in the arbitration proceeding shall be made on the Arbitration
Parties and the Arbitrator by hand delivery, facsimile, electronic mail or overnight courier. Service by overnight courier
shall add one day to the time for any required response.</P>
<P style="font-size:10pt"> <A NAME="a10.7">10.7.</A> <U>Preliminary Meeting.</U>
Counsel for Claimant and Respondent shall meet in person or by telephone with the Arbitrator within 10 days
of the service of the Response or, if a Counter-Demand is served, within 10 days of the Claimant’s service of a response
to the Counter-Demand (the “<U>Preliminary Meeting</U>”). At the Preliminary Meeting, the Arbitrator shall consider
and enter a scheduling order (the “<U>Scheduling Order</U>”) containing (i) a schedule for discovery pursuant to
Section 10.8, (ii) a schedule for the Arbitration Parties’ submission of proposed protective orders that the Arbitrator
may enter as he or she deems appropriate, to apply to the arbitration proceeding consistent with Section 10.14 hereof,
(iii) a schedule for the briefing of dispositive motions, (iv) a schedule for the exchange of lists of witnesses, including
experts, that each Party intends to call at the arbitration hearing (the “<U>Hearing</U>”) and the subjects of their
testimony, and copies of all documents that the Arbitration Party intends to introduce at the Hearing to support its claims
or defenses, (v) a date for a pre-Hearing meeting (the “<U>Pre-Hearing Meeting</U>”) to discuss and define the order
of proof and issues to be presented at the Hearing, and any related briefing, and (vi) a date for the commencement of the Hearing.
At the Pre-Hearing Meeting, the Claimant and Respondent shall exchange offers to resolve the matters at issue in the Demand
and Counter-Demand (each, an “<U>Arbitration Settlement Offer</U>”). After a final arbitration award has been rendered,
the Parties shall provide the Arbitrator with their respective Arbitration Settlement Offers.</P>
<P style="font-size:10pt"> <A NAME="a10.8">10.8.</A> <U>Discovery.</U> The
Arbitration Parties shall be entitled to discovery during the arbitration proceeding pursuant to (i) FRCP 34 (requests for
the inspection and production of documents), (ii) FRCP 30 (depositions), (iii) FRCP 26(a)(2) (disclosure of expert reports),
and (iv) FRCP 26(b)(4) (depositions of expert witnesses). Each side in the arbitration shall prepare and produce a privilege
log. Each side in the arbitration proceeding shall be entitled to depose ten non-expert witnesses, for a maximum of eight hours
each. Additional depositions may be permitted by the Arbitrator, in his or her discretion. In addition, the Arbitration Parties
shall only be entitled to use the Litigation Materials in the arbitration to the extent permitted by Section 6.11(b). Every
discovery dispute the Arbitration Parties are unable to resolve informally shall be submitted to the Arbitrator for decision,
by the service of a written brief. Any response shall be served within five days thereafter and any reply shall be served within
three days after service of the response. The Arbitrator shall rule promptly thereafter and may make such orders with respect
to discovery disputes as he or she deems just and expedient. Any and all materials disclosed pursuant to any Dispute shall
be returned to the producing Party or destroyed within thirty days of any final award with respect to a Dispute, <U>provided</U><I>,</I>
<U>however</U>, if either Party provides
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">37</P>
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<P style="font-size:10pt">notice to the Arbitrator during such thirty day period, then the Arbitrator may issue an order providing
for retention of such materials by a Third Party with access to such materials to be determined by the Arbitrator.</P>
<P style="font-size:10pt"> <A NAME="a10.9">10.9.</A> <U>Hearing and Prior Proceedings.</U>
The Hearing shall take place in Los Angeles, California, commencing as expeditiously as possible but in no
event, without good cause shown to the satisfaction of the Arbitrator, later than 120 days after the Preliminary Meeting. The
Hearing shall be held, to the extent possible, on consecutive days (excluding weekends). The Arbitrator may permit deposition
testimony to be presented in lieu of oral testimony. The Hearing shall be recorded stenographically. Proceedings prior to the
Hearing shall be held in person or by telephone.</P>
<P style="font-size:10pt"> <A NAME="a10.10">10.10.</A> <U>Evidence.</U> The
Arbitrator shall be the sole judge of the admissibility, relevance and materiality of the evidence offered, and conformity
with the legal rules of evidence shall not be necessary.</P>
<P style="font-size:10pt"> <A NAME="a10.11">10.11.</A> <U>Awards.</U> </P>
<P style="font-size:10pt;padding-left:30"> (a) The Arbitrator shall
have the power to award only the remedies or relief set forth in This Agreement, i.e., monetary damages, liquidated damages,
injunctive relief and specific performance (including the power to exercise a power-of-attorney to execute confirmatory assignments
on behalf of the Sellers in the event that the Arbitrator determines that it is appropriate to do so due to a failure of the
Sellers to provide further assurances as required by Section 6.8 (Further Assurances)). In addition, the Arbitrator shall have
the power to execute and deliver and file and record in the proper filing and recording places, all such instruments, including
Uniform Commercial Code termination statements covering or purporting to cover any of the Sellers’ assets or properties
that is not Collateral, and take all such other actions as the Arbitrator shall determine to be appropriate to terminate or
otherwise release the Buyer’s security interest in any of the Sellers’ assets or properties that the Arbitrator determines
is not Collateral under any applicable Legal Requirement. The Arbitrator shall award to the prevailing Arbitration Party or
Arbitration Parties its or their reasonable attorneys’ fees and costs. For purposes of determining which Arbitration Party
is the prevailing party and thus entitled to recover attorneys’ fees and costs, the Arbitrator must do so in the following
manner. The Arbitrator shall determine which Arbitration Party’s Arbitration Settlement Offer is closer to the Arbitrator’s
final award and shall determine that such Arbitration Party is the prevailing party for purposes of awarding reasonable attorneys’
fees and costs.</P>
<P style="font-size:10pt;padding-left:30"> (b) The Arbitrator’s
awards shall be accompanied by detailed findings of fact and conclusions of law, final and binding upon, and enforceable as
to, the Parties. The Arbitrator’s final award shall be rendered no later than 30 days after the close of the Hearing.
The Arbitrator’s rendered award shall be confidential and filed under seal in any recourse to the courts taken to enforce
the award. </P>
<P style="font-size:10pt;padding-left:30"> (c) The award rendered
by the Arbitrator shall be collateral estoppel as to any issue found against a Party in any later arbitration.</P>
<P style="font-size:10pt;padding-left:30"> (d) Each of the Parties
acknowledge and agree that the other Parties would be damaged irreparably in the event of any breach of or failure to perform
the obligations of certain Sections of This Agreement in accordance with their specific terms, including Sections 2.9 (Sellers’
Covenant Not To Sue), 6.1 (Litigation), 6.2 (HSR Act), 6.3 (Closing), 6.5 (Covenants in Support of Assignment), 6.6 (Models
and Prototypes), 6.7 (Disclosure of New Subject Invention and New Subject Intellectual Property), 6.8 (Further Assurances),
6.10 (Third Party Actions), 6.11 (Patent Counsel; Return of Documents; Tangible Materials), 6.13 (Name Attribution) with respect
to New Product System designation, 6.14 (Confidentiality), 6.15 (Restricted Activities), 6.16 (Use of Michelson Logo), 6.18
(Corporate Existence), 6.20 (Public Statements), 6.23 (Covenants Regarding Contractual Obligations) and 6.24 (Remedies). Accordingly,
each of the Parties agrees that, without posting bond or other undertaking, the other Parties will be entitled to seek an interim
award from the Arbitrator seeking an injunction or injunctions to prevent breaches or violation of This Agreement and to enforce
specifically the terms and provisions of certain Sections of This Agreement and that the prevailing Party may seek to have
such interim award immediately entered in any court of the United States or any state thereof having jurisdiction over the
Parties and the matter. Each Party
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">38</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">further agrees that, in the event of any such entry of an interim award in any court of the United
States or any state thereof having jurisdiction over the Parties and the matters, no Party will assert that a remedy at law
would be adequate as a defense to enforcement of the Arbitrator’s previously issued interim award for specific performance.</P>
<P style="font-size:10pt"> <A NAME="a10.12">10.12.</A> <U>Arbitrator’s Fees.</U>
The Arbitrator shall be paid an annual retainer of $50,000. The Arbitrator shall be entitled to additional
compensation for services rendered and costs incurred in connection with any arbitration proceeding, as specified by the Arbitrator.
The Arbitrator’s annual retainers shall be borne one half by the Medtronic Parties and one half by the Sellers. The Arbitrator’s
additional compensation for services rendered and costs incurred in connection with any arbitration proceeding, and any administrative
fees associated with the arbitration proceeding, shall initially be borne one half by the Medtronic Parties and one half by
the Sellers, but the prevailing Party or Parties in the arbitration proceeding shall be entitled to recover its or their share
of those amounts from the losing Party or Parties in accordance with Section 10.11 hereof.</P>
<P style="font-size:10pt"> <A NAME="a10.13">10.13.</A> <U>Impartiality and Disqualification
of Arbitrator; Ex Parte Contacts.</U> </P>
<P style="font-size:10pt;padding-left:30"> (a) The Arbitrator shall
be subject to disqualification if his or her impartiality or independence can reasonably be questioned, and shall be obligated
to disclose to the Parties any circumstance likely to give rise to a reasonable doubt as to his or her impartiality or independence,
including the acquisition of any financial interest in any of the Parties or their Affiliates. Any request for disqualification
of the Arbitrator shall be made to the Arbitrator, who shall consider the request from the perspective of a reasonable observer
who is informed of all the surrounding facts and circumstances, and if the Arbitrator determines that the impartiality or independence
of the Arbitrator can reasonably be questioned, then (i) the Arbitrator shall no longer serve as Arbitrator of any Dispute
that may arise between the Parties, including any pending Dispute and (ii) the Parties will select a new Arbitrator, as necessary,
pursuant to Section 10.2 (Appointment and Replacement of Arbitrator). Upon the request of either party, the determination contemplated
by this Section 10.13(a) can be submitted to a second arbitrator chosen in accordance with Section 10.2 (Appointment and
Replacement of Arbitrator). In the event the second arbitrator determines that the impartiality or independence of the Arbitrator
can reasonably be questioned, then the Parties will select a new Arbitrator, as necessary, pursuant to Section 10.2 (Appointment
and Replacement of Arbitrator) from a list that shall not include the second arbitrator who made the determination. If the
Arbitrator makes a determination that the impartiality or independence of the Arbitrator cannot reasonably be questioned, then
the Arbitrator shall remain engaged as provided in This Agreement.</P>
<P style="font-size:10pt;padding-left:30"> (b) No Party or its Representative
shall, unless the Parties agree, or if there is an arbitration proceeding pending, unless all of the parties<B> </B>to the
arbitration proceeding agree, communicate ex parte with the Arbitrator, except that the Arbitrator may conduct any communication
or proceeding on an ex parte basis if the Arbitrator determines that the non-appearing Party or Parties received reasonable
advance notice thereof and did not provide reasonable justification for their failure to appear, or if the Arbitrator,<B> </B>upon
notice to all Parties, deems such communication necessary.</P>
<P style="font-size:10pt"> <A NAME="a10.14">10.14.</A> <U>Confidentiality.</U> All
aspects of the arbitration shall be private and confidential. The Parties agree that all consultants and witnesses shall agree
to treat their work and the proceedings as confidential. The Parties and the Arbitrator shall maintain the substance of any
proceedings in confidence and make disclosures to others only as required by law.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">11.</TD>
<TD WIDTH="98%"><A NAME="releases">RELEASES</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a11.1">11.1.</A> <U>Medtronic Release.</U>
As of the Closing, and to the fullest extent allowed by law, each of the Medtronic Parties, on its own behalf
and on behalf of each of its Affiliates, and, to the extent permitted by law, on behalf of each of their respective predecessors,
heirs, beneficiaries, trustees, principals, agents, employees, representatives, contractors, successors, assigns, servants,
attorneys and other professionals, officers, directors, members, partners, subsidiaries, stockholders (collectively, the “<U>Medtronic
Releasing Parties</U>”) hereby jointly and severally irrevocably, perpetually and forever releases and discharges each
of the Sellers and each of his or its Affiliates and their respective predecessors, heirs, beneficiaries,
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">39</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">trustees, principals, agents, employees, representatives, contractors, successors, assigns, servants,
attorneys and other professionals, officers, directors, members, partners, subsidiaries, stockholders (collectively, the “
<U>Michelson Released Parties</U>”) from any and all Encumbrances in favor of any of the Medtronic Releasing Parties on
the assets of the Michelson Released Parties and from any and all Actions and Liabilities of any nature, in each case whether
known or unknown, against them that any of the Medtronic Releasing Parties, or anyone claiming through or under them, ever
had, now has or hereafter can or may ever have for, based upon, arising out of, or in connection with, any matter, act, fact,
cause, or thing before the Closing, including anything that was or could have been alleged or asserted in the Litigation or
any malicious prosecution or similar claim arising out of the Litigation, <U>except</U> in all cases for Encumbrances, Actions
and Liabilities based upon, arising out of, or in connection with This Agreement, including any Losses. Each of the Medtronic
Releasing Parties hereby jointly and severally irrevocably, perpetually and forever releases and discharges each of the Michelson
Released Parties’ insurers with respect to any Encumbrances, Actions and Liabilities to which the Medtronic Releasing
Parties release the Michelson Released Parties in this Section 11.1. This Agreement is not an acknowledgement of liability
of any Party but is entered into to resolve all issues between the Medtronic Releasing Parties and the Michelson Released Parties.</P>
<P style="font-size:10pt"> <A NAME="a11.2">11.2.</A> <U>Sellers Release.</U> As
of the Closing, and to the fullest extent allowed by law, each of the Sellers, on its own behalf and on behalf of each of its
Affiliates, and, to the extent permitted by law, on behalf of each of their respective predecessors, heirs, beneficiaries,
trustees, principals, agents, employees, representatives, contractors, successors, assigns, servants, attorneys and other professionals,
officers, directors, members, partners, subsidiaries, stockholders (collectively, the “<U>Michelson Releasing Parties</U>”)
hereby jointly and severally irrevocably, perpetually and forever releases and discharges each of the Medtronic Parties and
each of its Affiliates and their respective predecessors, principals, agents, employees, representatives, contractors, successors,
assigns, servants, attorneys and other professionals, officers, directors, members, partners, subsidiaries, stockholders (collectively,
the “<U>Medtronic Released Parties</U>”) from any and all Encumbrances in favor of any of the Michelson Releasing
Parties on the assets of the Medtronic Released Parties and from any and all Actions and Liabilities of any nature, in each
case whether known or unknown, against them that any of the Michelson Releasing Parties, or anyone claiming through or under
them, ever had, now has or hereafter can or may ever have for, based upon, arising out of, or in connection with, any matter,
act, fact, cause, or thing before the Closing, including anything that was or could have been alleged or asserted in the Litigation
or any malicious prosecution or similar claim arising out of the Litigation, <U>except</U> in all cases for Encumbrances, Actions
and Liabilities based upon, arising out of, or in connection with This Agreement, including any Losses. Each of the Michelson
Releasing Parties hereby jointly and severally irrevocably, perpetually and forever releases and discharges each of the Medtronic
Released Parties’ insurers with respect to any Encumbrances, Actions and Liabilities to which the Michelson Releasing
Parties release the Medtronic Released Parties in this Section 11.2. This Agreement is not an acknowledgement of liability
of any Party but is entered into to resolve all issues between the Michelson Releasing Parties and the Medtronic Released Parties.</P>
<P style="font-size:10pt"> <A NAME="a11.3">11.3.</A> <U>Waiver.</U> As
part of the consideration and as inducement for the execution of This Agreement, as of the Closing, the Parties and each of
them, with full knowledge and with the specific intent to release Actions and Liabilities as set forth in Sections 11.1 and
11.2, hereby waive the provisions of Section 1542 of the California Civil Code (and any state statute or legal doctrine similar
to California Civil Code § 1542). Section 1542 reads as follows: </p>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="10%"> </TD>
<TD WIDTH="80%">GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. </TD>
<TD WIDTH="10%"> </TD>
</TR>
</TABLE>
<P style="font-size:10pt">Notwithstanding the provisions of Section 1542 (or any state statute or legal doctrine similar to
California Civil Code §1542) and for the purpose of implementing a full and complete release of Actions and Liabilities
as set forth in Sections 11.1 and 11.2, the Parties, and each of them, expressly acknowledge that This Agreement is intended
to include in its effect, without limitation, all Actions and Liabilities as set forth in Sections 11.1 and 11.2 and that This
Agreement further contemplates the
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">40</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">extinction of all such Actions and Liabilities, except as otherwise specified in such Sections. Each
Party waives any right to assert that any such Action or Liability has, through ignorance, oversight or otherwise, been omitted
from This Agreement, and further assumes full responsibility for any injury, damages, losses or liability of any kind, that
it has or may hereafter incur from such waiver.</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="2%">12.</TD>
<TD WIDTH="98%"><A NAME="miscellaneous">MISCELLANEOUS.</A></TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <A NAME="a12.1">12.1.</A> <U>Interpretation.</U> Except
as otherwise explicitly specified to the contrary, (a) references to a Section, Exhibit or Schedule means a Section of
or Schedule or Exhibit to This Agreement, unless another agreement is specified, (b) the word “including” will be
construed as “including but not limited to,” and will not be construed as limiting the general language to which
it relates, and the items or matters that follow the word “including” or the words “including but not limited
to” or “including without limitation” or similar words in This Agreement shall be construed as illustrative,
but not exclusive or complete, examples of what is intended to be so included, (c) the term “or” is not limiting
and means “and/or,” (d) references to a particular statute or regulation include all rules and regulations thereunder
and any predecessor or successor statute, rules or regulation, in each case as amended or otherwise modified from time to time,
(e) words in the singular or plural form include the plural and singular form, respectively, (f) references to a particular
Person include such Person’s successors and assigns to the extent not prohibited by This Agreement and (g) references
to “Dollars” or “$” shall be to U.S. Dollars. The Parties have participated jointly in the negotiation
and drafting of This Agreement. In the event an ambiguity or question of intent or interpretation arises, This Agreement shall
be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring
any Party by virtue of the authorship of any of the provisions of This Agreement.</P>
<P style="font-size:10pt"> <A NAME="a12.2">12.2.</A> <U>No Third Party Beneficiaries.</U>
Except as specifically provided in This Agreement, This Agreement shall not confer any rights or remedies
upon any Person other than the Parties and their respective successors and permitted assigns.</P>
<P style="font-size:10pt"> <A NAME="a12.3">12.3.</A> <U>Entire Agreement.</U> This
Agreement, the Schedules and Exhibits hereto, and the Ancillary Agreements constitute the entire agreement among the Parties
and supersedes any prior understandings, agreements or representations by or among the Parties, whether written or oral, with
respect to the subject matter hereof; <U>provided</U>, that except as set forth in Section 2.8(a) (Inter-Party Agreements and
Three-Party Agreement), nothing in This Agreement shall affect the terms of the Inter-Party Agreements, the First Assumed Contract
or the Second Assumed Contract (set forth on <U>Schedule 2.1(b)</U>) prior to the Closing. For clarity, this Agreement shall
not supersede or affect any terms of the Termination and Release Agreement or the ElectroStim License Agreement.</P>
<P style="font-size:10pt"> <A NAME="a12.4">12.4.</A> <U>Assignment.</U> No
Party may assign either This Agreement or any of its rights, interests or obligations under This Agreement without the prior
written approval of the other Parties; <U>provided</U>, that any Medtronic Party may (i) assign all of its rights and interests
and delegate all of its obligations under This Agreement to a Third Party in connection with the sale of all or substantially
all of the assets or capital stock of such Medtronic Party (whether by merger, consolidation or otherwise), provided, that
such Third Party executes a counterpart to This Agreement acknowledging and agreeing to assume all such obligations of the
Medtronic Parties and their Affiliates under This Agreement, (ii) assign all of its rights and interests to one or more of
its Affiliates, (iii) designate one or more of its Affiliates to perform its obligations under This Agreement provided that
such designation shall not relieve such Medtronic Party from its obligations under This Agreement and (iv) at the Closing,
designate one or more Purchased Assets to be conveyed by the Sellers to an Affiliate of the Buyer. Subject to the foregoing,
This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and
permitted assigns.</P>
<P style="font-size:10pt"> <A NAME="a12.5">12.5.</A> <U>Counterparts.</U> This
Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.</P>
<P style="font-size:10pt"> <A NAME="a12.6">12.6.</A> <U>Headings.</U> The
Section headings contained in This Agreement are inserted for convenience only and shall not affect in any way the meaning
or interpretation of This Agreement.</P>
<P style="font-size:10pt">
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">41</P>
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<P style="font-size:10pt"> <A NAME="a12.7">12.7.</A> <U>Notices.</U> All communications between the Sellers and
any of the Medtronic Parties relating to This Agreement and the subject matter hereof shall be directed to the persons designated
to receive notices set forth in this Section 12.7 or such other individuals as they may designate. All notices, requests, demands,
Claims and other communications under This Agreement shall be in writing. Any notice, request, demand, Claim or other communication
under This Agreement shall be deemed duly given (i) when delivered personally to the recipient, (ii) upon confirmation of facsimile
(with a confirmation copy to be sent by overnight delivery) or (iii) one Business Day following the date sent when sent by
overnight delivery, at the following address:</P>
<P style="font-size:10pt;margin-left:36pt">
<U>If to the Sellers</U>: </P>
<P style="font-size:10pt;margin-left:36pt">Karlin Technology, Inc.<BR>24325 North San Fernando Road<BR>Suite 102<BR>Santa Clarita,
CA 91321-2932<BR>Fax: (818) 951-4343<BR>Attention: Mary Burch</P>
<P style="font-size:10pt;margin-left:36pt">with copies to:</P>
<P style="font-size:10pt;margin-left:36pt">Kirkland & Ellis LLP<BR>777 South Figueroa Street, Suite 3700<BR>Los Angeles,
CA 90017<BR>Fax: (213) 680-8500<BR>Attention: Robert G. Krupka, Esq.</P>
<P style="font-size:10pt;margin-left:36pt">and</P>
<P style="font-size:10pt;margin-left:36pt">Jeffer, Mangels, Butler & Marmaro LLP<BR>1900 Avenue of the Stars, 7<SUP>th</SUP>
Floor<BR>Los Angeles, CA 90067<BR>Fax: (310) 712-8562<BR>Attention: Burton A. Mitchell, Esq.</P>
<P style="font-size:10pt;margin-left:36pt">
<U>If to any of the Medtronic Parties</U>:</P>
<P style="font-size:10pt;margin-left:36pt">Medtronic Sofamor Danek, Inc.<BR>1800 Pyramid Place<BR>Memphis, TN 38132<BR>Attention:
General Counsel</P>
<P style="font-size:10pt;margin-left:36pt">with copies to:</P>
<P style="font-size:10pt;margin-left:36pt">Medtronic, Inc.<BR>710 Medtronic Parkway<BR>Minneapolis, MN 55432-5604<BR>Attention:
General Counsel</P>
<P style="font-size:10pt;margin-left:36pt">and</P>
<P style="font-size:10pt;margin-left:36pt">Ropes & Gray LLP<BR>One International Place<BR>Boston, MA 02110-2624<BR>Fax:
(617) 951-7050<BR>Attention: Steven A. Wilcox, Esq.</P>
<P style="font-size:10pt">Any Party may change the address to which notices, requests, demands, Claims and other communications
under This Agreement are to be delivered by giving the other Party notice in the manner herein set forth.</P>
<P style="font-size:10pt"> <A NAME="a12.8">12.8.</A> <U>Governing Law</U> This
Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">42</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">provision or rule (whether of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York. Notwithstanding the foregoing, any Dispute relating
to the provisions of Section 10 (Arbitration) shall be governed by the Act as then in force.</P>
<P style="font-size:10pt"> <A NAME="a12.9">12.9.</A> <U>Jurisdiction; Venue; Service
of Process.</U> Any Action to enforce, vacate or remand any arbitration award or arbitration order pursuant
to Section 10 (Arbitration) (each, an “ <U>Arbitration Action</U>”) shall be brought in the state courts of
the State of New York or the United States District Court located in the Southern District of the State of New York. Each Party
to This Agreement, by its execution hereof, (a) hereby irrevocably submits to the exclusive jurisdiction of the above-named
courts for the purpose of any Arbitration Action, (b) hereby waives to the extent not prohibited by applicable law, and agrees
not to assert, by way of motion, as a defense or otherwise, in any such Arbitration Action, any Claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution,
that any such Arbitration Action brought in one of the above-named courts should be dismissed on grounds of <I>forum non conveniens</I>,
should be transferred or removed to any court other than one of the above-named courts, or should be stayed by reason of the
pendency of some other proceeding in any other court other than one of the above-named courts, or that This Agreement or the
subject matter hereof may not be enforced in or by such court and (c) hereby agrees not to commence any such Arbitration Action
other than before one of the above-named courts. Notwithstanding the previous sentence a Party may commence any Action in a
court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named
courts.</P>
<P style="font-size:10pt"> <A NAME="a12.10">12.10.</A> <U>Amendments and Waivers.</U>
No amendment of any provision of This Agreement shall be valid unless the same shall be in writing and signed
by the Buyer and the Sellers. No waiver by any Party of any provision of This Agreement or any default, misrepresentation or
breach of warranty or covenant under This Agreement, whether intentional or not, shall be valid unless the same shall be in
writing and signed by the Party making such waiver nor shall such wavier be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant under This Agreement or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.</P>
<P style="font-size:10pt"> <A NAME="a12.11">12.11.</A> <U>Severability.</U> Any
term or provision of This Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction. In the event that any term or provision of This Agreement
would, under applicable law, be invalid or unenforceable in any respect, each Party intends that such provision will be construed
by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable
law. For any such invalid or unenforceable provision, the Parties shall use commercially reasonable efforts to negotiate a
substitute valid and enforceable provision while preserving to the fullest extent possible the intent and agreements of the
Parties set forth herein.</P>
<P style="font-size:10pt"> <A NAME="a12.12">12.12.</A> <U>Expenses.</U> Except
as expressly stated otherwise, each of the Parties will bear his or its own costs and expenses (including legal and accounting
fees and expenses) incurred in connection with This Agreement, the Ancillary Agreements and the transactions contemplated hereby
and thereby.</P>
<P style="font-size:10pt;text-align:center">[Signature Page Follows]</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">43</P>
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<P style="font-size:10pt"> IN WITNESS WHEREOF, each of the undersigned has executed
this Asset Purchase and Settlement Agreement as an agreement under seal as of the date first above written.</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD colspan="3"><B>MEDTRONIC, INC.</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD width="46%"> </TD>
<TD width="2%"> </TD>
<TD width="2%"></TD>
<TD width="2%"> </TD>
<TD width="46%"></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD>By:</TD>
<TD> </TD>
<TD>/s/ Arthur D. Collins, Jr.</td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
<TR><TD colspan=4></td><td><FONT STYLE="font-size:10pt">Name: Arthur D. Collins, Jr.<BR>Title: Chairman and CEO</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD colspan="3"><B>MEDTRONIC SOFAMOR DANEK, INC.</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD width="46%"> </TD>
<TD width="2%"> </TD>
<TD width="2%"></TD>
<TD width="2%"> </TD>
<TD width="46%"></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD>By:</TD>
<TD> </TD>
<TD>/s/ Gary L. Ellis</td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
<TR><TD colspan=4></td><td><FONT STYLE="font-size:10pt">Name: Gary L. Ellis<BR>Title: Vice President</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD colspan="3"><B>SDGI HOLDINGS, INC.</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD width="46%"> </TD>
<TD width="2%"> </TD>
<TD width="2%"></TD>
<TD width="2%"> </TD>
<TD width="46%"></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD>By:</TD>
<TD> </TD>
<TD>/s/ Michael Burrage</td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
<TR><TD colspan=4></td><td><FONT STYLE="font-size:10pt">Name: Michael Burrage<BR>Title: Vice President</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD colspan="3"><B>GARY K. MICHELSON, M.D.</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD width="46%"> </TD>
<TD width="2%"> </TD>
<TD width="2%"></TD>
<TD width="2%"> </TD>
<TD width="46%"></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD>By:</TD>
<TD> </TD>
<TD>/s/ Gary K. Michelson, M.D.</td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
</TABLE>
<BR>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD colspan="3"><B>KARLIN TECHNOLOGY, INC.</B></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD width="46%"> </TD>
<TD width="2%"> </TD>
<TD width="2%"></TD>
<TD width="2%"> </TD>
<TD width="46%"></TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD>By:</TD>
<TD> </TD>
<TD>/s/ Mary L. Burch</td></tr>
<TR><TD colspan=4></td><td><HR noshade color="black" size="1" width="100%"></td></tr>
<TR><TD colspan=4></td><td><FONT STYLE="font-size:10pt">Name: Mary L. Burch<BR>Title: President</FONT></TD>
</TR>
</TABLE>
<BR>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">44</P>
<HR COLOR="GRAY" SIZE="2">
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>10
<FILENAME>med052766_ex10-17.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 10.17 to Form 10-K dated April 29, 2005</title>
</HEAD>
<body>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 10.17</P>
<P style="font-size:10pt;font-weight:bold;text-align:center"></P>
<img src="med_bluesm.gif"> <P style="font-size:10pt"></P>
<P style="font-size:14pt;font-weight:bold;text-align:center">INITIAL OPTION AGREEMENT<BR>UNDER THE MEDTRONIC,
INC.<BR>1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">1.</TD>
<TD WIDTH="96%"><B>The Option.</B> Medtronic, Inc., a Minnesota corporation (the “Company”), hereby grants
to the individual named above (the “Optionee”), as of the above Grant Date, an option (the “Option”) to
purchase the above number of shares of common stock of the Company (the “Common Stock”), for the above Purchase Price
Per Share, on the terms and conditions set forth in this Initial Option Agreement (the “Agreement”) and in the Medtronic,
Inc. 1998 Outside Director Stock Compensation Plan (the “Plan”). In the event of any inconsistency between the terms
of the Agreement and the Plan, the terms of the Plan shall govern. Capitalized terms used in this Agreement and not defined
herein shall have the meanings given to them in the Plan.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>2.</TD>
<TD><B>Exercise of Option.</B> The exercise of the Option is subject to the following conditions and restrictions:</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="92%">Except as permitted under Section 5 of this Agreement and Section 5 of the Plan, the Option may be
exercised only by the Optionee. This Option shall expire at the earlier of (i) the above Expiration Date, or (ii) the five-year
anniversary date of the date the Optionee ceases to be a director of the Company for any reason. Notwithstanding the foregoing,
if the Option is granted to an Optionee who is initially elected a Non-Employee Director by the Board, the Option shall expire
on the date such Optionee ceases to be a director of the Company unless such Optionee shall have been elected to the Board
by the shareholders of the Company subsequent to the Grant Date.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(b)</TD>
<TD>The Option shall be 100% exercisable from and after the Grant Date. Notwithstanding the foregoing, if the Option is granted
to an Optionee who is initially elected a Non-Employee Director by the Board, the Option shall not become exercisable unless
and until such Optionee has been elected to the Board of Directors by the shareholders of the Company.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">3.</TD>
<TD WIDTH="96%"><B>Manner of Exercise.</B> To exercise your Option, you must deliver notice of exercise (the “Notice”)
to PaineWebber Corporate Stock Benefit Services. The Notice must specify the number of shares of Common Stock (the “Shares”)
as to which the Option is being exercised and must be accompanied by payment of the purchase price of the Shares in cash, check,
or by the delivery of Common Stock already owned by the Optionee, or by a combination thereof.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>Exercise shall be deemed to occur
on the earlier of the date the Notice and option cost payment are received by PaineWebber or the date you simultaneously exercise
the Option and sell the shares, using the proceeds from such sale to pay the purchase price.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>4.</TD>
<TD><B>Withholding Taxes.</B> If at any time withholding shall be required with respect to Non-Employee Directors,
the Optionee is responsible for the federal, state, local or other taxes applicable upon the exercise of the Option, and shall
promptly pay to the Company any such taxes. The Company and its subsidiaries are authorized to deduct from any payment owed
to the Optionee any taxes required to be withheld with respect to the Shares.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>The Optionee may elect to have a portion of the
Shares otherwise issuable upon exercise of the Option withheld by the Company to satisfy all or part of any withholding tax
requirements relating to the Option exercise. Any fractional share amount due relating to such tax withholding will be rounded
up to the nearest whole share and the additional amount will be added to the Optionee’s federal withholding.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>5.</TD>
<TD><B>Transferability.</B> (a) The Option may be transferred, in whole or in part, by the Optionee to any Permitted
Transferee in a Permitted Transfer (as those terms are defined below), or upon the Optionee’s death, in each case as provided
in Section 5 of the Plan. Following a Permitted Transfer, notwithstanding any other provision of this Agreement, the Option
or the portion so transferred, as applicable, may be exercised only by the Permitted Transferee to whom it is transferred or, in the case of a Permitted Transferee
who is an individual who dies or becomes disabled after the Permitted Transfer, the Permitted Transferee’s estate or guardian
(and references to such Permitted Transferee herein shall be deemed to include such estate or guardian). The purchase price
for the Shares and any taxes required to be withheld in connection with the exercise of the Option or the portion so transferred,
as applicable, by such a Permitted Transferee may be paid by the Optionee and/or the Permitted Transferee, and such payment
shall be a prerequisite to the issuance of Shares to the Permitted Transferee upon such exercise.
</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%"> </TD>
<TD>(b) In order for a Permitted
Transfer to be effective, the Optionee, the Permitted Transferee and the Company must execute a transfer form substantially
in the form provided by the Company entitled “Letter Transferring Stock Option”. Unless otherwise expressly permitted
by the Committee, the Option or portion thereof that is transferred in a Permitted Transfer, as applicable, may not be re-transferred
to another Permitted Transferee either directly or indirectly, and any such transfer that may be attempted shall be void. Without
limiting the generality of the foregoing, unless otherwise expressly provided by the Committee, if the Option or any portion
thereof is transferred to a trust or other entity that is a Permitted Transferee, the Option or such portion, as applicable,
shall cease to be exercisable if such trust or such other entity thereafter ceases to qualify as a Permitted Transferee.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(c)
A “Permitted Transferee” means any member of the Optionee’s “immediate family” (as such term is defined
in Rule 16a-1(e) promulgated under the Exchange Act, or any successor rule or regulation) or to one or more trusts whose beneficiaries
are member of such Non-Employee Director’s “immediate family” or partnerships in which such family members are
the only partners. A “Permitted Transfer” means a transfer by the Optionee to a Permitted Transferee without consideration.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>6.</TD>
<TD><B>Acknowledgment.</B> The grant of this Option is binding and effective when the Optionee dates and signs the
Acknowledgment below and returns this Agreement to the Company.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;text-align:center">Shareholder Services, MS LC310<BR>Medtronic, Inc.<BR>710 Medtronic Parkway<BR>Minneapolis,
MN 55432<BR>(763.505.3030)</P>
<BR>
<BR><BR><BR><BR><BR><BR>
<P style="font-size:10pt;text-align:center"> </P>
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<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>12
<FILENAME>med052766_ex10-18.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 10.18 to Form 10-K dated April 29, 2005</title>
</HEAD>
<body>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 10.18</P>
<P style="font-size:10pt;font-weight:bold;text-align:center"></P>
<img src="med_bluesm.gif"> <P style="font-size:14pt;font-weight:bold;text-align:center">ANNUAL OPTION AGREEMENT<BR>UNDER
THE MEDTRONIC, INC.<BR>1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">1.</TD>
<TD WIDTH="96%"><B>The Option.</B> Medtronic, Inc., a Minnesota corporation (the “Company”), hereby grants
to the individual named above (the “Optionee”), as of the above Grant Date, an option (the “Option”) to
purchase the above number of shares of common stock of the Company (the “Common Stock”), for the above Purchase Price
Per Share, on the terms and conditions set forth in this Annual Option Agreement (the “Agreement”) and in the Medtronic,
Inc. 1998 Outside Director Stock Compensation Plan (the “Plan”). In the event of any inconsistency between the terms
of the Agreement and the Plan, the terms of the Plan shall govern. Capitalized terms used in this Agreement and not defined
herein shall have the meanings given to them in the Plan.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>2.</TD>
<TD><B>Exercise of Option.</B> The exercise of the Option is subject to the following conditions and restrictions:</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="92%">Except as permitted under Section 5 of this Agreement and Section 5 of the Plan, the Option may be
exercised only by the Optionee. This Option shall expire at the earlier of (i) above Expiration Date, or (ii) the five-year
anniversary date of the date the Optionee ceases to be a director of the Company for any reason.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(b)</TD>
<TD>The Option shall be 100% exercisable from and after the Grant Date. Notwithstanding the foregoing, if the Option is granted
to an Optionee who is initially appointed a Non-Employee Director by the Board, the Option shall not be exercisable unless
and until such Optionee has been elected to the Board of Directors by the shareholders of the Company.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">3.</TD>
<TD WIDTH="96%"><B>Manner of Exercise.</B> To exercise your Option, you must deliver notice of exercise (the “Notice”)
to UBS Financial Services. The Notice must specify the number of shares of Common Stock (the “Shares”) as to which
the Option is being exercised and must be accompanied by payment of the purchase price of the Shares in cash, check, or by
the delivery of Common Stock already owned by the Optionee, or by a combination thereof.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD></TD>
<TD>Exercise shall be deemed to occur on
the earlier of the date the Notice and option cost payment are received by UBS Financial Services or the date you simultaneously
exercise the Option and sell the shares, using the proceeds from such sale to pay the purchase price.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>4.</TD>
<TD><B>Withholding Taxes.</B> If at any time withholding shall be required with respect to Non-Employee Directors,
the Optionee is responsible for the federal, state, local or other taxes applicable upon the exercise of the Option, and shall
promptly pay to the Company any such taxes. The Company and its subsidiaries are authorized to deduct from any payment owed
to the Optionee any taxes required to be withheld with respect to the Shares.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD></TD>
<TD>The Optionee may elect to have a portion of the
Shares otherwise issuable upon exercise of the Option withheld by the Company to satisfy all or part of any withholding tax
requirements relating to the Option exercise. Any fractional share amount due relating to such tax withholding will be rounded
up to the nearest whole share and the additional amount will be added to the Optionee’s federal withholding.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>5.</TD>
<TD><B>Transferability.</B> (a) The Option may be transferred, in whole or in part, by the Optionee to any Permitted
Transferee in a Permitted Transfer (as those terms are defined below), or upon the Optionee’s death, in each case as provided
in Section 5 of the Plan. Following a Permitted Transfer, notwithstanding any other provision of this Agreement, the Option
or the portion so transferred, as applicable, may be exercised only by the Permitted Transferee to whom it is transferred or,
in the case of a Permitted Transferee who is an individual who dies or becomes disabled after the Permitted Transfer, the Permitted
Transferee’s estate or guardian (and references to such Permitted Transferee herein shall be deemed to include such estate
or guardian). The purchase price for the Shares and any taxes required to be withheld in connection with the exercise of the Option or the portion so transferred,
as applicable, by such a Permitted Transferee may be paid by the Optionee and/or the Permitted Transferee, and such payment
shall be a prerequisite to the issuance of Shares to the Permitted Transferee upon such exercise.
