10-K

Use these links to rapidly review the document
TABLE OF CONTENTS

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

o

Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.
For the fiscal year ended April 26, 2002

Commission File No. 1-7707

Medtronic, Inc.

(Exact name of registrant as specified in charter)

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

710 Medtronic Parkway
Minneapolis, Minnesota 55432
(Address of principal executive offices)
Telephone Number: (763) 514-4000

Securities registered pursuant to section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common stock, par value $.10 per share	New York Stock Exchange, Inc.
Preferred stock purchase rights	New York Stock Exchange, Inc.

Securities registered pursuant to section 12(g) of the Act:
None

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

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. (    )

Aggregate market value of voting stock of Medtronic, Inc. held by nonaffiliates of the Registrant as of July 5, 2002, based on the closing price of $41.30, as reported on the New York Stock Exchange: approximately $50.1 billion.

Shares of Common Stock outstanding on July 5, 2002: 1,213,361,907

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's 2002 Annual Report are incorporated by reference into Parts I, II and IV; portions of Registrant's Proxy Statement for its 2002 Annual Meeting are incorporated by reference into Part III.

TABLE OF CONTENTS

Item		Description
PART I
1	.	Business
2	.	Properties
3	.	Legal Proceedings
4	.	Submission of Matters to a Vote of Security Holders
PART II
5	.	Market for Medtronic's Common Equity and Related Shareholder Matters
6	.	Selected Financial Data
7	.	Management's Discussion and Analysis of Results of Operations and Financial Condition
7	A.	Quantitative and Qualitative Disclosures About Market Risk
8	.	Financial Statements and Supplementary Data
9	.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
10	.	Directors and Executive Officers of Medtronic
11	.	Executive Compensation
12	.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
13	.	Certain Relationships and Related Transactions
PART IV
14	.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Trademarks and Other Rights

This Report contains trademarks, service marks and registered marks of Medtronic, Inc. and its subsidiaries, ("Medtronic" or the "Company") and other companies, as indicated.

The following are registered and unregistered trademarks of Medtronic, Inc. and its affiliated companies:

Activa®, AneuRx®, Assurant™, Attain™, Bravo™, Bridge™, Cardiac Compass™, Cardioblate™, Driver™, Enterra™, Export™, FluoroNav®, Gatekeeper Reflux Repair System™, GEM®, GFX®, GuardWire Plus®, HORIZON® SEXTANT™, INFUSE™, InSync®, InterStim®, iON™, Itrel®, Jewel®, Kappa®, Kinetra™, LIFEPAK®, LT-CAGE™, Marquis™, MAST, Medtronic CareLink™, Meniett™, METRx™, MicroStent®, Mosaic®, N'Vision™, Octopus®, Paradigm™, Personal Therapy Manager™, RemoteView™, Reveal®, S7™, Sprint Quattro™, Starfish™, Stormer™, Strata™, SynchroMed®, Synergy™, Synergy Versitrel™, Talent™, TUNA®

Annual Meeting and Record Dates

Medtronic's Annual Meeting of Shareholders will be held on Thursday, August 29, 2002 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 5, 2002 and all shareholders of record at the close of business on that day will be entitled to vote at the Annual Meeting.

PART I

Item 1.    Business

Overview

        Medtronic is a world-leading medical technology company, providing lifelong solutions for people with chronic disease. We are committed to offering market-leading therapies worldwide to restore patients to fuller, healthier lives. With roots 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.

        We currently operate in five operating segments that manufacture and sell device-based medical therapies. Our business units are:

•

Cardiac Rhythm Management ("CRM")



•

Vascular



•

Cardiac Surgery



•

Neurological and Diabetes



•

Spinal and ENT

        The chart to the right shows the net sales and percentage of total net sales contributed by each of our business units for the fiscal year ending April 26, 2002 ("fiscal 2002").

        With innovation and market leadership, we have pioneered advances in medical technology in all of our business units and enjoyed steady growth. Over the last five years, our net sales have more than doubled, from $3,010.3 million in fiscal 1997 to $6,410.8 million in fiscal 2002. We attribute this growth to our continuing commitment to develop or acquire new products to treat an expanding array of medical conditions.

        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 the Company "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."

        With approximately 28,000 dedicated employees worldwide personally invested in supporting our mission, our success in leading global advances in medical technology is rooted in several key strengths:

•

Broad and deep technological knowledge of microelectronics, implantable devices and techniques, power sources, coatings, materials, programmable devices and related areas, and a tradition of technological pioneering and breakthrough products that not only yield better medical outcomes, but more cost-effective therapies.