</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
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<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%"> </TD>
<TD>(b) In order for a Permitted
Transfer to be effective, the Optionee, the Permitted Transferee and the Company must execute a transfer form substantially
in the form provided by the Company entitled “Letter Transferring Stock Option”. Unless otherwise expressly permitted
by the Committee, the Option or portion thereof that is transferred in a Permitted Transfer, as applicable, may not be re-transferred
to another Permitted Transferee either directly or indirectly, and any such transfer that may be attempted shall be void. Without
limiting the generality of the foregoing, unless otherwise expressly provided by the Committee, if the Option or any portion
thereof is transferred to a trust or other entity that is a Permitted Transferee, the Option or such portion, as applicable,
shall cease to be exercisable if such trust or such other entity thereafter ceases to qualify as a Permitted Transferee.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD></TD>
<TD>(c)
A “Permitted Transferee” means any member of the Optionee’s “immediate family” (as such term is defined
in Rule 16a-1(e) promulgated under the Exchange Act, or any successor rule or regulation) or to one or more trusts whose beneficiaries
are member of such Non-Employee Director’s “immediate family” or partnerships in which such family members are
the only partners. A “Permitted Transfer” means a transfer by the Optionee to a Permitted Transferee without consideration.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>6.</TD>
<TD><B>Acknowledgment.</B> Your receipt of the Option and this Agreement constitutes your agreement to be bound
by the terms and conditions of this Agreement and the Plan.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;text-align:center">Shareholder Services, MS LC310<BR>Medtronic, Inc.<BR>710 Medtronic Parkway<BR>Minneapolis,
MN 55432-5604<BR>(763.505.3030)</P>
<BR>
<BR><BR><BR><BR><BR><BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>13
<FILENAME>med052766_ex10-19.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 10.19 to Form 10-K dated April 29, 2005</title>
</HEAD>
<body>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 10.19</P>
<P style="font-size:10pt;font-weight:bold;text-align:center"></P>
<img src="med_bluesm.gif"> <P style="font-size:14pt;font-weight:bold;text-align:center">REPLACEMENT OPTION
AGREEMENT<BR>UNDER THE MEDTRONIC, INC.<BR>1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">1.</TD>
<TD WIDTH="96%"><B>The Option.</B> Medtronic, Inc., a Minnesota corporation (the “Company”), hereby grants
to the individual named above (the “Optionee”), as of the above Grant Date, an option (the “Option”) to
purchase the above number of shares of common stock of the Company (the “Common Stock”), for the above Purchase Price
Per Share, on the terms and conditions set forth in this Replacement Option Agreement (the “Agreement”) and in the
Medtronic, Inc. 1998 Outside Director Stock Compensation Plan (the “Plan”). In the event of any inconsistency between
the terms of the Agreement and the Plan, the terms of the Plan shall govern. Capitalized terms used in this Agreement and not
defined herein shall have the meanings given to them in the Plan.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>2.</TD>
<TD><B>Exercise of Option.</B> The exercise of the Option is subject to the following conditions and restrictions:</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="92%">Except as permitted under Section 5 of this Agreement and Section 5 of the Plan, the Option may be
exercised only by the Optionee. This Option shall expire at the above Expiration Date. </TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(b)</TD>
<TD>The Option shall be 100% exercisable from and after the Grant Date. Notwithstanding the foregoing, if the Option is granted
to an Optionee who is initially appointed a Non-Employee Director by the Board, the Option shall not be exercisable unless
and until such Optionee has been elected to the Board of Directors by the shareholders of the Company.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%">3.</TD>
<TD WIDTH="96%"><B>Manner of Exercise.</B> To exercise your Option, you must deliver notice of exercise (the “Notice”)
to UBS Financial Services. The Notice must specify the number of shares of Common Stock (the “Shares”) as to which
the Option is being exercised and must be accompanied by payment of the purchase price of the Shares in cash, check, or by
the delivery of Common Stock already owned by the Optionee, or by a combination thereof.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD></TD>
<TD>Exercise shall be deemed to occur on
the earlier of the date the Notice and option cost payment are received by UBS Financial Services or the date you simultaneously
exercise the Option and sell the shares, using the proceeds from such sale to pay the purchase price.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>4.</TD>
<TD><B>Withholding Taxes.</B> If at any time withholding shall be required with respect to Non-Employee Directors,
the Optionee is responsible for the federal, state, local or other taxes applicable upon the exercise of the Option, and shall
promptly pay to the Company any such taxes. The Company and its subsidiaries are authorized to deduct from any payment owed
to the Optionee any taxes required to be withheld with respect to the Shares.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD></TD>
<TD>The Optionee may elect to have a portion of the
Shares otherwise issuable upon exercise of the Option withheld by the Company to satisfy all or part of any withholding tax
requirements relating to the Option exercise. Any fractional share amount due relating to such tax withholding will be rounded
up to the nearest whole share and the additional amount will be added to the Optionee’s federal withholding.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>5.</TD>
<TD><B>Transferability.</B> (a) The Option may be transferred, in whole or in part, by the Optionee to any Permitted
Transferee in a Permitted Transfer (as those terms are defined below), or upon the Optionee’s death, in each case as provided
in Section 5 of the Plan. Following a Permitted Transfer, notwithstanding any other provision of this Agreement, the Option
or the portion so transferred, as applicable, may be exercised only by the Permitted Transferee to whom it is transferred or,
in the case of a Permitted Transferee who is an individual who dies or becomes disabled after the Permitted Transfer, the Permitted
Transferee’s estate or guardian (and references to such Permitted Transferee herein shall be deemed to include such estate
or guardian). The purchase price for the Shares and any taxes required to be withheld in connection with the exercise of the
Option or the portion so transferred, as applicable, by such a Permitted Transferee may be paid by the Optionee and/or the Permitted Transferee,
and such payment shall be a prerequisite to the issuance of Shares to the Permitted Transferee upon such exercise.
</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%"> </TD>
<TD>(b) In order
for a Permitted Transfer to be effective, the Optionee, the Permitted Transferee and the Company must execute a transfer form
substantially in the form provided by the Company entitled “Letter Transferring Stock Option”. Unless otherwise expressly
permitted by the Committee, the Option or portion thereof that is transferred in a Permitted Transfer, as applicable, may not
be re-transferred to another Permitted Transferee either directly or indirectly, and any such transfer that may be attempted
shall be void. Without limiting the generality of the foregoing, unless otherwise expressly provided by the Committee, if the
Option or any portion thereof is transferred to a trust or other entity that is a Permitted Transferee, the Option or such
portion, as applicable, shall cease to be exercisable if such trust or such other entity thereafter ceases to qualify as a
Permitted Transferee.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD></TD>
<TD>(c) A “Permitted Transferee” means any member of the Optionee’s “immediate family”
(as such term is defined in Rule 16a-1(e) promulgated under the Exchange Act, or any successor rule or regulation) or to one
or more trusts whose beneficiaries are member of such Non-Employee Director’s “immediate family” or partnerships
in which such family members are the only partners. A “Permitted Transfer” means a transfer by the Optionee to a
Permitted Transferee without consideration.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD>6.</TD>
<TD><B>Acknowledgment.</B> Your receipt of the Option and this Agreement constitutes your agreement to be bound
by the terms and conditions of this Agreement and the Plan.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;text-align:center">Shareholder Services, MS LC310<BR>Medtronic, Inc.<BR>710 Medtronic Parkway<BR>Minneapolis,
MN 55432-5604<BR>(763.505.3030)</P>
<BR>
<BR><BR><BR><BR><BR><BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>14
<FILENAME>med052766_ex10-20.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 10.20 to Form 10-K dated April 29, 2005</title>
</HEAD>
<body>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 10.20</P>
<P style="font-size:10pt;font-weight:bold;text-align:center"></P>
<img src="med_bluesm.gif"> <P style="font-size:14pt;font-weight:bold;text-align:center">RESTRICTED STOCK
UNITS AWARD AGREEMENT<BR>2003 LONG-TERM INCENTIVE PLAN</P>
<P style="font-size:10pt">1. <B>Restricted Stock Units Award.</B>
Medtronic, Inc., a Minnesota corporation (the “Company”), hereby awards to the individual named above Restricted
Stock Units, in the number and at the Grant Date set forth above. The Restricted Stock Units represent the right to receive
shares of common stock of the Company (the “Shares”), subject to the restrictions, limitations, and conditions contained
in this Restricted Stock Units Award Agreement (the “Agreement”) and in the Medtronic, Inc. 2003 Long-term Incentive
Plan (the “Plan”). Unless otherwise defined in the Agreement, a capitalized term in the Agreement will have the same
meaning as in the Plan. In the event of any inconsistency between the terms of the Agreement and the Plan, the terms of the
Plan will govern.</P>
<P style="font-size:10pt">2. <B>Vesting and Distribution; Subsequent
Forfeiture.</B> If you have been continuously employed by the Company and all other conditions and restrictions
are met during the period beginning on the Grant Date and ending on the Vesting Date (the “Restricted Period”), the
Restricted Stock Units will vest 100% on the first anniversary of the Grant Date, and the Company will issue to you a number
of Shares equal to the number of your vested Restricted Stock Units (including any dividend equivalents described in Section
4, below) within six weeks following the Vesting Date. Notwithstanding the preceding sentence, if you terminate employment
during the Restricted Period due to death, Disability or Retirement, and all other conditions and restrictions are met during
the Restricted Period, you will vest in your Restricted Stock Units on a pro rata basis (based on the length of time you were
employed during the Restricted Period), and the Company will issue you a number of Shares equal to the number of your vested
Restricted Stock Units (including any dividend equivalents described in Section 4, below) within six weeks following your termination
of employment. Upon termination of your employment during the Restricted Period for any reason other than death, Disability
or Retirement, the Restricted Stock Units will automatically be forfeited in full and canceled by the Company as of 11:00 p.m.
CT (midnight ET) on the date of such termination of employment. For purposes of this Agreement, the terms “Disability”
and “Retirement” shall have the meanings ascribed to those terms under any retirement plan of the Company which is
qualified under Section 401 of the Code (which currently provides for retirement on or after age 55, provided you have
been employed by the Company and/or one or more Affiliates for at least ten years, or retirement on or after age 62), or under
any disability or retirement plan of the Company or any Affiliate applicable to you due to employment by a non-U.S. Affiliate
or employment in a non-U.S. location, or as otherwise determined by the Committee.</P>
<P style="font-size:10pt"> If you have received or are entitled to receive delivery
of Shares pursuant to an Award within the period beginning six months prior to your termination of employment with the Company
or its Affiliates and ending when the Award terminates or is canceled, the Company, in its sole discretion, may require you
to return or forfeit the Shares received or receivable with respect to the Award, in the event you are involved in any of the
following occurrences: performing services for or on behalf of a competitor of, or otherwise competing with, the Company or
any Affiliate, unauthorized disclosure of material proprietary information of the Company or any Affiliate, a violation of
applicable business ethics policies or business policies of the Company or any Affiliate, or any other occurrence determined
by the Committee. The Company’s right to require forfeiture must be exercised not later than 90 days after discovery of
such an occurrence but in no event later than 15 months after your termination of employment with the Company and its Affiliates.
Such right shall be deemed to be exercised upon the Company’s mailing written notice to you of such exercise at your most
recent home address as shown on the personnel records of the Company. In addition to requiring forfeiture as described herein,
the Company may exercise its rights under this Section 6 by terminating any Award. If you fail or refuse to forfeit the
Shares demanded by the Company (adjusted for any intervening stock splits), you shall be liable to the Company for damages
equal to the number of Shares demanded times the highest closing price per share of the Shares during the period between the
date of termination of your employment and the date of any judgment or award to the Company, together with all costs and attorneys’
fees incurred by the Company to enforce this provision.</P>
<P style="font-size:10pt">3. <B>Change in Control.</B> Notwithstanding
anything in Section 2 to the contrary, if a Change in Control of the Company, within the meaning of both the Plan and
Section 409A of the Code, occurs during the Restricted Period, and all other conditions and restrictions are met during the
Restricted Period, then the Restricted Stock Units will become 100% vested upon such Change in Control and, the Company will
issue to you a number of Shares equal to the number of your Restricted Stock Units (including any dividend equivalents described
in Section 4, below) within six weeks following the Change in Control.</P>
<P style="font-size:10pt">4. <B>Dividend Equivalents.</B> You
are entitled to receive dividend equivalents on the Restricted Stock Units generally in the same manner and at the same time
as if each Restricted Stock Unit were a Share. These dividend equivalents will be credited to you in the form of additional
Restricted Stock Units. The additional Restricted Stock Units will be subject to the terms of this Agreement.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">5. <B>Withholding Taxes.</B> You
are responsible to promptly pay any Social Security and Medicare taxes (together, “FICA”) due upon vesting of the
Restricted Stock Units, and any Federal, State, and local taxes due upon distribution of the Shares. The Company and its subsidiaries
are authorized to deduct from any payment to you any such taxes required to be withheld. As described in Section 4(e) of the
Plan, you may elect to have the Company withhold a portion of the Shares issued upon conversion of the Restricted Stock Units
to satisfy all or part of the withholding tax requirements. You may also elect, at the time you vest in the Restricted Stock
Units, to pay your FICA liability due with respect to those Restricted Stock Units out of those units. If you choose to do
so, the Company will reduce the number of your vested Restricted Stock Units accordingly. The amount that is applied to pay
FICA will be subject to Federal, State, and local taxes.</P>
<P style="font-size:10pt">6. <B>Limitation of Rights.</B> Except
as set forth in the Agreement, until the Shares are issued to you in settlement of your Restricted Stock Units, you do not
have any right in, or with respect to, any Shares (including any voting rights) by reason of the Agreement. Further, you may
not transfer or assign your rights under the Agreement and you do not have any rights in the Company’s assets that are
superior to a general, unsecured creditor of the Company by reason of the Agreement.</P>
<P style="font-size:10pt">7. <B>No Employment Contract.</B>
Nothing contained in the Plan or Agreement creates any right to your continued employment or otherwise affects your status
as an employee at will. You hereby acknowledge that Medtronic and you each have the right to terminate your employment at any
time for any reason or for no reason at all.</P>
<P style="font-size:10pt">8. <B>Amendments to Agreement Under Section
409A of the Code.</B> You acknowledge that the Agreement and the Plan, or portions thereof, may be subject to Section
409A of the Internal Revenue Code; that it is anticipated that comprehensive rules interpreting this Code section will be issued
in 2005; and that changes may need to be made to the Agreement to avoid adverse tax consequences to you under Section 409A.
You agree that following the issuance of such rules, the Company may amend the Agreement as it deems necessary or desirable
to avoid such adverse tax consequences; provided, however, that the Company shall accomplish such amendments in a manner that
preserves your intended benefits under the Agreement to the greatest extent possible.</P>
<P style="font-size:10pt">9. <B>Transferability.</B> Upon
prior written approval of the Corporate Secretary of the Company, in his or her discretion, these Units may be transferred
to a member of your “immediate family” (as such term is defined in Rule 16a-1(e) promulgated under the Exchange Act,
or any successor rule or regulation) or to one or more trusts whose beneficiaries are members of your “immediate family”
or partnerships in which such family members are the only partners; provided, however, that (1) you receive no consideration
for the transfer and (2) the transferred Units shall continue to be subject to the same terms and conditions as were applicable
to such Units immediately prior to its transfer.</P>
<P style="font-size:10pt">10. <B>Agreement.</B> You agree
to be bound by the terms and conditions of this Agreement and the Plan. Your signature is not required in order to make this
Agreement effective.</P>
<BR><BR>
<div style=margin-left:83pt>
<P style="margin-top:5pt; margin-right:65.95pt; margin-bottom:0pt; padding-left:3pt; padding-top:3pt; padding-right:3pt; padding-bottom:3pt; text-indent:0pt; width:462.1pt; font-size:10pt; border:0.5pt solid #000000" align=justify>
Accompanying this Agreement are instructions for accessing the Plan and the Plan Summary (prospectus) on the Company’s
intranet. You may also print these documents from the intranet or request written copies by contacting Stock Administration at
763.505.3030.</P>
</div>
<BR><BR>
<P style="font-size:10pt;text-align:center">HROC - Stock Administration, m.s. V235<BR>Medtronic, Inc.<BR>3850 Victoria Street
North<BR>Shoreview, MN 55126-2978</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
</body>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>15
<FILENAME>med052766_ex10-21.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 10.21 to Form 10-K dated April 29, 2005</title>
</HEAD>
<body>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 10.21</P>
<P style="font-size:10pt;font-weight:bold;text-align:center"></P>
<img src="med_bluesm.gif"> <P style="font-size:14pt;font-weight:bold;text-align:center">PERFORMANCE SHARE
AWARD AGREEMENT<BR>2003 LONG-TERM INCENTIVE PLAN<BR>(For _______ Performance Cycle)</P> <BR>
<table width="100%" border="1" cellspacing="0" cellpadding="0">
<tr>
<td align="center" width="20%"><font size="2"><strong>Awarded to</strong></font></td>
<td align="center" width="13%"><font size="2"><strong>Performance Cycle</strong></font></td>
<td align="center" width="12%"><font size="2"><strong>Target Award</strong></font></td>
<td align="center" width="23%"><font size="2"><strong>Initial Performance Shares</strong></font></td>
<td align="center" width="20%"><font size="2"><strong>Target Cash Award</strong></font></td>
</tr>
<tr>
<td width="20%"> <BR><BR><BR></td>
<td rowspan="3" align="center" width="20%"> </td>
<td align="center" width="20%"> </td>
<td align="center" width="20%"> </td>
<td align="center" width="20%"> </td>
</tr>
<tr>
<td width="20%">
<div align="center">
<b><font size="2">Social Security Number</font></b></div>
</td>
<td rowspan="2" align="center" width="20%"> </td>
<td align="center" width="20%"><b><font size="2">Initial Valuation Price</font></b></td>
<td rowspan="2" align="center" width="20%"> </td>
</tr>
<tr>
<td width="20%"> <BR>
</td>
<td align="center" width="20%"> </td>
</tr>
</table>
<P style="font-size:10pt">1. <B>Performance Share Award.</B>
Medtronic, Inc., a Minnesota Corporation (the “Company”), hereby grants to the individual named above (“you”)
a Performance Share Award (the “Award”) based on the target award specified above (“Target Award”), under
the terms and conditions set forth in this agreement (the “Agreement”) and in the Medtronic, Inc. 2003 Long-Term
Incentive Plan (the “Plan”). In the event of any inconsistency between the terms of the Agreement and the Plan, the
terms of the Plan shall govern. Capitalized terms used but not defined shall have the meaning ascribed thereto in the Plan.</P>
<P style="font-size:10pt">2. <B>Performance Targets.</B> The
payout under this Award will be based on the following pre-established performance targets:</P>
<P style="font-size:10pt">(a) Company performance will be measured
using three criteria: 3-year Cumulative Diluted Earnings Per Share (“Cumulative Diluted EPS”), 3-year Average Annual
Revenue Growth (“Average Revenue Growth”), and 3-year Average After-Tax Return on Net Assets (“Average After-Tax
RONA”) as shown in the grid below. The performance measures will be weighted as follows: Cumulative Diluted EPS weighted
__%, Average Revenue Growth weighted __%, and Average After-Tax RONA weighted __%. The award constituting the payout may be
greater than, equal to, or less than the original ant based upon actual performance relative to these targets.</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="90%" ALIGN="CENTER">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="27">% of Performance Share Award Earned</TH>
</TR>
<tr><TD WIDTH="26%"> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">20%</TH>
<TH> </TH>
<TH colspan="3">40%</TH>
<TH> </TH>
<TH colspan="3">60%</TH>
<TH> </TH>
<TH colspan="3">80%</TH>
<TH> </TH>
<TH colspan="3">100%</TH>
<TH> </TH>
<TH colspan="3">120%</TH>
<TH> </TH>
<TH colspan="3">140%</TH>
<TH> </TH>
<TH colspan="3">160%</TH>
<TH> </TH>
<TH colspan="3">180%</TH>
</TR>
<tr><TD WIDTH="26%"> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:9pt">
<TD width="26%">Diluted EPS growth %</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="4%"></TD>
<TD width="1%"> </TD>
</TR>
<TR><TD> </TD></TR>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD><B>CUMULATIVE DILUTED EPS</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<tr><td> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD><B>AVERAGE REVENUE GROWTH</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<tr><td> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD><B>AVERAGE AFTER-TAX RONA</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Across the top of the grid are the percentages of
the Performance Share Award to be earned based on the actual company performance against these three criteria for the three
years of the award cycle. This performance determines the percentage of the Target Award that will be paid out at the end of
the three-year cycle.</P>
<P style="font-size:10pt">(b) To earn a payout, performance must
meet or exceed the threshold Average After-Tax RONA and Cumulative Diluted EPS targets. The threshold targets for this Award
are an Average After-Tax RONA of __% and a Cumulative Diluted EPS of $____. If Company performance is below threshold for either
of these measures, no award payout will be made.</P>
<P style="font-size:10pt">(c) To determine payout, the percentage
across the top of the grid is earned based on achievement of Company performance according to the targets within the grid for
each of the three performance measures, multiplied by the weight. To illustrate, if Company performance results in a Cumulative
Diluted EPS of $____, an Average Revenue Growth of __%, and After-Tax RONA of __%, the payout would be calculated as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="50%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD WIDTH="50%" ALIGN="LEFT" NOWRAP><U>Performance Measure</u></TD>
<TD ALIGN="LEFT" WIDTH="25%" nowrap><U>% Award Earned</U></TD>
<TD ALIGN="LEFT" WIDTH="15%"><U>Weight</U></TD>
<TD ALIGN="LEFT" WIDTH="10%" NOWRAP> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="LEFT" NOWRAP>Cumulative Diluted EPS</TD>
<TD ALIGN="LEFT"> ___% x</TD>
<TD ALIGN="LEFT">___%</TD>
<TD ALIGN="LEFT" WIDTH="10%" NOWRAP>= ____%</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="LEFT" NOWRAP>Average Revenue Growth</TD>
<TD ALIGN="LEFT"> ___% x</TD>
<TD ALIGN="LEFT">___%</TD>
<TD ALIGN="LEFT" WIDTH="10%" NOWRAP>= ____%</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="LEFT" NOWRAP>Average After-Tax RONA</TD>
<TD ALIGN="LEFT"> ___% x</TD>
<TD ALIGN="LEFT">___%</TD>
<TD ALIGN="LEFT" WIDTH="10%" NOWRAP>= ____%</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="LEFT" NOWRAP>% Payout of Original Grant</TD>
<TD ALIGN="LEFT"> </TD>
<TD ALIGN="LEFT"></TD>
<TD ALIGN="LEFT" WIDTH="10%" NOWRAP> ____%</TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt">3. <B>Valuation of Stock-based Component.</B>
The value of each Performance Share (stock-based component) earned is based on the average fair market value per share
of Medtronic common stock for the last 20 trading days of the three-year performance cycle. The maximum value of a Performance
Share under this Award is limited to three times the initial valuation price shown above, which is the average fair market
value for the last 20 trading days in Medtronic’s 2005 fiscal year ($_______). The maximum stock price under this Award
for the purpose of valuation is therefore $________ based on the initial valuation price. If the average fair market value of Medtronic stock at the end of the performance cycle exceeds the maximum stock price, the number of Performance Shares issued will be ratably reduced.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">– Continued on next page –</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt">4. <B>Valuation of Cash-based Component.</B>
The value of the cash-based component is linked only to the performance matrix. There is no link to stock price.</P>
<P style="font-size:10pt">5. <B>Calculation of Cumulative Diluted
EPS, Average Revenue Growth, and Average After-Tax RONA</B></P>
<P style="font-size:10pt"> Cumulative Diluted EPS is calculated by adding the
Diluted EPS for each of the three years.</P>
<P style="font-size:10pt"> Average Revenue Growth is the simple annual growth in revenue over the three-year period
excluding the effects of foreign exchange rates.</P>
<P style="font-size:10pt"> Average After-Tax RONA is the simple average of the After-Tax RONA for each
of the three years of the cycle.</P>
<P style="font-size:10pt">6. <B>Payment of Award.</B> 50%
of the Award payout (stock-based component) is in the form of Medtronic common stock and 50% of the Award payout (cash-based
component) is paid in cash. The amount of stock and cash paid out under the Award will be based on the valuation described
in paragraphs 3 and 4 hereof.</P>
<P style="font-size:10pt">7. <B>Withholding Taxes.</B> You
are responsible for any federal, state, local or other taxes applicable upon payout of the Award. <B><U>For tax purposes, the
value of your stock is equal to the fair market value on the date the stock is issued.</U></B> The Company may withhold any taxes due from any payments under this Award or from any other wages that the Company owes you.
</P>
<P style="font-size:10pt">8. <B>Termination.</B> In the
event of your death, Disability or Retirement you will be entitled to a pro rata portion of the Award, provided you have completed
a minimum of six months participation in the cycle. If you terminate for reasons other than death, Disability or Retirement,
you will not be entitled to any Award payment.</P>
<P style="font-size:10pt">9. <B>Change in Control/Fundamental Change.</B>
In the event of a Change in Control, a Fundamental Change or other substantially similar event or occurrence, this Award
will accelerate and vest immediately to the full extent contemplated or permitted under the Plan.</P>
<P style="font-size:10pt"> 10. <B>Beneficiary Designation.</B>
If a participant dies before completion of the Award cycle, a portion of the Award may be payable. The Plan permits each
participant to designate a beneficiary to receive payments that may be due in the event of death. Any beneficiary can be named
and you may change your beneficiaries at any time by submitting a new designation form to Executive Compensation, LC 245.</P>
<P style="font-size:10pt">11. <B>Forfeiture of Award.</B> If
you have received or been entitled to receive payment in cash, delivery of Common Stock or a combination thereof pursuant to
an Award within the period beginning six months prior to your termination of employment with the Company or its Affiliates
and ending when the Award terminates or is canceled, the Company, in its sole discretion, may require you to return or forfeit
the cash and/or Common Stock received or receivable with respect to the Award, in the event you are involved in any of the
following occurrences: performing services for or on behalf of a competitor of, or otherwise competing with, the Company or any Affiliate, unauthorized disclosure of material proprietary
information of the Company or any Affiliate, a violation of applicable business ethics policies or business policies of the
Company or any Affiliate, or any other occurrence determined by the Committee. The Company’s right to require forfeiture
must be exercised not later than 90 days after discovery of such an occurrence but in no event later than 15 months after your
termination of employment with the Company and its Affiliates. Such right shall be deemed to be exercised upon the Company’s
mailing written notice to you of such exercise at your most recent home address as shown on the personnel records of the Company.
In addition to requiring forfeiture as described herein, the Company may exercise its rights under this Section 10 by
terminating any Award. If you fail or refuse to forfeit the cash and/or Common Stock demanded by the Company (adjusted
for any intervening stock splits), you shall be liable to the Company for damages equal to the number of Shares demanded times
the highest closing price per share of the Common Stock during the period between the date of termination of your employment
and the date of any judgment or award to the Company, together with all costs and attorneys’ fees incurred by the Company
to enforce this provision.</P>
<P style="font-size:10pt">12. <B>Acknowledgment.</B> Your
receipt of the Performance Share Award and this Agreement constitutes your agreement to be bound by the terms and conditions
of this Agreement and the Plan. Your signature is not required in order to make this Agreement effective.</P>
<BR><BR>
<P style="font-size:10pt;margin-left:342pt">
<B>MEDTRONIC, INC.</B>
<BR><BR><BR>By:</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>16
<FILENAME>med052766_ex12-1.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 12.1 to Form 10-K dated April 29, 2005</title>
</HEAD>
<BODY>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 12.1</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">MEDTRONIC, INC.<BR>COMPUTATION OF RATIO OF EARNINGS TO FIXED
CHARGES</P>
<P style="font-size:10pt"> The ratio of earnings to fixed charges for the fiscal
years ended April 29, 2005, April 30, 2004, April 25, 2003, April 26, 2002, April 27, 2001 was computed
based on Medtronic’s historical consolidated financial information included in Medtronic’s most recent Annual Report
incorporated by reference on Form 10-K.(1)</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="750">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Year ended<BR>April 29, 2005</TH>
<TH> </TH>
<TH colspan="3">Year ended<BR>April 30, 2004</TH>
<TH> </TH>
<TH colspan="3">Year ended<BR>April 25, 2003</TH>
<TH> </TH>
<TH colspan="3">Year ended<BR>April 26, 2002</TH>
<TH> </TH>
<TH colspan="3">Year ended<BR>April 27, 2001</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="38%">Earnings:</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,803.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,959.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,599.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">984.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,046.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Income taxes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">739.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">837.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">741.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">540.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">503.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Minority interest (loss)/income</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(0.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(0.7</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Amortization of capitalized interest</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Capitalized interest(2)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(0.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(0.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(3.5</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,542.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,799.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,339.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,527.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,547.4</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Fixed Charges:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Interest expense(3)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">55.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">56.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">47.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">45.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">17.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Capitalized interest(2)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Amortization of debt issuance costs(4)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">32.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Rent interest factor(5)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">23.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">21.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">18.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">16.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">80.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">77.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">66.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">93.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">36.6</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Earnings before income taxes and fixed charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,622.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,877.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,405.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,620.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,584.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:6pt">
<TD>Ratio of earnings to fixed charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">32.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">37.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">36.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">17.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">43.3</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<HR noshade color="black" align="left" size="1" width="20%">
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(1)</TD>
<TD width="96%">On December 21, 2000, Medtronic acquired PercuSurge, Inc. This acquisition was accounted for under the
pooling of interests method of accounting, and as a result, the ratios of earnings to fixed charges presented above include
the effects of the merger.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(2)</TD>
<TD width="96%">Capitalized interest relates to construction projects in process.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(3)</TD>
<TD width="96%">Interest expense consists of interest on indebtedness.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(4)</TD>
<TD width="96%">Represents the amortization of debt issuance costs incurred in connection with the Company’s completion
of a $2,012.5 million private placement of 1.25% Contingent Convertible Debentures (Old Debentures) on September 17, 2001
and the completion of a $1,928.2 million private placement of 1.25% Contingent Convertible Debentures, Series B (New Debentures)
on January 21, 2005. As of April 29, 2005, $43.2 million of the Old Debentures and $1,928.2 million of the New Debentures
were outstanding.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(5)</TD>
<TD width="96%">Approximately one-third of rental expense is deemed representative of the interest factor.</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>17
<FILENAME>med052766_ex13.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 13 to Form 10-K dated April 29, 2005</title>
</HEAD>
<body>
<P style="font-size:10pt;font-weight:bold;text-align:right"> Exhibit 13</P>
<P style="font-size:10pt;font-weight:bold;text-align:center"></P>
<P style="font-size:10pt;font-weight:bold;text-align:center">Table of Contents</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%"><A HREF="#Managements_discussion">Management’s Discussion and Analysis of Financial Condition and Results of Operations</A></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%">2</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#reports_of_management">Reports of Management</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">31</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#report_of_independent_registered">Report of Independent Registered Public Accounting Firm</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">32</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#statements_of_earnings">Consolidated Statements of Earnings</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">34</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#balance_sheets">Consolidated Balance Sheets</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">35</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#statements_of_shareholders_equity">Consolidated Statements of Shareholders’ Equity</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">36</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#statements_of_cash_flows">Consolidated Statements of Cash Flows</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">37</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#notes">Notes to Consolidated Financial Statements</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">38</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#financial_data">Selected Financial Data</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">77</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><A HREF="#price_range_of_medtronic_stock">Price Range of Medtronic Stock</A></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">78</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">1</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold;text-align:center">
<A NAME="Managements_discussion">Management’s Discussion and Analysis of Financial Condition and Results of Operations</A></P>
<P style="font-size:10pt;font-weight:bold">Executive Level Overview</P>
<P style="font-size:10pt"> We are the global leader in medical technology, alleviating
pain, restoring health and extending life for millions of people around the world. We function in five operating segments,
including Cardiac Rhythm Management (CRM); Spinal, Ear, Nose and Throat (ENT) and Navigation; Neurological and Diabetes; Vascular;
and Cardiac Surgery. Through these five operating segments, we develop, manufacture, and market our medical devices in more
than 120 countries worldwide, and continue to expand patient access to our products in these markets. Our primary products
include those for heart and vascular disease, neurological disorders, chronic pain, spinal disorders, diabetes, urologic and
digestive system disorders, and eye, ear, nose and throat disorders.</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">Fiscal Year</TH>
<TH> </TH> <TH colspan="3" rowspan="3"></TH>
<TH rowspan="3"> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">Net Sales</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
<TH> </TH>
<TH colspan="3">2005 vs. 2004<BR>% Change</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">(dollars in millions)</TH>
<TH> </TH>
<TH colspan="3"></TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Cardiac Rhythm Management</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">4,615.5</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">4,238.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%">9%</TD>
<TD width="1%"></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Spinal, ENT & Navigation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,124.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,765.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">20</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Neurological & Diabetes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,794.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,610.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">11</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vascular</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">851.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">842.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Cardiac Surgery</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">668.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">630.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">6</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Total Net Sales</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>10,054.6</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>9,087.2</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%"><B>11%</B></TD>
<TD><B></B></TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Net sales in fiscal year 2005 were $10.055 billion,
an increase of 11% from the prior fiscal year. We achieved solid worldwide sales growth primarily as a result of our three
largest operating segments growing at least 9%. This growth is a result of continued new product introductions, market
share gains and the further expansion of many of the markets that we serve. Key new product offerings in fiscal year 2005 included
the Intrinsic™ implantable cardioverter defibrillator (ICD) and the InSync® Sentry™ cardiac resynchronization
device with defibrillator backup (CRT-D), the Paradigm® 515 and 715 insulin pumps for diabetes, and the VERTE-STACK®
CAPSTONE™ PEEK (CAPSTONE) Vertebral Body Spacer used in spinal surgery, as well as our first fully rechargeable neurostimulator
for pain management called the Restore™. Our diverse product portfolio enables us to reach a multitude of patients with
our lifesaving and life enhancing therapies. Additionally, the depth of our portfolio has provided us a competitive advantage
by contributing to our sustained growth in recent years.</P>
<P style="font-size:10pt"> While we continue to make substantial investments
in the expansion of our existing product lines and the search for new innovative products, we have also focused heavily on
carefully planned clinical trials which lead to market expansion and enable further penetration of our life changing devices.
Fiscal year 2005 research and development spending of $951.3 million increased 12% in comparison to the prior fiscal year.
Our research and development efforts are focused on maintaining leadership in each of the markets we serve to ensure that patients
receive the most advanced and effective treatments possible. Research and development expenditures have supported improvements
in existing products and enhanced methods to deliver and/or monitor those products such as our line of Minimal Access Spinal
Technologies (MAST™), which offer surgeons an option of performing procedures in a less invasive, more cost effective
manner, or our Medtronic CareLink® Service for remote physician access to patient data.</P>
<P style="font-size:10pt"> Increased investment in our future is fortified by
our continued strong cash flow generated from operations of over $2.8 billion during fiscal year 2005 and our $4.7 billion
in cash, short-term and long-term debt securities as of April 29, 2005. We intend to continue to utilize our positive
cash flow from operations to invest in research and development, certain strategic acquisitions, and participate in expanded
clinical trials, which support regulatory approval of our products, while helping to both expand markets and prove the cost
effectiveness of these therapies.</P>
<P style="font-size:10pt"> In order to support our continued plans for growth,
we also have made major investments in infrastructure to support our growth initiatives including major facility expansions
in Tennessee for our
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">2</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">Spinal business and Ireland to support our Vascular business. In addition, we continue to deploy a
new enterprise-wide information system across our global operating units and have plans to expand our CRM related facilities
in Minnesota.</P>
<P style="font-size:10pt"> 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 and, looking ahead, we will rigorously work to improve
patient access through well planned studies, which show the 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 the principles of our mission, our strong product pipelines, and continued commitment to research and
development.</P>
<P style="font-size:10pt;font-weight:bold">Understanding Our Financial Information</P>
<P style="font-size:10pt"> Our financial information is summarized in this management’s
discussion and analysis, the consolidated financial statements, and the related notes to the consolidated financial statements
(Notes) as of April 29, 2005 and April 30, 2004 and for each of the three fiscal years ended April 29, 2005,
April 30, 2004, and April 25, 2003. The following is intended to assist you in fully understanding our financial
information.</P>
<P style="font-size:10pt"> <B><I>Organization of Financial Information</I></B>
Management’s discussion and analysis, presented on pages 2 to 30 of this report, provides material
historical and prospective disclosures designed to enable investors and other users to assess our financial condition and results
of operations.</P>
<P style="font-size:10pt"> The consolidated financial statements, excluding the
related Notes, are presented on pages 34 to 37 of this report, and include the consolidated statements of earnings, consolidated
balance sheets, consolidated statements of shareholders’ equity and consolidated statements of cash flows.</P>
<P style="font-size:10pt"> The Notes, which are an integral part of the consolidated
financial statements, are presented on pages 38 to 76 of this report. The Notes provide additional information required
to fully understand the nature of amounts included in the consolidated financial statements.</P>
<P style="font-size:10pt"> <B><I>Financial Trends</I></B> Throughout
this financial information, you will 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 special charges (such as certain litigation
and restructuring charges) and purchased in-process research and development (IPR&D) charges. These charges result from
facts and circumstances that vary in frequency and/or impact operations. See page 8 and 18 of this report and Note 3
to the consolidated financial statements for more information regarding these transactions. 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 and IPR&D charges is necessary in order to estimate the likelihood
that financial trends will continue.</P>
<P style="font-size:10pt"> Our fiscal year-end is based on the last Friday in
April, and therefore, the total weeks in a fiscal year can fluctuate between fifty-two and fifty-three weeks. Fiscal year 2005
was a typical fifty-two week year; however, fiscal year 2004 was a fifty-three week year. As a result of the extra week, the
fiscal year 2004 fourth quarter and full year included fourteen and fifty-three weeks, respectively, as opposed to thirteen
and fifty-two weeks, respectively, in both fiscal years 2005 and 2003. This extra week had a favorable impact on our fiscal
year 2004 results; however, it is impossible to quantify the exact impact because our growth throughout the fiscal year is
not linear. Based on a straight mathematical calculation on the number of weeks, an additional week would have had a positive
impact of approximately 1.5 to 2.0 percentage points on <I>net sales</I> growth rates for fiscal year 2004 and a similar negative
impact on fiscal year 2005 <I>net sales</I> growth rates.</P>
<P style="font-size:10pt"> <B><I>Financial Obligations</I></B> Our
financial obligations are summarized on page 24 of this report.</P>
<P style="font-size:10pt"> <B><I>Derivatives</I></B> We do
not use derivatives for speculative purposes. Derivatives are used to manage our exposure related to foreign exchange rate
changes. A summary of our derivative policy and
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">3</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">application of the accounting rules are located in Note 1 to the consolidated financial statements.
Details regarding our risk management programs and the derivatives used in these programs are located on page 26 of this
report and in Note 4 to the consolidated financial statements.</P>
<P style="font-size:10pt;font-weight:bold">Critical Accounting Estimates</P>
<P style="font-size:10pt"> We have adopted various accounting policies to prepare
the consolidated financial statements in accordance with accounting principles generally accepted (GAAP) in the United States
of America (U.S.). Our most significant accounting policies are disclosed in Note 1 to the consolidated financial statements.</P>
<P style="font-size:10pt"> The preparation of the consolidated financial statements,
in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying Notes. Our estimates and assumptions, including those related to bad debts, inventories,
intangible assets, property, plant and equipment, investment impairment, legal proceedings, IPR&D, warranty obligations,
product liability, self-insurance, pension and post-retirement obligations, sales returns and discounts, and income taxes are
updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience, actuarial
valuations, or various assumptions that are believed to be reasonable under the circumstances, and the results form the basis
for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially
differ from these estimates.</P>
<P style="font-size:10pt"> 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) other materially different estimates could have been reasonably made or
material changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include
the following:</P>
<P style="font-size:10pt"> <B>Legal Proceedings</B> We are
involved in a number of legal actions, the outcomes of which 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, which, if granted, could require significant
expenditures or lost revenues. In accordance with Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting
for Contingencies,” 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, the minimum amount of the range is accrued. If the loss is not
probable or cannot be reasonably estimated, a liability is not recorded in the 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 further in Note 14 to the consolidated financial statements. While it is not possible to predict the outcome
for most of the actions discussed, we believe that costs associated with them could have a material adverse impact on the consolidated
earnings, financial position or cash flows of any one interim or annual period. With the exception of the three cases discussed
in the “Other Matters” and “Special and IPR&D Charges” sections of this management’s discussion
and analysis, negative outcomes for the balance of the litigation matters discussed in Note 14 to the consolidated financial
statements generally are not considered probable or cannot be reasonably estimated. Unless explicitly discussed, we have not
recorded reserves regarding these matters in the consolidated financial statements as of April 29, 2005.</P>
<P style="font-size:10pt"> <B>Tax Strategies</B> Our effective
tax rate is based on expected income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions
in which we operate. Significant judgment is required in determining our effective tax rate and evaluating our tax positions.
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. We adjust these reserves in light of changing facts
and circumstances, such as the progress of a tax audit. Our effective tax rate includes the impact of reserve provisions and
changes to reserves that we consider appropriate. This rate is then applied to our quarterly operating results. In the event
there is a special and/or IPR&D charge recognized in our operating results, the tax attributable to that item would be
separately calculated and recorded in the same period as the special and/or IPR&D charge.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">4</P>
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<P style="font-size:10pt"> Tax regulations require certain items to be included
in the tax return at different times than items are required to be recorded in the consolidated financial statements. As a
result, the effective tax rate reflected in our consolidated financial statements is different than that reported in our tax
return. Some of these differences are permanent, such as expenses that are not deductible on our tax return, and some are timing
differences, such as depreciation expense. Timing differences create deferred tax assets and liabilities. Deferred tax assets
generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have
already recorded the tax benefit in our consolidated statements of 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 consolidated financial statements for which payment has been
deferred or expense has already been taken as a deduction on our tax return, but has not yet been recognized as an expense
in our consolidated statements of earnings.</P>
<P style="font-size:10pt"> Tax audits associated with the allocation of income,
and other complex tax issues, may require an extended period of time to resolve and may result in income tax adjustments if
changes to our allocation are required between jurisdictions with different tax rates. Tax authorities periodically review
tax returns and propose adjustments to our tax filings. The U.S. Internal Revenue Service (IRS) has settled its audits with
us for all years through fiscal year 1996. Tax years settled with the IRS, however, 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 related to the audits of the fiscal years 1997, 1998,
and 1999 tax returns. The positions taken by the IRS with respect to proposed adjustments on previous tax filings or with respect
to competent authority proceedings could have a material unfavorable impact on our effective tax rate in future periods. As
we believe we have meritorious defenses for our tax filings, in November 2004 we initiated defense of these filings at the
IRS appellate level, and if necessary, we will vigorously defend them through litigation in the courts. We believe we have
provided for probable liabilities resulting from tax assessments by taxing authorities. Our 2000, 2001, and 2002 fiscal years
are currently under audit by the IRS. We anticipate the IRS will issue their audit reports related to these audits in fiscal
year 2006.</P>
<P style="font-size:10pt"> Our current tax strategies have resulted in an effective
tax rate below the U.S. statutory rate of 35%, or 29.1%. An increase in our effective tax rate of 1% would result in an additional
income tax provision for the fiscal year ended April 29, 2005 of approximately $32.0 million. See discussion of the
tax rate in the “Income Taxes” section of this management’s discussion and analysis.</P>
<P style="font-size:10pt"> <B>Valuation of IPR&D, Goodwill, and Other Intangible
Assets</B> When we acquire another 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 acquisition in accordance with accepted valuation methods. For
IPR&D, these methodologies include consideration of the risk of the project not achieving commercial feasibility.</P>
<P style="font-size:10pt"> Goodwill represents the excess of the aggregate purchase
price over the fair value of net assets, including IPR&D, of the acquired businesses. Goodwill is tested for impairment
annually, or more frequently if changes in circumstance or the occurrence of events suggest impairment exists. 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 consolidated balance sheets and the judgment required in determining fair value amounts, including projected future
cash flows. Goodwill was $4.281 billion and $4.237 billion as of April 29, 2005 and April 30, 2004, respectively.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">5</P>
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<P style="font-size:10pt"> Other intangible assets consist primarily of purchased
technology, patents, and trademarks and are amortized using the straight-line method over their estimated useful lives, ranging
from 3 to 20 years. 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
$1.018 billion and $999.3 million as of April 29, 2005 and April 30, 2004, respectively.</P>
<P style="font-size:10pt;font-weight:bold">Results of Operations</P>
<DIV align="center">
<img src="med52766salesg.gif"></DIV>
<P style="font-size:10pt"> Our fiscal year-end is based on the last Friday in
April, and therefore, the total weeks in a fiscal year can fluctuate between fifty-two and fifty-three weeks. Fiscal year 2005
was a typical fifty-two week year; however, fiscal year 2004 was a fifty-three week year (see the “Understanding Our Financial
Information” section of this management’s discussion and analysis for further details).</P>
<P style="font-size:10pt"> <I>Fiscal Year 2005</I>
</P>
<P style="font-size:10pt"> Fiscal year 2005 net sales increased by $967.4 million,
or 11%, from the prior fiscal year to $10.055 billion. Foreign currency translation had a favorable impact on net sales
of $166.2 million when compared to the prior fiscal year. The increase in net sales was driven by growth in all operating
segments including solid growth in CRM, Spinal, ENT and Navigation, and the Neurological and Diabetes operating segments. CRM
net sales increased 9% over the prior fiscal year to $4.616 billion. CRM growth was driven by continued expansion of defibrillation
markets including solid gains in the heart failure (cardiac resynchronization therapy) and tachyarrhythmia markets, resulting
in a 21% increase in net sales of defibrillation systems over the prior fiscal year. Spinal, ENT, and Navigation net sales
increased 20% over the prior fiscal year to $2.125 billion. The increase in Spinal, ENT, and Navigation was driven by
continued strong sales for our rapidly growing portfolio of thoracolumbar products and continued acceptance of the INFUSE®
Bone Graft for use in spinal fusion and certain types of acute tibia fractures. Neurological and Diabetes sales increased 11%
over the prior fiscal year to $1.794 billion. The growth in Neurological and Diabetes was driven by a number of product
lines including strong sales of our products used to treat movement disorders, implantable drug infusion pumps and disposable
insulin infusion sets used with our line of external diabetes pumps. For more detail regarding these increases, see our discussion
of net sales by operating segment within this management’s discussion and analysis.</P>
<P style="font-size:10pt"> During the third quarter of fiscal year 2005, we acquired
all of the outstanding stock of Angiolink Corporation (Angiolink) for approximately $42.3 million in cash, subject to purchase
price increases, which would be triggered by the achievement of certain milestones. Angiolink was a privately held company
that developed wound closure devices for vascular procedures. Angiolink’s EVS™ (Expanding
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">6</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">Vascular Stapling) Vascular Closure System, which has received U.S. Food and Drug Administration (FDA)
approval, is engineered to close the femoral artery access site after vascular procedures, such as diagnostic angiography,
balloon angioplasty and stenting. The EVS system provides safe and effective mechanical closure of arterial puncture sites
without disturbing the lumen, or interior, of the targeted vessel. This acquisition provides us with an additional vascular
closure offering to our current closure product — the non-invasive Clo-Sur P.A.D.™.</P>
<P style="font-size:10pt"> During the second quarter of fiscal year 2005, we
acquired substantially all of the assets of Coalescent Surgical, Inc. (Coalescent) for approximately $59.1 million in
cash, including a $5.0 million milestone payment made in March 2005 for the successful transition of product and technology
to us following the acquisition. The purchase price remains subject to purchase price increases, which would be triggered by
the achievement of certain milestones. Coalescent developed the U-Clip™ Anastomotic Device and the SPYDER™ Proximal
Anastomotic Device. The U-Clip device creates high-quality anastomoses (a seamless connection) without sutures and is primarily
used in coronary artery bypass surgery. The SPYDER device automatically deploys a series of U-Clip devices when attaching the
bypass graft to the aorta. This acquisition is expected to complement our surgical product line and strategy to develop technologies
to promote surgical procedures that produce better patient outcomes, and reduce trauma and hospitalization. Our fiscal year
2005 operating results include the results of each of these acquired entities since their respective acquisition dates.</P>
<P style="font-size:10pt"> <I>Fiscal Year 2004</I>
</P>
<P style="font-size:10pt"> Fiscal year 2004 net sales increased by $1.422 billion,
or 19%, from the prior fiscal year to $9.087 billion. Foreign currency translation had a favorable impact on net sales
of $344.2 million when compared to the prior fiscal year. The increase in net sales was driven by growth in all operating
segments including significant growth in CRM, Spinal, ENT and Navigation, and the Neurological and Diabetes operating segments.
CRM net sales increased 17% over the prior fiscal year to $4.238 billion. CRM growth was driven by continued new product
introductions into both the defibrillation and pacing markets and sharp increases in the heart failure and tachyarrhythmia
markets, resulting in a 28% increase in net sales of defibrillation systems and a 9% increase in net sales of pacing systems.
Spinal, ENT, and Navigation net sales increased 31% over the prior fiscal year to $1.765 billion. The increase in Spinal,
ENT, and Navigation was driven by continued strong sales for our rapidly growing portfolio of MAST products and continued acceptance
of the INFUSE Bone Graft for spinal fusion, which is used in conjunction with several approved fusion devices. Neurological
and Diabetes sales increased 19% over the prior fiscal year to $1.611 billion. The growth in Neurological and Diabetes
was driven by sales of our stimulation products used in the treatment of movement disorders and urinary control and our line
of insulin infusion pumps for the treatment of diabetes. For more detail regarding these increases, see our discussion of net
sales by operating segment within this management’s discussion and analysis.</P>
<P style="font-size:10pt"> During the third quarter of fiscal year 2004, we acquired
certain assets of Radius Medical Inc. (Radius) for $5.6 million, including a $0.5 million milestone payment made
in fiscal year 2005 for the successful transfer of assets, and we acquired substantially all of the assets of Premier Tool, Inc.
(Premier Tool) for approximately $4.0 million. The acquisitions of Radius and Premier Tool expanded our existing guidewire
product and technology portfolio and enhanced our current line of spinal instrumentation, respectively. The Radius purchase
price remains subject to purchase price increases, which would be triggered by the achievement of certain milestones. Also
during the third quarter of fiscal year 2004, we acquired all of the outstanding stock of Vertelink Corporation (Vertelink)
for approximately $28.1 million in cash, including two $3.0 million milestone payments made in fiscal year 2005 as a result
of attaining FDA approval for the KOBRA II System and CE Mark approval for the SST™ Spinal Fixation System. The purchase
price remains subject to purchase price increases, which would be triggered by the achievement of certain milestones. Vertelink
was a privately held development stage company that developed materials and techniques for over-the-wire spinal fixation devices
that can achieve multi-level stabilization of the cervical, thoracic and lumbar spine. These devices permit surgeons to place
spinal instrumentation utilizing tissue-sparing, minimally invasive methods. Vertelink’s products enhanced the strategic
initiative of our Spinal business that focuses on MAST.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">7</P>
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<P style="font-size:10pt"> During the second quarter of fiscal year 2004, we
acquired substantially all of the assets of TransVascular, Inc. (TVI) for approximately $58.7 million, subject to
purchase price increases, which would be triggered by the achievement of certain milestones. The initial consideration included
approximately 1.2 million shares of our common stock valued at $57.5 million, our prior investment in TVI and acquisition-related
costs. TVI developed and marketed the Pioneer™ Catheter (formerly the CrossPoint® TransAccess® Catheter System),
a proprietary delivery technology for several current and potential intravascular procedures, such as the potential ability
to deliver therapeutic agents, including cells, genes and drugs, to precise locations within the vascular system. The Pioneer
Catheter received FDA 510(k) clearance in 2002 and is indicated to facilitate the positioning and placement of catheters
within the peripheral vasculature. This strategic acquisition complemented our commitment to advance therapies and treatments
by combining biologic and device therapies. Our fiscal year 2004 operating results include the results of each of these acquired
entities since their respective acquisition dates.</P>
<P style="font-size:10pt;font-weight:bold">Earnings and Earnings Per Share</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH><TH> </TH><TH colspan="6">Percent Increase/<BR>(Decrease)</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
<TH> </TH>
<TH colspan="3">2003</TH>
<TH> </TH>
<TH colspan="3">FY05/04</TH>
<TH> </TH>
<TH colspan="3">FY04/03</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">(dollars in millions, except per share data):</TH>
<TH> </TH>
<TH colspan="3"></TH>
<TH> </TH>
<TH colspan="3"></TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:6pt">
<TD width="38%">Net earnings, as reported</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,803.9</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,959.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,599.8</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="center" width="8%">(7.9%)</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="center" width="8%">22.5%</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Special and IPR&D charges, after-tax</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">466.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">38.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">120.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">N/A </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">N/A </TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Diluted earnings per share, as reported</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.48</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.60</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.30</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">(7.5%)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">23.1%</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Special and IPR&D charges, per diluted share</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.38</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.03</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.10</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">N/A </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">N/A </TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Special and IPR&D charges in each fiscal year
included the following (see page 18 of this management’s discussion and analysis and Note 3 to the consolidated financial
statements for more detail regarding special and IPR&D charges):</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%"><I>Fiscal Year 2005:</I> net after-tax charges totaling $466.6 million related to litigation and a $48.5
million deferred tax liability associated with the expected repatriation of earnings of our foreign subsidiaries.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD><I>Fiscal Year 2004:</I> net after-tax charges totaling $38.1 million primarily for IPR&D related to the acquisitions
of Vertelink, TVI, and the equity method of accounting for one of our equity investments.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD><I>Fiscal Year 2003:</I> net after-tax charges totaling $120.9 million primarily for IPR&D related to the acquisition
of Spinal Dynamics Corporation (SDC).</TD>
</TR>
</TABLE>
<P style="font-size:10pt;font-weight:bold">Other Matters</P>
<P style="font-size:10pt"> In fiscal year 2005, we recorded pre-tax litigation
charges of $654.4 million. During the fourth quarter of fiscal year 2005, we recorded a charge for two ongoing legal disputes
of $630.1 million. A charge of $550.0 million relates to the settlement of all outstanding litigation and disputes with Gary
Michelson, M.D. and Karlin Technology, Inc. (Michelson). The second charge of $80.1 million is a result of a binding arbitration
ruling related to a March 2002 agreement between us and ETEX Corporation (ETEX). During the third quarter of fiscal year 2005
we also recorded a charge of $24.3 million related to the DePuy/AcroMed, Inc. (DePuy/AcroMed) litigation. The jury found that
the thoracolumbar multiaxial screw design of Medtronic Sofamor Danek, Inc. (MSD), which MSD no longer sells in the U.S., infringes patents held by DePuy/AcroMed
under the doctrine of equivalents. See further discussion of these matters in the “Special and IPR&D Charges”
section of this management’s discussion and analysis.</P>
<P style="font-size:10pt"> In May 2005, in a case related to intellectual property
disputes between Cross Medical Products, Inc. (Cross) and our MSD subsidiary, a U.S. District
Court granted Cross a permanent injunction prohibiting MSD’s manufacture or sale of products that were found to infringe
one of Cross’s patents. The injunction relates to certain products which use the multiaxial screws in spinal fusion
surgery,
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">8</P>
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<P style="font-size:10pt">including the CD HORIZON® family of products. The injunction was
stayed for 90 days and is scheduled to take effect on August 22, 2005. MSD has
requested a further stay from the U.S. Court of Appeals for the Federal Circuit
and is also awaiting the Federal Circuit's decision on an appeal of the District
Court's injunction. If MSD should be unsuccessful, the rulings could have an
impact on future sales and profitability of the products that incorporate these
screws. We are working to ensure that patients and surgeons continue to have
access to these technologies.</P>
<P style="font-size:10pt"> During the fourth quarter of fiscal year 2005, we
determined that we will be repatriating the entire amount eligible, or $933.7 million of previous foreign earnings back to
the U.S. under the <I>American Jobs Creation Act of 2004</I> (the Jobs Creation Act). As a result, we have recorded a $48.5
million deferred tax liability related to these plans. See the “Income Taxes” section of this management’s discussion
and analysis and Note 11 to the consolidated financial statements for further discussion.</P>
<P style="font-size:10pt"> In February 2005, we voluntarily advised physicians
about a potential battery shorting mechanism that may occur in a subset of our ICD and CRT-D models manufactured between April
2001 and December 2003. As part of our routine programs to analyze products returned from physicians, we identified nine of
87,000 implanted devices (0.01%) with a battery design that experienced rapid battery depletion due to the shorting action.
During the fourth quarter of fiscal year 2005, we worked closely with the physician and patient communities to address their
concerns and meet the demand for replacement units. Due to this voluntary field action, we estimate that approximately one-third
of these units will be replaced and therefore we have established a reserve to cover the cost of units that have been replaced
and estimated future units to be replaced under this field action program. Approximately $35.0 million was charged to <I>cost
of products sold</I> in the consolidated statements of earnings during the fourth quarter of fiscal year 2005 to cover the
year-to-date costs and estimated future costs of this field action program.</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">Net Sales</P>
<P style="font-size:10pt;text-align:center"><I>Net sales by operating segment for fiscal years
2005, 2004, and 2003 are presented below:</I>
</P>
<DIV align="center">
<img src="med52766fyrs.gif"></DIV>
<P style="font-size:10pt"> The primary exchange rate movements that impact our
consolidated net sales growth are the U.S. dollar as compared to the Euro and
the Japanese Yen. The impact of foreign currency fluctuations on net sales is
not indicative of the impact on net earnings due to the offsetting foreign
currency impact on operating costs and expenses and our hedging activities (see
the “Market Risk” section of this management’s discussion and
analysis and Note 4 to the consolidated financial statements for further
details on foreign currency instruments and our related risk management
strategies).</P> <P style="font-size:10pt"> Forward-looking
statements are subject to risk factors (see “Cautionary Factors That May
Affect Future Results” set forth in our Form 10-K).</P>
<P style="font-size:10pt"> <B>Cardiac Rhythm Management</B> CRM
products consist primarily of pacemakers, implantable and external defibrillators, leads, ablation products, electrophysiology
catheters, navigation systems and
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">9</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">information systems for the management of patients with our devices. CRM fiscal year 2005 net sales
grew by 9% from the prior fiscal year to $4.616 billion. Foreign currency translation had a favorable impact on net sales
of approximately $82.4 million when compared to the prior fiscal year. While the increase in CRM net sales was solid across
most product lines, fiscal year 2005 highlights include the following:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Implantable defibrillator net sales for fiscal year 2005 increased 21% over the prior fiscal year to $2.379 billion.
This increase was driven by strong demand for the Maximo® and Intrinsic families of ICDs, and enthusiastic market acceptance
of the InSync Maximo™ and InSync Sentry CRT-Ds. Maximo and Intrinsic ICDs were released in the U.S. in October 2003 and
August 2004, respectively, and the InSync Maximo and InSync Sentry were released in the U.S. in June and November of 2004,
respectively. InSync Sentry is the world’s first implantable medical device offering automatic fluid status monitoring
in the chest area encompassing the heart and lungs. Fiscal year 2005 net sales also benefited from strong growth in sales of
Sprint Fidelis™ leads, which were released in September 2004. The strong market acceptance of these products reflects
CRM’s continued product innovation as well as an overall expansion of the tachyarrhythmia and heart failure markets due
to an ever increasing body of clinical data that helps support the lifesaving benefits of these devices for certain patient
populations.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Pacing system net sales for fiscal year 2005 decreased by 4% over the prior fiscal year to $1.756 billion. Current
year decreases are attributable to several factors including the slight loss of market share and the year over year decrease
in the overall pacing market due to the belief that physicians are focusing more on the CRT-D marketplace. Despite the year
over year net sales decline, we continue to maintain solid sales of the Kappa® family of pacemakers and experience continued
market acceptance of the EnPulse® pacemaker, which was released in the U.S. in late fiscal year 2004. The EnPulse pacemaker
is the world’s first fully automatic pacemaker capable of setting pacing outputs and sensing thresholds in both the upper
and lower chambers of the heart.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Fiscal year 2005 implantable defibrillator and pacing system sales also benefited from the continued acceptance of the Medtronic
CareLink Service. The Medtronic CareLink Service enables clinicians to review data about implanted cardiac devices in real
time and access stored patient and device diagnostics through a secure Internet website. The data, which is comparable to information
provided during an in-clinic device follow-up, provides the physician with a comprehensive view of how the device and patient’s
heart are operating. Today, over 35,000 implant patients are being monitored through Medtronic’s CareLink Service in the
U.S.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>In addition to the growth noted in the core implantable products, Medtronic Emergency Response Systems, Inc. net sales for
the fiscal year increased by 12% over the prior fiscal year to $412.4 million. Growth in sales was led by the continued acceptance
of the LIFEPAK CR™ Plus defibrillator, an automated external defibrillator (AED) designed for both the commercial and
consumer market and the LIFEPAK 20 defibrillator, an external defibrillator for use by both first responders and professionals
in a hospital or clinical setting. Both of these products were introduced in the U.S. in fiscal year 2003.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> CRM fiscal year 2004 net sales grew by 17% from the
prior fiscal year to $4.238 billion. Foreign currency translation had a favorable impact on net sales of approximately
$175.4 million when compared to the prior fiscal year. While the increase in CRM net sales was strong across most product
lines, fiscal year 2004 highlights included the following:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Implantable defibrillator net sales for fiscal year 2004 increased 28% over the prior fiscal year to $1.962 billion.
This increase was driven by continued strong demand for the Maximo and Marquis® family of ICDs, and strong sales growth
of the InSync II Marquis™ CRT-D. Both the Maximo and InSync II Marquis were market released in fiscal year 2004. Fiscal
year 2004 net sales also benefited from strong growth in sales of Sprint Quattro® leads, which were released in fiscal
year 2002. The strong demand for these products reflected CRM’s strong product pipeline as well as an overall expansion
of the tachyarrhythmia and heart failure markets.</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">10</P>
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<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2"><TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Pacing system net sales for fiscal year 2004 increased by 9% over the prior fiscal year to $1.832 billion. This increase
was led by continued strong sales performance of the Kappa 900, Vitatron® C-Series, and the EnPulse pacemakers. In the
third quarter, the EnPulse series pacemakers were first market released in the U.S., and in the fourth quarter, we announced
the availability of the EnPulse pacemaker with Atrial Capture Management (ACM). Fiscal year 2004 sales also benefited from
growing sales of the InSync III low power heart failure pacing device and sales of the Attain® family of left ventricle
heart leads. The growth in sales of these products is reflective of new product introductions in the current fiscal year.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Fiscal year 2004 implantable defibrillator and pacing system sales also benefited from the continued acceptance of the Medtronic
CareLink Service. As of June 2004, nearly 10,000 implant patients were being monitored through Medtronic’s CareLink Service
in the U.S. and physicians were able to offer the Medtronic CareLink Service to approximately 130,000 ICD patients and nearly
400,000 pacemaker patients.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>CRM implantable products and related services were complemented by fiscal year 2004 net sales growth of 7% in Medtronic
Emergency Response Systems, Inc., which primarily consisted of sales of our LIFEPAK® line of external defibrillators/monitors.
Growth was led by the continued acceptance of the following products, which were all introduced in fiscal year 2003: the LIFEPAK
500DPS, an AED designed for first responders in law enforcement, utility, and military settings; the LIFEPAK CR Plus defibrillator;
and the LIFEPAK 20 defibrillator.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> Looking ahead, we expect our CRM operating segment
should benefit from the following:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Continued acceptance of the InSync Maximo and InSync Sentry CRT-Ds. We believe that the InSync Sentry will provide
an advantage in managing heart failure, since thoracic fluid accumulation is a primary indicator of worsening heart failure
and often results in patient hospitalization. In April 2005, we announced FDA approval to add a new feature to both the InSync
Maximo and the InSync Sentry CRT-Ds. Sequential biventricular pacing or “V-to-V” (ventricle to ventricle) timing
is a new feature that allows physicians to separately adjust the timing of electrical therapy delivered to the heart failure
patient’s two ventricles, which can optimize the beating of the heart and enhance the flow of blood throughout the body.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued growth in the ICD and CRT-D markets due to a national coverage decision, by the Centers for Medicare and Medicaid
Services (CMS), to expand coverage of ICDs. On January 29, 2005, CMS published their decision to expand coverage of ICDs
to include the patient population, which was the focus of the Sudden Cardiac Death in Heart Failure Trial (SCD-HeFT). Published
January 20, 2005 in the <I>New England Journal of Medicine</I>, the SCD-HeFT study demonstrated that the use of an ICD
reduces death by 23 percent in people with moderate to severe heart failure and poor heart pumping function compared to those
who did not receive a defibrillator. The coverage decision will impact an estimated patient population of 300,000 Medicare
beneficiaries.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued acceptance of the Intrinsic ICD with Managed Ventricular Pacing (MVP™), a new pacing mode designed to promote
natural heart activity by minimizing unnecessary right ventricular pacing.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued acceptance of the Medtronic CareLink Service. The Medtronic CareLink Service enables patients, as instructed by
their physician, to transmit data from their implantable device anywhere in the U.S. using a portable monitor that is connected
to a standard telephone. Within minutes, the patient’s medical team can view patient and device diagnostic data on a secure
Internet website.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued growth in the CRT-D market due to the recently released CARE-HF (Cardiac Resynchronization in Heart Failure) study,
which shows that cardiac resynchronization therapy improves all-cause mortality and patient quality of life in patient populations
which include individuals with moderate to severe heart failure and poor heart pumping function. The findings from the CARE-HF
randomized, controlled trial were presented March 7, 2005 during
</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">11</P>
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<TD width="4%"> </TD>
<TD width="4%"> </TD>
<TD>a Late-Breaking Clinical Session at the American College of Cardiology Annual Scientific session and concurrently published
in the <I>New England Journal of Medicine</I>.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>The introduction of the EnRhythm™ pacemaker and the EnTrust™ ICD. EnRhythm is the first pacemaker to include MVP.
The EnTrust ICD offers both MVP and refinements to the anti-tachycardia pacing (ATP) function of the device. ATP uses pacing
pulses to painlessly terminate fast, dangerous heart rhythms originating in the ventricle. EnRhythm was released in the U.S.
in May 2005 and in Europe in February 2005. EnTrust was released in Europe at the same time as the EnRhythm and is expected
to be released in the U.S. in the second half of calendar year 2005.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <B>Spinal, ENT, and Navigation</B> Spinal,
ENT, and Navigation products include thoracolumbar, cervical and interbody spinal devices, bone growth substitutes, surgical
navigation tools, and surgical products used by ENT physicians. Spinal, ENT, and Navigation net sales for fiscal year 2005
increased by 20% from the prior fiscal year to $2.125 billion. Foreign currency translation had a favorable impact on
net sales of $17.4 million when compared to the prior fiscal year. Spinal net sales for fiscal year 2005 increased 22%
from the prior fiscal year to $1.785 billion. This increase reflects solid growth across our portfolio of product offerings
including continued robust acceptance of INFUSE Bone Graft, steady growth in net sales of our CD HORIZON LEGACY™ Spinal
System family of products and the introduction of the CAPSTONE vertebral body spacer. INFUSE Bone Graft contains a recombinant
human bone morphogenetic protein, or rhBMP-2, which induces the body to grow its own bone, eliminating the need for a painful
second surgery to harvest bone from elsewhere in the body. In May 2004, we announced that the FDA approved the use of
INFUSE Bone Graft in the treatment of certain types of acute, open fractures of the tibial shaft, a long bone in the lower
leg. The approval broadens the indications of the use of our INFUSE Bone Graft technology. Since April 2005, we have the right
to market InductOs™ Bone Graft, the European equivalent of the INFUSE Bone Graft, for use in spinal fusion in European
markets. The CAPSTONE vertebral body spacer, released in the U.S. in October 2004, is designed to replace and restore the height
of all or part of a vertebral body (the weight bearing portion of the vertebra) that has been removed for the treatment of
a tumor or fracture. ENT and Navigation net sales for fiscal year 2005 increased by 11% and 17%, respectively, from the prior
fiscal year. The primary drivers of the increase in ENT net sales was the physician preference for the NIM-Response® nerve
monitor and XPS® Micro Power Drill. Navigation net sales growth was primarily the result of strong sales of the StealthStation®
TRIA and the PoleStar™ N20 surgical navigation equipment.</P>
<P style="font-size:10pt"> Spinal, ENT, and Navigation net sales for fiscal year
2004 increased by 31% from the prior fiscal year to $1.765 billion. Foreign currency translation had a favorable impact
on net sales of $34.4 million when compared to the prior fiscal year. Spinal net sales for fiscal year 2004 increased
by over 36% from the prior fiscal year to $1.464 billion. This increase reflected continued acceptance of our broad base
of product offerings, including overwhelming acceptance of INFUSE Bone Graft, and steady growth in sales of our expanding portfolio
of MAST products. INFUSE Bone Graft is approved for use with the LT-CAGE, INTER FIX™, and INTER FIX RP spinal fusion devices.
ENT and Navigation net sales for fiscal year 2004 increased by 14% and 9%, respectively, from the prior fiscal year.</P>
<P style="font-size:10pt"> Looking ahead, we expect our Spinal, ENT, and Navigation
operating segment should benefit from the following:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Continued market acceptance of the INFUSE Bone Graft for spinal fusion and acute tibia fractures. With the European
approval of InductOs Bone Graft for use in spinal fusion, the growth in InductOs Bone Graft net sales is expected to accelerate
in European markets.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Steady acceptance of our expanding suite of MAST products and minimally invasive surgical techniques, such as the CATALYST
Anterior Instrument Set, introduced in November 2004 and designed to enable surgeons to more accurately, and less invasively,
place spinal implants from an anterior, or front, surgical approach.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued acceptance of the BRYAN® Cervical Disc System, MAVERICK™ Lumbar Artificial Disc, Prestige® ST and
Prestige LP Cervical Disc Systems outside the U.S. Enrollment has
</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">12</P>
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<TD width="4%"> </TD>
<TD width="4%"> </TD>
<TD>just begun on the Prestige LP U.S. clinical trial and has recently been completed for the other three artificial disc U.S.
clinical trials.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued acceptance of the CAPSTONE vertebral body spacer for insertion between vertebrae in the anterior thoracic and
lumbar spine to aid in surgical spinal correction and stabilization.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <B>Neurological and Diabetes</B> Neurological
and Diabetes products consist primarily of implantable neurostimulation devices, implantable drug administration devices, neurosurgery
products, urology products, gastroenterology products, hydrocephalic shunts/drainage devices, surgical instruments, functional
diagnostic and sensing equipment and medical systems for the treatment of diabetes. Neurological and Diabetes net sales for
fiscal year 2005 increased 11% from the prior fiscal year to $1.794 billion. Foreign currency had a favorable impact on
net sales of $26.6 million when compared to the prior fiscal year. Neurological net sales for fiscal year 2005 increased
by 9% over the prior fiscal year. This increase reflects solid net sales growth in all businesses within Neurological. Key
product lines which drove growth during the year include Activa Therapy for the treatment of movement disorders associated
with advanced Parkinson’s disease and essential tremor, full year sales of the SynchroMed® II implantable drug infusion
pump, InterStim® Therapy for the treatment of urinary control, the Bravo®pH Monitoring System for diagnosis of acid
reflux and our Legend® high speed surgical drill system. Neurological growth also benefited from the launch of the Restore
Rechargeable Neurostimulation System, our first fully rechargeable neurostimulation system, which occurred late fiscal year
2005. The Restore System is indicated to manage chronic, difficult-to-treat pain in the trunk and/or multiple limbs that is
associated with failed back syndrome, post laminectomy pain, unsuccessful disc surgery or degenerative disc disease. Diabetes
net sales in fiscal year 2005 increased 16% over the prior fiscal year. This increase reflects positive U.S. growth of the
Paradigm 515 and 715 wireless insulin pumps and strong increases in net sales of disposable infusion sets used with our line
of Paradigm insulin infusion pumps. The Paradigm 515 and 715 pumps, released in November 2004, add new features to the previous
Paradigm 512 and 712 versions including increased customization of the insulin dosage based on patient specific information
and enhanced information management capabilities. Using the system’s Paradigm Link® Blood Glucose Monitor, patients
can upload data, including glucose values, carbohydrate intake and insulin dosing information to the system via the Internet
from both the Paradigm Link monitor and Paradigm 515 or 715 insulin pumps. This increased data and user-friendly format are
designed to aid patients with daily self-management decisions.</P>
<P style="font-size:10pt"> Neurological and Diabetes net sales for fiscal year
2004 increased 19% from the prior fiscal year to $1.611 billion. Foreign currency had a favorable impact on net sales
of $51.6 million when compared to the prior fiscal year. Neurological net sales for fiscal year 2004 increased by 19%
over the prior fiscal year. This increase reflected continued strong sales of Activa Therapy, InterStim Therapy, neurostimulation
systems for the treatment of chronic pain, continued acceptance of the Bravo pH Monitoring System, and our Legend high speed
surgical drill system. In addition, fiscal year 2004 sales also benefited from the fourth quarter limited release of the SynchroMed
II implantable drug infusion pump, which features a larger drug reservoir and is 30% smaller than the original SynchroMed system.
Diabetes net sales in fiscal year 2004 increased 18% over the prior fiscal year. This increase reflected continued acceptance
of the Paradigm 512 and 712 wireless insulin pumps. These pumps use wireless technology called the Paradigm Link to automatically
transmit blood sugar readings from the glucose monitor to the insulin pump. The pump then uses its Bolus Wizard® calculator
to recommend the proper insulin dosage for the user. Both of these pumps were released in fiscal year 2004.</P>
<P style="font-size:10pt"> Looking ahead, we expect our Neurological and Diabetes
operating segment should benefit from the following:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Full worldwide launch of Restore Rechargeable Neurostimulation System for pain management that provides increased
power without compromising device longevity. We obtained European approval for Restore in February 2005 and U.S. approval in
April 2005.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued acceptance of the Paradigm 515 and 715 external insulin pump systems, which offer secure patient access to the
web-based Medtronic CareLink™ Service for Diabetes.</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">13</P>
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<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Continued acceptance of our Activa Therapy for the treatment of Parkinson’s disease and essential tremor. During the
second quarter of fiscal year 2005, CMS approved a New Tech Add-on Payment for the Kinetra® neurostimulator that simplifies
the delivery of Activa Therapy through a single device.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued acceptance of SynchroMed II Implantable Drug Infusion Pump. The SynchroMed II was released in Europe during April 2004
and fully released in the U.S. during late June 2004. </TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Launch of the Synergy Plus+™ and Synergy Compact+™ neurostimulators for treatment of chronic pain. These two new
neurostimulators offer physicians the benefits of enhanced programming and greater patient therapy flexibility as compared
to our current portfolio of products. The full launch of these products is expected in the first quarter of fiscal year 2006.
</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <B>Vascular</B> Vascular products
consist of coronary, endovascular, and peripheral stents and related delivery systems, stent graft systems, distal embolic
protection systems and a broad line of balloon angioplasty catheters, guide catheters, guidewires, diagnostic catheters and
accessories. Vascular net sales for fiscal year 2005 increased 1% from the prior fiscal year to $851.3 million. Foreign
currency translation had a favorable impact on net sales of $26.5 million when compared to the prior fiscal year. Coronary
Vascular net sales were flat in comparison to the prior fiscal year as a result of declining U.S. coronary stent sales offset
by the positive effects of a weaker U.S. dollar in comparison to the prior fiscal year and continued strong acceptance of the
Driver® Coronary Stent in markets outside the U.S., where drug-eluting stent use does not yet dominate the market. The
Driver is our cobalt-alloy coronary stent, introduced in fiscal year 2004. The cobalt-alloy allows for engineering of thinner
struts and provides greater maneuverability in placing the stent. Also contributing to the fiscal year 2005 results was a net
sales increase of 5% in Endovascular. Endovascular increases were primarily a result of strong growth in sales of the Talent™
Stent Graft System outside the U.S., which is used to treat abdominal aortic aneurysms (AAA). Peripheral Vascular fiscal year
2005 net sales were flat in comparison to the prior fiscal year.</P>
<P style="font-size:10pt"> Vascular net sales for fiscal year 2004 increased
9% from the prior fiscal year to $842.2 million. Foreign currency translation had a favorable impact on net sales of $53.7 million
when compared to the prior fiscal year. Coronary Vascular growth of 5% from the prior fiscal year was primarily driven by the
continued strong acceptance of the Driver Coronary Stent in markets worldwide, but particularly outside the U.S., where drug-eluting
stent use is much less prominent. Also contributing to the annual growth were net sales increases of 22% and 27% in Endovascular
and Peripheral Vascular, respectively. Endovascular increases were a result of strong growth in sales of the AneuRx® Stent
Graft System, which is used to treat AAA. Peripheral Vascular increases were a result of continued acceptance of the Racer®
Biliary Stent System (released in the U.S. during November 2003), which is an over-the-wire balloon expandable stent system
that is designed to maintain bile flow in liver ducts with severe blockage.</P>
<P style="font-size:10pt"> Looking ahead, we expect our Vascular operating segment
should benefit from the following:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Our anticipated entry into the drug-eluting stent market. The clinical trials for our Endeavor™ Drug-Eluting
Coronary Stent using Abbott Laboratories’ proprietary immunosuppression drug ABT-578 (a rapamycin analogue) paired with
our highly successful Driver stent began in fiscal year 2003. We reported final results for the one-year follow up data from
our ENDEAVOR I clinical trial at the European Society of Cardiology meeting in August 2004, 30-day safety data from the
ENDEAVOR II clinical trial at the Paris Course on Revascularization (PCR) in May 2004, and 8 and 9 month ENDEAVOR II clinical
results at the American College of Cardiology meeting in March 2005. The 8 and 9 month clinical data in the 1,197 patient ENDEAVOR
II trial demonstrated clinically and statistically significant improvement, compared to the Driver Coronary Stent, in all of
the study’s endpoints. We completed patient enrollment in the ENDEAVOR III clinical trial during September 2004.
In the beginning of the second quarter of fiscal year 2005, we announced our intention to conduct an additional trial, ENDEAVOR
IV, to collect additional efficacy data on the performance of the Endeavor Drug-Eluting Stent and to support the FDA’s
request for expanded safety data on the ABT-578 drug. In December 2004, we received conditional Investigational Device
Exemption (IDE) approval from the
</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">14</P>
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<TD width="4%"> </TD>
<TD width="4%"> </TD>
<TD WIDTH="92%">FDA to proceed with the ENDEAVOR IV clinical trial and began enrolling patients in the fourth quarter of fiscal
year 2005. We expect to receive approval to commercially release the Endeavor Drug-Eluting Stent in Europe and many emerging
markets in the first half of fiscal year 2006, and assuming continued positive results from our clinical trials, we expect
to receive U.S. regulatory approval during calendar year 2007.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued strong adoption of the Driver Coronary Stent in Japan and other markets outside of the U.S.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued acceptance of the Sprinter® Semi-Compliant Balloon Dilatation Catheter released in July 2004.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Continued market penetration of the Talent AAA Stent Graft in the European market and growth of the AneuRx AAA Stent Graft
following the release of the Xcelerant™ Delivery System. The Xcelerant Delivery System was approved for use in the U.S.
by the FDA in November 2004 and is designed to provide physicians with a smooth, controlled and more trackable delivery
platform to implant the AneuRx AAA Stent Graft.</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>•</TD>
<TD>Acceptance of the Valiant Thoracic Stent Graft with Xcelerant Delivery System, which was approved in Europe in March 2005.
Valiant is a next-generation stent graft used for the minimally invasive repair of the thoracic aorta, the body’s largest
artery, for several disease states, including aneurysms, penetrating ulcers, acute or chronic dissections, and contained or
traumatic ruptures.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> <B>Cardiac Surgery</B> Cardiac Surgery
products include positioning and stabilization systems for beating heart surgery, perfusion systems, products for the repair
and replacement of heart valves, minimally invasive cardiac surgery products, surgical accessories and the epicardial ablation
products. Cardiac Surgery net sales for fiscal year 2005 increased 6% over the prior fiscal year to $668.8 million. Foreign
currency translation had a favorable impact on net sales of $13.3 million when compared to the prior fiscal year. The
primary drivers for fiscal year 2005 growth were the Heart Valve and Perfusion businesses, which grew net sales by 10% and
4%, respectively, as compared to the prior fiscal year. Tissue Valve sales led the growth in the Heart Valve business with
growth of 13%. Key components to the Tissue Valve growth were sales of the Mosaic® and Freestyle® tissue valves, which
benefited from full year sales in the Japanese market where they were reintroduced in the fourth quarter of fiscal year 2004.
The growth in Perfusion Systems net sales in fiscal year 2005 was primarily due to continued market share gains in a market
that continues to experience contraction.</P>
<P style="font-size:10pt"> Cardiac Surgery net sales for fiscal year 2004 increased
13% over the prior fiscal year to $630.9 million. Foreign currency translation had a favorable impact on net sales of
$29.1 million when compared to the prior fiscal year. The primary drivers for fiscal year 2004 growth were the Heart Valve
and Cardiac Surgery Technologies (CST) businesses, which grew net sales by 19% and 17%, respectively, as compared to the prior
fiscal year. Tissue Valve sales growth of 21% was led by the continued acceptance of the Mosaic and Freestyle tissue valves,
including the fourth quarter reintroduction of these valves into the Japanese market. The primary driver of growth in CST was
the continued acceptance of the market leading Cardioblate® BP (Bipolar) Surgical Ablation System, which offers surgeons
the unique ability to perform an irrigated surgical ablation procedure, and the continued growth in the use of the Octopus®
family of tissue stabilizers for use in beating heart bypass procedures. Perfusion Systems net sales in fiscal year 2004 also
increased 9% over the prior fiscal year due, in large part, to market share gains in an otherwise shrinking market and increased
acceptance in the use of the Magellan® Autologous Platelet Separator, which processes the patient’s own blood and
benefits the patient in a variety of ways, including a reduction in the risk of infection.</P>
<P style="font-size:10pt"> Looking ahead, we expect our Cardiac Surgery operating
segment should benefit from the following:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">The full U.S. launch of our newest tissue valve, the Mosaic Ultra, in the first quarter of fiscal year 2006.
The Mosaic Ultra tissue valve incorporates a reduced sewing ring profile that facilitates the use of a larger valve.</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">15</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2"><TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">•</TD>
<TD WIDTH="92%">Acceptance of our latest generation of ablation system called the Cardioblate BP2 Surgical Ablation System, which offers
surgeons the unique ability to perform an irrigated surgical ablation procedure and is the world’s first surgical ablation
system that is able to create all the necessary lesions of the Maze III surgical procedure without additional equipment.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;font-weight:bold">Costs and Expenses</P>
<P style="font-size:10pt"> The following is a summary of major costs and expenses
as a percent of net sales:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
<TH> </TH>
<TH colspan="3">2003</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Cost of products sold</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%">24.3%</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="center" width="8%">24.8%</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="center" width="8%">24.7%</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Research and development expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">9.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">9.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">9.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Selling, general and administrative expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">32.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:12; direction:rtl;">30.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:12; direction:rtl;">30.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>IPR&D</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">0.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">1.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Special charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">6.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">(0.1)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Other expense, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">2.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">3.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">2.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Interest (income)/expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">(0.4)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center" STYLE="text-indent:6; direction:rtl;">0.1</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> <B>Cost of Products Sold</B> Fiscal
year 2005 cost of products sold as a percent of net sales decreased 0.5 percentage point from fiscal year 2004 to 24.3%.
The decrease in cost of goods as a percentage of net sales was due to favorable foreign currency translation and hedging impact,
partially offset by the impact of the Marquis battery field action and increased sales of INFUSE Bone Graft and certain tissue
products in our Spinal business, which have margins that are below our average margins. We expect cost of products sold, as
a percentage of revenue, to continue in the 24.0%-25.0% range.</P>
<P style="font-size:10pt"> Fiscal year 2004 cost of products sold as a percent
of net sales remained consistent with only a 0.1 percentage point increase from fiscal year 2003 to 24.8%. The slight
decrease in margins is primarily driven by a higher proportion of sales coming from the INFUSE Bone Graft and certain tissue
products in our Spinal business, which have margins that are below our average margins. This decrease is partially offset by
a favorable product mix and a slight benefit from foreign currency translation.</P>
<P style="font-size:10pt"> <B>Research and Development</B> Consistent
with prior periods, we have continued to invest heavily in the future by spending aggressively on research and development
efforts, with research and development spending representing 9.5% of net sales, or $951.3 million, in fiscal year 2005. This
level of spending resulted in a $99.8 million increase over fiscal year 2004. We are committed to developing technological
enhancements and new indications for existing products, and new less invasive technologies to address unmet medical needs.