•

High product quality standards, backed with stringent systems to ensure consistent performance that meets or surpasses customers' expectations.

1

•

Strong professional interaction and collaboration with customers, extensive educational programs designed for the medical community and thorough clinical research.



•

Full commitment to superior patient and customer service.



•

Long experience with the regulatory process and sound working relationships with regulators, including leadership roles in helping shape policy.



•

A proven financial record of sustained growth and continual introduction of new products.

        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 Medtronic's growth and success:

•

Increase market share in core product lines.



•

Meet unmet medical needs by leveraging Medtronic technologies.



•

Broaden our geographical presence in developed and developing markets.



•

Selectively merge with market leaders that complement or expand our broad base of market leadership in our core areas of interest and expertise, and acquire or invest in breakthrough technologies, to treat an increasing number of chronic diseases.



•

Ensure that people who could benefit from our device therapies increasingly have access to them.

        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.

Cardiac Rhythm Management

        Our Cardiac Rhythm Management business, which had a number of new product introductions in the past year, offers physicians and their patients a broad and technologically advanced product line to treat bradycardia, tachyarrhythmias and heart failure. We also offer external defibrillators, electrophysiology catheters, navigation systems and information systems to better manage patient care. The primary conditions addressed by this business and the principal products offered are described below.

    Conditions Treated

        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, one of the leading causes of death in the U.S. Physicians rely on our cardiac rhythm management products to correct

2

these irregularities and restore the heart to its normal rhythm. Our cardiac rhythm management products are designed to treat a broad range of heart conditions including those described below.

•

Bradycardia — an abnormally slow or unsteady heart rhythm



•

Tachyarrhythmia — heart rates that are too fast or irregular, including ventricular tachycardia and ventricular fibrillation, which occur in the ventricles (the lower chambers of the heart) and can lead to sudden cardiac arrest, 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 increases the risk of stroke



•

Heart Failure — inability of the heart to efficiently pump enough blood to meet the body's needs, characterized by difficulty breathing, chronic fatigue and fluid retention

        The table above sets forth the net sales of our cardiac rhythm management products as a percentage of our total net sales for each of the last three fiscal years.

    Principal Products

        Medtronic is a pioneer and the market leader in the development of implantable devices used to restore normal rhythms of the heart. We offer the broadest array of products in the industry for the diagnosis and treatment of heart rhythm disorders and heart failure. In the past year we have introduced new families of pacemakers, defibrillators and heart failure devices, as well as new leads and other devices. 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, electrophysiology catheters and information systems for the management of patients with our devices. Our cardiac rhythm management devices are currently implanted in more than 2 million patients worldwide.

Implantable Cardiac Rhythm Devices.

        Bradycardia is an abnormally slow or unsteady heart rhythm (usually less than 60 beats per minute) that causes symptoms such as dizziness, fainting, extreme fatigue and shortness of breath. Every year, thousands of patients are diagnosed with bradycardia, and the only known treatment for this condition is a cardiac pacemaker. More than 9 million people worldwide with access to health care suffer from bradycardia, yet only 40% of these patients receive pacemakers. These devices, such as the new Kappa® 900 pacemaker series, are battery-powered and implanted in the chest, and treat bradycardia by delivering electrical impulses to stimulate the heart to beat more frequently. Kappa 900 series has advanced diagnostic capabilities that gather information about heart activity that will allow physicians to make better patient management decisions. The electrical impulses generated by a pacemaker are carried to the treatment site of the heart by one or more leads, or insulated wires. We offer the broadest array of leads in

3

the market. Our dual-chamber pacemakers maintain synchronized timing between the upper and lower chambers of the heart to ensure efficient blood flow. More than 90% of our pacemakers are rate-responsive, adjusting the rate of pacing to the level of the patient's activity. For people who suffer from recurrent and irregular fainting spells and have been unable to determine the cause through traditional diagnostic tests, our Reveal® Insertable Loop Recorder can provide answers that lead to treatment. Inserted just under the skin, the Reveal recorder continuously monitors heart rhythm for up to 14 months. This information can be played back after a fainting episode. The Reveal recorder is the only device of its kind available on the market today.