Furthermore, we expect our development activities to help reduce patient care costs and the length of hospital stays in the
future.</P>
<P style="font-size:10pt"> Fiscal year 2004 research and development expense
increased $102.1 million from fiscal year 2003 to $851.5 million, or 9.4% of net sales. As a percentage of net sales,
research and development expense decreased 0.4 percentage point, which primarily related to the disproportionate foreign
currency impact on the growth in net sales as compared to research and development expense, which is based largely in the U.S.</P>
<P style="font-size:10pt"> 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.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">16</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt"> Presented below are our most important products that
received FDA approval or clearance and/or were launched in the U.S. during fiscal year 2005:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="750">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH align="left">Product</TH>
<TH> </TH> <TH>Applicable for</TH>
<TH> </TH> <TH>Date</TH>
</TR>
<TR>
<TD>
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD>
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD>
<HR noshade color="black" size="1">
</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt">
<TD>NIM-Spine™ System</TD>
<TD width="2%"> </TD>
<TD>Spinal surgery</TD>
<TD width="2%"> </TD>
<TD>May 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>LIFENET® BLUE</TD>
<TD> </TD>
<TD>Patient data transmission</TD>
<TD> </TD>
<TD>May 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>InSync® Maximo™ CRT-D</TD>
<TD> </TD>
<TD>Abnormally rapid heartbeats</TD>
<TD> </TD>
<TD>June 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>Durepair Dura Regeneration Matrix</TD>
<TD> </TD>
<TD>Cranial repair</TD>
<TD> </TD>
<TD>July 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>Sprinter® Semi-Compliant Over-The-Wire Balloon Dilatation Catheter</TD>
<TD> </TD>
<TD>Coronary stenosis</TD>
<TD> </TD>
<TD>July 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>Octopus® NS & Octopus® TE Tissue Stabilizers</TD>
<TD> </TD>
<TD>Beating heart bypass procedures</TD>
<TD> </TD>
<TD>August 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>Attain® 4194 Bipolar over-the-wire left-heart lead</TD>
<TD> </TD>
<TD>Abnormally rapid heartbeats</TD>
<TD> </TD>
<TD>August 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>Intrinsic™ dual-chamber ICD</TD>
<TD> </TD>
<TD>Abnormally rapid heartbeats</TD>
<TD> </TD>
<TD>August 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>U-Clip™ Anastomotic Device</TD>
<TD> </TD>
<TD>Cardiac surgery</TD>
<TD> </TD>
<TD>September 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>StimPilot™ System</TD>
<TD> </TD>
<TD>Surgical navigation</TD>
<TD> </TD>
<TD nowrap>September 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>Vitatron® T-series pacemaker</TD>
<TD> </TD>
<TD>Abnormally slow heartbeats</TD>
<TD> </TD>
<TD>September 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>Multi-Exchange™ Stent Delivery System</TD>
<TD> </TD>
<TD>Coronary stenosis</TD>
<TD> </TD>
<TD>September 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>Sprint Fidelis™ Family of Leads</TD>
<TD> </TD>
<TD>Abnormally rapid heartbeats</TD>
<TD> </TD>
<TD>September 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>METRx™ QUADRANT™ Retractor</TD>
<TD> </TD>
<TD>Spinal fusion</TD>
<TD> </TD>
<TD>October 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>CD HORIZON® LEGACY™ 5.5 Cannulated Implant System</TD>
<TD> </TD>
<TD>Spinal fusion</TD>
<TD> </TD>
<TD>October 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>HOURGLASS™ Vertebral Body Spacer</TD>
<TD> </TD>
<TD>Spinal fusion</TD>
<TD> </TD>
<TD>October 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>VERTE-STACK® CAPSTONE™ PEEK Vertebral Body Spacer</TD>
<TD> </TD>
<TD>Spinal fusion</TD>
<TD> </TD>
<TD>October 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>Xcelerant™ Delivery System</TD>
<TD> </TD>
<TD>Abdominal aortic aneurysms</TD>
<TD> </TD>
<TD>November 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>Catalyst™ Anterior Instrument Set</TD>
<TD> </TD>
<TD>Spinal fusion</TD>
<TD> </TD>
<TD>November 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>Paradigm® 515 and Paradigm® 715 Insulin Pumps</TD>
<TD> </TD>
<TD>Diabetes management – insulin therapy</TD>
<TD> </TD>
<TD>November 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>InSync® Sentry™ CRT-D</TD>
<TD> </TD>
<TD>Abnormally rapid heartbeats</TD>
<TD> </TD>
<TD>November 2004</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>CD HORIZON® LEGACY 6.35 Spinal System</TD>
<TD> </TD>
<TD>Spinal fusion</TD>
<TD> </TD>
<TD>February 2005</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>Attain® Select™ 6238 TEL Guide Catheter Set</TD>
<TD> </TD>
<TD>Abnormally rapid heartbeats</TD>
<TD> </TD>
<TD>March 2005</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD>Restore™ Neurostimulation System</TD>
<TD> </TD>
<TD>Pain management</TD>
<TD> </TD>
<TD>April 2005</TD>
</TR>
<TR VALIGN="TOP" style="font-size:10pt;padding-top:6pt">
<TD>InSync® Maximo™ and InSync® Sentry™ CRT-Ds with V-V timing</TD>
<TD> </TD>
<TD>Abnormally rapid heartbeats</TD>
<TD> </TD>
<TD>April 2005</TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">17</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt"> <B>Selling, General and Administrative</B> Fiscal
year 2005 selling, general and administrative expense as a percentage of net sales increased by 1.2 percentage points
from fiscal year 2004 to 32.0%. The increase in selling, general and administrative expense as a percentage of net sales primarily
relates to our continued investment in expanding our sales organization during the year and increased legal spending related
to several active legal cases. This increase was partially offset by continued cost control measures across all of our businesses.</P>
<P style="font-size:10pt"> Fiscal year 2004 selling, general and administrative
expense as a percentage of net sales decreased by 0.1 percentage point from fiscal year 2003 to 30.8%. The slight decrease
in selling, general and administrative expense as a percentage of net sales was due to continued cost control measures in all
businesses, partially offset by incremental reserves related to MiniMed’s uncollectible accounts receivable, which increased
$42.7 million in fiscal year 2004, as well as our continued investment in the sales force to keep pace with growing business
opportunities. A portion of the additional allowance for doubtful accounts related to sales made prior to the acquisition of
MiniMed.</P>
<P style="font-size:10pt"> <B>Special and IPR&D Charges</B> Special
charges (such as certain litigation and restructuring charges) and IPR&D charges recorded during the previous three fiscal
years are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
<TH> </TH>
<TH colspan="3">2003</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">(dollars in millions)</TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Special charges:</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Litigation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(8.0</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Asset write-downs</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Restructuring and other related charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">16.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Changes in restructuring obligation estimates</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(14.5</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Total special charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>IPR&D</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">114.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Total special and IPR&D charges, pre-tax</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">36.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">116.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>(Deduct)/add tax impact of special and IPR&D charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(236.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Add tax impact for the repatriation of foreign earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">48.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Total special and IPR&D charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">466.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">38.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">120.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> <B>Special Charges</B> In fiscal
year 2005, we recorded pre-tax litigation charges of $654.4 million. The largest of the charges, in the amount of $550.0 million,
occurred in the fourth quarter and relates to costs for the settlement of all outstanding litigation and disputes with Michelson.
The agreement reached with Michelson requires a total cash payment of $1.350 billion for the settlement of all ongoing litigation
and the purchase of a portfolio of more than 100 issued U.S. patents, over 110 pending U.S. patent applications and numerous
foreign counterparts to these patents. The $550.0 million was assigned to past damages in the case and the remaining $800.0
million will be recorded as purchased intellectual property upon the completion of the acquisition in the first quarter of
fiscal year 2006 (see Note 17 to the consolidated financial statements). Also, in the fourth quarter of 2005, we recorded a
charge of $80.1 million resulting from a final arbitration award for breach of contract damages related to a March 2002 agreement
between us and ETEX. The $80.1 million includes damages, interest, and partial legal fees equal to $63.6 million, in the aggregate,
and the forgiveness of an existing $16.5 million note owed to us by ETEX. In the third quarter of 2005, we recorded a charge
of $24.3 million related to the DePuy/AcroMed litigation. The jury found that the thoracolumbar multiaxial screw design of MSD, which MSD no longer sells in the U.S., infringes patents held by DePuy/AcroMed under the doctrine of equivalents. In February
2005, the Court entered judgment against MSD in the amount of $24.3 million, which included prejudgment interest. Given the
judgment entered by the Court and our conclusion that the likelihood of paying the damages was probable at that point in time,
we recorded a $24.3 million charge related to this judgment. Although we believe recording the charge was the appropriate action,
MSD has appealed the jury’s verdict and intends to continue to vigorously contest the charges. At April 29, 2005, unpaid
legal special charges are recorded in <I>other accrued expenses</I> in the consolidated balance sheets.
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">18</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt"></P>
<P style="font-size:10pt"> On October 22, 2004, the Jobs Creation Act was
signed into law by the President. The Jobs Creation Act allows U.S. corporations a one-time deduction of 85 percent of certain
“cash dividends” received from controlled foreign corporations. The deduction is available to corporations during
the tax year that included October 22, 2004 or the immediately subsequent tax year. According to the Jobs Creation Act,
the amount of eligible dividends is limited to $500.0 million or the amount described as permanently reinvested earnings outside
the U.S. in a company’s most recent audited financial statements filed with the Securities and Exchange Commission (SEC) on
or before June 30, 2003. Based on these requirements, we have $933.7 million of cash held outside the U.S., which could
be eligible for the special deduction in fiscal year 2006. We intend to repatriate the entire amount eligible under the Jobs
Creation Act, or $933.7 million. The amounts repatriated will be used for qualified expenditures under the Jobs Creation Act.
As of April 29, 2005, we have recorded a deferred tax liability of $48.5 million associated with our planned repatriation
of these funds and included that amount in the table above and in the consolidated statements of earnings in the <I>provision
for income taxes</I>.</P>
<P style="font-size:10pt"> In fiscal year 2004, we recorded a $4.8 million
reversal of a previously established reserve related to the Vascular facility consolidation initiatives, which started in the
first quarter of fiscal year 2003. The $4.8 million change in estimate was a result of the following favorable outcomes
in the execution of these initiatives: a decrease of $2.4 million as a result of selling or utilizing existing assets
which were previously identified for impairment; a decrease of $1.8 million related to subleasing a facility earlier than
anticipated; and a decrease of $0.6 million in severance payments related to employees identified for elimination who
found positions elsewhere in the Company.</P>
<P style="font-size:10pt"> In fiscal year 2003, we recorded a $15.0 million
litigation settlement and a $25.0 million charge related to our facility consolidation initiatives in our Vascular operating
segment. The litigation charges were offset by a $23.0 million reversal for a final adjustment to a previously recognized
settlement with a competitor on the rapid exchange perfusion delivery system and the reversal of $14.5 million of previously
recognized restructuring charges.</P>
<P style="font-size:10pt"> The $25.0 million Vascular facility consolidation
initiative occurred during the first quarter of fiscal year 2003. We reorganized our Vascular research and development, clinical,
regulatory and manufacturing functions, closed seven facilities in California and one in Florida, and identified 685 positions
to be eliminated. In connection with this initiative, we recorded a $10.8 million restructuring charge, an $8.9 million
asset write-down, and $5.3 million of other restructuring-related charges. The $10.8 million restructuring charge
consisted of $4.6 million for lease cancellations and $6.2 million for severance costs. The $8.9 million asset
write-down related to assets that will no longer be utilized, including accelerated depreciation of assets held and used. The
$5.3 million of other restructuring-related charges related to incremental expenses we incurred as a direct result of
the Vascular restructuring initiative, primarily retention and productivity bonuses for services rendered by the employees
prior to July 26, 2002, as well as equipment and facility moves. The other restructuring-related charges were incurred
during the quarter the initiative was announced. The Vascular restructuring initiatives resulted in annualized operating savings
between $35.0 million and $40.0 million. Of the 685 positions identified for elimination, 629 had been eliminated as of
April 30, 2004 and no further positions were eliminated under these initiatives. This charge was offset by a reversal
of $14.5 million of previously established restructuring reserves no longer considered necessary. The first reversal of
$8.9 million, which included $1.7 million of asset write-downs, related to our restructuring initiatives from the
fourth quarter of fiscal year 2001 and the first quarter of fiscal year 2002. The outcome of these initiatives was favorable
compared to our initial estimates for two reasons. First, several employees who were in positions identified for termination
found other jobs within the Company; and second, two sales offices that were initially identified for closure ultimately did
not close. The second reversal of $5.6 million related to distributor termination costs accrued in connection with the
merger of PercuSurge, Inc. (PercuSurge). The outcome of the PercuSurge distributor terminations was favorable to our original
estimates as a result of anticipated contractual commitments that did not materialize. As of April 30, 2004 all reserves
were utilized, as the initiatives have been completed.</P>
<P style="font-size:10pt"> <B>IPR&D</B> There were no IPR&D
charges recorded in fiscal year 2005.</P>
<P style="font-size:10pt"> In the fourth quarter of fiscal year 2004, we entered
into an agreement which provided us an option to purchase substantially all the assets of a certain third-party entity. We
held a cost method equity
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">19</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">investment in this entity and as a result of this new agreement, we applied the equity method of accounting
to this investment. At the date of the agreement, $17.2 million of the amount paid for the investment was expensed for
IPR&D related to cardiac surgery devices under development that had not yet reached technological feasibility.</P>
<P style="font-size:10pt"> During the third quarter of fiscal year 2004, we acquired
Vertelink. At the date of the acquisition, $22.0 million of the purchase price was expensed for IPR&D related to spinal
fixation devices that had not yet reached technological feasibility and had no future alternative use. At the time of the acquisition,
the KOBRA Fixation System was being reviewed by the FDA for 510(k) approval, which was subsequently obtained during the third
quarter of fiscal year 2004. The technology will be adapted for use in manufacturing spinal fixation devices that can achieve
multi-level stabilization of the cervical, thoracic and lumbar spine. Prior to the acquisition, we did not have a comparable
product under development. The acquisition of Vertelink enhanced the strategic initiative of our Spinal business that focuses
on MAST. In fiscal year 2005, we incurred $1.0 million in costs and expect to incur costs totaling $0.7 million in
fiscal year 2006, and $0.5 million in fiscal year 2007 to bring these products to commercialization in the U.S. These
costs are being funded by internally generated cash flows.</P>
<P style="font-size:10pt"> During the second quarter of fiscal year 2004, we
acquired TVI. At the date of acquisition, $1.9 million of the purchase price was expensed for IPR&D related to a cell
and agent delivery device that had not yet reached technological feasibility and had no future alternative use. This device
will be used to deliver cells, genes and drugs to precise locations within the vascular system. Prior to the acquisition, we
did not have a comparable product under development. The acquisition of TVI complemented our commitment to advance therapies
and treatments by combining biologic and device therapies. In fiscal year 2005, we incurred $3.1 million in costs and
expect to incur costs totaling $4.1 million in fiscal year 2006, $4.8 million in fiscal year 2007, $6.0 million
in fiscal year 2008, and $6.0 million in fiscal year 2009 to bring this product to commercialization in the U.S. These
costs are being funded by internally generated cash flows.</P>
<P style="font-size:10pt"> In the second quarter of fiscal year 2003, we acquired
SDC. At the date of acquisition, $114.2 million of the purchase price was expensed for IPR&D related to the BRYAN®
Cervical Disc System (BRYAN Disc), which had not yet reached technological feasibility in the U.S. and had no alternative future
use. The BRYAN Disc is an artificial cervical disc featuring a shock-absorbing elastomer designed to replace and mimic the
functionality of natural intervertebral discs removed from a patient during spinal surgery. Prior to this acquisition, we did
not have a product with comparable technology under development, and the acquisition of SDC is expected to accelerate our entry
into the arena of artificial cervical discs. At the time of acquisition, SDC had received approval from the FDA for an investigational
device exemption allowing SDC to proceed with human clinical studies, which must be completed before regulatory approval can
be obtained in the U.S. In fiscal year 2005, we incurred $0.6 million in costs and expect to incur $0.4 million in
fiscal year 2006 and $0.2 million in fiscal year 2007 to bring this product to commercialization in the U.S. These costs
are being funded by internally generated cash flows.</P>
<P style="font-size:10pt"> We are responsible for the valuation of IPR&D
charges. The values assigned to IPR&D are based on valuations that have been prepared using methodologies and valuation
techniques consistent with those used by independent appraisers. All values were determined by identifying research projects
in areas for which technological feasibility had not been established. Additionally, the values were determined by estimating
the revenue and expenses associated with a project’s sales cycle and the amount of after-tax cash flows attributable to
these projects. The future cash flows were discounted to present value utilizing an appropriate risk-adjusted rate of return.
The rate of return included a factor that takes into account the uncertainty surrounding the successful development of the
IPR&D.</P>
<P style="font-size:10pt"> At the time of acquisition, we expect 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 litigation. If commercial viability
were not achieved, we would likely look to other alternatives to provide these therapies.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">20</P>
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<P style="font-size:10pt">
<B>Other Expense, Net</B> 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. Net other expense decreased from $351.0 million in fiscal year 2004 to $290.5 million
in fiscal year 2005, a $60.5 million decrease. This decrease primarily reflects a $52.3 million decrease in the amount
of loss recorded associated with foreign exchange contracts used to hedge results of operations in fiscal year 2005. Additionally,
we experienced a decrease in net royalty expenses of approximately $16.0 million primarily due to the end of certain incoming
and outgoing royalty streams in our CRM business and the Michelson agreement in which we are no longer required to pay royalties
and therefore reversed certain previous accruals of approximately $20.0 million.</P>
<P style="font-size:10pt"> Net other expense increased from $188.4 million
in fiscal year 2003 to $351.0 million in fiscal year 2004, a $162.6 million increase. This increase primarily reflected
a $157.1 million increase in the amount of loss recorded associated with foreign exchange contracts used to hedge results
of operations in fiscal year 2004. The continued weakening of the U.S. dollar during fiscal year 2004 resulted in improved
top line growth in operations but was offset by the realized losses on these foreign exchange contracts. Additionally, we experienced
an increase in net royalty expenses of approximately $51.5 million due to royalties paid on certain of our Spinal products
that experienced large increases in overall sales during fiscal year 2004, and as a result of the unfavorable comparison with
fiscal year 2003, which had a non-recurring reversal of $20.0 million in accrued royalty expenses associated with a favorable
outcome in a patent infringement suit. These other expense increases were partially offset by the write-off of $28.3 million
in equity investments, deemed to be impaired, as compared to $42.2 million in fiscal year 2003, and incremental royalty
income of $14.2 million from the CRM, Vascular and Neurological and Diabetes operating segments.</P>
<P style="font-size:10pt"> <B>Interest Income/Expense</B> In
fiscal year 2005, net interest income was $45.1 million, an increase of $42.3 million from net interest income of
$2.8 million in fiscal year 2004. The increase in net interest income in fiscal year 2005 as compared to fiscal year 2004
is a result of increased levels of interest-bearing investments, higher interest rates and relatively fixed levels of debt
in comparison to the prior fiscal year.</P>
<P style="font-size:10pt"> In fiscal year 2004, we generated net interest income
of $2.8 million as compared to net interest expense of $7.2 million in fiscal year 2003. The change in net interest
income/expense was due to having slightly higher yields and higher average investment balances in fiscal year 2004, as a result
of cash generated from operations, in comparison to relatively unchanged levels of debt from the prior fiscal year.</P>
<P style="font-size:10pt;font-weight:bold">Income Taxes</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH><TH> </TH><TH colspan="6">Percentage Point<BR>Increase/(Decrease)</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
<TH> </TH>
<TH colspan="3">2003</TH>
<TH> </TH>
<TH colspan="3">FY05/04</TH>
<TH> </TH>
<TH colspan="3">FY04/03</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">(dollars in millions)</TH>
<TH> </TH>
<TH colspan="3"></TH>
<TH> </TH>
<TH colspan="3"></TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:6pt">
<TD width="38%">Provision for income taxes</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">739.6</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">837.6</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">741.5</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Effective tax rate</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">29.1</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">29.9</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">31.7</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">(0.8)</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">(1.8)</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Impact of repatriation, special and IPR&D charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.1</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.4</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.7</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">(0.3)</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">(1.3)</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The effective tax rate decreased by 0.8 percentage
point from fiscal year 2004 to fiscal year 2005. This decrease primarily reflects a 0.5 percentage point decrease in the nominal
tax rate and a 0.3 percentage point decrease from the tax impact of the fiscal year 2005 repatriation, special, and IPR&D
charges. The nominal tax rate decreased from 29.5% in fiscal year 2004 to 29.0% in fiscal year 2005 as a result of increased
benefits from our international operations subject to tax rates lower than our U.S. rate. The remaining 0.3 percentage point
decrease is primarily due to the non-deductible IPR&D charges in fiscal year 2004 as compared to deductible special charges
in fiscal year 2005 neutralized by the tax liability associated with the Jobs Creation Act.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">21</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt"> Pursuant to the Jobs Creation Act, we intend to repatriate
the entire amount of eligible earnings of our foreign subsidiaries, or $933.7 million. Accordingly, we have recorded a deferred
tax liability of $48.5 million as of April 29, 2005.</P>
<P style="font-size:10pt"> The effective tax rate decreased by 1.8 percentage
points from fiscal year 2003 to fiscal year 2004. This decrease primarily reflects an additional $73.1 million of IPR&D
charges taken in fiscal year 2003 versus fiscal year 2004 and continued benefit from our international operations subject to
tax rates lower than our U.S. rate. IPR&D is not deductible for tax purposes.</P>
<P style="font-size:10pt;font-weight:bold">Liquidity and Capital Resources</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">(dollars in millions)</TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:6pt">
<TD width="74%">Working capital</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">4,041.5</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,072.1</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Current ratio*</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.2:1.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.3:1.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Cash, cash equivalents, and short-term investments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3,391.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,927.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Long-term investments in public and private debt securities**</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,324.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,217.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Cash, cash equivalents, short-term investments, and long-term debt securities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">4,715.7</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3,145.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Short-term borrowings and long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,451.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,359.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Net cash position***</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,263.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">786.0</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<HR noshade color="black" align="left" size="1" width="20%">
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">*</TD>
<TD width="96%">Current ratio is the ratio of current assets to current liabilities.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">**</TD>
<TD width="96%">Long-term investments include public and private debt securities with a maturity date greater than one year
from the end of the period.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">***</TD>
<TD width="96%">Net cash position is the sum of cash, cash equivalents, short-term investments and long-term investments in
public and private debt securities less short-term borrowings and long-term debt.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> The increase in our working capital and current ratio
since fiscal year 2004 relates to the reclassification of $1,973.2 million of contingent convertible debentures from current
liabilities to long-term liabilities in the second quarter of fiscal year 2005, as a result of the September 2004 put
option date expiring (see further discussion regarding the terms of the contingent convertible debentures in the “Debt
and Capital” section of this management’s discussion and analysis) as well as an increase in our net cash position
since fiscal year 2004, which primarily relates to cash generated from operations, partially offset by capital expenditures,
dividends and share repurchases.</P>
<P style="font-size:10pt"> At April 29, 2005 and April 30, 2004, approximately
$3,627.2 million and $2,196.8 million, respectively, of cash, cash equivalents and short- and long-term debt securities were
held by our non-U.S. subsidiaries. These funds are available for use by worldwide operations; however, if these funds are repatriated
to the U.S. or used for U.S. operations, the amounts would be subject to U.S. tax (also see discussion of the Jobs Creation
Act in the “Income Taxes” section of this management’s discussion and analysis).</P>
<P style="font-size:10pt"> We believe that our existing cash and investments,
as well as our available unused lines of credit of $2,366.5 million, if needed, will satisfy our foreseeable working capital
requirements for at least the next twelve months.</P>
<P style="font-size:10pt"> Subsequent to fiscal year-end, we completed the acquisition
of intellectual property owned by Michelson and, per the terms of the agreement, made a $1,310.0 million cash payment (see
Note 17 to the consolidated financial statements).</P>
<P style="font-size:10pt;font-weight:bold">Off-Balance Sheet Arrangements and Long-Term Contractual Obligations</P>
<P style="font-size:10pt"> In 2003, the SEC released Financial Reporting Release
No. 67, “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate
Contractual Obligations” (FRR No. 67). FRR No. 67 requires companies to present an overview of certain off-balance
sheet
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">22</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt">transactions, arrangements and/or obligations such as guarantees or indemnifications, retained interests
in assets sold, contingent commitments and/or relationships with unconsolidated entities that are reasonably likely to have
a material impact on consolidated earnings, financial position or cash flows. In addition, FRR No. 67 requires companies
to present an overview of certain known contractual obligations in a tabular format. Specifically, companies are required to
include tabular information related to long-term debt obligations, capital lease obligations, operating lease obligations,
purchase obligations and other long-term liabilities reflected on a registrant’s balance sheet under existing U.S. GAAP.</P>
<P style="font-size:10pt"> 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, 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 allows us to avoid making 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.</P>
<P style="font-size:10pt"> 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 indemnifications.</P>
<P style="font-size:10pt"> 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. See Notes 4, 6, and 13 to the consolidated
financial statements for additional information regarding foreign currency contracts, long-term debt, and lease obligations,
respectively.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">23</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="26">Maturity by Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="26">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Total</TH>
<TH> </TH>
<TH colspan="3">2006</TH>
<TH> </TH>
<TH colspan="3">2007</TH>
<TH> </TH>
<TH colspan="3">2008</TH>
<TH> </TH>
<TH colspan="3">2009</TH>
<TH> </TH>
<TH colspan="3">2010</TH>
<TH> </TH>
<TH colspan="3">Thereafter</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="26">(dollars in millions)</TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD width="26%"><I>Contractual obligations related to off-balance sheet arrangements:</I></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Foreign currency contracts(1)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,894.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,751.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">142.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD style="padding-left:10">Operating leases</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">164.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">56.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">27.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Inventory purchases(2)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">399.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">226.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">96.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">12.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">12.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD style="padding-left:10" nowrap>Commitments to fund minority investments/<BR>contingent acquisition consideration(3)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">113.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">56.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">26.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Other(4)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">220.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">83.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">52.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">28.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">19.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">16.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">19.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD style="padding-left:10">Total</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3,791.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3,174.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">359.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">97.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">63.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">49.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">46.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt" bgcolor="#E0E0E0">
<TD><I>Contractual obligations reflected in the balance sheet:</I></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD style="padding-left:10">Long-term debt, excluding capital leases(5)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,971.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,971.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Capital leases</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt">
<TD style="padding-left:10">Other(6)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">67.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Total</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,040.7</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">42.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,987.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<HR noshade color="black" align="left" size="1" width="20%">
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(1)</TD>
<TD width="96%">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.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(2)</TD>
<TD width="96%">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.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(3)</TD>
<TD width="96%">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.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(4)</TD>
<TD width="96%">These obligations include commitments to replace our existing legacy enterprise resource systems and certain
research and development arrangements.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(5)</TD>
<TD width="96%">Long-term debt includes $1,971.4 million related to our contingent convertible debentures. These debentures
were classified in <I>long-term debt</I> in the consolidated balance sheets as of April 29, 2005. The holders will not
have the option to require us to repurchase the outstanding securities (referred to as a put feature) until September 2006
or at the point our stock price reaches 110% of the conversion price for 20 trading days during a consecutive 30 trading day
period.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(6)</TD>
<TD width="96%">These obligations include royalty payments and a financing arrangement associated with our fiscal year 2002
Kobayashi Pharmaceutical Co. acquisition.</TD>
</TR>
</TABLE>
<P style="font-size:10pt;font-weight:bold">Debt and Capital</P>
<P style="font-size:10pt"> Our capital structure consists of equity and interest-bearing
debt. Interest-bearing debt as a percent of total interest-bearing debt and equity was 19.0% at April 29, 2005 and 20.6%
at April 30, 2004.</P>
<P style="font-size:10pt"> In June 2001, our Board of Directors authorized the
repurchase of up to 25 million shares of our common stock. In October 2003, our Board of Directors authorized the repurchase
of up to an additional 30 million shares of our common stock. Shares are repurchased from time to time to support our
stock-based compensation programs and to take advantage of favorable market conditions. We have repurchased approximately 10.5 million
and 18.4 million shares at an average price of $48.77 and $47.81, respectively, during fiscal years 2005 and 2004, and
have approximately 15.6 million shares remaining under current buyback authorizations approved by the Board of Directors.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">24</P>
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<P style="font-size:10pt"> In September 2001, we completed a $2,012.5 million
private placement of 1.25 percent Contingent Convertible Debentures due September 2021 (Old Debentures). Interest is payable
semi-annually. Each Old Debenture is convertible into shares of common stock at an initial conversion price of $61.81 per share;
however, the Old Debentures are not convertible before their final maturity unless the closing price of our common stock reaches
110% of the conversion price for 20 trading days during a consecutive 30 trading day period. The conversion price of the Old
Debentures will be adjusted based on the occurrence of specified events, including a stock split, stock dividend, or cash dividend
exceeding 15% of our market capitalization.</P>
<P style="font-size:10pt"> In September 2002 and 2004, as a result of certain
holders of the Old Debentures exercising their put options, we repurchased $38.7 million, or 1.9%, and $0.6 million, or 0.03%,
respectively, of the Old Debentures for cash. We may be required to repurchase the remaining securities at the option of the
holders in September 2006, 2008, 2011 or 2016. Twelve months prior to the put options becoming exercisable, the remaining
balance of the Old Debentures will be classified as <I>short-term borrowings</I> in the consolidated balance sheets. At each
balance sheet date without a put option within the subsequent four quarters, the remaining balance will be classified as <I>long-term
debt</I> in the consolidated balance sheets. For put options exercised by the holders, the purchase price is equal to the principal
amount of the Old Debentures plus any accrued and unpaid interest on the Old Debentures to the repurchase date. If the repurchase
option is exercised, we may elect to repurchase the Old Debentures with cash, our common stock, or some combination thereof.
We may elect to redeem the Old Debentures for cash at any time after September 2006.</P>
<P style="font-size:10pt"> On January 24, 2005, we completed an exchange
offer on our contingent convertible debentures, whereby holders of approximately 97.7% of the total principal amount of the
Old Debentures exchanged their existing securities for an equal principal amount of 1.25 percent Contingent Convertible Debentures,
Series B due 2021 (New Debentures), and an exchange fee of $2.50 per $1,000 principal amount. The terms of the New Debentures
are consistent with the terms of the Old Debentures noted above, except that: (i) upon conversion, we will pay holders cash
equal to the lesser of the principal amount of the New Debentures or their conversion value, and shares of our common stock
to the extent the conversion value exceeds the principal amount; and (ii) the New Debentures will require us to pay only cash
(in lieu of shares of our common stock or a combination of cash and shares of our common stock) when we repurchase the New
Debentures at the option of the holder or in connection with a change of control. The exchange fee paid to the holders of the
New Debentures was capitalized and will be amortized over the twenty month period ending in September 2006.</P>
<P style="font-size:10pt"> Following the completion of the exchange offer, we
repurchased approximately $1.8 million of the Old Debentures for cash. As of April 29, 2005, approximately $43.2 million
aggregate principal amount of Old Debentures and $1,928.2 million aggregate principal amount of New Debentures remain outstanding.</P>
<P style="font-size:10pt"> We maintain a $2,250.0 million commercial paper
program. This program allows us to issue debt securities with maturities up to 364 days from the date of issuance. While
the program size is $2,250.0 million, Moody’s Investors Service currently limits our commercial paper outstanding at any
one time to no more than the amount of our syndicated credit facilities, which is currently at $1,750.0 million. At April 29,
2005 and April 30, 2004, outstanding commercial paper totaled $249.9 million and $249.8 million, respectively.
During fiscal years 2005 and 2004, the weighted average original maturity of the commercial paper outstanding was approximately
26 and 30 days, respectively, and the weighted average interest rate was 1.9% and 1.1%, respectively.</P>
<P style="font-size:10pt"> We have existing lines of credit of approximately
$2,831.5 million with various banks, of which approximately $2,366.5 million was available at April 29, 2005. The existing
lines of credit include two syndicated credit facilities totaling $1,750.0 million with various banks. The two credit facilities
consist of a five-year $1,000.0 million facility, signed on January 20, 2005, which will expire on January 20, 2010,
and a five-year $750.0 million facility, signed on January 24, 2002, which will expire on January 24, 2007. The five-year
$1,000.0 million facility replaces the 364-day $500.0 million facility we previously maintained that expired on January 24,
2005. This $1,000.0 million facility provides us with the ability to increase the capacity of the facility by an additional
$250.0 million at any time during the life of the five-year term
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">25</P>
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<P style="font-size:10pt">of the agreement. The credit facilities provide backup funding for the commercial paper program and
may also be used for general corporate purposes.</P>
<P style="font-size:10pt"> Interest rates on these borrowings are determined
by a pricing matrix, based on our 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 determined in the same manner as the interest rates.
Under terms of the agreements, our consolidated tangible net worth must at all times be greater than or equal to $1,040.4 million,
increased by an amount equal to 100% of the net cash proceeds from any equity offering occurring after January 24, 2002.
Our consolidated tangible net worth, defined as consolidated assets less goodwill, intangible assets (other than patents, trademarks,
licenses, copyrights and other intellectual property, and prepaid assets), and consolidated liabilities at April 29, 2005
and April 30, 2004 was $6,029.3 million and $4,691.8 million, respectively. The agreements also contain other customary
covenants and events of default, all of which we remain in compliance with as of April 29, 2005.</P>
<P style="font-size:10pt;font-weight:bold">New Accounting Pronouncement</P>
<P style="font-size:10pt"> In December 2004, the Financial Accounting Standards
Board (FASB) issued SFAS No. 123(R), “Share-Based Payment.” This Statement is a revision to SFAS No. 123, “Accounting
for Stock-Based Compensation,” and supersedes Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock
Issued to Employees.” SFAS No. 123(R) requires the recognition of the cost of employee services received in exchange for
an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period
during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity
instruments for which employees do not render the required service period. In April 2005, the SEC release No. 33-8568 delayed
the implementation of SFAS No. 123(R). The Statement is now effective for us beginning in the first quarter of fiscal year
2007. The adoption of SFAS No. 123(R) will have a material impact on our consolidated earnings but will not impact our financial
position or cash flows. Although it is difficult to predict the exact impact the adoption of SFAS No. 123(R) will have on our
consolidated earnings due to the number of variables involved, we believe the pro forma disclosures in Note 1 to the consolidated
financial statements, “Summary of Significant Accounting Policies,” under the caption “Stock-Based Compensation”
provide an appropriate short-term indicator of the level of expense that will be recognized upon adoption of the Statement.</P>
<P style="font-size:10pt;text-align:center"><B>Operations Outside the U.S.</b><BR>
<I>The following charts illustrate U.S. net sales versus net sales outside the U.S. by fiscal year:</I>
</P>
<DIV align="center">
<img src="med52766us.gif"></DIV>
<P style="font-size:10pt;font-weight:bold">Market Risk</P>
<P style="font-size:10pt"> From fiscal year 2004 to fiscal year 2005, consolidated
net sales outside the U.S. grew faster than U.S. consolidated net sales primarily as a result of the favorable impact of foreign
currency translation and increases experienced in our Vascular and Diabetes businesses. Vascular continues to experience increased
coronary stent sales outside of the U.S., in contrast with the decline in U.S. coronary stent sales after the release of competitors’
drug-eluting stents. The increase in coronary stent sales outside the U.S. relates to strong demand for the Driver and Micro-Driver™
coronary stents, and the strong acceptance
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">26</P>
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<P style="font-size:10pt">of our Sprinter Semi-Compliant Balloon Dilatation Catheter. The sales increases in our Diabetes business
outside the U.S. is attributable to expanded distribution efforts in significantly under penetrated markets.</P>
<P style="font-size:10pt"> 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 $1,090.4 million at April 29, 2005, or 44.2% of total outstanding accounts receivable,
and $920.3 million at April 30, 2004, or 43.0% of total outstanding accounts receivable. The increase in the percentage
of accounts receivable from customers outside the U.S. is primarily driven by the impact of changes in foreign currency exchange
rates. Operations outside the U.S. could be negatively impacted by changes in political, labor or economic conditions, changes
in regulatory requirements or potentially adverse foreign tax consequences, among other factors.</P>
<P style="font-size:10pt"> Additionally, markets outside the U.S. are commonly
funded by government-sponsored healthcare systems. These governments frequently impose reimbursement limits to control government
spending and to ensure local healthcare consumers can obtain medical products and services at a low cost. Decisions made by
these government agencies to further limit or eliminate reimbursement for our products could have a material adverse affect
on net earnings.</P>
<P style="font-size:10pt"> Due to the global nature of our operations, we are
subject to the exposures that arise from foreign currency exchange rate fluctuations. 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.</P>
<P style="font-size:10pt"> 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.</P>
<P style="font-size:10pt"> We had foreign exchange derivative contracts outstanding
in notional amounts of $2,894.0 million and $2,420.7 million at April 29, 2005 and April 30, 2004, respectively.
The fair value of these contracts at April 29, 2005 was $23.9 million less than the original contract value. A sensitivity
analysis of changes in the fair value of all foreign exchange derivative contracts at April 29, 2005 indicates that, if
the U.S. dollar uniformly strengthened/weakened by 10% against all currencies, the fair value of these contracts would increase/decrease
by $287.0 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.</P>
<P style="font-size:10pt"> 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% change in short-term interest rates compared to interest rates at April 29,
2005 indicates that the fair value of these instruments would change by $8.7 million.</P>
<P style="font-size:10pt"> We have entered into an agreement that expires in
fiscal year 2006, to sell, at our discretion, specific pools of trade receivables in Japan. During fiscal years 2005 and 2004,
we sold approximately $145.5 million and $197.7 million, respectively, of our trade receivables to financial institutions.
Additionally, we entered into agreements to sell specific pools of receivables in Italy in the amount of $4.1 million and $33.9
million in fiscal years 2005 and 2004, respectively. The discount cost related to the Japan and Italy sales was insignificant
and recorded in <I>interest (income)/expense</I> in the consolidated statements of earnings.</P>
<P style="font-size:10pt"> In the third quarter of fiscal year 2004, we began
lending certain fixed income securities to enhance our investment income. These lending activities are collateralized at an
average rate of 102%, with the collateral determined based on the underlying securities and creditworthiness of the borrowers.
The value of the securities on loan at April 29, 2005 and April 30, 2004 was $361.3 million and $275.2 million, respectively.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">27</P>
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<P style="font-size:10pt;font-weight:bold">Government Regulation and Other Considerations</P>
<P style="font-size:10pt"> Our medical devices are subject to regulation by numerous
government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies requires
us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution
of our medical devices.</P>
<P style="font-size:10pt"> Authorization to commercially distribute a new medical
device in the U.S. is generally received in one of two ways. The first, known as the 510(k) process, requires us to demonstrate
that our new medical device is substantially equivalent to a legally marketed medical device. In this process, we must submit
data that supports our equivalence claim. If human clinical data is required, it must be gathered in compliance with FDA investigational
device exemption regulations. We must receive an order from the FDA finding substantial equivalence to another legally marketed
medical device before we can commercially distribute the new medical device. Modifications to cleared medical devices can be
made without using the 510(k) process if the changes do not significantly affect safety or effectiveness.</P>
<P style="font-size:10pt"> The second, more rigorous process, known as pre-market
approval (PMA), requires us to independently demonstrate that the new medical device is safe and effective. We do this by collecting
data, including human clinical data for the medical device. The FDA will authorize commercial release if it determines there
is reasonable assurance that the medical device is safe and effective. This process is generally much more time-consuming and
expensive than the 510(k) process.</P>
<P style="font-size:10pt"> Both before and after a product is commercially released,
we have ongoing responsibilities under FDA regulations. The FDA reviews design and manufacturing practices, labeling and record
keeping, and manufacturers’ required reports of adverse experience and other information to identify potential problems
with marketed medical devices. We may be subject to periodic inspection by the FDA for compliance with the FDA’s good
manufacturing practice regulations. These regulations, also known as the Quality System Regulations, govern the methods used
in, and the facilities and controls used for, the design, manufacture, packaging and servicing of all finished medical devices
intended for human use. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that
any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain
or seize adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such devices, and require
us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public
health. The FDA may also impose operating restrictions, enjoin and restrain certain violations of applicable law pertaining
to medical devices, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend
prosecution to the Department of Justice.</P>
<P style="font-size:10pt"> The FDA administers certain controls over the export
of medical devices from the U.S. International sales of our medical devices that have not received FDA approval are subject
to FDA export requirements. The FDA, in cooperation with U.S. Customs and Border Protection, also administers controls over
the import of medical devices into the U.S. Each foreign country to which we export medical devices also subjects such medical
devices to their own regulatory requirements. Frequently, we obtain regulatory approval for medical devices in foreign countries
first because their regulatory approval is faster or simpler than that of the FDA. However, as a general matter, foreign regulatory
requirements are becoming increasingly stringent. In the European Union, a single regulatory approval process has been created,
and approval is represented by the CE Mark. To obtain a CE Mark in the European Union, defined products must meet minimum standards
of safety and quality (<I>i.e.</I>, the essential requirements) and then comply with one or more of a selection of conformity
routes. A Notified Body assesses the quality management systems of the manufacturer and the product conformity to the essential
and other requirements within the Medical Device Directive.</P>
<P style="font-size:10pt"> To be sold in Japan, medical devices must undergo
thorough safety examinations and demonstrate medical efficacy before they are granted approval, or “<I>shonin</I>”.
The Japanese government, through the Ministry of Health, Labour, and Welfare (MHLW), regulates medical devices under recently
enacted revisions to the Pharmaceutical Affairs Law (PAL). Implementation of PAL and enforcement practices thereunder are evolving,
and compliance guidance from MHLW is still in development. Consequently, companies continue to work on establishing improved
systems for compliance with PAL. Penalties for a
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">28</P>
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<P style="font-size:10pt">company’s noncompliance with PAL could be severe, including revocation or suspension of a company’s
business license and criminal sanctions.</P>
<P style="font-size:10pt"> The process of obtaining approval to distribute medical
products is costly and time-consuming in virtually all of the major markets where we sell medical devices. We cannot assure
that any new medical devices we develop will be approved in a timely or cost-effective manner.</P>
<P style="font-size:10pt"> Federal and state laws protect the confidentiality
of certain patient health information, including patient records, and restrict the use and disclosure of that protected information.
In particular, in December 2000, the U.S. Department of Health and Human Services (HHS) published patient privacy rules
under the Health Insurance Portability and Accountability Act of 1996 (HIPAA privacy rule). This regulation was finalized in
October 2002. The HIPAA privacy rule governs the use and disclosure of protected health information by “Covered Entities,”
which are healthcare providers that submit electronic claims, health plans and healthcare clearinghouses. Other than our MiniMed
subsidiary and our health insurance plans, each of which is a Covered Entity, the HIPAA privacy rule affects us only indirectly.
The patient data that we access, collect and analyze may include protected health information. We are committed to maintaining
patients’ privacy and working with our customers and business partners in their HIPAA compliance efforts. The ongoing
costs and impacts of assuring compliance with the HIPAA privacy rules are not material to our business.</P>
<P style="font-size:10pt"> Government and private sector initiatives to limit
the growth of healthcare costs, including price regulation, competitive pricing, coverage and payment policies, and managed-care
arrangements, are continuing in many countries where we do business, including the U.S. These changes are causing the marketplace
to put increased emphasis on the delivery of more cost-effective medical devices. Government programs, including Medicare and
Medicaid, private healthcare insurance and managed-care plans have attempted to control costs by limiting the amount of reimbursement
they will pay for particular procedures or treatments, and other mechanisms designed to constrain utilization and contain cost,
including, for example, gain sharing, where a supplier of medical goods or services is required to share any realized cost
savings with either the medical provider or payor as a condition of doing business with an entity. This has created an increasing
level of price sensitivity among customers for our products. Some third-party payors must also approve coverage for new or
innovative devices or therapies before they will reimburse healthcare providers who use the medical devices or therapies. Even
though a new medical device may have been cleared for commercial distribution, we may find limited demand for the device until
reimbursement approval has been obtained from governmental and private third-party payors. As a result of our manufacturing
efficiencies and cost controls, we believe we are well-positioned to respond to changes resulting from the worldwide trend
toward cost-containment; however, uncertainty remains as to the nature of any future legislation, making it difficult for us
to predict the potential impact of cost-containment trends on future operating results.</P>
<P style="font-size:10pt"> The delivery of our devices is subject to regulation
by HHS and comparable state and foreign agencies responsible for reimbursement and regulation of healthcare items and services.
U.S. laws and regulations are imposed primarily in connection with the Medicare and Medicaid programs, as well as the government’s
interest in regulating the quality and cost of healthcare. Foreign governments also impose regulations in connection with their
healthcare reimbursement programs and the delivery of healthcare items and services.</P>
<P style="font-size:10pt"> The U.S. federal healthcare laws apply when we submit
a claim on behalf of a federal healthcare program beneficiary, or when a customer submits a claim for an item or service that
is reimbursed under Medicare, Medicaid or other federally-funded healthcare programs. The principal federal laws include those
that prohibit the filing of false or improper claims for federal payment, those that prohibit unlawful inducements for the
referral of business reimbursable under federally-funded healthcare programs (the “Anti-Kickback Law”) and those
that prohibit healthcare service providers seeking reimbursement for providing certain services to a patient who was referred
by a physician that has certain types of direct or indirect financial relationships with the service provider (the “Stark
Law”).</P>
<P style="font-size:10pt"> The laws applicable to us are subject to evolving
interpretations. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations,
Medtronic, its officers
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">29</P>
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<P style="font-size:10pt">and employees, could be subject to severe criminal and civil penalties including, for example, exclusion
from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid.</P>
<P style="font-size:10pt"> We operate in an industry characterized by extensive
patent litigation. Patent litigation can result in significant damage awards and injunctions that could prevent the manufacture
and sale of affected products or result in significant royalty payments in order to continue selling the products. At any given
time, we are generally involved as both a plaintiff and a defendant in a number of patent infringement actions. While it is
not possible to predict the outcome of patent litigation incident to our business, we believe the costs associated with this
litigation could generally have a material adverse impact on our consolidated results of operations, financial position, or
cash flows for any one interim or annual period. See Note 14 to the consolidated financial statements for additional information.</P>
<P style="font-size:10pt"> We operate in an industry susceptible to significant
product liability claims. These claims may be brought by individuals seeking relief or by groups seeking to represent a class.
In addition, product liability claims may be asserted against us in the future based on events we are not aware of at the present
time.</P>
<P style="font-size:10pt"> We are also subject to various environmental laws
and regulations both within and outside the U.S. Like other medical device companies, our operations involve the use of substances
regulated under environmental laws, primarily manufacturing and sterilization processes. We do not expect that compliance with
environmental protection laws will have a material impact on our consolidated results of operations, financial position, or
cash flows.</P>
<P style="font-size:10pt"> At the beginning of fiscal year 2003, we elected to
transition most of our insurable risks to a program of self-insurance, with the exception of director and officer liability
insurance, which was transitioned in fiscal year 2004. This decision was made based on current conditions in the insurance
marketplace that have led to increasingly higher levels of self-insurance retentions, increasing number of coverage limitations
and dramatically higher insurance premium rates. We will continue to monitor the insurance marketplace to evaluate the value
to us of obtaining insurance coverage in the future. Based on historical loss trends, we believe that our self-insurance program
accruals will be adequate to cover future losses. Historical trends, however, may not be indicative of future losses. These
losses could have a material adverse impact on our consolidated results of operations, financial position or cash flows.</P>
<P style="font-size:10pt;font-weight:bold">Cautionary Factors That May Affect Future Results</P>
<P style="font-size:10pt"> Certain statements contained in this Annual Report
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, mergers and acquisitions, 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,”
“project,” “should,” “will” and similar words or expressions. One must carefully consider forward-looking
statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be
affected by inaccurate assumptions, including, among others, those discussed in the previous section entitled “Government
Regulation and Other Considerations” and in Item 1 of our Annual Report on Form 10-K under the heading “Cautionary
Factors That May Affect Future Results.” Consequently, no forward-looking statement can be guaranteed and actual results
may vary materially.</P>
<P style="font-size:10pt"> We undertake no obligation to update any forward-looking
statement, but investors are advised to consult any further disclosures by us on this subject in our filings with the Securities
and Exchange Commission, especially on Forms 10-K, 10-Q, and 8-K (if any), in which we discuss in more detail various important
factors that could cause actual results to differ from expected or historical results. 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.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">30</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold;text-align:center">
<A NAME="reports_of_management">Reports of Management</A></P>
<P style="font-size:10pt;font-weight:bold">Management’s Report on the Financial Statements</P>
<P style="font-size:10pt"> The management of Medtronic, Inc. is responsible
for the integrity of the financial information presented in this Annual Report. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America. Where necessary,
and as discussed under <I>Critical Accounting Estimates</I> on page 4, the consolidated financial statements reflect estimates
based on management’s judgment.</P>
<P style="font-size:10pt"> The consolidated financial statements have been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, who conducted their audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States). The independent registered public accounting
firm’s responsibility is to express an opinion that such financial statements present fairly, in all material respects,
our financial position, results of operations and cash flows in accordance with accounting principles generally accepted in
the United States.</P>
<P style="font-size:10pt;font-weight:bold">Management’s Report on Internal Control over Financial Reporting</P>
<P style="font-size:10pt"> Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. Management conducted an evaluation of the effectiveness
of internal control over financial reporting based on the framework in <I>Internal Control</I> – <I>Integrated
Framework</I> issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation,
management concluded that the Company’s internal control over financial reporting was effective as of April 29, 2005.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of April 29,
2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
which is included herein.</P>
<P style="font-size:10pt">/s/ Arthur D. Collins, Jr.<BR>Arthur D. Collins, Jr.<BR>
<I>Chairman of the Board and Chief Executive Officer</I>
</P>
<P style="font-size:10pt">/s/ Gary L. Ellis<BR>Gary L. Ellis<BR>
<I>Senior Vice President and Chief Financial Officer</I>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">31</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold;text-align:center">
<A NAME="report_of_independent_registered">Report of Independent Registered Public Accounting Firm</A></P>
<P style="font-size:10pt"> To the Shareholders and Board of Directors of Medtronic,
Inc.:</P>
<P style="font-size:10pt"> We have completed an integrated audit of Medtronic,
Inc.’s April 29, 2005 consolidated financial statements and of its internal control over financial reporting as of
April 29, 2005 and audits of its April 30, 2004 and April 25, 2003 consolidated financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are
presented below.</P>
<P style="font-size:10pt">
<U>Consolidated financial statements</U>
</P>
<P style="font-size:10pt"> In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of earnings, shareholders’ equity and cash flows present fairly, in all
material respects, the financial position of Medtronic, Inc. and its subsidiaries (the Company) at April 29, 2005 and
April 30, 2004, and the results of their operations and their cash flows for each of the three fiscal years in the period
ended April 29, 2005 in conformity with accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.</P>
<P style="font-size:10pt">
<U>Internal control over financial reporting</U>
</P>
<P style="font-size:10pt"> Also, in our opinion, management’s assessment,
included in the accompanying Management’s Report on Internal Control over Financial Reporting, that the Company maintained
effective internal control over financial reporting as of April 29, 2005 based on criteria established in <I>Internal
Control – Integrated Framework</I> issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of April 29, 2005, based on criteria established
in <I>Internal Control – Integrated Framework</I> issued by the COSO. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness
of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control
over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as
we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.</P>
<P style="font-size:10pt"> A company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">32</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.</P>
<P style="font-size:10pt"> Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.</P>
<P style="font-size:10pt">/s/ PricewaterhouseCoopers LLP</P>
<P style="font-size:10pt">PricewaterhouseCoopers LLP<BR>Minneapolis, Minnesota<BR>June 23, 2005</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">33</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold;text-align:left">
<B>Consolidated </B><FONT STYLE="font-size:16pt"><I><A NAME="statements_of_earnings">Statements of Earnings</A></I> </FONT></P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
<TH> </TH>
<TH colspan="3">2003</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">(dollars in millions, except per share data)</TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:12pt">
<TD width="62%"><B>Net sales</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">10,054.6</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">9,087.2</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">7,665.2</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:12pt" bgcolor="#E0E0E0">
<TD><B>Costs and expenses:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Cost of products sold</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,446.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,252.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,890.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Research and development expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">951.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">851.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">749.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Selling, general and administrative expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3,213.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,801.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,371.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Purchased in-process research and development (IPR&D)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">114.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Special charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Other expense, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">290.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">351.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">188.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Interest (income)/expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(45.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(2.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30"><B>Total costs and expenses</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7,511.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6,290.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5,323.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Earnings before income taxes</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,543.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,796.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,341.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Provision for income taxes</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">739.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">837.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">741.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Net earnings</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,803.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,959.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,599.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Earnings per share:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"><B> Basic</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.49</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.61</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.31</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10"><B> Diluted</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.48</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.60</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.30</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Weighted average shares outstanding:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Basic</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,209.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,213.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,217.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Diluted</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,220.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,225.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,228.7</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;text-align:center">
<I>See accompanying notes to the consolidated financial statements.</I>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">34</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold;text-align:left">
<b>Consolidated </b><FONT STYLE="font-size:16pt"><I><A NAME="balance_sheets">Balance Sheets</A></I> </FONT></P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">April 29,<BR>2005</TH>
<TH> </TH>
<TH colspan="3">April 30,<BR>2004</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">(dollars in millions, except share<BR>and per share data)</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:12pt">
<TD width="74%"><B>Assets</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Current assets:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Cash and cash equivalents</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,232.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,593.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Short-term investments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,159.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">333.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Accounts receivable, less allowances of $174.9 and $145.3, respectively</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,292.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,994.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Inventories</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">981.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">877.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Deferred tax assets, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">385.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">197.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Prepaid expenses and other current assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">370.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">315.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20"><B> Total current assets</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7,421.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5,312.7</TD>
<TD> </TD>
</TR>
<TR><TD> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Property, plant and equipment, net</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,859.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,708.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Goodwill</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4,281.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4,236.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Other intangible assets, net</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,018.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">999.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Long-term investments</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,565.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,456.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Other assets</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">471.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">397.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20"><B> Total assets</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">16,617.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">14,110.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:12pt" bgcolor="#E0E0E0">
<TD><B>Liabilities and Shareholders’ Equity</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Current liabilities:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Short-term borrowings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">478.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,358.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Accounts payable</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">371.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">346.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Accrued compensation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">542.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">459.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Accrued income taxes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">923.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">637.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Other accrued expenses</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,064.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">438.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20"><B> Total current liabilities</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3,380.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4,240.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:12pt" bgcolor="#E0E0E0">
<TD><B>Long-term debt</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,973.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Deferred tax liabilities, net</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">478.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">408.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Long-term accrued compensation</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">157.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">123.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Other long-term liabilities</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">178.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">260.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:20"><B> Total liabilities</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6,167.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5,033.8</TD>
<TD> </TD>
</TR>
<TR><TD> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Commitments and contingencies (Notes 6, 13 and 14)</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR><TD> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Shareholders’ equity:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Preferred stock-par value $1.00; 2.5 million shares authorized, none outstanding</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Common stock-par value $0.10; 1.6 billion shares authorized, 1,210,186,635 and 1,209,459,716 shares
issued and outstanding, respectively</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">121.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">120.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Retained earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10,178.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8,890.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Accumulated other non-owner changes in equity</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">150.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">72.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10,449.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9,083.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Receivable from employee stock ownership plan</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(6.8</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20"><B> Total shareholders’ equity</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10,449.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9,077.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:20"><B> Total liabilities and shareholders’ equity</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">16,617.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">14,110.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;text-align:center">
<I>See accompanying notes to the consolidated financial statements.</I>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">35</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold;text-align:left">
Consolidated <FONT STYLE="font-size:16pt"><I><A NAME="statements_of_shareholders_equity">Statements of Shareholders’ Equity </A></i></FONT></P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Common<BR>Stock</TH>
<TH> </TH>
<TH colspan="3">Retained<BR>Earnings</TH>
<TH> </TH>
<TH colspan="3">Accumulated<BR>Other<BR>Non-Owner<BR>Changes<BR>in Equity</TH>
<TH> </TH>
<TH colspan="3">Receivable<BR>from Employee<BR>Stock<BR>Ownership<BR>Plan</TH>
<TH> </TH>
<TH colspan="3">Total<BR>Shareholders’<BR>Equity</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="18"><B>(dollars in millions, except per share data)</B></TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:12pt">
<TD width="38%"><B>Balance April 26, 2002</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">121.5</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">6,493.0</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">(168.0</TD>
<TD width="1%">)</TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">(15.4</TD>
<TD width="1%">)</TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">6,431.1</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,599.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,599.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><I>Other non-owner changes in equity</I></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Unrealized gain on investments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Translation adjustment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">227.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">227.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Minimum pension liability</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.2</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Unrealized loss on foreign exchange derivatives</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(75.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(75.2</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Total comprehensive income</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,755.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Dividends paid - $0.25 per share</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(304.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(304.2</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Issuance of common stock under employee benefits and incentive plans</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">155.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">155.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Issuance of common stock in connection with acquisition</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">233.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">234.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Repurchases of common stock</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(417.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(418.5</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Income tax benefit from restricted stock and nonstatutory stock options</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">47.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">47.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Income tax benefit on allocated employee stock ownership plan shares</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Repayments from employee stock ownership plan</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD><B>Balance April 25, 2003</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">121.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7,808.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(12.1</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(11.7</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7,906.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,959.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,959.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><I>Other non-owner changes in equity</I></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Unrealized gain on investments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Translation adjustment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">80.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">80.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Minimum pension liability</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(6.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(6.1</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Unrealized gain on foreign exchange derivatives</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Total comprehensive income</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,043.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Dividends paid - $0.29 per share</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(351.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(351.5</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Issuance of common stock under employee benefits and incentive plans</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">240.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">241.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Issuance of common stock in connection with acquisition</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">57.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">57.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Repurchases of common stock</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.7</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(878.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(880.5</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Income tax benefit from restricted stock and nonstatutory stock options</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">55.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">55.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Repayments from employee stock ownership plan</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:6pt" bgcolor="#E0E0E0">
<TD><B>Balance April 30, 2004</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">120.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">8,890.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">72.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(6.8</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">9,077.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,803.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,803.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><I>Other non-owner changes in equity</I></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Unrealized loss on investments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(15.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(15.9</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Translation adjustment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">62.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">62.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Minimum pension liability</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(5.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(5.1</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Unrealized gain on foreign exchange derivatives</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">36.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">36.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Total comprehensive income</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,881.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Dividends paid - $0.34 per share</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(404.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(404.9</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Issuance of common stock under employee benefits and incentive plans</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">337.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">338.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Repurchases of common stock</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(510.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(511.0</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Income tax benefit from restricted stock and nonstatutory stock options</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">60.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">60.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Repayments from employee stock ownership plan</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:6pt">
<TD><B>Balance April 29, 2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">121.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">10,178.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">150.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">10,449.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;text-align:center">
<I>See accompanying notes to the consolidated financial statements.</I>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">36</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold;text-align:left">
Consolidated <FONT STYLE="font-size:16pt"><I><A NAME="statements_of_cash_flows">Statements of Cash Flows</A></i> </FONT></P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
<TH> </TH>
<TH colspan="3">2003</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">(dollars in millions)</TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%"><B>Operating Activities:</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,803.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,959.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,599.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Adjustments to reconcile net earnings to net cash provided by operating activities:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:20">Depreciation and amortization</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">463.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">442.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">408.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20">IPR&D</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">114.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:20">Special charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(9.7</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20">Tax benefit from exercise of stock awards</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">60.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">55.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">48.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:20">Deferred income taxes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(142.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">110.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">202.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20">Change in operating assets and liabilities:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Accounts receivable</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(227.7</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(171.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(139.9</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:30">Inventories</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(51.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">127.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(91.7</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Prepaid expenses and other assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(107.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(97.4</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(27.0</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:30">Accounts payable and accrued liabilities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">423.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">326.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(87.4</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Other long-term liabilities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(57.4</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">56.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">60.6</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Net cash provided by operating activities</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,819.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,845.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,078.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Investing Activities:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Acquisitions, net of cash acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(107.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(30.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.9</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Purchase of intellectual property.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(10.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Additions to property, plant and equipment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(452.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(424.6</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(380.4</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Sales and maturities of marketable securities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">807.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,473.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">545.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Purchases of marketable securities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1,805.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(2,684.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(416.5</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Other investing activities, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(35.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Net cash used in investing activities</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1,602.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1,650.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(249.6</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Financing Activities:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Increase in short-term borrowings, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">90.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(19.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(172.3</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Payments on long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(10.3</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Issuance of long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Dividends to shareholders</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(404.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(351.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(304.2</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Repurchase of common stock</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(511.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(880.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(418.5</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Issuance of common stock</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">338.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">241.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">155.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"><B>Net cash used in financing activities</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(488.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1,010.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(743.8</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Effect of exchange rate changes on cash and cash equivalents</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(89.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(61.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(25.4</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Net change in cash and cash equivalents</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">638.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">123.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,059.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Cash and cash equivalents at beginning of period</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,593.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,470.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">410.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Cash and cash equivalents at end of period</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,232.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,593.7</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,470.1</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt;padding-top:12pt" bgcolor="#E0E0E0">
<TD><B>Supplemental Cash Flow Information</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Cash paid during the year for:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Income taxes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">551.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">490.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">150.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Interest</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">55.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">56.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">51.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Supplemental Noncash Investing and Financing Activities:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Issuance of common stock in connection with an acquisition</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">57.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">219.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Issuance of stock options in connection with an acquisition</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">14.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Reclassification of debentures from short-term to long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,973.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,973.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Reclassification of debentures from long-term to short-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,973.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;text-align:center">
<I>See accompanying notes to the consolidated financial statements.</I>
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">37</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold;text-align:center">
</P>
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt"><A NAME="notes">Notes </A></FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I> </I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt;font-weight:bold">1. Summary of Significant Accounting Policies</P>
<P style="font-size:10pt"> <B>Nature of Operations</B> Medtronic, Inc.
(Medtronic or the Company) is the global leader in medical technology, alleviating pain, restoring health and extending life
for millions of people around the world. The Company provides innovative products and therapies for use by medical professionals
to meet the healthcare needs of their patients. Primary products include those for heart and vascular disease, neurological
disorders, chronic pain, spinal disorders, diabetes, urologic and digestive system disorders, and eye, ear, nose and throat
disorders..</P>
<P style="font-size:10pt"> The Company is headquartered in Minneapolis, Minnesota,
and markets its products primarily through a direct sales force in the United States (U.S.) and a combination of direct sales
representatives and independent distributors in international markets. The main markets for products are the U.S., Western
Europe, and Japan.</P>
<P style="font-size:10pt"> <B>Principles of Consolidation</B> The
consolidated financial statements include the accounts of Medtronic, Inc., and all of its subsidiaries. All significant
intercompany transactions and accounts have been eliminated. The principles of Financial Accounting Standards Board (FASB)
Interpretation (FIN) No. 46, “Consolidation of Variable Interest Entities” and Accounting Research Bulletin
(ARB) No. 51, “Consolidated Financial Statements” are considered when determining whether an entity is subject
to consolidation.</P>
<P style="font-size:10pt"> <B>Fiscal Year-End</B> The Company
utilizes a 52/53-week fiscal year, ending the last Friday in April. Fiscal year 2004 was a 53-week year, with the next 53-week
year occurring in fiscal year 2010. As a result of the additional week, the Company’s 2004 fiscal year and fourth quarter
included 53 and 14 weeks, respectively, as opposed to 52 and 13 weeks, respectively, in both fiscal years 2005 and 2003. The
Company’s fiscal years 2005, 2004, and 2003 ended on April 29, 2005, April 30, 2004, and April 25, 2003,
respectively.</P>
<P style="font-size:10pt"> <B>Use of Estimates</B> The preparation
of the financial statements in conformity with accounting principles generally accepted (GAAP) in the U.S. requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ materially from those estimates.</P>
<P style="font-size:10pt"> <B>Cash Equivalents</B> The Company
considers highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.
These investments are carried at cost, which approximates fair value.</P>
<P style="font-size:10pt"> <B>Investments</B> Investments in
marketable equity securities and debt securities are classified and accounted for as available-for-sale (AFS) at April 29,
2005 and April 30, 2004. AFS debt securities are recorded at fair value in both <I>short-term</I> and <I>long-term investments</I>
and AFS equity securities are recorded at fair value in<I> long-term investments</I> in the consolidated balance sheets<I>.</I>
The change in fair value for AFS securities is recorded, net of taxes, as a component of <I>accumulated other non-owner changes
in equity</I> in the consolidated balance sheets. Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such determinations at each balance sheet date.</P>
<P style="font-size:10pt"> Certain of the Company’s investments in equity
securities are long-term, strategic investments in companies that are in varied stages of development. The Company accounts
for these investments under the cost or the equity method of accounting, as appropriate. The valuation of equity securities
accounted for under the cost method is based on all available financial information related to the investee, including valuations
based on recent third-party equity investments in the investee. If an unrealized loss for any investment is considered to be
other-than-temporary, the loss will be recognized in the consolidated statements of earnings in the period the determination
is made. Equity securities accounted for under the equity method are recorded at the amount of the Company’s investment
and adjusted each period for the Company’s share of the investee’s income or loss and dividends paid. Equity securities
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">38</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">accounted for under both the cost and equity methods are reviewed quarterly for changes in circumstance
or the occurrence of events that suggest the Company’s investment may not be recoverable. As of April 29, 2005 and
April 30, 2004, the Company has $241.6 and $238.5, respectively, of equity securities, which are recorded as <I>long-term
investments</I> in the consolidated balance sheets. Of these investments, $230.7 and $211.5, respectively, represent investments
in companies that do not have quoted market prices.</P>
<P style="font-size:10pt"> <B>Accounts Receivable</B> The Company
grants credit to customers in the normal course of business, but generally does not require collateral or any other security
to support its receivables. The Company maintains an allowance for doubtful accounts for potential credit losses. Uncollectible
accounts are written-off against the allowance when it is deemed that a customer account is uncollectible. The allowance for
doubtful accounts was $174.9 at April 29, 2005 and $145.3 at April 30, 2004.</P>
<P style="font-size:10pt"> <B>Inventories</B> Inventories are
stated at the lower of cost or market, with cost determined on a first-in, first-out basis. Inventory balances are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">April 29,<BR>2005</TH>
<TH> </TH>
<TH colspan="3">April 30,<BR>2004</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="74%">Finished goods</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">606.9</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">541.4</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Work in process</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">148.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">140.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Raw materials</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">226.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">196.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:20">Total</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">981.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">877.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> <B>Property, Plant and Equipment</B> Property,
plant and equipment is stated at cost. Additions and improvements that extend the lives of the assets are capitalized while
expenditures for repairs and maintenance are expensed as incurred. Depreciation is provided using the straight-line method
over the estimated useful lives of the various assets. Property, plant and equipment balances and corresponding lives are as
follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">April 29,<BR>2005</TH>
<TH> </TH>
<TH colspan="3">April 30,<BR>2004</TH>
<TH> </TH>
<TH colspan="3">Lives<BR>(in years)</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Land and land improvements</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">85.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">83.5</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="center" width="8%">20 </TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Buildings and leasehold improvements</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">891.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">820.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">Up to 40 </TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Equipment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,363.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,103.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">3-7 </TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Construction in progress</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">289.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">197.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">—</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Subtotal</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3,628.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3,204.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Less: Accumulated depreciation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1,769.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1,496.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Property, plant and equipment, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,859.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,708.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> <B>Goodwill </B> Goodwill is the
excess of purchase price of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business
combination. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible
Assets,” goodwill is not amortized. Goodwill is tested for impairment annually, and would be tested for impairment between
annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment
testing for goodwill is done at a reporting unit level. An impairment loss is recognized when the carrying amount of the reporting
unit’s net assets exceeds the estimated fair value of the reporting unit. The estimated fair value is determined using
discounted future cash flows analysis. The Company completed its annual goodwill impairment test in the third quarter of fiscal
year 2005 and determined that no goodwill was impaired.</P>
<P style="font-size:10pt"> <B>Intangible Assets </B> Intangible
assets include patents, trademarks and purchased technology. Intangible assets with a definite life are amortized on a straight-line
basis, with estimated useful lives ranging from 3 to 20 years. Intangible assets with a definite life are tested for impairment
whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable. The
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">39</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">amount of the impairment that would be recorded is calculated by the excess of the asset’s carrying
value over its fair value. Fair value is generally determined using a discounted future cash flows analysis. The Company has
determined that no impairment existed as of April 29, 2005.</P>
<P style="font-size:10pt"> <B>Warranty Obligation</B> 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.</P>
<P style="font-size:10pt"> Changes in the Company’s product warranties during
the years ended April 29, 2005 and April 30, 2004 consisted of the following:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%"><B>Balance April 25, 2003</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">17.6</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Warranties issued during the period</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">21.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Settlements made during the period</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(3.4</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Balance April 30, 2004</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">35.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Warranties issued during the period</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">50.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Settlements made during the period</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(42.7</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Balance April 29, 2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">42.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The Company recorded $50.1 and $21.3 of warranty expense
for the fiscal years ended April 29, 2005 and April 30, 2004, respectively.</P>
<P style="font-size:10pt"> <B>Self-Insurance</B> It is the
Company’s policy to self-insure the vast majority of its insurable risks including medical and dental costs, disability
coverage, physical loss to property, business interruptions, workers’ compensation, comprehensive general, and product
liability. Insurance coverage is obtained for those risks required to be insured by law or contract. A provision for losses
under the self-insured program is recorded and revised quarterly. As part of management’s estimation process, the Company
uses independent actuaries to help estimate the aggregate liability for disability and a significant portion of the product
liability exposure. Additionally, the Company uses claims data and historical experience to estimate current medical and dental
liabilities. Based on historical loss trends, the Company believes that its self-insurance program accruals are adequate to
cover future losses. Historical trends, however, may not be indicative of future losses. These losses could have a material
adverse impact on the Company’s consolidated financial statements.</P>
<P style="font-size:10pt"> <B>Retirement Benefit Plan Assumptions</B> The
Company sponsors various retirement benefit plans, including defined benefit pension plans, defined contribution savings plans,
post-retirement medical plans, and termination indemnity plans, covering substantially all U.S. employees and many employees
outside the U.S. Pension benefit and post-retirement medical plan costs include assumptions for the discount rate, retirement
age, compensation rate increases, and the expected return on plan assets. Post-retirement medical plan costs also incorporate
healthcare cost trend rate assumptions. Refer to Note 12 for additional information regarding the Company’s retirement
benefit plans.</P>
<P style="font-size:10pt"> Periodically, the Company evaluates the discount rate,
retirement age, compensation rate increases, expected return on plan assets, and healthcare cost trend rates of its pension
benefit and post-retirement medical plans. In evaluating these assumptions, many factors are considered, including an evaluation
of discount rates, compensation rate increases, expected return on plan assets, and healthcare cost trend rates of other companies,
historical assumptions compared to actual results, current market conditions, and asset allocations as well as the views of
leading financial advisors and economists. In evaluating the expected retirement age assumption, the Company considers the
retirement ages of past employees eligible for pension and medical benefits together with expectations of future retirement
ages.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">40</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> Due to the changing nature of these assumptions, it
is reasonably possible that changes in these assumptions will occur in the near term and, due to the uncertainties inherent
in setting assumptions, the effect of such changes could be material to the Company’s consolidated financial statements.</P>
<P style="font-size:10pt"> <B>Revenue Recognition</B> The Company
sells its products primarily through a direct sales force. Accordingly, a significant portion of the Company’s revenue
is generated from consigned inventory maintained at hospitals or with field representatives. For these products, revenue is
recognized at the time the Company is notified that the product has been used or implanted. For all other transactions, the
Company recognizes revenue when title to the goods and risk of loss transfer to customers providing there are no remaining
performance obligations required of the Company or any matters requiring customer acceptance. In cases where the Company utilizes
distributors or ships product directly to the end user, it recognizes revenue upon shipment provided all revenue recognition
criteria have been met. The Company records estimated sales returns, discounts and rebates as a reduction of net sales in the
same period revenue is recognized.</P>
<P style="font-size:10pt"> For revenue transactions that involve multiple deliverables,
the Company defers the revenue associated with the fair value of any undelivered elements. The fair value of the undelivered
elements is determined using objective evidence as defined in Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables.”</P>
<P style="font-size:10pt"> <B>Research and Development</B> Research
and development costs are expensed when incurred.</P>
<P style="font-size:10pt"> <B>IPR&D</B> When the Company
acquires another entity, the purchase price is allocated, as applicable, between IPR&D, other identifiable intangible assets,
net tangible assets, and goodwill. The Company’s policy defines IPR&D 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 requires the Company to make significant estimates. The amount of the purchase
price allocated to IPR&D is determined by estimating the future cash flows of each project or technology and discounting
the net cash flows back to their present values. The discount rate used is determined at the time of acquisition in accordance
with accepted valuation methods. These methodologies include consideration of the risk of the project not achieving commercial
feasibility.</P>
<P style="font-size:10pt"> <B>Other Expense, Net</B> 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.</P>
<P style="font-size:10pt"> <B>Stock-Based Compensation</B> The
Company accounts for stock-based employee compensation using the intrinsic value method as prescribed under Accounting Principles
Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related Interpretations.
Accordingly, the Company would record compensation expense if the quoted market price on the date of grant exceeds the exercise
price. Compensation expense for stock options is calculated as the number of options granted multiplied by the amount the market
price exceeds the exercise price. For options with a vesting period, the expense is recognized over the vesting period. Compensation
expense is recognized immediately for options that are fully vested on the date of grant.</P>
<P style="font-size:10pt"> The table below illustrates the effect on net earnings
and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting
for Stock-Based Compensation” (SFAS No. 123), to all stock-based compensation for each of the last three fiscal years:</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">41</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Net earnings as reported</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,803.9</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,959.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,599.8</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Add: Stock-based compensation expense included in reported net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">18.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">12.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Deduct: Stock-based compensation expense determined under fair value method for all awards (1)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(230.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(185.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(186.9</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Pro forma</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,592.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,787.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,420.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Basic Earnings Per Share:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">As reported</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.49</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.61</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.31</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Pro forma</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.32</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.47</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.17</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Diluted Earnings Per Share:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">As reported</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.48</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.60</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.30</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Pro forma</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.31</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.46</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.16</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<HR noshade color="black" align="left" size="1" width="20%">
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(1)</TD>
<TD width="96%">Additional compensation cost under the fair value method is net of related tax effects.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> In response to numerous external factors, including
rising medical benefit costs and evolving workforce demographics, the Company completed an extensive study to realign its portfolio
of employee benefits. As a result of this study and the planned changes to employee benefits, including the cessation of the
Employee Stock Ownership Plan contribution at the end of fiscal year 2005 and changes to both the U.S. defined benefit pension
and post-retirement medical plans, the Company awarded fully vested, nonqualified stock options to eligible employees as part
of its annual broad employee-based stock option award, which took place during the second quarter of fiscal year 2005. Due
to the immediate vesting provisions, this one-time award, with an aggregate fair value, net of tax, of $64.2, resulted in increased
pro forma compensation expense for the fiscal year ended April 29, 2005 as compared to the typical annual grant that is
expensed over a four-year vesting period. Executive officers who received stock options in connection with the annual grant
did not receive fully vested awards, but instead received awards subject to the Company’s standard policy on option vesting,
which is generally over a four-year period.</P>
<P style="font-size:10pt"> For purposes of the pro forma disclosures above,
the weighted average fair value per stock option granted in fiscal years 2005, 2004, and 2003 was $8.50, $11.94, and $12.27,
respectively. The lower fair value per stock option granted for fiscal year 2005 resulted from the fully vested stock option
award mentioned previously. To determine the expected option term of the fully vested options, the Company performed an analysis
on the average holding period of options from the vesting date to the exercise date. The fair value was estimated using the
Black-Scholes option-pricing model with the following weighted average assumptions:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%"><B>Assumptions</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Risk-free interest rate</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">3.34%</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">3.14%</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">3.01%</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Expected dividend yield</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">0.67%</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">0.62%</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">0.55%</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Annual volatility factor</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">22.5%</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">22.8%</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">26.3%</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Expected option term</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">3 years </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">5 years </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="center">5 years </TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Most of the Company’s stock option awards provide
for immediate vesting upon retirement, death or disability of the participant. The Company has traditionally accounted for
the pro forma compensation expense related to stock-based awards made to retirement eligible individuals using the nominal
vesting period of the grant. The nominal vesting approach requires recognition of the compensation expense over the vesting
period except in the instance of the participants’ actual retirement. The FASB
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">42</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">clarified the accounting for stock-based awards made to retirement eligible individuals with the issuance
of SFAS No. 123(R), “Share Based Payment” (SFAS No. 123(R)). SFAS No. 123(R) explicitly provides that the vesting
period for a grant made to a retirement eligible employee is considered non-substantive and should be ignored when determining
the period over which the award should be expensed. Upon adoption of SFAS No. 123(R) in the first quarter of fiscal year 2007,
the Company will be required to immediately expense stock-based awards made to retirement eligible participants. If the Company
had historically accounted for stock-based awards made to retirement eligible individuals under the requirements of SFAS No.
123(R), the pro forma expense disclosed above would have been decreased by $16.2, $6.8 and $11.0 in fiscal years 2005, 2004
and 2003, respectively.</P>
<P style="font-size:10pt"> <B>Foreign Currency Translation</B> Assets
and liabilities are translated to U.S. dollars at year-end exchange rates, and the resulting gains and losses arising from
the translation of net assets located outside the U.S. are recorded as a cumulative translation adjustment, a component of
<I>accumulated other non-owner changes in equity</I> in the consolidated balance sheets. Elements of the consolidated statements
of earnings are translated at average exchange rates in effect during the year and foreign currency transaction gains and losses
are included in <I>other expense, net</I> in the consolidated statements of earnings. </P>
<P style="font-size:10pt"> <B>Comprehensive Income and Accumulated Other Non-Owner
Changes in Equity</B> 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, minimum pension liabilities,
and unrealized gains and losses on available-for-sale marketable securities. Comprehensive income in fiscal years 2005, 2004,
and 2003 was $1,881.9, $2,043.4, and $1,755.7, respectively.</P>
<P style="font-size:10pt"> Presented below is a summary of activity for each
component of <I>accumulated other non-owner changes in equity</I> for fiscal years 2005, 2004, and 2003:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Unrealized<BR>Gain<BR>(Loss) on<BR>Investments</TH>
<TH> </TH>
<TH colspan="3">Cumulative<BR>Translation<BR>Adjustment</TH>
<TH> </TH>
<TH colspan="3">Minimum<BR>Pension<BR>Liability</TH>
<TH> </TH>
<TH colspan="3">Unrealized<BR>Gain<BR>(Loss) on<BR>Foreign<BR>Exchange<BR>Derivatives</TH>
<TH> </TH>
<TH colspan="3">Accumulated<BR>Other Non-<BR>Owner Changes in<BR>Equity</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="38%"><B>Balance April 26, 2002</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">(9.2</TD>
<TD width="1%">)</TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">(179.7</TD>
<TD width="1%">)</TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">—</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">20.9</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">(168.0</TD>
<TD width="1%">)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Period Change</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">227.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(75.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">155.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Balance April 25, 2003</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">47.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(54.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(12.1</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Period Change</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">80.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(6.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">84.1</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Balance April 30, 2004</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">128.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(10.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(47.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">72.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Period Change</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(15.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">62.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(5.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">36.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">78.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Balance April 29, 2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(14.7</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">190.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(15.4</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(10.8</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">150.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Translation adjustments are not adjusted for income
taxes as substantially all translation adjustments relate to permanent investments in non-U.S. subsidiaries. The tax benefit
(expense) on the unrealized gain (loss) on derivatives in fiscal years 2005, 2004, and 2003 was $(21.3), $(2.9), and $43.9,
respectively. The tax benefit on the minimum pension liability was $2.7, $3.3, and $2.3 in fiscal years 2005, 2004 and 2003,
respectively. The tax benefit (expense) on the unrealized gain (loss) on investments in fiscal years 2005, 2004, and 2003 was
$(8.9), $(1.2), and $(4.4), respectively.</P>
<P style="font-size:10pt"> <B>Derivatives</B> SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as amended, requires companies to recognize all derivatives
as assets and liabilities on the balance sheet and to measure the instruments at fair value through earnings unless the derivative
qualifies as a hedge. If the derivative is a hedge, depending on the nature of the hedge and hedge effectiveness, changes in
the fair value of the derivative will either be recorded currently through earnings or recognized in <I>accumulated other non-owner
changes in equity</I> in the consolidated balance sheets until the hedged item
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">43</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">is recognized in earnings. The changes in the fair value of the derivative will offset the change
in fair value of the hedged asset, liability, net investment or probable commitment.</P>
<P style="font-size:10pt"> The Company uses derivative instruments, primarily
forward exchange contracts, to manage its exposure related to foreign exchange rate changes. The Company enters into contracts
with major financial institutions that change in value as foreign exchange rates change. These contracts are designated either
as cash flow hedges, net investment hedges or freestanding derivatives. It is the Company’s policy to enter into forward
exchange derivative contracts only to the extent true exposures exist; the Company does not enter into forward exchange derivative
contracts for speculative purposes. Principal currencies hedged are the Euro and the Japanese Yen. All derivative instruments
are recorded at fair value in the consolidated balance sheets, as a component of <I>prepaid expenses and other current assets,
other assets, other accrued expenses</I>, or <I>other long-term liabilities</I> depending upon the gain or loss position of
the contract and contract maturity date.</P>
<P style="font-size:10pt"> Forward contracts designated as cash flow hedges are
designed to hedge the variability of cash flows associated with forecasted transactions denominated in a foreign currency that
will take place in the future. Changes in value of derivatives designated as cash flow hedges are recorded in <I>accumulated
other non-owner changes in equity</I> in the consolidated balance sheets until earnings are affected by the variability of
the underlying cash flows. At that time, the applicable amount of gain or loss from the derivative instrument, that is deferred
in equity, is reclassified to earnings and is included in <I>other expense, net</I> or <I>cost of products sold</I> in the
consolidated statements of earnings, depending on the underlying transaction that is being hedged.</P>
<P style="font-size:10pt"> The purpose of net investment hedges is to hedge the
long-term investment (equity) in foreign operations. The gains and losses related to the change in the forward exchange rates
of the net investment hedges are recorded currently in earnings as <I>other expense, net.</I> The gains and losses based on
changes in the current exchange rates, or spot rates, are recorded as a cumulative translation adjustment, a component of <I>accumulated
other non-owner changes in equity</I>.</P>
<P style="font-size:10pt"> In addition, the Company uses forward exchange contracts
to offset its exposure to the change in value of certain foreign currency intercompany assets and liabilities. These forward
exchange contracts are not designated as hedges, and therefore, changes in the value of these freestanding derivatives are
recognized currently in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and
liabilities.</P>
<P style="font-size:10pt"> At inception, as dictated by the facts and circumstances,
all derivatives are expected to be highly effective, as the critical terms of these instruments are the same as those of the
underlying risks being hedged. The Company evaluates hedge effectiveness at inception and on an ongoing basis. If a derivative
is no longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded
in earnings.</P>
<P style="font-size:10pt"> <B>Earnings Per Share</B> 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 adjusted 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 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. As a result of the adoption of EITF No. 04-8, “The Effect of Contingently
Convertible Instruments on Diluted Earnings Per Share,” the computation of diluted earnings per share for the fiscal year
2005 includes approximately 700,000 shares related to the 1.25 percent Contingent Convertible Debentures (Old Debentures) (see
Note 6). As required, diluted shares outstanding for fiscal year 2004 and fiscal year 2003 were also restated to include these
shares. However, the inclusion of the shares issuable upon conversion of the Old Debentures did not impact diluted earnings
per share as previously
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">44</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">reported. Because the principal value of the 1.25 percent Contingent Convertible Debentures, Series
B (New Debentures) is settled only in cash, the potentially dilutive common shares related to the New Debentures would only
be included in the diluted earnings per share calculation at such time in the future when the Company’s stock price rises
above the conversion price. The dilutive impact would be equal to the number of shares needed to satisfy the “in-the-money”
value of the New Debentures, assuming conversion (see Note 6).</P>
<P style="font-size:10pt"> The table below sets forth the computation of basic
and diluted earnings per share (shares in millions):</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%"><B>Numerator:</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,803.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,959.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,599.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Denominator:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Basic-weighted average shares outstanding</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,209.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,213.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,217.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Effect of dilutive securities:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20">Employee stock options</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:20">Shares issuable upon conversion of Old Debentures</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:20">Other</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Diluted-weighted average shares outstanding</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,220.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,225.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,228.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Basic earnings per share</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.49</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.61</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.31</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Diluted earnings per share</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.48</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.60</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.30</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The calculation of weighted average diluted shares
outstanding excludes options for approximately 11 million, 14 million, and 26 million common shares in fiscal years
2005, 2004 and 2003, respectively, as the exercise price of those options was greater than the average market price, resulting
in an anti-dilutive effect on diluted earnings per share.</P>
<P style="font-size:10pt;font-weight:bold">New Accounting Standards</P>
<P style="font-size:10pt"> In November 2003 and March 2004, the EITF
reached a consensus on Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments.” The consensus reached requires companies to apply new guidance for evaluating whether an investment is other-than-temporarily
impaired and also requires quantitative and qualitative disclosure of debt and equity securities, classified as available-for-sale
or held-to-maturity, that are determined to be only temporarily impaired at the balance sheet date. The Company incorporated
the required disclosures for investments accounted for under SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities,” and those required for cost method investments as required in the fourth quarter of fiscal
year 2004 and 2005, respectively. In September 2004, the adoption date of the consensus was indefinitely delayed as it
relates to the measurement and recognition of impairment losses for all securities in the scope of paragraphs 10-20 of Issue
No. 03-1. The disclosures prescribed by Issue No. 03-1 and guidance related to impairment measurement prior to the issuance
of this consensus continue to remain in effect. Adoption is not expected to have a material impact on the Company’s consolidated
earnings, financial position or cash flows.</P>
<P style="font-size:10pt"> In September 2004, the EITF reached a consensus
on Issue No. 04-10, “Applying Paragraph 19 of <I>FASB Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information</I> (SFAS No. 131), in Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative
Thresholds.” Issue No. 04-10 clarifies the criteria for aggregating an operating segment that does not meet all of the
aggregation criteria in paragraph 17 of SFAS No. 131, but also falls below the quantitative
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">45</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">criteria that would dictate that the segment be reported separately. The consensus reached would enable
an entity to aggregate two or more segments that have similar economic characteristics and share a majority of the aggregation
criteria in paragraph 17 of SFAS No. 131. Although Issue No. 04-10 was to be effective immediately, in November 2004 the EITF
delayed the implementation of this issue in order to have its effective date coincide with the proposed FASB Staff Position
(FSP), FAS No. 131-a, which clarifies the meaning of similar economic characteristics. Issue No. 04-10 is to be applied by
retroactive restatement of previous periods. Adoption of Issue No. 04-10 is not expected to have an impact on the Company’s
segment presentation.</P>
<P style="font-size:10pt"> In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs, an amendment of Accounting Research Bulletin No. 43, Chapter 4,” which adopts wording from the
International Accounting Standards Board’s (IASB) IAS 2 “Inventories” in an effort to improve the comparability
of cross-border financial reporting. The FASB and IASB both believe the standards have the same intent; however, an amendment
to the wording was adopted to avoid inconsistent application. The new standard indicates that abnormal freight, handling costs,
and wasted materials (spoilage) are required to be treated as current period charges rather than as a portion of inventory
cost. Additionally, the standard clarifies that fixed production overhead should be allocated based on the normal capacity
of a production facility. The Statement is effective for the Company beginning in fiscal year 2007. Adoption is not expected
to have a material impact on the Company’s consolidated earnings, financial position or cash flows.</P>
<P style="font-size:10pt"> In December 2004, the FASB issued SFAS No. 123(R),
“Share Based Payment.” This Statement is a revision of SFAS No. 123, and supersedes APB Opinion No. 25. SFAS No.
123(R) requires the recognition of the cost of employee services received in exchange for an award of equity instruments based
on the grant date fair value of the award. The cost will be recognized over the period during which an employee is required
to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees
do not render the required service period. In April 2005, the Securities and Exchange Commission (SEC) release No. 33-8568
delayed the implementation of SFAS No. 123(R). The Statement is now effective for the Company beginning in the first quarter
of fiscal year 2007.</P>
<P style="font-size:10pt"> SFAS No. 123(R) permits public companies to adopt
its requirements using one of two methods: (1) A “modified prospective” method in which compensation cost is recognized
prospectively for both new grants issued subsequent to the date of adoption, and all unvested awards outstanding at the date
of adoption. Expense for the outstanding awards must be based on the valuation determined for the pro forma disclosures under
SFAS No. 123. (2) A “modified retrospective” method, which includes the requirements of the modified prospective
method described above, but also permits entities to restate all prior periods presented based on the amounts previously recognized
under SFAS No. 123 for purposes of pro forma disclosures. The Company is currently in the process of evaluating the two methods
and has not yet determined which method it will use.</P>
<P style="font-size:10pt"> As permitted by SFAS No. 123, the Company currently
accounts for share-based payments to employees using the intrinsic value method under APB Opinion No. 25 and, as such, generally
recognizes no compensation cost for employee stock options. Accordingly, the adoption of the fair value method under SFAS No.
123(R) will have a significant impact on the Company’s consolidated earnings, although it will have no impact on the Company’s
financial position or cash flows. The Company believes the pro forma disclosure in Note 1, “Significant Accounting Policies,”
under “Stock-Based Compensation” provides an appropriate short-term indicator of the level of expense that will be
recognized in accordance with SFAS No. 123(R). However, the total expense recorded in future periods will depend on several
variables, including the number of share-based awards granted, the number of grants that ultimately vest, and the fair value
assigned to those awards.</P>
<P style="font-size:10pt"> In December 2004, the FASB issued SFAS No. 153, “Exchanges
of Nonmonetary Assets” (SFAS No. 153). The Statement is an amendment of APB Opinion No. 29 and eliminates the exception
that non-monetary exchanges of similar productive assets be recorded at the value of the assets relinquished,
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">46</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">rather than fair value. Under SFAS No. 153, the exception to recognition of the exchange at fair value
is instead reserved for exchanges of non-monetary assets that do not have commercial substance. The Statement is effective
for the Company beginning in the first quarter of fiscal year 2006. Adoption is not expected to have a material impact on the
Company’s consolidated earnings, financial position or cash flows.</P>
<P style="font-size:10pt"> In December 2004, the FASB issued FSP FAS 109-1, “Application
of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by
the American Jobs Creation Act of 2004.” The FSP clarifies that the manufacturer’s deduction provided for under the
<I>American Jobs Creation Act of 2004</I> (the Jobs Creation Act) should be accounted for as a special deduction in accordance
with SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109), and not as a tax rate reduction. The Qualified Production
Activities Deduction did not impact the Company’s consolidated earnings, financial position or cash flows for fiscal year
2005 because the deduction is not available to the Company until fiscal year 2006. The Company is currently evaluating the
effect that this deduction will have in subsequent years.</P>
<P style="font-size:10pt"> In December 2004, the FASB issued FSP FAS 109-2, “Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the <I>American Jobs Creation Act of 2004</I>.”
The Jobs Creation Act, signed into law on October 22, 2004, provides for a special one-time tax deduction of 85 percent
of certain cash dividends received from controlled foreign corporations. The deduction is available to corporations during
the tax year that includes October 22, 2004 or in the immediately subsequent tax year. The FSP allows a company additional
time, beyond the financial reporting period of enactment, to evaluate the effects of the Jobs Creation Act on their plans for
repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company recorded a deferred tax liability of $48.5
in the fourth quarter of fiscal year 2005. See Note 11 for further details on the Jobs Creation Act and its impact to the Company.</P>
<P style="font-size:10pt"> In March 2005, the FASB issued FIN No. 47, “Accounting
for Conditional Asset Retirement Obligations” (FIN No. 47). This Interpretation clarifies the term conditional asset retirement
obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” and requires a liability to be
recorded for a conditional obligation if the fair value of the obligation can be reasonably estimated. FIN No. 47 maintains
the notion of a liability being recognized when a legal obligation exists, but clarifies the timing of accrual recognition.
This Interpretation is effective for the Company beginning in fiscal year 2007. Adoption is not expected to have a material
impact on the Company’s consolidated earnings, financial position or cash flows.</P>
<P style="font-size:10pt"> In June 2005, the FASB issued SFAS No. 154, “Accounting
Changes and Error Corrections” (SFAS No. 154), a replacement of APB Opinion No. 20, “Accounting Changes,” and
SFAS No. 3, “Reporting Accounting Changes.” SFAS No. 154 changes the requirements related to accounting for and reporting
of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle and changes required
by a new accounting pronouncement, in the unusual instance that the pronouncement does not include specific transition provisions.
SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle
versus the previous guidance which allowed the recording of the impact of an accounting change in the current periods net income
as a cumulative effect adjustment. The Statement is effective for the Company beginning in fiscal year 2007. Adoption is not
expected to have a material impact on the Company’s consolidated earnings, financial position or cash flows.</P>
<P style="font-size:10pt;font-weight:bold">2. Business Combinations</P>
<P style="font-size:10pt"> <I>Fiscal Year 2005</I>
</P>
<P style="font-size:10pt"> On November 1, 2004, the Company acquired all
of the outstanding stock of Angiolink Corporation (Angiolink), a privately held company that developed wound closure devices
for vascular procedures. Angiolink’s EVS<SUP>TM </SUP>(Expanding Vascular Stapling) Vascular Closure System, which has
received U.S.
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">47</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">Food and Drug Administration (FDA) approval, is engineered to close the femoral artery access site
after vascular procedures, such as diagnostic angiography, balloon angioplasty and stenting. The EVS system provides safe and
effective mechanical closure of arterial puncture sites without disturbing the lumen, or interior, of the targeted vessel.
This acquisition provides the Company an additional vascular closure offering to the current closure product – the non-invasive
Clo-Sur P.A.D.<SUP>TM</SUP>. The net consideration paid for Angiolink was approximately $42.3 in cash, subject to purchase
price increases, which would be triggered by the achievement of certain milestones. The net cash purchase price of $42.3 is
a product of the $45.2 purchase price, including direct acquisition costs, less $2.9 of acquired cash.</P>
<P style="font-size:10pt"> In connection with the acquisition of Angiolink, the
Company acquired $62.5 of technology-based intangible assets that have an estimated useful life of 12 years and $11.2 in goodwill.
The goodwill was assigned entirely to the Vascular operating segment and is not deductible for tax purposes.</P>
<P style="font-size:10pt"> The following table summarizes the allocation of the
Angiolink purchase price to the estimated fair values of the assets acquired and liabilities assumed:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">Current assets</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">3.1</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Property, plant and equipment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Other intangible assets, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">62.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Goodwill</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">11.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Deferred tax asset — long-term</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Total assets acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">82.4</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Current liabilities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Deferred tax liability — long-term</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">34.4</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Total liabilities assumed</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">37.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Net assets acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">45.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> On August 25, 2004 the Company acquired substantially
all of the assets of Coalescent Surgical, Inc. (Coalescent). Coalescent developed the U-Clip™ Anastomotic Device and the
SPYDER™ Proximal Anastomotic Device. The U-Clip device creates high-quality anastomoses (a seamless connection) without
sutures and is primarily used in coronary artery bypass surgery. The SPYDER device automatically deploys a series of U-Clip
devices when attaching the bypass graft to the aorta. This acquisition is expected to complement the Company’s surgical
product line and strategy to develop technologies to promote surgical procedures that produce better patient outcomes, and
reduce trauma and hospitalization. The consideration paid for Coalescent was approximately $59.1 in cash, including a $5.0
milestone payment made in March 2005 for the successful transition of product and technology to the Company following the acquisition.
The purchase price remains subject to purchase price increases, which would be triggered by the achievement of certain milestones.</P>
<P style="font-size:10pt"> In connection with the acquisition of Coalescent,
the Company acquired $42.2 of technology-based intangible assets that have an estimated useful life of 12 years, $1.5 of other
intangible assets with an estimated useful life of 5 years, and $12.0 of goodwill, including the $5.0 milestone payment. The
goodwill was assigned entirely to the Cardiac Surgery operating segment and is deductible for tax purposes.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">48</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> The following table summarizes the allocation of the
Coalescent purchase price to the estimated fair values of the assets acquired and liabilities assumed:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">Current assets</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">2.6</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Property, plant and equipment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Other intangible assets, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">43.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Goodwill</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">12.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:30">Total assets acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">59.6</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Current liabilities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Total liabilities assumed</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Net assets acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">59.1</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The pro forma impact of the Angiolink and Coalescent
acquisitions was not significant, individually or in the aggregate, to the results of operations of the Company for the fiscal
year ended April 29, 2005. The results of operations related to each entity acquired have been included in the Company’s
consolidated statements of earnings since the date each company was acquired.</P>
<P style="font-size:10pt"> <I>Fiscal Year 2004</I>
</P>
<P style="font-size:10pt"> On January 8, 2004, the Company acquired certain
assets of Radius Medical Inc. (Radius), which was accounted for as a purchase of assets. Radius was a privately held corporation
that specialized in the research, development and manufacture of interventional guidewires and related products for the cardiovascular
marketplace. The assets acquired from Radius broadened and enhanced the Company’s existing guidewire product and technology
portfolio. The consideration paid was $5.6 in cash, including a $0.5 milestone payment made in fiscal year 2005 for the successful
transfer of assets. The purchase price remains subject to purchase price increases, which would be triggered by the achievement
of certain milestones. The aggregate $5.6 consideration was allocated to intangible assets.</P>
<P style="font-size:10pt"> On January 5, 2004, the Company acquired substantially
all of the assets of Premier Tool, Inc. (Premier Tool). Premier Tool was a privately held corporation engaged in the engineering
and manufacturing of metal instruments used to implant spinal devices. The assets acquired enhanced the Company’s current
line of spinal instrumentation. The consideration paid was approximately $4.0 in cash. The purchase price was allocated primarily
to other intangible assets and property and equipment, with the remainder allocated to goodwill.</P>
<P style="font-size:10pt"> On November 19, 2003, the Company acquired all
of the outstanding stock of Vertelink Corporation (Vertelink). Vertelink was a privately held development stage company that
developed materials and techniques for over-the-wire spinal fixation devices that can achieve multi-level stabilization of
the cervical, thoracic and lumbar spine. Key Vertelink products include the KOBRA™ Fixation System and the SST™ Spinal
Fixation System. Both systems permit surgeons to place spinal instrumentation utilizing tissue-sparing, minimally invasive
methods. At the time of the acquisition, the KOBRA Fixation System was being reviewed by the FDA for 510(k) approval, which
was subsequently obtained during the third quarter of fiscal year 2004. Vertelink’s products enhanced the strategic initiative
of the Company’s Spinal business that focuses on Minimal Access Spinal Technologies (MAST).</P>
<P style="font-size:10pt"> The consideration paid for Vertelink was approximately
$28.1 in cash, including two $3.0 milestone payments made in fiscal year 2005. The purchase price remains subject to purchase
price increases, which would be triggered by the achievement of certain milestones. In connection with the acquisition the
Company has allocated $22.0 of the costs to IPR&D, which was expensed on the date of the acquisition, and the remaining
amount to fixed assets and other intangible assets. In the third and fourth quarters of fiscal year 2005, Vertelink obtained
FDA approval for the KOBRA II System and CE Mark approval for the SST Spinal Fixation System, respectively. As a result of
attaining these approvals two existing milestone payments in the purchase agreement were triggered requiring the Company to
pay the additional consideration of $6.0 in cash during fiscal year 2005. The $6.0 was allocated between technology-based intangible
assets of $10.0 and an offsetting long-term deferred tax liability of $4.0.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">49</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> On September 10, 2003, the Company acquired substantially
all of the assets of TransVascular, Inc. (TVI). Prior to the acquisition, the Company had an equity investment in TVI,
which was accounted for under the cost method of accounting. TVI developed and marketed the Pioneer™ Catheter (formerly
the CrossPoint® TransAccess® Catheter System), a proprietary delivery technology for several current and potential
intravascular procedures, such as the potential ability to deliver therapeutic agents, including cells, genes and drugs to
precise locations within the vascular system. The Pioneer Catheter received FDA 510(k) clearance in 2002 and is indicated to
facilitate the positioning and placement of catheters within the peripheral vasculature. This strategic acquisition complemented
the Company’s commitment to advance therapies and treatments by combining biologic and device therapies.</P>
<P style="font-size:10pt"> The consideration paid was approximately $58.7 subject
to purchase price increases, which would be triggered by the achievement of certain milestones. The initial consideration included
approximately 1.2 million shares of Medtronic common stock valued at $57.5, the Company’s prior investment in TVI
and acquisition-related costs. The Medtronic common shares were valued based on the average of Medtronic’s trading share
prices several days before and after the date when the trading share prices to be issued became known. In connection with the
acquisition of TVI, the Company acquired $27.3 of technology-based intangible assets that have an estimated useful life of
15 years and $1.9 of IPR&D that was expensed on the date of acquisition. Goodwill of $31.9 related to the acquisition
was assigned entirely to the Vascular operating segment.</P>
<P style="font-size:10pt"> The following table summarizes the allocation of the
TVI purchase price to the estimated fair values of the assets acquired and liabilities assumed:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">Current assets</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">0.6</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Property, plant and equipment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Other intangible assets, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">27.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>IPR&D</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Goodwill</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">31.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Deferred tax asset — long-term</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.4</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:30">Total assets acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">70.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Current liabilities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Deferred tax liability — long-term</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Total liabilities assumed</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">11.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Net assets acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">58.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The pro forma impact of the results of Radius, Premier
Tool, Vertelink and TVI was not significant, individually or in the aggregate, to the results of the Company for the fiscal
year ended April 30, 2004. The goodwill recorded as a result of these acquisitions is not deductible for tax purposes.
The results of operations related to each entity, or portion of the entity, acquired have been included in the Company’s
consolidated statements of earnings since the date each company was acquired.</P>
<P style="font-size:10pt"> <I>Fiscal Year 2003</I>
</P>
<P style="font-size:10pt"> On October 11, 2002, the Company acquired all
of the outstanding common shares of Spinal Dynamics Corporation (SDC). Prior to the acquisition, the Company had an equity
investment in SDC, which was accounted for using the cost method of accounting. SDC is a developer of an artificial cervical
disc featuring a shock-absorbing elastomer designed to replace and mimic the functionality of natural intervertebral discs
removed from a patient during spinal surgery. The acquisition of SDC is expected to accelerate the Company’s entry into
the arena of artificial cervical discs.</P>
<P style="font-size:10pt"> The consideration paid for SDC was approximately $254.3.
The consideration included $5.3 in cash, approximately 5.0 million shares of the Company’s common stock valued at
$219.6, approximately 350,000 employee stock options valued at $14.5, fees and expenses associated with the merger, and the
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">50</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">Company’s prior investment in SDC totaling $14.0. Medtronic common shares were valued based on
an average of Medtronic’s trading share prices a few days before and after the date when the shares to be issued became
known. Options were valued using the Black-Scholes option-pricing model. As part of the acquisition of SDC, the Company acquired
$25.1 of technology-based intangible assets that have an expected useful life of 10 years, and $114.2 of IPR&D that
was expensed on the date of acquisition. Goodwill of $115.7 related to this acquisition was assigned entirely to the Spinal,
Ear, Nose, and Throat (ENT), and Navigation operating segment.</P>
<P style="font-size:10pt"> The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed in the SDC acquisition:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">Current assets</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">7.8</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Property, plant and equipment</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Intangible assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">25.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>IPR&D</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">114.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Goodwill</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">115.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Deferred tax asset — long-term</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:30">Total assets acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">269.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Current liabilities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Deferred tax liability — long-term</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Total liabilities assumed</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">14.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Net assets acquired</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">254.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The following unaudited pro forma data for the year
ended April 25, 2003 sets forth the combined results of operations as if the acquisition of SDC had occurred on April 27,
2002. Since SDC reported its results based on calendar quarters, the unaudited pro forma results of operations for the year
ended April 25, 2003 includes the results of operations for SDC for the six-month period ended September 30, 2002.
The pro forma data gives effect to actual operating results of SDC prior to the acquisition, adjustments to eliminate material
intercompany items between the Company and SDC, adjustments to reflect interest income foregone, increased intangible asset
amortization, Medtronic shares issued, options payable in Medtronic stock that were assumed in the transaction, and income
taxes. Pro forma net earnings for the year ended April 25, 2003 includes $114.2 of non-deductible charges related to IPR&D
expensed as a result of the SDC acquisition.</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Fiscal Year</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2003</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">Net sales</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">7,665.2</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,593.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Earnings per common share:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Basic</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.31</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Diluted</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.29</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The goodwill recorded as a result of this acquisition
is not deductible for tax purposes. The results of SDC have been included in the Company’s consolidated statements of
earnings since the date of acquisition.</P>
<P style="font-size:10pt"> <B>Contingent Consideration</B> Certain
of the Company’s business combinations 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 maximum potential contingent
consideration for each of its acquisitions with an outstanding potential obligation. At April 29, 2005, the estimated
maximum potential amount of future contingent consideration that the Company could be required to make associated with business
combinations is approximately $99.0. The
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">51</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">milestones associated with the contingent consideration must be reached in future periods ranging
from fiscal year 2006 to 2012 in order for the consideration to be paid. </P>
<P style="font-size:10pt;font-weight:bold">3. Special and IPR&D Charges</P>
<P style="font-size:10pt"> Special charges (such as certain litigation and restructuring
charges) and IPR&D charges result from unique facts and circumstances that likely will not recur with similar materiality
or impact on continuing operations. Special and IPR&D charges recorded during fiscal years 2005, 2004, and 2003 are as
follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Special charges:</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Litigation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(8.0</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Asset write-downs</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Restructuring and other related charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">16.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Changes in restructuring obligation estimates</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(14.5</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Total special charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>IPR&D</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">114.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Total special and IPR&D charges, pre-tax</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">36.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">116.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>(Deduct)/add tax impact of special and IPR&D charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(236.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Add tax impact for the repatriation of foreign earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">48.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Total special and IPR&D charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">466.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">38.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">120.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"><B><I>Special Charges</I></B>
<P style="font-size:10pt">
<I>Fiscal Year 2005</I>
</P>
<P style="font-size:10pt"> In
fiscal year 2005, the Company recorded pre-tax litigation charges of $654.4. The largest of the charges, in the amount of $550.0,
occurred in the fourth quarter and relates to costs for the settlement of all outstanding litigation and disputes with Gary
Michelson, M.D. and Karlin Technology, Inc. (Michelson). The agreement reached with Michelson requires a total cash payment
of $1,350.0 for the settlement of all ongoing litigation and the purchase of a portfolio of more than 100 issued U.S. patents,
over 110 pending U.S. patent applications and numerous foreign counterparts to these patents. The $550.0 was assigned to past
damages in the case and the remaining $800.0 will be recorded as purchased intellectual property upon the completion of the
acquisition in the first quarter of fiscal year 2006 (see Note 17). Also, in the fourth quarter of 2005, the Company recorded
a charge of $80.1 resulting from a final arbitration award for breach of contract damages related to a March 2002 agreement
between the Company and ETEX Corporation (ETEX). The $80.1 includes damages, interest, and partial legal fees equal to $63.6,
in the aggregate, and the forgiveness of an existing $16.5 note owed to the Company by ETEX. In the third quarter of 2005,
the Company recorded a charge of $24.3 related to the DePuy/AcroMed, Inc. (DePuy/AcroMed) litigation. The jury found that the
thoracolumbar multiaxial screw design of Medtronic Sofamor Danek, Inc. (MSD), which MSD no longer sells in the U.S., infringes patents
held by DePuy/AcroMed under the doctrine of equivalents. In February 2005, the Court entered judgment against MSD in
the amount of $24.3, which included prejudgment interest. Given the judgment entered by the Court and the Company’s conclusion
that the likelihood of paying the damages was probable at that point in time, the Company recorded a $24.3 charge related to
this judgment. Although the Company believes recording the charge was the appropriate action, MSD has appealed the
jury’s verdict and intends to continue to vigorously contest the charges. At April 29, 2005, unpaid legal special charges
are recorded in <I>other accrued expenses</I> in the consolidated balance sheets.</P>
<P style="font-size:10pt"> On October 22, 2004, the Jobs Creation Act was
signed into law by the President. The Jobs Creation Act allows U.S. corporations a one-time deduction of 85 percent of certain
“cash dividends” received </p>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">52</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">from controlled foreign corporations. The deduction is available to corporations during
the tax year that included October 22, 2004 or the immediately subsequent tax year. According to the Jobs Creation Act,
the amount of eligible dividends is limited to $500.0 or the amount described as permanently reinvested earnings outside the
U.S. in a company’s most recent audited financial statements filed with the SEC on or before June 30, 2003. Based
on these requirements, the Company has $933.7 of cash held outside the U.S., which could be eligible for the special deduction
in fiscal year 2006. The Company intends to repatriate the entire amount eligible under the Jobs Creation Act, or $933.7. The
amounts repatriated will be used for qualified expenditures under the Jobs Creation Act. As of April 29, 2005, the Company
has recorded a deferred tax liability of $48.5 associated with its planned repatriation of these funds and included that amount
in the table above and in the consolidated statements of earnings in the <I>provision for income taxes</I>.</P>
<P style="font-size:10pt">
<I>Fiscal Year 2004</I>
</P>
<P style="font-size:10pt"> In fiscal year 2004, the Company recorded a $4.8 reversal
of a previously established reserve related to the Vascular facility consolidation initiatives, which started in the first
quarter of fiscal year 2003. The $4.8 change in estimate is a result of the following favorable outcomes in the execution of
these initiatives: a decrease of $2.4 as a result of selling or utilizing existing assets which were previously identified
for impairment; a decrease of $1.8 related to subleasing a facility earlier than anticipated; and a decrease of $0.6 in severance
payments related to employees identified for elimination who found positions elsewhere in the Company.</P>
<P style="font-size:10pt">
<I>Fiscal Year 2003</I>
</P>
<P style="font-size:10pt"> In fiscal year 2003, the Company recorded a $15.0
litigation settlement and a $25.0 charge related to facility consolidation initiatives in the Vascular operating segment. The
litigation charges were offset by a $23.0 reversal for a final adjustment to a previously recognized settlement with a competitor
on the rapid exchange perfusion delivery system and the reversal of $14.5 of previously recognized restructuring charges.</P>
<P style="font-size:10pt"> The $25.0 Vascular facility consolidation initiative
occurred during the first quarter of fiscal year 2003. The Company reorganized the Vascular research and development, clinical,
regulatory and manufacturing functions, closed seven facilities in California and one in Florida, and identified 685 positions
to be eliminated. In connection with this initiative, the Company recorded a $10.8 restructuring charge, an $8.9 asset write-down,
and $5.3 of other restructuring-related charges. The $10.8 restructuring charge consisted of $4.6 for lease cancellations and
$6.2 for severance costs. The $8.9 asset write-down related to assets that will no longer be utilized, including accelerated
depreciation of assets held and used. The $5.3 of other restructuring-related charges related to incremental expenses incurred
as a direct result of the Vascular restructuring initiative, primarily retention and productivity bonuses for services rendered
by the employees prior to July 26, 2002, as well as equipment and facility moves. The other restructuring-related charges
were incurred during the quarter the initiative was announced. The Vascular restructuring initiatives resulted in annualized
operating savings between $35.0 and $40.0. Of the 685 positions identified for elimination, 629 had been eliminated as of April 30,
2004 and no further positions were eliminated under these initiatives. This charge was offset by a reversal of $14.5 of previously
established restructuring reserves no longer considered necessary. The first reversal of $8.9, which included $1.7 of asset
write-downs, related to restructuring initiatives from the fourth quarter of fiscal year 2001 and the first quarter of fiscal
year 2002. The outcome of these initiatives was favorable compared to initial estimates for two reasons. First, several employees
who were in positions identified for termination found other jobs within the Company; and second, two sales offices that were
initially identified for closure ultimately did not close. The second reversal of $5.6 related to distributor termination costs
accrued in connection with the merger of PercuSurge, Inc. (PercuSurge). The outcome of the PercuSurge distributor terminations was favorable to original estimates as a result of anticipated contractual
commitments that did not materialize. As of April 30, 2004 all reserves were utilized, as the initiatives have been completed.
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">53</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"><B><I>IPR&D</I></B></p>
<P style="font-size:10pt">
<I>Fiscal Year 2005</I>
</P>
<P style="font-size:10pt"> There
were no IPR&D charges recorded in fiscal year 2005.</P>
<P style="font-size:10pt">
<I>Fiscal Year 2004</I>
</P>
<P style="font-size:10pt"> In the fourth quarter of fiscal year 2004, the Company
entered into an agreement which provided the Company an option to purchase substantially all the assets of a certain third-party
entity. The Company held a cost method equity investment in this entity and as a result of this new agreement, applied the
equity method of accounting to this investment. At the date of the agreement, $17.2 of the amount paid for the investment was
expensed for IPR&D related to cardiac surgery devices under development that had not yet reached technological feasibility.</P>
<P style="font-size:10pt"> During the third quarter of fiscal year 2004, the
Company acquired Vertelink. At the date of the acquisition, $22.0 of the purchase price was expensed for IPR&D related
to spinal fixation devices that had not yet reached technological feasibility and had no future alternative use. At the time
of the acquisition, the KOBRA Fixation System was being reviewed by the FDA for 510(k) approval, which was subsequently obtained
during the third quarter of fiscal year 2004. The technology will be adapted for use in manufacturing spinal fixation devices
that can achieve multi-level stabilization of the cervical, thoracic and lumbar spine. Prior to the acquisition, the Company
did not have a comparable product under development. The acquisition of Vertelink enhanced the strategic initiative of the
Company’s Spinal business that focuses on MAST. In fiscal year 2005, the Company incurred $1.0 in costs and expects to
incur costs totaling $0.7 in fiscal year 2006, and $0.5 in fiscal year 2007 to bring these products to commercialization in
the U.S. These costs are being funded by internally generated cash flows.</P>
<P style="font-size:10pt"> During the second quarter of fiscal year 2004, the
Company acquired TVI. At the date of acquisition, $1.9 of the purchase price was expensed for IPR&D related to a cell and
agent delivery device that had not yet reached technological feasibility and had no future alternative use. This device will
be used to deliver cells, genes and drugs to precise locations within the vascular system. Prior to the acquisition, the Company
did not have a comparable product under development. The acquisition of TVI complemented the Company’s commitment to advance
therapies and treatments by combining biologic and device therapies. In fiscal year 2005, the Company incurred $3.1 in costs
and expects to incur costs totaling $4.1 in fiscal year 2006, $4.8 in fiscal year 2007, $6.0 in fiscal year 2008, and $6.0
in fiscal year 2009 to bring this product to commercialization in the U.S. These costs are being funded by internally generated
cash flows.</P>
<P style="font-size:10pt">
<I>Fiscal Year 2003</I>
</P>
<P style="font-size:10pt"> In the second quarter of fiscal year 2003, the Company
acquired SDC. At the date of acquisition, $114.2 of the purchase price was expensed for IPR&D related to the BRYAN®
Cervical Disc System (BRYAN Disc), which had not yet reached technological feasibility in the U.S. and had no alternative future
use. The BRYAN Disc is an artificial cervical disc featuring a shock-absorbing elastomer designed to replace and mimic the
functionality of natural intervertebral discs removed from a patient during spinal surgery. Prior to this acquisition, the
Company did not have a product with comparable technology under development, and the acquisition of SDC is expected to accelerate
the Company’s entry into the arena of artificial cervical discs. At the time of acquisition, SDC had received approval
from the FDA for an investigational device exemption allowing SDC to proceed with human clinical studies, which must be completed
before regulatory approval can be obtained in the U.S. In fiscal year 2005, the Company incurred $0.6 in costs and expects
to incur $0.4 in fiscal year 2006 and $0.2 in fiscal year 2007 to bring this product to commercialization in the U.S. These
costs are being funded by internally generated cash flows.</P>
<P style="font-size:10pt"> The Company is responsible for the valuation of IPR&D
charges. The values assigned to IPR&D are based on valuations that have been prepared using methodologies and valuation
techniques consistent with those used by independent appraisers. All values were determined by identifying research </p>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">54</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">projects
in areas for which technological feasibility had not been established. Additionally, the values were determined by estimating
the revenue and expenses associated with a project’s sales cycle and the amount of after-tax cash flows attributable to
these projects. The future cash flows were discounted to present value utilizing an appropriate risk-adjusted rate of return.
The rate of return included a factor that takes into account the uncertainty surrounding the successful development of the
IPR&D.</P>
<P style="font-size:10pt"> 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 litigation. If commercial
viability were not achieved, the Company would likely look to other alternatives to provide these therapies.</P>
<P style="font-size:10pt;font-weight:bold">4. Financial Instruments and Investments</P>
<P style="font-size:10pt"> <B>Investments</B> The carrying
amounts of cash and cash equivalents approximate fair value due to their short maturities.</P>
<P style="font-size:10pt"> Information regarding the Company’s <I>short-term</I>
and <I>long-term investments</I> is as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="22">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="22">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6"><B>2005</B></TH>
<TH> </TH><TH> </TH><TH colspan="6"><B>2004</B></TH>
<TH> </TH><TH> </TH><TH colspan="6"><B>2003</B></TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>Debt</B></TH>
<TH> </TH>
<TH colspan="3"><B>Equity</B></TH>
<TH> </TH>
<TH colspan="3"><B>Debt</B></TH>
<TH> </TH>
<TH colspan="3"><B>Equity</B></TH>
<TH> </TH>
<TH colspan="3"><B>Debt</B></TH>
<TH> </TH>
<TH colspan="3"><B>Equity</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="26%">Cost</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">2,506.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">240.9</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,563.7</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">224.6</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">380.8</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">237.3</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Gross unrealized gains</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Gross unrealized losses</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(24.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(2.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(12.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1.6</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(2.0</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Fair value</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,483.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">241.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,551.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">238.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">379.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">236.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Proceeds from sales</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">790.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">17.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,445.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">28.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">542.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Net gains/(losses) realized</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(0.7</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">11.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">14.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3.7</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">0.6</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Impairment losses recognized</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">6.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">28.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">3.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">42.2</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> As of April 29, 2005, the Company has $1,008.5
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 $17.0. These investments are in high quality, investment grade securities but are currently
impaired due to recent increases in interest rates. The Company considers these unrealized losses temporary as it has the intent
and ability to hold these investments long enough to avoid realizing any of these losses. The total fair value of all investments
currently in an unrealized loss position as of April 29, 2005 is $2,013.7.</P>
<P style="font-size:10pt"> As of April 29, 2005, the aggregate carrying
amount of equity securities accounted for using the cost or equity method was $230.7. 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 material adverse effect on the fair value of the investment.</P>
<P style="font-size:10pt"> Gains and losses recognized on AFS debt instruments
are recorded as <I>interest (income)/expense</I> in the consolidated statements of earnings. Gains and losses recognized on
equity instruments are recorded in <I>other expense, net</I> in the consolidated statements of earnings. Gains and losses from the
sale of investments are calculated based on the specific identification method.</p>
<P style="font-size:10pt"> <B>Derivatives and Foreign Exchange Risk Management</B>
The Company uses operational and economic hedges, as well as forward exchange derivative contracts to manage
the impact of foreign exchange rate changes on earnings and cash flows. In order to reduce the uncertainty of foreign </p>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">55</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">exchange rate movements, the Company enters into derivative instruments, primarily forward exchange contracts, to manage its exposure
related to foreign exchange rate changes. These contracts are designed to hedge anticipated foreign currency transactions and
changes in the value of specific assets, liabilities, net investments, and probable commitments. At inception of the forward
contract, the derivative is designated as either a freestanding derivative, net investment hedge, or cash flow hedge. Principal
currencies hedged are the Euro and the Japanese Yen. The Company does not enter into forward exchange derivative contracts
for speculative purposes.</P>
<P style="font-size:10pt"> Notional amounts of these contracts outstanding at
April 29, 2005 and April 30, 2004 were $2,894.0 and $2,420.7, respectively. All derivative instruments are recorded
at fair value in the consolidated balance sheets, as a component of <I>prepaid expenses and other current assets, other assets,
other accrued expenses</I>, or <I>other long-term liabilities</I> depending upon the gain or loss position of the contract
and contract maturity date. Aggregate foreign currency gains/(losses) were $(98.3), $(177.8), and $(30.1), in fiscal years
2005, 2004 and 2003, respectively. These gains/(losses), which were offset by gains/(losses) on the related assets, liabilities,
and transactions being hedged, were recorded in either <I>other expense, net</I> or <I>cost of products sold</I> in the consolidated
statements of earnings. As a result of hedging inventory-related forecasted transactions, the Company recognized a $36.6 and
$9.4 gain in <I>cost of products sold</I> in the consolidated statements of earnings in fiscal year 2005 and 2004, respectively;
the remaining $(134.9) and $(187.2) loss was recognized in <I>other expense, net</I> in the consolidated statements of earnings
for fiscal year 2005 and 2004, respectively.</P>
<P style="font-size:10pt"> Freestanding derivative forward contracts are used
to offset the Company’s exposure to the change in value of certain foreign currency intercompany assets and liabilities.
These derivatives are not designated as hedges, and therefore, changes in the value of these forward contracts are recognized
currently in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and liabilities.
The aggregate foreign currency transaction gains/(losses) were $5.7, $11.1, and $1.0 in fiscal years 2005, 2004 and 2003, respectively,
and are recognized in <I>other expense, net</I> in the consolidated statements of earnings.</P>
<P style="font-size:10pt"> Net investment hedges are used to hedge the long-term
investment (equity) in foreign operations. Net gains/(losses) related to changes in the current rates, or spot rates, were
$(83.0), $(60.1), and $(13.9) during fiscal years 2005, 2004 and 2003, respectively, and recorded as a cumulative translation
adjustment, a component of <I>accumulated other non-owner changes in equity</I> in the consolidated balance sheets<I>.</I>
Net gains/(losses) associated with changes in forward rates of the contracts totaled $8.4, $8.4, and $8.9 in fiscal years 2005,
2004 and 2003, respectively, and are reflected in <I>other expense, net</I> in the consolidated statements of earnings.</P>
<P style="font-size:10pt"> Forward contracts designated as cash flow hedges are
designed to hedge the variability of cash flows associated with forecasted transactions, denominated in a foreign currency,
that will take place in the future. Net unrealized gains/(losses) related to the Company’s outstanding cash flow hedges
totaled $(10.8) and $(47.0) in fiscal years 2005 and 2004, respectively, and were recorded in <I>accumulated other non-owner
changes in equity</I> in the consolidated balance sheets. During fiscal years 2005, 2004, and 2003, the Company’s net
gains/(losses) related to the settlement of cash flow hedges were $(112.4), $(197.3), and $(40.0), respectively. In fiscal
year 2005 and 2004, losses of $(149.0) and $(206.7) were recorded as <I>other expense, net</I> and offsetting gains of $36.6
and $9.4 were recorded in <I>cost of products sold</I> in the consolidated statements of earnings. In fiscal years 2003 net
gains/(losses) were all recorded in <I>other expense, net</I> in the consolidated statements of earnings. No gains or losses
relating to ineffectiveness of cash flow hedges were recognized in earnings during fiscal years 2005, 2004, or 2003. No components
of the hedge contracts were excluded in the measurement of hedge ineffectiveness and no hedges were derecognized
or discontinued during fiscal years 2005, 2004, or 2003.</p>
<P style="font-size:10pt"> The following table summarizes activity in <I>accumulated
non-owner changes in equity</I> related to all derivatives classified as cash flow hedges in fiscal years 2005, 2004, and 2003
(amounts are net of tax):</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">56</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%"><B>Accumulated derivative gains, April 26, 2002</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">20.9</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Net losses reclassified to earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">17.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Change in fair value of hedges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(92.9</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Accumulated derivative losses, April 25, 2003</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(54.3</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Net losses reclassified to earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">103.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Change in fair value of hedges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(95.9</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Accumulated derivative losses, April 30, 2004</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(47.0</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Net losses reclassified to earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">66.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Change in fair value of hedges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(30.3</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Accumulated derivative losses, April 29, 2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(10.8</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The Company expects that the $10.8, net of tax, in
accumulated derivative losses at April 29, 2005 will be reflected in the consolidated statements of earnings over the
next twelve months.</P>
<P style="font-size:10pt"> <B>Concentrations of Credit Risk</B> Financial
instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of interest-bearing
investments, forward exchange derivative contracts, and trade accounts receivable.</P>
<P style="font-size:10pt"> The Company maintains cash and cash equivalents, investments,
and certain other financial instruments (including forward exchange contracts) with various major financial institutions. The
Company performs periodic evaluations of the relative credit standings of these financial institutions and limits the amount
of credit exposure with any one institution.</P>
<P style="font-size:10pt"> Concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number of customers and their dispersion across many geographic areas. The
Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. However,
a significant amount of trade receivables are with national healthcare systems in many countries. Although the Company does
not currently foresee a credit risk associated with these receivables, repayment is dependent upon the financial stability
of the economies of those countries. As of April 29, 2005 and April 30, 2004, no customer represented more than 10%
of the outstanding accounts receivable.</P>
<P style="font-size:10pt;font-weight:bold">5. Goodwill and Other Intangible Assets</P>
<P style="font-size:10pt"> The changes in the carrying amount of goodwill for
fiscal years 2005 and 2004 are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="74%">Beginning balance</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">4,236.9</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">4,183.8</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Goodwill as a result of acquisitions</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">24.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">32.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Purchase accounting adjustments, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(0.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(0.2</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Currency adjustment, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">19.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">20.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Ending balance</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">4,281.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">4,236.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The Company completed its fiscal year 2005 impairment
test of all goodwill and concluded there was no impairment.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">57</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> Balances of acquired intangible assets, excluding
goodwill, are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Purchased<BR>Technology<BR>and Patents</TH>
<TH> </TH>
<TH colspan="3">Trademarks<BR>and<BR>Tradenames</TH>
<TH> </TH>
<TH colspan="3">Other</TH>
<TH> </TH>
<TH colspan="3">Total</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="50%">Amortizable intangible assets as of April 29, 2005:</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Original cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,030.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">264.7</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">247.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,542.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Accumulated amortization</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(319.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(97.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(108.6</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(524.9</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Carrying value</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">711.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">167.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">139.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,018.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10"> Weighted average original life (in years)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">13.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Amortizable intangible assets as of April 30, 2004:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Original cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">901.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">264.7</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">224.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,391.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Accumulated amortization</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(245.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(70.6</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(76.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(392.1</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Carrying value</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">656.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">194.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">148.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">999.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"> Weighted average original life (in years)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">14.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Amortization expense for fiscal years 2005, 2004,
and 2003 was approximately $127.8, $116.0, and $105.8, respectively.</P>
<P style="font-size:10pt"> Estimated aggregate amortization expense based on
the current carrying value of amortizable intangible assets is as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left">Fiscal Year</TH>
<TH> </TH> <TH colspan="3">Amortization<BR>Expense</TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">2006</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">130.9</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2007</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">123.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2008</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">118.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2009</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">112.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2010</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">107.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Thereafter</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">424.6</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,018.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">58</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt;font-weight:bold">6. Financing Arrangements</P>
<P style="font-size:10pt"> Debt consisted of the following:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Average<BR>Interest<BR>Rate</TH>
<TH> </TH>
<TH colspan="3">Maturity by<BR>Fiscal Year</TH>
<TH> </TH>
<TH colspan="3">April 29,<BR>2005</TH>
<TH> </TH>
<TH colspan="3">April 30,<BR>2004</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="50%">Short-Term Borrowings:</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Contingent convertible debentures</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">1.25%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD align="center">2006-2022 </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right"> —</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,973.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Commercial paper</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">2.84%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD align="center">2006 </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">249.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">249.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Bank borrowings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">1.09%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD align="center">2006 </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">228.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">128.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Current portion of long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">4.15%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD align="center">2006 </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10"><B>Total Short-Term Borrowings</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">478.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,358.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Long-Term Debt:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Contingent convertible debentures</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">1.25%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD align="center">2007-2022 </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,971.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right"> —</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Other</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">5.49%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD align="center">2007-2010 </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.1</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"><B>Total Long-Term Debt</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,973.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.1</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> <B>Contingent Convertible Debentures</B> In
September 2001, the Company completed a $2,012.5 private placement of 1.25 percent Contingent Convertible Debentures due
September 2021 (Old Debentures). Interest is payable semi-annually. Each Old Debenture is convertible into shares of common
stock at an initial conversion price of $61.81 per share; however, the Old Debentures are not convertible before their final
maturity unless the closing price of the Company’s common stock reaches 110% of the conversion price for 20 trading days
during a consecutive 30 trading day period. The conversion price of the Old Debentures will be adjusted based on the occurrence
of specified events, including a stock split, stock dividend, or cash dividend exceeding 15% of the Company’s market capitalization.</P>
<P style="font-size:10pt"> In September 2002 and 2004, as a result of certain
holders of the Old Debentures exercising their put options, the Company repurchased $38.7, or 1.9%, and $0.6, or 0.03%, respectively,
of the Old Debentures for cash. The Company may be required to repurchase the remaining securities at the option of the holders
in September 2006, 2008, 2011 or 2016. Twelve months prior to the put options becoming exercisable, the remaining balance
of the Old Debentures will be classified as <I>short-term borrowings</I> in the consolidated balance sheets. At each balance
sheet date without a put option within the subsequent four quarters, the remaining balance will be classified as <I>long-term
debt</I> in the consolidated balance sheets. For put options exercised by the holders, the purchase price is equal to the principal
amount of the Old Debentures plus any accrued and unpaid interest on the Old Debentures to the repurchase date. If the repurchase
option is exercised, the Company may elect to repurchase the Old Debentures with cash, common stock, or some combination thereof.
The Company may elect to redeem the Old Debentures for cash at any time after September 2006.</P>
<P style="font-size:10pt"> On January 24, 2005, the Company completed an
exchange offer on its contingent convertible debentures, whereby holders of approximately 97.7% of the total principal amount
of the Old Debentures exchanged their existing securities for an equal principal amount of 1.25 percent Contingent Convertible
Debentures, Series B due 2021 (New Debentures), and an exchange fee of $2.50 per $1,000 principal amount. The terms of the
New Debentures are consistent with the terms of the Old Debentures noted above, except that: (i) upon conversion, the Company
will pay holders cash equal to the lesser of the principal amount of the New Debentures or their conversion value, and shares
of its common stock to the extent the conversion value exceeds the principal amount; and (ii) the New Debentures will require
the Company to pay only cash (in lieu of shares of its common stock or a combination of cash and shares of its common stock)
when the Company repurchases the New Debentures at the option of the holder or in connection with a change of control. The
exchange fee paid to the holders of the New Debentures was capitalized and will be amortized over the twenty month period ending
in September 2006.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">59</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> Following the completion of the exchange offer, the
Company repurchased approximately $1.8 of the Old Debentures for cash. As of April 29, 2005, approximately $43.2 aggregate
principal amount of Old Debentures and $1,928.2 aggregate principal amount of New Debentures remain outstanding.</P>
<P style="font-size:10pt"> <B>Commercial Paper</B> The Company
maintains a $2,250.0 commercial paper program. This program allows the Company to issue debt securities with maturities
up to 364 days from the date of issuance. While the program size is $2,250.0, Moody’s Investors Service currently
limits the Company’s commercial paper outstanding at any one time to no more than the amount of the Company’s syndicated
credit facilities, which is currently at $1,750.0. At April 29, 2005 and April 30, 2004, outstanding commercial paper
totaled $249.9 and $249.8, respectively. During fiscal years 2005 and 2004, the weighted average original maturity of
the commercial paper outstanding was approximately 26 and 30 days, respectively, and the weighted average interest rate was
1.9% and 1.1%, respectively.</P>
<P style="font-size:10pt"> <B>Bank Borrowings</B> Bank borrowings
consist primarily of borrowings from non-U.S. banks at interest rates considered favorable by management and where natural
hedges can be gained for foreign exchange purposes.</P>
<P style="font-size:10pt"> <B>Credit Arrangements</B> The Company
has existing lines of credit of approximately $2,831.5 with various banks, of which approximately $2,366.5 was available at
April 29, 2005. The existing lines of credit include two syndicated credit facilities totaling $1,750.0 with various banks.
The two credit facilities consist of a five-year $1,000.0 facility, signed on January 20, 2005, which will expire on January 20,
2010, and a five-year $750.0 facility, signed on January 24, 2002, which will expire on January 24, 2007. The five-year
$1,000.0 facility replaces the 364-day $500.0 facility the Company previously maintained that expired on January 24, 2005.
This $1,000.0 facility provides the Company with the ability to increase the capacity of the facility by an additional $250.0
at any time during the life of the five-year term of the agreement. The credit facilities provide backup funding for the commercial
paper program and may also be used for general corporate purposes.</P>
<P style="font-size:10pt"> 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 determined in the same manner as
the interest rates. Under terms of the agreements, the consolidated tangible net worth of the Company must at all times be
greater than or equal to $1,040.4, increased by an amount equal to 100% of the net cash proceeds from any equity offering occurring
after January 24, 2002. The Company’s consolidated tangible net worth, defined as consolidated assets less goodwill,
intangible assets (other than patents, trademarks, licenses, copyrights and other intellectual property, and prepaid assets),
and consolidated liabilities at April 29, 2005 and April 30, 2004 was $6,029.3 and $4,691.8, respectively. The agreements
also contain other customary covenants and events of default, all of which the Company remains in compliance with as of April 29,
2005.</P>
<P style="font-size:10pt"> Maturities of long-term debt, including capital leases,
for the next five fiscal years are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left">Fiscal Year</TH>
<TH> </TH> <TH colspan="3">Obligation</TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">2006</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">0.5</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2007</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,972.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2008</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2009</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2010</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Thereafter</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Total long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,973.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Less: Current portion of long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Long-term portion of long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,973.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">60</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> The Company has entered into an agreement that expires
in fiscal year 2006, to sell, at its discretion, specific pools of trade receivables in Japan. During fiscal years 2005 and
2004, the Company sold approximately $145.5 and $197.7, respectively, of trade receivables to financial institutions. Additionally,
the Company entered into agreements to sell specific pools of receivables in Italy in the amount of $4.1 and $33.9 in fiscal
years 2005 and 2004, respectively. The discount cost related to the Japan and Italy sales was insignificant and recorded in
<I>interest (income)/expense</I> in the consolidated statements of earnings.</P>
<P style="font-size:10pt"> In the third quarter of fiscal year 2004, the Company
began lending certain fixed income securities to enhance its investment income. These lending activities are collateralized
at an average rate of 102%, with the collateral determined based on the underlying securities and creditworthiness of the borrowers.
The value of the securities on loan at April 29, 2005 and April 30, 2004 was $361.3 and $275.2, respectively.</P>
<P style="font-size:10pt;font-weight:bold">7. Interest (Income)/Expense</P>
<P style="font-size:10pt"> Interest income and interest expense for fiscal years
2005, 2004, and 2003 are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Interest income</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">(100.2</TD>
<TD width="1%">)</TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">(59.3</TD>
<TD width="1%">)</TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">(40.0</TD>
<TD width="1%">)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Interest expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">55.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">56.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">47.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Interest (income)/expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(45.1</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(2.8</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;font-weight:bold">8. Shareholders’ Equity</P>
<P style="font-size:10pt"> <B> Repurchase of Common Stock</B> In June 2001,
the Company’s Board of Directors authorized the repurchase of up to 25 million shares of the Company’s common stock.
On October 22, 2003, the Company’s Board of Directors authorized the repurchase of up to an additional 30 million
shares of the Company’s common stock. Shares are repurchased from time to time to support the Company’s stock-based
compensation programs and to take advantage of favorable market conditions. The Company has repurchased approximately 10.5 million
and 18.4 million shares at an average price of $48.77 and $47.81, respectively, during fiscal years 2005 and 2004, and
have approximately 15.6 million shares remaining under the buyback authorizations approved by the Board of Directors.</P>
<P style="font-size:10pt"> <B>Shareholder Rights Plan</B> On
October 26, 2000, the Company’s Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one
preferred share purchase right (a “right”) for each outstanding share of common stock with a par value $.10 per share.
Each right will allow the holder to purchase 1/5000 of a share of Series A Junior Participating Preferred Stock at an
exercise price of $400 per share, once the rights become exercisable. The rights are not exercisable or transferable apart
from the common stock until 15 days after the public announcement that a person or group (the Acquiring Person) has acquired
15% or more of the Company’s common stock or 15 business days after the announcement of a tender offer which would increase
the Acquiring Person’s beneficial ownership to 15% or more of the Company’s common stock. After any person or group
has become an Acquiring Person, each right entitles the holder (other than the Acquiring Person) to purchase, at the exercise
price, common stock of the Company having a market price of two times the exercise price. If the Company is acquired in a merger
or other business combination transaction, each exercisable right entitles the holder to purchase, at the exercise price, common
stock of the acquiring company or an affiliate having a market price of two times the exercise price of the right.</P>
<P style="font-size:10pt"> The Board of Directors may redeem the rights for $0.005
per right at any time before any person or group becomes an Acquiring Person. The Board may also reduce the threshold at which
a person or group becomes an Acquiring Person from 15% to no less than 10% of the outstanding common stock. The rights expire
on October 26, 2010.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">61</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt;font-weight:bold">9. Employee Stock Ownership Plan</P>
<P style="font-size:10pt"> The Company has an Employee Stock Ownership Plan (ESOP)
for eligible U.S. employees. In December 1989, the ESOP borrowed $40.0 from the Company and used the proceeds to purchase
18,932,928 shares of the Company’s common stock. Up to and including fiscal year 2005, the Company made contributions
to the plan which were used, in part, by the ESOP to make principal and interest payments. ESOP expense is determined by debt
service requirements, offset by dividends received by the ESOP. Components of ESOP related expense are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Interest expense</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">0.2</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">0.6</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1.1</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Dividends paid</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.7</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(3.9</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Compensation expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">39.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.1</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Total expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">35.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">6.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Shares of common stock acquired by the plan are allocated
to each employee in amounts based on Company performance and the employee’s annual compensation. An allocation of 2.50%
of qualified compensation was made to plan participants’ accounts in each of the fiscal years 2005, 2004, and 2003, respectively.
Up to and including fiscal year 2005, the Company match on the supplemental retirement plan (SRP) was made in the form of an
annual allocation of Medtronic stock to the participants’ ESOP account and the expense to the Company related to this
match has been included in the previous table. In addition to the fiscal year 2005 allocation of shares to the ESOP, the Company
made a $33.0 cash contribution to the ESOP to supplement the portion of the Company’s ESOP and SRP requirements that were
not covered by the remaining unallocated shares in the ESOP as of April 29, 2005.</P>
<P style="font-size:10pt"> At April 29, 2005 and April 30, 2004, cumulative
allocated shares remaining in the trust were 12,661,131 and 11,909,349 and unallocated shares were 1,120,741 and 2,899,888,
respectively. Of the remaining unallocated shares at April 29, 2005 and April 30, 2004, 1,120,741 and 1,779,147,
respectively, were committed to be allocated. Unallocated shares are released based on the ratio of current debt service to
total remaining principal and interest.</P>
<P style="font-size:10pt"> Fiscal year 2005 was the final year of the ESOP allocation,
as all shares were either allocated or committed to be allocated at April 29, 2005. The ESOP made the final principal
and interest payment to the Company upon commitment of the final shares to the participants, as required under the original
terms of the loan. Prior to the fiscal year 2005 repayment of the remaining principal balance of the note, the receivable from
the ESOP was recorded as a reduction of the Company’s shareholders’ equity. The allocated and unallocated shares
of the ESOP are treated as outstanding common stock in the computation of basic earnings per share. As a result of the final
ESOP share allocation, the Company’s subsequent year contributions to the SRP for U.S. employees will be made in cash.</P>
<P style="font-size:10pt;font-weight:bold">10. Stock Purchase and Award Plans</P>
<P style="font-size:10pt"> <B>2003 Long-Term Incentive Plan</B> In
August 2003, the 2003 long-term incentive plan was approved by the Company’s shareholders. The 2003 plan provides
for the grant of nonqualified and incentive stock options, stock appreciation rights, restricted stock, performance shares,
and other stock and cash-based awards. The total number of shares available for future grants at April 29, 2005 under
the Plan was 49.7 million.</P>
<P style="font-size:10pt"> <B>1994 Stock Award Plan</B> The
1994 stock award plan provides for the grant of nonqualified and incentive stock options, stock appreciation rights, restricted
stock, performance shares, and other stock-based awards. There were 1.0 million shares available under this plan for future
grants at April 29, 2005. </P>
<P style="font-size:10pt"> Nonqualified stock options and other stock awards
are granted to officers and key employees at prices not less than fair market value at the date of grant.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">62</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">
<B>Outside Directors Plan</B> In fiscal year 1998, the Company adopted a stock compensation plan for outside
directors which replaced the provisions in the 1994 stock award plan relating to awards granted to outside directors. At April 29,
2005 the 1998 Plan had 2.3 million shares available for future grants. A summary of nonqualified stock
option transactions is as follows: <DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="22">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="22">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6"><B>2005</B></TH>
<TH> </TH><TH> </TH><TH colspan="6"><B>2004</B></TH>
<TH> </TH><TH> </TH><TH colspan="6"><B>2003</B></TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>Options</B><BR><B>(in thousands)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Exercise</B><BR><B>Price</B></TH>
<TH> </TH>
<TH colspan="3"><B>Options</B><BR><B>(in thousands)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Exercise</B><BR><B>Price</B></TH>
<TH> </TH>
<TH colspan="3"><B>Options</B><BR><B>(in thousands)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Exercise</B><BR><B>Price</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="26%">Beginning balance</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%">78,879</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">42.22</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%">69,243</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">40.24</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%">56,662</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">37.34</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Granted</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15,884</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">50.02</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">18,034</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.74</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">19,609</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">44.67</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Exercised</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(7,344</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">33.54</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(5,152</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">29.28</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4,433</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">20.29</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Canceled</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(2,305</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.84</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(3,246</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">45.81</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(2,595</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">44.28</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Outstanding at year-end</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">85,114</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">44.29</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">78,879</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">42.22</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">69,243</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">40.24</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Exercisable at year-end</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">60,407</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">43.48</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">44,213</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">39.40</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">38,163</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">36.78</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt">
A portion of the stock options assumed as a result of certain acquisitions in fiscal years 1996 through
2002 remain outstanding. A summary of stock options assumed as a result of these acquisitions is as follows: <DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="22">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="22">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6"><B>2005</B></TH>
<TH> </TH><TH> </TH><TH colspan="6"><B>2004</B></TH>
<TH> </TH><TH> </TH><TH colspan="6"><B>2003</B></TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>Options</B><BR><B>(in thousands)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Exercise</B><BR><B>Price</B></TH>
<TH> </TH>
<TH colspan="3"><B>Options</B><BR><B>(in thousands)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Exercise</B><BR><B>Price</B></TH>
<TH> </TH>
<TH colspan="3"><B>Options</B><BR><B>(in thousands)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Exercise</B><BR><B>Price</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="26%">Beginning balance</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%">4,361</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">22.40</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%">6,239</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">22.16</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%">8,002</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">20.83</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Granted</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">347</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.04</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Exercised</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1,763</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">21.38</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(1,818</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">19.51</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(2,000</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">13.29</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Canceled</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(57</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(56.87</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(60</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">84.81</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(110</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">19.83</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Outstanding at year-end</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,541</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">22.34</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4,361</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">22.40</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6,239</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">22.16</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Exercisable at year-end</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,541</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">22.34</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4,361</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">22.40</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6,186</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">22.10</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt">
A summary of stock options as of April 29, 2005, including options assumed as a result of acquisitions,
is as follows:
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Options Outstanding</TH>
<TH> </TH><TH colspan="12" align=center> Options Exercisable</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="center"><B>Range of Exercise<BR>Prices</B></TH>
<TH> </TH> <TH colspan="3"><B>Options</B><BR><B>(in thousands)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Exercise Price</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Remaining</B><BR><B>Contractual Life</B><BR><B>(in years)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Options</B><BR><B>(in thousands)</B></TH>
<TH> </TH>
<TH colspan="3"><B>Wtd. Avg.</B><BR><B>Exercise Price</B></TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2"><HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="10%">$ 0.01 - $ 2.50</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="6%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="10%">1</TD>
<TD width="1%"> </TD>
<TD width="6%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="10%">1.61</TD>
<TD width="1%"> </TD>
<TD width="6%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="10%">6.4</TD>
<TD width="1%"> </TD>
<TD width="5%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="10%">1</TD>
<TD width="1%"> </TD>
<TD width="5%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="10%">1.61</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:6"> 2.51 - 5.00</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">55</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.23</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">55</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.23</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:6"> 5.01 - 7.50</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">166</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.49</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">166</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.49</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:6"> 7.51 - 10.00</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">44</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.16</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">44</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.16</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD> 10.01 - 20.00</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,521</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.58</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,521</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.58</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD> 20.01 - 30.00</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4,510</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">24.29</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4,510</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">24.29</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD> 30.01 - 40.00</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10,138</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">34.44</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9,342</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">34.02</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD> 40.01 - 50.00</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">57,678</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.30</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">36,280</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.51</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD> 50.01 - 69.82</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">12,542</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">52.37</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10,029</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">52.58</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD nowrap>$ 0.01 - $69.82</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">87,655</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">43.66</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">62,948</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">42.63</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">63</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> Nonqualified options are normally exercisable beginning one year from the date of
grant in cumulative yearly amounts of 25% of the shares under option; however, certain nonqualified options granted are exercisable
immediately. Nonqualified options generally have a contractual option term of 10 years, provided the optionee’s employment
with the Company continues. </p>
<P style="font-size:10pt"> Restricted stock, performance shares and other stock awards are dependent upon continued employment
and, in the case of performance shares, achievement of certain performance objectives. Restricted stock awards are expensed
over their vesting period, ranging from three to five years and performance shares are expensed over the performance period
based on the probability of achieving the performance objectives. The Company awarded 0.2 million, 0.5 million and 0.1 million
shares of restricted stock and restricted stock units in fiscal 2005, 2004 and 2003, respectively. The weighted average fair
value per share for restricted stock and restricted stock units awarded in fiscal 2005, 2004 and 2003 was $50.14, $47.71 and
$43.60, respectively. Total expense recognized for restricted stock, performance share and other stock awards was $18.9, $12.9,
and $7.6 in fiscal years 2005, 2004, and 2003, respectively.</P>
<P style="font-size:10pt"> <B>Stock Purchase Plan</B> The stock
purchase plan enables employees to contribute up to the lesser of 10% of their wages or the statutory limit under the U.S.
Internal Revenue Code toward the purchase of the Company’s common stock at 85% of the market value. Employees purchased
1.7 million shares at $38.73 per share in fiscal year 2005. As of April 29, 2005, plan participants have had approximately
$39.5 withheld to purchase Company common stock at 85% of the market value on the first or last day of the plan year ending
October 31, 2005, whichever is less. </P>
<P style="font-size:10pt;font-weight:bold">11. Income Taxes</P>
<P style="font-size:10pt"> The provision for income taxes is based on earnings
before income taxes reported for financial statement purposes. The components of earnings before income taxes are:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">U.S.</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">932.1</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,262.5</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1,265.0</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>International</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,611.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,534.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,076.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Earnings before income taxes</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,543.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,796.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,341.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The provision for income taxes consists of:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Current tax expense:</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">U.S.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">516.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">344.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">247.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">International</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">390.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">395.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">256.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Total current tax expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">907.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">739.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">503.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Deferred tax expense (benefit):</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">U.S.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(192.6</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">116.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">236.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">International</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">25.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(19.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Net deferred tax expense (benefit)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(167.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">97.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">237.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Total provision for income taxes</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">739.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">837.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">741.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Deferred taxes arise because of the different treatment
between financial statement accounting and tax accounting, known as “temporary differences.” The Company records
the tax effect of these temporary differences as “deferred tax assets” and “deferred tax liabilities.”
Deferred tax assets generally represent items that can be used as a tax deduction or credit in a tax return in future years
for which the Company has already recorded the tax benefit in the consolidated statements of earnings. The
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">64</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">Company establishes
valuation allowances for deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. The Company has established
valuation allowances related to certain acquisitions that, if not ultimately required, will result in a reduction to goodwill;
these allowances were approximately $54.9 and $45.3 at April 29, 2005 and April 30, 2004, respectively. In addition,
the Company has established valuation allowances for capital losses in the amount of $35.1 and $29.9 at April 29, 2005
and April 30, 2004, respectively. The capital losses expire within one to five years. Deferred tax liabilities generally
represent tax expense recognized in the consolidated financial statements for which payment has been deferred or expense has already been
taken as a deduction on the Company’s tax return, but has not yet been recognized as an expense in the consolidated statements
of earnings. Deferred tax assets/(liabilities) are comprised of the following:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="74%">Deferred tax assets:</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Inventory (intercompany profit in inventory and excess of tax over book valuation)</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">170.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">134.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Accrued losses on legal settlements</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">229.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Accrued liabilities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">62.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">59.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Allowance for doubtful accounts</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">54.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">43.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Unrealized loss on investments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">16.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">31.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Other</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">179.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">159.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Total deferred tax assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">712.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">428.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Deferred tax liabilities:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Intangible assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(365.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(322.7</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Convertible debt interest</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(124.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(94.6</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Pension and post-retirement benefits</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(97.7</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(88.2</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Accumulated depreciation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(77.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(74.6</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Unremitted earnings of foreign subsidiaries</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(48.5</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Other</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(91.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(58.7</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:30">Total deferred tax liabilities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(804.7</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(638.8</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Deferred tax liabilities, net</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(92.5</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(210.8</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The Company’s effective income tax rate varied
from the U.S. Federal statutory tax rate as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">U.S. Federal statutory tax rate</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%">35.0%</TD>
<TD width="1%"></TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%">35.0%</TD>
<TD width="1%"></TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%">35.0%</TD>
<TD width="1%"></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Increase (decrease) in tax rate resulting from:</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">U.S. state taxes, net of Federal tax benefit</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">0.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">0.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">1.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Research & development credit</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">(0.6)</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">(0.5)</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">(0.6)</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">International</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">(7.7)</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">(5.8)</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">(5.1)</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Special and IPR&D charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">1.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">0.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">1.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Other, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">(0.1)</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">(0.2)</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">(0.5)</TD>
<TD></TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Effective tax rate</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">29.1%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">29.9%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">31.7%</TD>
<TD></TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> On October 22, 2004, the Jobs Creation Act was
signed into law by the President. The Jobs Creation Act allows U.S. corporations a one-time deduction of 85 percent of certain
“cash dividends” received from controlled foreign corporations. The deduction is available to corporations during
the tax year that included October 22, 2004 or the immediately subsequent tax year. According to the Jobs Creation Act,
the amount of eligible dividends is limited to $500.0 or the amount described as permanently reinvested
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">65</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">earnings outside the
U.S. in a company’s most recent audited financial statements filed with the SEC on or before June 30, 2003. Based
on these requirements, the Company has $933.7 of cash held outside the U.S., which could be eligible for the special deduction in fiscal year 2006. The Company intends to
repatriate the entire amount eligible under the Jobs Creation Act, or $933.7. The amounts repatriated will be used for qualified
expenditures under the Jobs Creation Act. As of April 29, 2005, the Company has recorded a deferred tax liability of $48.5
associated with its planned repatriation of these funds and included that amount in the table above and in the consolidated
statements of earnings in the <I>provision for income taxes</I>.</P>
<P style="font-size:10pt"> Except for taxes provided for amounts to be repatriated
under the Jobs Creation Act, the Company has not provided U.S. income taxes on certain of its non-U.S. subsidiaries’ undistributed
earnings as such amounts are permanently reinvested outside the U.S. At April 29, 2005 and April 30, 2004, such earnings
were approximately $4,169.3 and $3,919.4, respectively. In addition, at April 29, 2005 and April 30, 2004, approximately
$6.5 and $89.4, respectively, of non-U.S. tax losses were available for carryforward. These carryforwards are offset by valuation
allowances and generally expire within one to five years.</P>
<P style="font-size:10pt"> Currently, the Company’s operations in Puerto
Rico, Switzerland, and Ireland have various tax incentive grants. Unless these grants are extended, they will expire between
fiscal years 2007 and 2020.</P>
<P style="font-size:10pt"> Tax audits associated with the allocation of income,
and other complex tax 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. The U.S. Internal Revenue
Service (IRS) has settled its audits with the Company for all years through fiscal year 1996. Tax years settled with the IRS,
however, 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 U.S. Internal Revenue Service (IRS)
proposed adjustments related to the audits of the fiscal years 1997, 1998, and 1999 tax returns. The positions taken by the
IRS with respect to proposed adjustments on previous tax filings or with respect to competent authority proceedings could have
a material unfavorable impact on the effective tax rate in future periods. As the Company believes it has meritorious defenses
for all its tax filings, in November 2004 the Company initiated defense of these filings at the IRS appellate level, and if
necessary, the Company will vigorously defend them through litigation in the courts. The Company believes that they have provided
for probable liabilities resulting from tax assessments by taxing authorities. The Company’s 2000, 2001, and 2002 fiscal
years are currently under audit by the IRS. The Company anticipates the IRS will issue their audit reports related to these
audits in fiscal year 2006.</P>
<P style="font-size:10pt;font-weight:bold">12. Retirement Benefit Plans</P>
<P style="font-size:10pt"> 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 cost of these plans was $112.8 in fiscal year 2005, $72.6 in fiscal year 2004, and $50.9 in fiscal year 2003.</P>
<P style="font-size:10pt"> In the U.S., the Company maintains a qualified pension
plan designed to provide guaranteed minimum retirement benefits to all eligible U.S. employees. Pension coverage for non-U.S.
employees of the Company is provided, to the extent deemed appropriate, through separate plans. In addition, U.S. and Puerto
Rico employees of the Company are also eligible to receive specified Company paid healthcare and life insurance benefits through
the Company’s post-retirement medical plans. In addition to the benefits provided under the qualified pension plan, retirement
benefits associated with wages in excess of the IRS allowable wages are provided to certain employees under a non-qualified
plan.</P>
<P style="font-size:10pt"> The Company uses a January 31<SUP>st</SUP>
measurement date for its U.S. plans and an April 30<SUP>th</SUP> measurement date for the majority of its plans outside
the U.S.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">66</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">Pension Benefits</TH>
<TH> </TH><TH> </TH><TH colspan="6">Post-Retirement Benefits</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004 <SUP>(1)</SUP></B></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="50%"><B>Accumulated benefit obligation at<BR>end of year:</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">752.8</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">590.1</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">169.0</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">166.1</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Change in projected benefit obligation:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Projected benefit obligation at beginning of year</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">727.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">509.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">166.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">125.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Service cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">63.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">12.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Interest cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">43.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">33.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Plan amendments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Medicare Part D impact</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(23.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Actuarial loss</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">97.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">136.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">29.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Benefits paid</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(17.4</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(14.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(6.2</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Foreign currency exchange rate changes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">17.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Projected benefit obligation at end of year</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">935.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">727.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">169.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">166.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Change in plan assets:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Fair value of plan assets at beginning of year</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">726.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">488.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">67.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">48.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Actual return on plan assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">137.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Employer contributions</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">105.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">109.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">14.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Benefits paid</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(17.4</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(14.0</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(6.2</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Foreign currency exchange rate changes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">11.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Fair value of plan assets at end of year</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">873.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">726.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">81.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">67.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Funded status</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(62.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(0.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(87.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(98.8</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Unrecognized net actuarial loss</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">335.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">240.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">61.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">79.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Unrecognized prior service cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">13.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Net prepaid (accrued) benefit cost</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">286.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">250.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(18.7</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(12.0</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Amounts recognized in the consolidated balance sheets consist of:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Prepaid benefit cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">362.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">307.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Other intangible assets, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Accrued benefit liability</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(98.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(74.4</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(18.7</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(12.0</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Accumulated other non-owner changes in equity</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Net prepaid (accrued) benefit cost</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">286.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">250.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(18.7</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(12.0</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<HR noshade color="black" align="left" size="1" width="20%">
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(1)</TD>
<TD width="96%">The financial information for this period has been adjusted to include the U.S. Non-Qualified Benefit Plan information
that historically was disclosed parenthetically within this footnote. The information has been aggregated to show all pension
related obligations in one tabular reconciliation. This U.S. Non-Qualified Plan provides retirement benefits associated with
wages in excess of the IRS allowable wages.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> A minimum pension liability adjustment is required
when the actuarial present value of the accumulated benefit obligation exceeds the fair value of plan assets and accrued benefit
liabilities. The minimum pension liabilities relate to plans outside the U.S and the U.S. non-qualified plan.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">67</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> The net periodic benefit cost of the plans include
the following components:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Pension Benefits</TH>
<TH> </TH><TH> </TH><TH colspan="10">Post-Retirement Benefits</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10"><B>Fiscal Year</B></TH>
<TH> </TH><TH> </TH><TH colspan="10"><B>Fiscal Year</B></TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004<SUP>(1)</SUP></B></TH>
<TH> </TH>
<TH colspan="3"><B>2003<SUP>(1)</SUP></B></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="26%">Service cost</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">63.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">46.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">35.2</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">12.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">9.7</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">7.3</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Interest cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">43.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">33.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">28.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Expected return on plan assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(61.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(47.7</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(42.3</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(5.9</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.2</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.2</TD>
<TD>)</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Amortization of prior service cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">13.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.7</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Net periodic benefit cost</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">58.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">38.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">24.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">21.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">17.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">10.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<HR noshade color="black" align="left" size="1" width="20%">
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(1)</TD>
<TD width="96%">The financial information for this period has been adjusted to include the U.S. Non-Qualified Benefit Plan information
that historically was disclosed parenthetically within this footnote. The information has been aggregated to show all pension
related obligations in one tabular reconciliation. This U.S. Non-Qualified Plan provides retirement benefits associated with
wages in excess of the IRS allowable wages.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> In April 2004, the FASB issued FSP FAS 106-2, “Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (MMA).
The FSP requires companies to assess the effect of MMA on their retirement-related benefit costs and obligations and reflect
the effects in the financial statements, pursuant to SFAS No. 106, “Employer’s Accounting for Post-retirement Benefits
Other Than Pensions.” On January 21, 2005, the Centers for Medicare and Medicaid Services (CMS) released the final
regulations (the Regulations) for the implementation of the MMA. As a result of these Regulations, the Company has determined
that the benefits provided under its plan are actuarially equivalent to the benefits provided under Part D of the MMA. The
Company recognized the effect of the MMA in its January 31, 2005 measurement date; however, given the timing of the Regulations,
the MMA did not have an impact on the fiscal year 2005 net periodic benefit cost. The application of the MMA as of the measurement
date reduced the accumulated post-retirement benefit obligation by $23.0, all of which was related to benefits attributed to
past service and was accounted for as an actuarial gain as required by the FSP. The Company estimates that net periodic benefit
cost for fiscal year 2006 will be reduced by approximately $4.5, as a result of the MMA.</P>
<P style="font-size:10pt"> The actuarial assumptions were as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Pension Benefits</TH>
<TH> </TH><TH> </TH><TH colspan="10">Post-Retirement Benefits</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10"><B>Fiscal Year</B></TH>
<TH> </TH><TH> </TH><TH colspan="10"><B>Fiscal Year</B></TH>
<TH WIDTH="8%" ALIGN="CENTER"> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="26%"><B>Weighted average assumptions—projected benefit obligation:</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Discount rate</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">5.6%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">5.9%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">6.1%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">6.0%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">6.3%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">6.8%</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Rate of compensation increase</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">3.7%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">3.7%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">3.9%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Healthcare cost trend rate</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">10.0%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">10.0%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">10.0%</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">68</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Pension Benefits</TH>
<TH> </TH><TH> </TH><TH colspan="10">Post-Retirement Benefits</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10"><B>Fiscal Year</B></TH>
<TH> </TH><TH> </TH><TH colspan="10"><B>Fiscal Year</B></TH>
<TH WIDTH="8%" ALIGN="CENTER"> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="26%" nowrap><B>Weighted average assumptions—net<BR>
periodic benefit cost:</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Discount rate</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">5.9%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">6.1%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">6.8%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">6.3%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">6.8%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">7.3%</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Expected return on plan assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">8.2%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">8.4%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">9.2%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">8.8%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">8.8%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">9.5%</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Rate of compensation increase</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">3.7%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">3.9%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">4.5%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Healthcare cost trend rate</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">N/A</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">10.0%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">10.0%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">8.0%</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> <B>Retirement Benefit Plan Investment Strategy</B>
The Company has a master trust that holds the assets for both the U.S. pension plan and other post-retirement
benefits, primarily retiree medical. For investment purposes the plans are managed in an identical way, as their objectives
are similar.</P>
<P style="font-size:10pt"> The Company has a Qualified Plan Committee (the Committee)
that sets investment guidelines with the assistance of an external consultant. These guidelines are established based on market
conditions, risk tolerance, funding requirements, and expected benefit payments. The Committee also oversees the investment
allocation process, selects the investment managers, and monitors asset performance. As pension liabilities are long-term in
nature, the Company employs a long-term total return approach to maximize the long-term rate of return on plan assets for a
prudent level of risk. An annual analysis on the risk versus the return of the investment portfolio is conducted to justify
the expected long-term rate of return assumption.</P>
<P style="font-size:10pt"> The investment portfolio contains a diversified portfolio
of investment categories, including equities, fixed income securities, hedge funds, and private equity. Securities are also
diversified in terms of domestic and international securities, short- and long-term securities, growth and value styles, large
cap and small cap stocks, active and passive management, and derivative-based styles. The Committee believes with prudent risk
tolerance and asset diversification, the plan should be able to meet its pension and other post-retirement obligations in the
future.</P>
<P style="font-size:10pt"> Plan assets also include investments in the Company’s
common stock of $67.3 and $64.2 at April 29, 2005 and April 30, 2004, respectively.</P>
<P style="font-size:10pt"> The Company’s pension plan weighted-average asset
allocations and the target allocations at April 29, 2005 and April 30, 2004, by asset category, are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TH colspan="3" align="left"> <B><I>U.S. Plans</I></B></TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">Pension Benefits Allocation</TH>
<TH> </TH><TH> </TH><TH colspan="6">Target Allocation</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="50%"><B>Asset Category</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:ltr;"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:ltr;"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Equity securities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">63.8%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">59.5%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">60.0%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">60.0%</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Debt securities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">14.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">16.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">15.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">15.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Cash</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">0.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Other</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">21.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">24.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">25.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">25.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Total</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">100%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">100%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">100%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">100%</TD>
<TD></TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">69</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TH colspan="3" align="left"> <B><I>Non-U.S. Plans</I></B></TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="6">Pension Benefits Allocation</TH>
<TH> </TH><TH> </TH><TH colspan="6">Target Allocation</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="50%"><B>Asset Category</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="CENTER" WIDTH="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Equity securities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">38.9%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">41.7%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">63.3%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">63.3%</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Debt securities</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;">40.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:12; direction:rtl;" WIDTH="8%">55.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">18.2%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">18.2%</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Cash</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:6; direction:rtl;">1.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">1.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:ltr;" WIDTH="8%">1.1%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:ltr;" WIDTH="8%">1.1%</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Other</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%" STYLE="text-indent:12; direction:rtl;" >19.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" STYLE="text-indent:6; direction:rtl;" WIDTH="8%">1.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">17.4%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">17.4%</TD>
<TD></TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Total</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">100%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">100%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">100%</TD>
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="CENTER" WIDTH="8%">100%</TD>
<TD></TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> In certain countries outside the U.S., fully funding
pension plans is not a common practice, as funding provides no income tax benefit. Consequently, certain pension plans were
partially funded as of April 29, 2005 and April 30, 2004. Plans with accumulated benefit obligations and projected
benefit obligations in excess of plan assets consist of the following:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">2005</TH>
<TH> </TH>
<TH colspan="3">2004</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="74%">Accumulated benefit obligation</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">198.9</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">132.4</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Projected benefit obligation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">239.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">153.7</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Plan assets at fair value</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">107.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">64.9</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> It is the Company’s policy to fund retirement
costs within the limits of allowable tax deductions. During fiscal year 2005, the Company made discretionary contributions
of approximately $82.7 to the qualified U.S. pension plan and approximately $14.9 to post-retirement benefits. Internationally,
the Company contributed approximately $23.2 for pension benefits during fiscal year 2005. During fiscal year 2006, the Company
anticipates that its contribution for pension benefits and post-retirement benefits will be in the range of $120.0 and $140.0.
Based on the guidelines under the U.S. Employee Retirement Income Security Act (ERISA) and the various guidelines which govern
the plans outside the U.S., the majority of anticipated fiscal year 2006 contributions will be discretionary.</P>
<P style="font-size:10pt"> Retiree benefit payments, which reflect expected future
service, are anticipated to be paid as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">Pension Benefits</TH>
<TH> </TH> <TH colspan="6">Post-Retirement Benefits</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="6">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"><B>Fiscal Year</B></TH>
<TH> </TH>
<TH colspan="3"><B>Gross Payments</B></TH>
<TH> </TH>
<TH colspan="3"><B>Gross Payments</B></TH>
<TH> </TH> <TH colspan="3" nowrap><B>Gross Medicare<BR>Part D Receipts</B></TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">2006</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">16.2</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">3.9</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">0.5</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2007</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">19.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2008</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">21.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2009</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">25.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2010</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">29.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">4.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2011 - 2015</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">201.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">24.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Total</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">312.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">45.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">5.5</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> The healthcare cost trend rate for other retirement
benefit plans was 10.0% at April 29, 2005. The trend rate is expected to decline to 5% over a five-year period. Assumed
healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point
change in assumed healthcare cost trend rates would have the following effects:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">One-Percentage-<BR>Point Increase</TH>
<TH> </TH>
<TH colspan="3">One-Percentage-<BR>Point Decrease</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="74%">Effect on post-retirement benefit cost</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">2.1</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">1.7</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Effect on post-retirement benefit obligation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.7</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">70</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> <B>Defined Contribution Savings Plans</B> The
Company has defined contribution savings plans that cover substantially all U.S. employees and certain non-U.S. employees.
The general purpose of these plans is to provide additional financial security during retirement by providing employees with
an incentive to make regular savings. Up to and including fiscal year 2005, the Company match on the SRP for U.S. employees
was made in the form of an annual allocation of Medtronic stock to the participants’ ESOP account (see Note 9). Company
contributions to the plans are based on employee contributions and Company performance. Expense under these plans was $32.8
in fiscal year 2005, $16.9 in fiscal year 2004, and $16.2 in fiscal year 2003. </P>
<P style="font-size:10pt;font-weight:bold">13. Leases</P>
<P style="font-size:10pt"> The Company leases office, manufacturing and research
facilities, and warehouses, as well as transportation, data processing and other equipment under capital and operating leases.
A substantial number of these leases contain options that allow the Company to renew at the fair rental value on the date of
renewal.</P>
<P style="font-size:10pt"> Future minimum payments under capitalized leases and
non-cancelable operating leases at April 29, 2005 are:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"><B>Fiscal Year</B></TH>
<TH> </TH>
<TH colspan="3">Capitalized<BR>Leases</TH>
<TH> </TH>
<TH colspan="3">Operating<BR>Leases</TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="74%">2006</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">0.5</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">56.3</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2007</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2008</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">27.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2009</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2010</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">8.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2011 and thereafter</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">15.1</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Total minimum lease payments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">164.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Less amounts representing interest</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">N/A</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Present value of net minimum lease payments</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">N/A</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Rent expense for all operating leases was $79.5, $70.0,
and $60.0 in fiscal years 2005, 2004, and 2003, respectively.</P>
<P style="font-size:10pt;font-weight:bold">14. Commitments and Contingencies</P>
<P style="font-size:10pt"> The Company is involved in a number of legal actions,
the outcomes of which 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, which, if granted, could require significant expenditures
or lost revenues. In accordance with SFAS No. 5, “Accounting for Contingencies,” 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, the minimum amount of the range is accrued. If the loss is not probable or cannot be reasonably estimated,
a liability is not recorded in the consolidated financial statements. 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 actions discussed, the Company
believes that costs associated with them could have a material adverse impact on the consolidated earnings, financial position
or cash flows of any one interim or annual period. With the exception of the DePuy/AcroMed and ETEX cases discussed below,
negative outcomes for the balance of the litigation matters generally are not considered probable or cannot be reasonably estimated.
Unless explicitly discussed, the Company has not recorded reserves regarding these matters in the consolidated financial statements
as of April 29, 2005.</P>
<P style="font-size:10pt"> On October 6, 1997, Cordis Corporation (Cordis),
a subsidiary of Johnson & Johnson, Inc. (J&J), filed suit in U.S. District Court for the District of Delaware
against Arterial Vascular Engineering, Inc.,
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">71</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">which Medtronic acquired in January 1999 and which is now known as Medtronic Vascular, Inc. (Medtronic
Vascular). The suit alleged that Medtronic Vascular’s modular stents infringe certain patents owned by Cordis. Boston
Scientific Corporation is also a defendant in this suit. On December 22, 2000, a jury rendered a verdict that Medtronic
Vascular’s previously marketed MicroStent and GFX® stents infringed valid claims of two Cordis patents and awarded
damages to Cordis totaling approximately $270.0. On March 28, 2002, the District Court entered an order in favor of Medtronic
Vascular, deciding as a matter of law that Medtronic Vascular’s MicroStent and GFX stents did not infringe the patents.
Cordis appealed, and on August 12, 2003, the Court of Appeals for the Federal Circuit reversed the District Court’s
decision and remanded the case to the District Court for further proceedings. The District Court thereafter issued a new patent
claim construction and a new trial was held in March 2005. On March 14, 2005, the jury found that the previously marketed
MicroStent and GFX stent products infringed valid claims of Cordis’ patents. Medtronic Vascular has made post-trial motions
challenging the jury’s findings of infringement and validity, and the District Court has not yet ruled on those motions.
Cordis has made a motion to reinstate the previous jury’s verdict as to damages in the amount of approximately $270.0
and has asked the District Court to determine pre- and post-judgment interest on that amount. Medtronic Vascular has opposed
entry of judgment on damages on the grounds that it is premature until the Appellate Court has reviewed the liability findings
of the jury. Alternatively, Medtronic Vascular also opposes the interest rate and method of compounding that Cordis has requested.
The District Court has not yet decided the motion and the timing of a decision is unknown. Since the District Court has not
affirmed the jury’s verdict as to liability or damages, Medtronic has not recorded an expense related to damages in this
matter.</P>
<P style="font-size:10pt"> On December 24, 1997, Advanced Cardiovascular
Systems, Inc. (ACS), a subsidiary of Guidant Corporation (Guidant), sued Medtronic Vascular in U.S. District Court for
the Northern District of California alleging that Medtronic Vascular’s modular stents infringe the Lau stent patents held
by ACS, and seeking injunctive relief and monetary damages. Medtronic Vascular denied infringement and in February 1998,
Medtronic Vascular sued ACS in U.S. District Court for the District of Delaware alleging infringement of Medtronic Vascular’s
Boneau stent patents. On January 5, 2005, the District Court found as a matter of law that the ACS products in question
did not infringe any of Medtronic Vascular’s Boneau stent patents. Medtronic Vascular has appealed this finding by the
District Court. In February 2005, following trial, a jury determined that the ACS Lau stent patents were valid and that Medtronic’s
Driver®, GFX, MicroStent and S7 stents infringe those patents. Medtronic Vascular has made numerous post-trial motions
challenging the jury’s verdict of infringement and validity and the District Court has not yet ruled on those motions.
On June 7 and 8, 2005, the District Court held an evidentiary hearing on Medtronic’s claim that the ACS Lau stent patents
are unenforceable due to inequitable conduct of ACS in obtaining the Lau patents. The District Court has not yet issued a decision
on Medtronic’s claim of inequitable conduct. Issues of damages have been bifurcated and will not be addressed by a jury
or the Court until some undetermined future date.</P>
<P style="font-size:10pt"> On September 12, 2000, Cordis filed an additional
suit against Medtronic Vascular in U.S. District Court for the District of Delaware alleging that Medtronic Vascular’s
S670, S660 and S540 stents infringe the patents asserted in the October 1997 Cordis case above. The Court temporarily
stayed proceedings in this suit until the appeals were decided in the 1997 case. The District Court thereafter lifted that
stay, and Cordis has now added claims that Medtronic Vascular’s S7 and Driver stents infringe the asserted patents. Medtronic
Vascular made a motion to stay the trial proceedings pending arbitration of Medtronic Vascular’s defense that its products
are licensed under a 1997 Agreement between Medtronic Vascular and Cordis. The Court has granted that motion and the District
Court proceedings have been stayed pending an arbitration of the license issues. A panel of three arbitrators has been selected,
and the arbitration proceedings are scheduled to be held in November 2005.</P>
<P style="font-size:10pt"> On January 26, 2001, DePuy/AcroMed, a subsidiary
of J&J, filed suit in U.S. District Court for the District of Massachusetts alleging that MSD was infringing a patent relating to a design for a thoracolumbar multiaxial screw (MAS). In March 2002, DePuy/AcroMed
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">72</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">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 that those screws do not infringe. On October 1,
2004, a jury found that the MAS screw, which MSD no longer sells in the U.S., infringes under the doctrine of equivalents.
The jury awarded damages of $21.0 and on February 9, 2005, the Court entered judgment against MSD, including prejudgment
interest, in the aggregate amount of $24.3. The Company has recorded an expense equal to the $24.3 judgment in the matter.
DePuy/AcroMed has appealed the Court’s decisions that the M10, M8 and Vertex screws do not infringe, and MSD has
appealed the jury’s verdict that the MAS screw infringes valid claims of the patent.</P>
<P style="font-size:10pt"> On October 31, 2002, the U.S. Department of Justice
filed a notice that the U.S. was declining to intervene in an action against Medtronic filed under seal in 1998 by two relators,
private attorneys who file suit, under the qui tam provisions of the federal False Claims Act. Relators alleged that Medtronic
defrauded the FDA in obtaining pre-market approval to manufacture and sell Models 4004, 4004M, 4504 and 4504M pacemaker leads
in the late 1980s and early 1990s. Relators further alleged that Medtronic did not provide information about testing of the
pacemaker leads to the FDA in the years after the agency’s approval of the leads. Pursuant to the requirements of the
False Claims Act, the case remained under seal while the U.S. Department of Justice determined whether to intervene in the
action and directly pursue the claims on behalf of the U.S. On June 6, 2003, Medtronic’s motion to dismiss the action
on several grounds was denied by the U.S. District Court, Southern District of Ohio. The Sixth Circuit Court of Appeals accepted
an interlocutory appeal to review that decision, and on April 6, 2005, a panel of the Sixth Circuit reversed the District
Court and remanded the case for dismissal. Relators petitioned the Sixth Circuit for a rehearing on May 23, 2005.</P>
<P style="font-size:10pt"> On May 2, 2003, Cross Medical Products, Inc.
(Cross) sued MSD in the U.S. District Court for the Central District of California. The suit alleges that MSD’s CD HORIZON®,
Vertex and Crosslink® products infringe certain patents owned by Cross. MSD has counterclaimed that Cross’ cervical
plate products infringe certain patents of MSD, and Cross has filed a reply alleging that MSD infringes certain cervical plate
patents of Cross. On May 19, 2004, the Court issued a ruling that held that the MAS, Vertex, M8, M10, CD HORIZON SEXTANT™
and CD HORIZON LEGACY™ screw products infringe one Cross patent. A hearing on the validity of that patent was held on
July 12, 2004, after which the District Court ruled that the patents were valid. Cross made a motion for permanent injunction
on the multiaxial screw products, which the District Court granted on September 20, 2004, but stayed the effect of the
injunction until January 3, 2005. MSD requested an expedited appeal of the ruling and the U.S. Court of Appeals for the
Federal Circuit granted the request. In April 2005, the District Court ruled invalid certain claims in the patents Cross asserted
against MSD’s Crosslink and cervical plate products. The Court also ruled that Cross cervical plate products infringe
MSD’s valid patents and that MSD’s redesigned pedicle screw products infringe one claim of one of the patents owned
by Cross. Cross thereafter moved for an injunction against the redesigned screw products, which the District Court granted
on May 24, 2005. The District Court then stayed the effectiveness of the injunction for 90 days or August 22, 2005.
MSD has requested a further stay from the U.S. Court of Appeals for the Federal Circuit and is also awaiting the Federal Circuit's
decision on an appeal of the District Court’s September injunction. Appeals of the various liability rulings are likely
to be heard before trial of any remaining damages claims.</P>
<P style="font-size:10pt"> On August 19, 2003, Edwards Lifesciences LLC
(Edwards) and Endogad Research PTY Limited (Endogad) sued Medtronic Vascular, Cook Incorporated (Cook) and W.L. Gore &
Associates, Inc. (Gore) in the U.S. District Court for the Northern District of California. The suit alleges that a patent
owned by Endogad and licensed to Edwards is infringed by Medtronic Vascular’s AneuRx® Stent Graft and/or Talent™
Endoluminal Stent Graft System, and by products of Cook and Gore. On June 4, 2004, Medtronic filed suit alleging that
the inventor of the patent had breached a contract with Medtronic, and seeking to have Medtronic named as the rightful owner
of the patent. The patent suit brought by Edwards and Endogad has been stayed pending the Court’s determination as to
ownership of the patent
</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">73</P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt">in the suit brought by Medtronic against the inventor. The issues as to ownership of the patent will
be tried in early calendar year 2006.</P>
<P style="font-size:10pt"> On September 4, 2003, Medtronic was informed
by the Department of Justice that the government is investigating allegations that certain payments and other services provided
to physicians by MSD constituted improper inducements under the federal Anti-Kickback Statute. The allegations were made as
part of a civil qui tam complaint brought pursuant to the federal False Claims Act. On November 21, 2003, Medtronic was
served with a government subpoena seeking documents in connection with these allegations. On September 2, 2004, Medtronic
received a copy of a second civil qui tam complaint brought by a second relator asserting similar allegations under the False
Claims Act. The Company views the second complaint as having arisen out of essentially similar facts and circumstances as the
first qui tam complaint, and believes that the second complaint does not materially expand the nature of the existing inquiry
in which the Company is cooperating. The cases remain under seal in the U.S. District Court for the Western District of Tennessee.
The Company is cooperating fully with the investigations and is independently evaluating these matters, the internal processes
associated therewith, and certain employment matters related thereto, in each case under the supervision of a special committee
of the Board.</P>
<P style="font-size:10pt"> On October 2, 2003, ETEX served MSD, Medtronic
and Medtronic International Ltd. with a Notice and Demand for Arbitration, under the terms of an agreement between Medtronic
and ETEX entered into on March 27, 2002. The arbitration demand alleged breach of the agreement, fraud, deceptive trade
practices and antitrust violations and asked for specific performance and monetary damages. On March 24, 2005 an arbitrator
found in favor of Medtronic on all antitrust, fraud and tort claims alleged by ETEX. The arbitrator, however, upheld termination
of the agreement and awarded ETEX breach of contract damages. After an adjustment for a calculation error in the original arbitration
award, the arbitrator’s final award was $63.6, inclusive of interest and a partial award of attorneys’ fees and costs.
In reaching the final award, the arbitrator deemed “as paid” $16.5 previously owed by ETEX to Medtronic. The final
award was paid subsequent to the end of fiscal year 2005. Medtronic’s equity interest in ETEX remains unaffected by the
arbitrator’s decision.</P>
<P style="font-size:10pt"> On October 2, 2003, Cordis sued Medtronic Vascular
in the U.S. District Court for the Northern District of California, alleging that Medtronic Vascular’s S7 stent delivery
system infringes certain catheter patents owned by Cordis. Pursuant to stipulation of the parties, the Court has stayed the
suit and referred the matter to arbitration. The arbitrators have not yet been selected.</P>
<P style="font-size:10pt"> 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.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">74</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt;font-weight:bold">15. Quarterly Financial Data</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">First<BR>Quarter</TH>
<TH> </TH>
<TH colspan="3">Second<BR>Quarter</TH>
<TH> </TH>
<TH colspan="3">Third<BR>Quarter</TH>
<TH> </TH>
<TH colspan="3">Fourth<BR>Quarter</TH>
<TH> </TH>
<TH colspan="3">Fiscal<BR>Year</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="18"><B>(unaudited)</B></TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="38%"><B>Net Sales</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10"><B>2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>2,346.1</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>2,399.8</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>2,530.7</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>2,778.0</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>10,054.6</B></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">2004</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,064.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,163.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,193.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,665.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9,087.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Gross Profit</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"><B>2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>1,795.8</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>1,815.0</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>1,925.1</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>2,072.3</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>7,608.2</B></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">2004</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,550.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,627.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,655.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,000.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6,834.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Net Earnings</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10"><B>2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>529.7</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>535.7</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>544.1</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>194.4</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>1,803.9</B></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">2004</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">450.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">476.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">463.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">568.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,959.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Basic Earnings per Share</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10"><B>2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>0.44</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>0.44</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>0.45</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>0.16</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>1.49</B></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">2004</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.37</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.39</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.38</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.47</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.61</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Diluted Earnings per Share</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10"><B>2005</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>0.43</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>0.44</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>0.45</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>0.16</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"><B>1.48</B></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">2004</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.37</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.39</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.38</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.47</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.60</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt;font-weight:bold">16. Segment and Geographic Information</P>
<P style="font-size:10pt"> The Company maintains five operating segments, which
are aggregated into one reportable segment—the manufacture and sale of device-based medical therapies. Each of the Company’s
operating segments has similar economic characteristics, technology, manufacturing processes, customers, distribution and marketing
strategies, regulatory environments, and shared infrastructures. Net sales by operating segment are as follows:</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="10">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="10">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004</B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="62%">Cardiac Rhythm Management</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">4,615.5</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">4,238.3</TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%">$</TD>
<TD align="right" width="8%">3,630.8</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Spinal, ENT, and Navigation</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,124.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,765.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,346.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Neurological and Diabetes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,794.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,610.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,356.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vascular</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">851.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">842.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">774.1</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Cardiac Surgery</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">668.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">630.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">556.9</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">10,054.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">9,087.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7,665.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">75</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt;font-weight:bold"><FONT STYLE="font-size:14pt">Notes </FONT> <FONT STYLE="font-size:10pt">to Consolidated Financial Statements <B><I>(continued)</I></B></font></p>
<P style="font-size:10pt;font-style:italic;margin-top:-14pt">
<I>(dollars in millions, except per share data)</I>
</P>
<P style="font-size:10pt"> <B>Geographic Information</B>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3">United<BR>States</TH>
<TH> </TH>
<TH colspan="3">Europe</TH>
<TH> </TH>
<TH colspan="3">Asia<BR>Pacific</TH>
<TH> </TH>
<TH colspan="3">Other<BR>Foreign</TH>
<TH> </TH>
<TH colspan="3">Consolidated</TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="38%"><B>Fiscal year 2005</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Net sales to external customers</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>6,710.9</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>2,098.8</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>985.4</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>259.5</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>10,054.6</B></TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Long-lived assets*</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>6,434.6</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>989.5</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>169.1</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>37.0</B></TD>
<TD> </TD>
<TD> </TD>
<TD><B>$</B></TD>
<TD align="right"><B>7,630.2</B></TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Fiscal year 2004</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Net sales to external customers</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">6,159.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,846.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">859.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">221.7</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">9,087.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Long-lived assets*</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">6,202.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">932.7</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">175.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">31.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7,341.8</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD><B>Fiscal year 2003</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Net sales to external customers</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">5,360.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,427.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">709.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">167.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7,665.2</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Long-lived assets*</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">6,079.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">867.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">145.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">28.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7,121.3</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<HR noshade color="black" align="left" size="1" width="20%">
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">*</TD>
<TD width="96%">Excludes other long-term financial instruments.</TD>
</TR>
</TABLE>
<P style="font-size:10pt"> No single customer represents over 10% of the Company’s
consolidated net sales in fiscal years 2005, 2004, or 2003.</P>
<P style="font-size:10pt;font-weight:bold">17. Subsequent Events</P>
<P style="font-size:10pt"> In June 2005, the Company announced it had entered into an agreement to
acquire all of the outstanding stock of Transneuronix, Inc. (TNI) for approximately $260.0 in cash, subject to purchase price
increases, which would be triggered by the achievement of certain milestones. The Company had an existing $28.8 equity investment in TNI, which is accounted for under the cost method. TNI is a privately-held company that
develops implantable gastric stimulation systems for use in obesity therapy. The acquisition is expected to be completed in
the first quarter of fiscal year 2006.</P>
<P style="font-size:10pt"> In May 2005, the Company completed the acquisition
of substantially all of the spine-related intellectual property and related contracts, rights, and tangible materials owned
by Michelson. The agreement reached requires a total cash payment of $1,350.0 for the settlement of all ongoing litigation
and the purchase of a portfolio of more than 100 issued U.S. patents, over 110 pending U.S. patent applications and numerous
foreign counterparts to these patents. A value of $550.0 was assigned to past damages in the case and recorded in the fourth
quarter of fiscal year 2005, and the remaining $800.0 will be recorded to the value of the intellectual property purchased
and recorded in the first quarter of fiscal year 2006. Upon reaching a definitive agreement in the fourth quarter of fiscal
year 2005, the Company made a $10.0 down payment on the intellectual property and upon closing in May of 2005, paid an additional
$1,310.0 in cash and committed to three future installments of $10.0 to be paid in May of 2006, 2007 and 2008. The $1,310.0
payment was funded with approximately $715.0 in cash and approximately $595.0 with the proceeds from the issuance of commercial
paper. The patents pertain to novel spinal technology and techniques that have both current application and the potential for
future patentable commercial products.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">76</P>
<HR COLOR="GRAY" SIZE="2">
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<P style="font-size:10pt">Selected <FONT STYLE="font-size:14pt"><B><I><A NAME="financial_data">Financial Data</A></I></B> </FONT>
</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="18">Fiscal Year</TH>
<TH> </TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="18">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="3"><B>2005</B></TH>
<TH> </TH>
<TH colspan="3"><B>2004<SUP>(2)</SUP></B></TH>
<TH> </TH>
<TH colspan="3"><B>2003</B></TH>
<TH> </TH>
<TH colspan="3"><B>2002</B></TH>
<TH> </TH>
<TH colspan="3"><B>2001</B></TH>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left"></TH>
<TH> </TH>
<TH colspan="18"><B>(dollars in millions, except per share and employee data)</B></TH>
<TH> </TH>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="38%"><B>Operating Results for the Fiscal Year:</B></TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD align="right" width="8%"></TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Net sales</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">10,054.6</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">9,087.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7,665.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">6,410.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">5,551.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Cost of products sold</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,446.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,252.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,890.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,652.7</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,410.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Gross margin percentage</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">75.7</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">75.2</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">75.3</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">74.2</TD>
<TD>%</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">74.6</TD>
<TD>%</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Research and development expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">951.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">851.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">749.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">646.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">577.6</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Selling, general and administrative expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">3,213.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,801.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,371.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,962.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,685.2</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Purchased in-process research and development</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">41.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">114.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">293.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">—</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Special charges</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">654.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(4.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">290.8</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">338.8</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Other expense, net</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">290.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">351.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">188.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">34.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">64.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Interest (income)/expense</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(45.1</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(2.8</TD>
<TD>)</TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">(74.2</TD>
<TD>)</TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Earnings before income taxes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,543.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,796.9</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2,341.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,524.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,549.4</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Provision for income taxes</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">739.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">837.6</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">741.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">540.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">503.4</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Net earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,803.9</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,959.3</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,599.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">984.0</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,046.0</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="3">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Per Share of Common Stock:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Basic earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.49</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.61</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1.31</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">0.81</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">0.87</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Diluted earnings</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.48</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.60</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.30</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.80</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.85</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Cash dividends declared</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.34</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.29</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.25</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.23</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.20</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Financial Position at Fiscal Year-end:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Working capital<SUP>(1)</SUP></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">4,041.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">1,072.1</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,792.2</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">(496.9</TD>
<TD>)</TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">2,397.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Current ratio<SUP>(1)</SUP></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.2:1.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.3:1.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.5:1.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">0.9:1.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">2.8:1.0</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Total assets</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">16,617.4</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">14,110.8</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">12,405.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">10,904.5</TD>
<TD> </TD>
<TD> </TD>
<TD>$</TD>
<TD align="right">7,038.9</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Long-term debt</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,973.2</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">1,980.3</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">13.3</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Shareholders’ equity</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">10,449.5</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">9,077.0</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">7,906.4</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">6,431.1</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">5,509.5</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD><B>Additional Information:</B></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right"></TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD style="padding-left:10">Full-time employees at year-end</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">29,835</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">27,868</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">26,732</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">25,137</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">23,290</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD style="padding-left:10">Full-time equivalent employees at year-end</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">33,067</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">30,900</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">29,581</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">27,731</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">26,050</TD>
<TD> </TD>
</TR>
<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
</TABLE>
</DIV>
<HR noshade color="black" align="left" size="1" width="20%">
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(1)</TD>
<TD width="96%">Working capital and the current ratio in fiscal years 2002 and 2004 were substantially lower than other years.
In fiscal year 2002 approximately $4.1 billion in cash was paid for acquisitions. Approximately $2.0 billion of the
cash paid was funded by issuing contingent convertible debentures that were classified as short-term borrowings as of April 26,
2002. The debentures were classified as short-term borrowings as holders had the option to require the Company to repurchase
the debentures (referred to as a put feature) in September 2002. As the next put feature was due in September 2004,
the debentures were again classified as short-term borrowings as of April 30, 2004, which reduced the working capital
and current ratio in comparison to fiscal years 2005 and 2003 when the debentures were classified as long-term debt.</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD width="4%">(2)</TD>
<TD width="96%">Fiscal year 2004 consisted of 53 weeks, as compared to 52 weeks in all other fiscal years disclosed above. See
Note 1 to the consolidated financial statements.</TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">77</P>
<HR COLOR="GRAY" SIZE="2">
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<P style="font-size:10pt;font-weight:bold;text-align:center">
<A NAME="price_range_of_medtronic_stock">Price Range of Medtronic Stock</A></P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left">Fiscal Qtr.</TH>
<TH> </TH>
<TH colspan="3">1st Qtr.</TH>
<TH> </TH>
<TH colspan="3">2nd Qtr.</TH>
<TH> </TH>
<TH colspan="3">3rd Qtr.</TH>
<TH> </TH>
<TH colspan="3">4th Qtr.</TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD WIDTH="16%">2005 High</TD>
<TD WIDTH="1%"> </TD>
<TD WIDTH="1%"> </TD>
<TD WIDTH="3%"> </TD>
<TD WIDTH="1%">$</TD>
<TD ALIGN="RIGHT" WIDTH="16%">51.25</TD>
<TD WIDTH="1%"> </TD>
<TD WIDTH="2%"> </TD>
<TD WIDTH="1%">$</TD>
<TD ALIGN="RIGHT" WIDTH="16%">53.19</TD>
<TD WIDTH="1%"> </TD>
<TD WIDTH="2%"> </TD>
<TD WIDTH="1%">$</TD>
<TD ALIGN="RIGHT" WIDTH="16%">53.28</TD>
<TD WIDTH="1%"> </TD>
<TD WIDTH="2%"> </TD>
<TD WIDTH="1%">$</TD>
<TD ALIGN="RIGHT" WIDTH="16%">54.92</TD>
<TD WIDTH="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2005 Low</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.40</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">48.55</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">47.01</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">50.30</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>2004 High</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD></TD>
<TD align="right">50.64</TD>
<TD> </TD>
<TD> </TD>
<TD></TD>
<TD align="right">52.65</TD>
<TD> </TD>
<TD> </TD>
<TD></TD>
<TD align="right">49.41</TD>
<TD> </TD>
<TD> </TD>
<TD></TD>
<TD align="right">52.00</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>2004 Low</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.45</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">44.27</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">43.36</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD align="right">46.50</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<P style="font-size:10pt"> Prices are closing quotations. On June 24, 2005,
there were approximately 51,700 shareholders of record of the Company’s common stock. The regular quarterly cash dividend
was 8.38 cents per share for fiscal year 2005 and 7.25 cents per share for fiscal year 2004.</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center">78</P>
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`
end
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>21
<FILENAME>med052766_ex21.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 21 to Form 10-K dated April 29, 2005</title>
</HEAD>
<BODY>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 21</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">Medtronic, Inc. and Subsidiaries</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="2" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left">Company</TH>
<TH> </TH>
<TH COLSPAN="3" NOWRAP>Jurisdiction of Incorporation</TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">Arterial Vascular Engineering Canada, Company</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Canada</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Arterial Vascular Engineering Netherlands Holding</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Netherlands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Arterial Vascular Engineering UK Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">United Kingdom</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Vascular Connaught</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Ireland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Vascular Galway Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Ireland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>AVE Ireland Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Ireland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>B.V. Medtronic FSC</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Netherlands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Cardiotron Medizintechnik G.m.b.H.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Germany</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>India Medtronic Private Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">India</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>IGN Merger Corp.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>INFIN (International Finance) C.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Netherlands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Magnolia Medical LLC</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Med Rel, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medical Education K.K.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Japan</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic (Africa) (Proprietary) Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">South Africa</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic (Schweiz) A.G. / Medtronic (Suisse) S.A.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Switzerland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic (Shanghai) Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">China</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic (Thailand) Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Thailand</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic A/S</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Denmark</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Aktiebolag</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Sweden</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Angiolink, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Asia, Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Australasia Pty. Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Australia</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Vascular, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic International Trading, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic B.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Netherlands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Bakken Research Center B.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Netherlands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Belgium S.A./N.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Belgium</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Bio-Medicus, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic China, Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Comercial Ltda.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Brazil</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Czechia s.r.o.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Czech Republic</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic do Brasil Ltda.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Brazil</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Endonetics, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">California</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Europe BVBA</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Belgium</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Europe Capital Corp.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Cayman Islands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Europe Sàrl</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Switzerland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Fabrication SAS</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">France</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Finland OY</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Finland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic France S.A.S.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">France</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Functional Diagnostics Zinetics, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Utah</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Functional Diagnostics, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">New Jersey</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic G.m.b.H.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Germany</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Hellas Medical Device Commercial S.A.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Greece</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Holding Switzerland G.m.b.H.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Switzerland</TD>
<TD> </TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<TABLE CELLSPACING="0" CELLPADDING="2" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left">Company</TH>
<TH> </TH>
<TH COLSPAN="3" NOWRAP>Jurisdiction of Incorporation</TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">Medtronic Hungary Limited</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Hungary</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Iberica S.A.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Spain</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic InStent (Israel) ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Israel</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic International Technology, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic International, Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic International Trading Sarl</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Switzerland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic International Trading, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Interventional Vascular, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Massachusetts</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Ireland Holdings Company</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Ireland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Ireland Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Ireland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Ireland Manufacturing Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Ireland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Italia S.p.A.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Italy</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Japan Capital Corp.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Cayman Islands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Japan Co., Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Japan</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Korea Co., Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Korea</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Latin America, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">United Kingdom</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Medical Appliance Technology and Service (Shanghai) Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">China</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Medical Technology Ticaret Limited Sirketi</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Turkey</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Mediterranean SAL</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Lebanon</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Mexico S. de R.L. de C.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Mexico</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Micro Motion Sciences, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic MiniMed, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Oesterreich G.m.b.H.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Austria</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic of Canada Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Canada</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Emergency Response Systems, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Washington</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Emergency Response Systems International, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Washington</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Physio-Control Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">United Kingdom</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Emergency Response Systems Manufacturing, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Washington</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Pacific Trading, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Poland Spolka Zograniczona Odpowiedzialnoscia</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Poland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Portugal—Comercio e Distribuiacao de Aparelhos Medicos Lda</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Portugal</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic PS Medical, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">California</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Puerto Rico Operations Co.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Cayman Islands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Puerto Rico, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic S. de R.L. de C.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Mexico</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic S.A.I.C.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Argentina</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Sofamor Danek (UK) Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">United Kingdom</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Sofamor Danek Co., Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Japan</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Sofamor Danek Deggendorf GmbH</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Germany</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Sofamor Danek South Africa (Proprietary) Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">South Africa</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Sofamor Danek USA, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Tennessee</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Sofamor Danek, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Indiana</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Synectics Aktiebolag</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Sweden</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Treasury International, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Treasury Management, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic U.K. Capital Corp.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Cayman Islands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic USA, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Minnesota</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic VidaMed, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Vingmed AS</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT">Norway</TD>
<TD> </TD>
</TR>
</TABLE>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<TABLE CELLSPACING="0" CELLPADDING="2" WIDTH="100%">
<TR VALIGN="BOTTOM" style="font-size:8.5pt">
<TH colspan="3" align="left">Company</TH>
<TH> </TH>
<TH COLSPAN="3" NOWRAP>Jurisdiction of Incorporation</TH>
</TR>
<TR>
<TD colspan="2">
<HR noshade color="black" size="1">
</TD>
<TD></TD>
<TD></TD>
<TD colspan="3">
<HR noshade color="black" size="1">
</TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD width="86%">Medtronic World Trade Corporation</TD>
<TD width="1%"> </TD>
<TD width="1%"> </TD>
<TD width="2%"> </TD>
<TD width="1%"> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Minnesota</TD>
<TD width="1%"> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Xomed France S.A.S.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">France</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Xomed U.K. Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">United Kingdom</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Xomed, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic-Mediland (Taiwan) Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Taiwan</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic-Vicare A/S</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Denmark</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>MiniMed Distribution Corp.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>MiniMed Medical Supply, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Florida</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>MiniMed Pty Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Australia</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Physior SA</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">France</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Restoragen, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>SDGI Holdings, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Medtronic Sofamor Danek (NZ) Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">New Zealand</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Sofamor Danek Australia Pty. Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Australia</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Sofamor Danek Holdings, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Sofamor S.N.C.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">France</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>SpinalGraft Technologies, LLC</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Tennessee</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Medtronic Navigation, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Delaware</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Synectics Medical Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">United Kingdom</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Synectics Medical - Equipamento Electronico de Medicina, Limitada</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Portugal</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vidamed International Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">United Kingdom</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron (Africa) (Proprietary) Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Africa</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron (Israel) Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Israel</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron A.G.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Switzerland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron B.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Netherlands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron Belgium S.A. / N.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Belgium</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron Czechia s.r.o.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Czech Republic</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron Denmark A/S</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Denmark</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron Finland Oy</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Finland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron G.m.b.H.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Austria</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron G.m.b.H.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Germany</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron Japan Co., Ltd.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Japan</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron Medical Espana S.A.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Spain</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron Medical Italia S.r.l.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Italy</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron N.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Netherlands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron Nederland B.V.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Netherlands</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron Poland Sp. z o.o.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Poland</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron Portugal - Comércio e Distribuição de Dispositivos Médicos, Lda</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Portugal</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron S.A.R.L.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">France</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Vitatron Sweden Aktiebolag</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Sweden</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Vitatron U.K. Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">United Kingdom</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Warsaw Orthopedic, Inc.</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Indiana</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt" bgcolor="#E0E0E0">
<TD>Xomed Australia PTY Limited</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">Australia</TD>
<TD> </TD>
</TR>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD>Xomed France Holdings, SNC</TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD> </TD>
<TD ALIGN="LEFT" WIDTH="8%">France</TD>
<TD> </TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>22
<FILENAME>med052766_ex23.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 23 to Form 10-K dated April 29, 2005</title>
</HEAD>
<BODY>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 23</P>
<BR><BR>
<P style="font-size:10pt;font-weight:bold;text-align:center">CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</P>
<P style="font-size:10pt"> We hereby consent to the incorporation by reference
in the Registration Statements on Form S-8 (Nos. 33-37529, 33-44230, 33-55329, 33-63805, 333-04099, 333-07385, 333-65227,
333-71259, 333-71355, 333-74229, 333-75819, 333-90381, 333-52840, 333-44766, 333-66978, 333-68594, 333-100624, 333-106566 and
333-112267) of Medtronic, Inc. of our report dated June 23, 2005 relating to the consolidated financial statements, management’s
assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over
financial reporting, which appears in Exhibit 13 to this Annual Report on Form 10-K. We also consent to the incorporation
by reference in the above Registration Statements of our report dated June 23, 2005 relating to the financial statement schedule, which appears in this Annual
Report on Form 10-K.</P>
<P style="font-size:10pt">/s/ PricewaterhouseCoopers LLP</P>
<P style="font-size:10pt">PricewaterhouseCoopers LLP<BR>Minneapolis, Minnesota<BR>June 29, 2005</P>
<BR>
<P style="font-size:10pt;font-weight:bold;text-align:center">Report of Independent Registered Public Accounting Firm on<BR>Financial
Statement Schedule</P>
<P style="font-size:10pt"> <B>To the Board of Directors of Medtronic, Inc.:</B>
</P>
<P style="font-size:10pt"> Our audits of the consolidated financial statements,
of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness
of internal control over financial reporting referred to in our report dated June 23, 2005 appearing in Exhibit 13 to
this Annual Report on Form 10-K of Medtronic, Inc. (which consolidated financial statements and assessment are included in
Exhibit 13 to this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2)
of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements.</P>
<P style="font-size:10pt">/s/ PricewaterhouseCoopers LLP</P>
<P style="font-size:10pt">PricewaterhouseCoopers LLP<BR>Minneapolis, Minnesota<BR>June 23, 2005</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>23
<FILENAME>med052766_ex24.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 24 to Form 10-K dated April 29, 2005</title>
</HEAD>
<body>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 24<BR></P>
<P style="font-size:10pt;font-weight:bold;text-align:center"></P>
<P style="font-size:14pt;font-weight:bold;text-align:center">POWER OF ATTORNEY</P>
<P style="font-size:10pt"> Each of the undersigned directors of Medtronic, Inc.,
a Minnesota corporation, hereby constitutes and appoints each of ARTHUR D. COLLINS, JR. and TERRANCE L. CARLSON, acting individually
or jointly, their true and lawful attorneys-in-fact and agents, with full power to act for them and in their name, place and
stead, in any and all capacities, to do any and all acts and execute any and all documents which either such attorney and agent
may deem necessary or desirable to enable Medtronic, Inc. to comply with the Securities Exchange Act of 1934, as amended, and
any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the
filing with the Commission of Medtronic’s Annual Report on Form 10-K for the fiscal year ended April 29, 2005, including
specifically, but without limiting the generality of the foregoing, power and authority to sign the names of the undersigned
directors to the Form 10-K and to any instruments and documents filed as part of or in connection with the Form 10-K or any
amendments thereto; and the undersigned hereby ratify and confirm all actions taken and documents signed by each said attorney
and agent as provided herein.</P>
<P style="font-size:10pt"> The undersigned have set their hands this 23th day
of June 2005.</P>
<DIV align="center">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="85%">
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="left" WIDTH="48%">/s/ Richard H. Anderson <BR>
<HR noshade color="black" size="1" width="50%">
Richard H. Anderson<BR>
</TD>
<TD WIDTH="2%"> </TD>
<TD ALIGN="left" WIDTH="50%">/s/ Denise M. O’Leary <BR>
<HR noshade color="black" size="1" width="50%">
Denise M. O’Leary</TD>
</TR>
<TR><TD WIDTH="48%"> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="left" WIDTH="48%">/s/ Michael R. Bonsignore <BR>
<HR noshade color="black" size="1" width="50%">
Michael R. Bonsignore<BR>
</TD>
<TD> </TD>
<TD ALIGN="left" WIDTH="50%">/s/ Robert C. Pozen <BR>
<HR noshade color="black" size="1" width="50%">
Robert C. Pozen</TD>
</TR>
<TR><TD WIDTH="48%"> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="left" WIDTH="48%">/s/ William R. Brody <BR>
<HR noshade color="black" size="1" width="50%">
William R. Brody, M.D., Ph.D.<BR>
</TD>
<TD> </TD>
<TD ALIGN="left" WIDTH="50%">/s/ Jean-Pierre Rosso <BR>
<HR noshade color="black" size="1" width="50%">
Jean-Pierre Rosso</TD>
</TR>
<TR><TD WIDTH="48%"> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="left" WIDTH="48%">/s/ Arthur D. Collins, Jr. <BR>
<HR noshade color="black" size="1" width="50%">
Arthur D. Collins, Jr.<BR>
</TD>
<TD> </TD>
<TD ALIGN="left" WIDTH="50%">/s/ Jack W. Schuler <BR>
<HR noshade color="black" size="1" width="50%">
Jack W. Schuler</TD>
</TR>
<TR><TD WIDTH="48%"> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="left" WIDTH="48%">/s/ Antonio M. Gotto <BR>
<HR noshade color="black" size="1" width="50%">
Antonio M. Gotto, Jr. M.D., D. Phil.<BR>
</TD>
<TD> </TD>
<TD ALIGN="left" WIDTH="50%">/s/ Gordon M. Sprenger <BR>
<HR noshade color="black" size="1" width="50%">
Gordon M. Sprenger</TD>
</TR>
<TR><TD WIDTH="48%"> </td></tr>
<TR VALIGN="BOTTOM" style="font-size:10pt">
<TD ALIGN="left" WIDTH="48%">/s/ Shirley Ann Jackson <BR>
<HR noshade color="black" size="1" width="50%">
Shirley Ann Jackson, Ph.D.</TD>
<TD> </TD>
<TD WIDTH="50%"></TD>
</TR>
</TABLE>
</DIV>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"> </P>
<HR COLOR="GRAY" SIZE="2">
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>24
<FILENAME>med052766_ex31-1.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 31.1 to Form 10-K dated April 29, 2005</title>
</HEAD>
<BODY>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 31.1</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">Certification of Chief Executive Officer<BR>Pursuant to Section 302
of the<BR>Sarbanes-Oxley Act of 2002</P>
<P style="font-size:10pt"> I, Arthur D. Collins, Jr., certify that:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(1)</TD>
<TD WIDTH="92%">I have reviewed this annual report on Form 10-K of Medtronic, Inc.;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(2)</TD>
<TD>Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(3)</TD>
<TD>Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(4)</TD>
<TD>The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="88%">Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD>(b)</TD>
<TD>Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD>(c)</TD>
<TD>Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD>(d)</TD>
<TD>Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(5)</TD>
<TD WIDTH="92%">The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="88%">All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD>(b)</TD>
<TD>Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.</TD>
</TR>
</TABLE>
<P style="font-size:10pt">Date: June 29, 2005</P>
<P>
</P>
<BR>
<BR>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="99%">/s/ Arthur D. Collins, Jr. </TD>
<TD WIDTH="1%"> </TD></tr>
<TR><td><HR noshade color="black" align="left" size="1" width="20%"></td></tr>
<tr style="font-size:10pt" VALIGN="TOP"><td>Arthur D. Collins, Jr.
<BR>
Chairman of the Board and Chief Executive Officer</td></tr>
</table>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>25
<FILENAME>med052766_ex31-2.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 31.2 to Form 10-K dated April 29, 2005</title>
</HEAD>
<BODY>
<P style="font-size:10pt"><P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 31.2</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">Certification of Chief Financial Officer<BR>Pursuant to Section 302
of the<BR>Sarbanes-Oxley Act of 2002</P>
<P style="font-size:10pt"> I, Gary L. Ellis, certify that:</P>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(1)</TD>
<TD WIDTH="92%">I have reviewed this annual report on Form 10-K of Medtronic, Inc. (Medtronic);</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(2)</TD>
<TD>Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(3)</TD>
<TD>Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD>(4)</TD>
<TD>The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="88%">Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD>(b)</TD>
<TD>Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD>(c)</TD>
<TD>Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD>(d)</TD>
<TD>Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(5)</TD>
<TD WIDTH="92%">The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):</TD>
</TR>
</TABLE>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%"> </TD>
<TD WIDTH="4%">(a)</TD>
<TD WIDTH="88%">All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and</TD>
</TR>
<TR style="font-size:10pt" VALIGN="TOP">
<TD> </TD>
<TD> </TD>
<TD>(b)</TD>
<TD>Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.</TD>
</TR>
</TABLE>
<P style="font-size:10pt">Date: June 29, 2005</P>
<P>
</P>
<BR>
<BR>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="99%">/s/ Gary L.Ellis</TD>
<TD WIDTH="1%"> </TD></tr>
<TR><td><HR noshade color="black" align="left" size="1" width="20%"></td></tr>
<tr style="font-size:10pt" VALIGN="TOP"><td>Gary L. Ellis
<BR>
Senior Vice President and Chief Financial Officer</td></tr>
</table>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>26
<FILENAME>med052766_ex32-1.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 32.1 to Form 10-K dated April 29, 2005</title>
</HEAD>
<BODY>
<P style="font-size:10pt"><P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 32.1</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">Certification of Chief Executive Officer<BR>Pursuant to Section 906
of the<BR>Sarbanes-Oxley Act of 2002</P>
<P style="font-size:10pt"> In connection with this annual report on Form 10-K
of Medtronic, Inc. for the fiscal year ended April 29, 2005, the undersigned hereby certifies, in his capacity as
Chief Executive Officer of Medtronic, Inc., for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:</P>
<P style="font-size:10pt;padding-left:30"> (1) The report fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and</P>
<P style="font-size:10pt;padding-left:30"> (2) The information contained
in this report fairly presents, in all material respects, the financial condition and results of operations of Medtronic, Inc.</P>
<BR>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="99%">/s/ Arthur D. Collins, Jr.
</TD>
<TD WIDTH="1%"> </TD></tr>
<TR><td><HR noshade color="black" align="left" size="1" width="20%"></td></tr>
<tr style="font-size:10pt" VALIGN="TOP"><td>
Arthur D. Collins, Jr.<BR>
Chairman of the Board and Chief Executive Officer
</td></tr>
</table>
<P style="font-size:10pt">Date: June 29, 2005</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>27
<FILENAME>med052766_ex32-2.htm
<TEXT>
<HTML>
<HEAD>
<title>Medtronic Exhibit 32.2 to Form 10-K dated April 29, 2005</title>
</HEAD>
<BODY>
<P style="font-size:10pt;font-weight:bold;text-align:right">Exhibit 32.2</P>
<P style="font-size:10pt;font-weight:bold;text-align:center">Certification of Chief Financial Officer<BR>Pursuant to Section 906
of the<BR>Sarbanes-Oxley Act of 2002</P>
<P style="font-size:10pt"> In connection with this annual report on Form 10-K
of Medtronic, Inc. for the fiscal year ended April 29, 2005, the undersigned hereby certifies, in his capacity as
Chief Financial Officer of Medtronic, Inc., for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:</P>
<P style="font-size:10pt;padding-left:30"> (1) The report fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and</P>
<P style="font-size:10pt;padding-left:30"> (2) The information contained
in this report fairly presents, in all material respects, the financial condition and results of operations of Medtronic, Inc.</P>
<BR>
<TABLE WIDTH="100%" CELLPADDING="2" CELLSPACING="2">
<TR style="font-size:10pt" VALIGN="TOP">
<TD WIDTH="99%">
/s/ Gary L. Ellis</TD>
<TD WIDTH="1%"> </TD></tr>
<TR><td><HR noshade color="black" align="left" size="1" width="20%"></td></tr>
<tr style="font-size:10pt" VALIGN="TOP"><td>
Gary L. Ellis
<BR>
Senior Vice President and Chief Financial Officer</td></tr>
</table>
<P style="font-size:10pt">Date: June 29, 2005</P>
<BR>
<BR>
<P style="font-size:10pt;text-align:center"></P>
<HR COLOR="GRAY" SIZE="2">
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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