        Tachyarrhythmia is a condition where the heart beats much faster than normal, sometimes between 100 and 400 beats per minute. Symptoms include shortness of breath, dizziness, sudden weakness, fluttering in the chest, lightheadedness and fainting. Two types of arrhythmias (ventricular tachycardia and ventricular fibrillation) begin in the lower chambers of the heart (the ventricles) and can be life-threatening. More than 1.4 million people with access to healthcare suffer from this condition worldwide, yet less than 20% receive device-based therapies. This abnormal condition of the heart could lead to sudden cardiac arrest, which is one of the most common causes of death. Implantable cardioverter defibrillators ("ICDs") are the first line of therapy to prevent sudden cardiac arrest. ICDs use electrical impulses to correct heart rhythm irregularities, continuously monitoring the heart until an arrhythmia is detected and then providing a burst of energy to restore the heart to its natural rhythm. ICDs are also connected to the heart by insulated lead wires. Arrhythmias that begin in the upper chambers (the atria), such as atrial fibrillation, can affect the quality of life and, if left untreated, can lead to strokes. There are an estimated 1 million people with access to healthcare who are currently untreated for this kind of arrhythmia.

        Medtronic offers the most comprehensive product choices to treat various kinds of tachyarrhythmias. The Marquis™ DR ICD, released in March 2002, is our most advanced defibrillator, with shorter charge times for increased patient safety and improved longevity for less frequent replacement. The new platform Marquis™ DR also has features such as Cardiac Compass™, which helps physicians monitor cardiac disease progression for more effective treatment. For patients who suffer from both ventricular and atrial tachyarrhythmias, the GEM® III AT defibrillator offers therapy for both of these conditions. Our recently released 6947 Sprint Quattro™ Lead was the first downsized quadripolar lead available in the market. An important study of the effectiveness of ICD therapy for heart attack survivors published in March 2002 showed that ICDs reduced mortality by 30% as compared to those receiving conventional treatment.

        Heart failure is a major and growing health problem, with nearly 5 million Americans currently diagnosed and up to 550,000 new cases each year, contributing to the estimated $40 billion spent annually to manage the disease in the U.S. alone. Worldwide, approximately 22 million people suffer from heart failure. For these patients, we offer devices that provide cardiac resynchronization therapy ("CRT"), a new therapy that improves the efficiency of the heart by synchronizing the contractions of multiple heart chambers. Our InSync® CRT system, along with several models of our Attain™ left-heart leads, was the world's first tri-chamber heart device and is commercially available in Europe and the U.S. In June 2002, the New England Journal of Medicine published results of the MIRACLE (Multi-Center InSync Randomized Clinical Evaluation) study, demonstrating, among other things, that patients receiving cardiac resynchronization therapy from our InSync device had 50% fewer hospitalizations and 77% fewer hospital days related to heart failure than those in the control group. For patients with more complex heart failure conditions, our InSync® ICD device, approved by the United States Food and Drug Administration ("USFDA") in June 2002, provides cardiac resynchronization therapy for heart failure plus advanced defibrillation capabilities for patients who are also at risk for potentially lethal tachyarrhythmias that may lead to sudden cardiac arrest. In heart failure patients, sudden cardiac arrest occurs at six to nine times the rate of the general population. In May 2002, the USFDA approved the Attain™ Over-the-Wire lead for market release. The lead, specially designed to provide easier left-heart access, gives physicians an

4

additional tool to meet the key challenge in cardiac resynchronization, which is precisely-timed delivery of electrical stimulation to both sides of the heart to optimize the beating action of the ventricles.

        We also have third- and fourth-generation heart failure devices in development. The InSync® III device, which has advanced programming functions to help physicians better manage heart failure patients, is available in Europe and is currently under clinical evaluation in the United States. Our InSync® Marquis™ system, currently in clinical trials, is based on the Marquis family platform and offers both cardiac resynchronization and defibrillation therapies.

        All of our implantable cardiac rhythm devices are designed to allow physicians to use our external programmers to adjust monitoring capabilities, electrical pulse intensity, rate, duration and other characteristics. Our new Medtronic CareLink™ Model 2090 Programmer with Remote View™ capability, approved by the USFDA in March 2002, enables physicians to consult with specialists in different locations by transferring a real-time image of the programming screens to the specialist via the Internet.

        Patient Management.    To achieve optimal results from our cardiac rhythm devices, physicians must obtain the diagnostic and therapeutic information recorded and stored by the device and adjust the performance of the device to meet the individual needs of each patient. This is generally done through office visits that increase healthcare costs and can inconvenience patients. Our Medtronic CareLink™ Patient Management Network was developed to allow physicians to evaluate patient information provided via the internet, offering the potential for more efficient chronic disease management and better patient outcomes. The CareLink Network is the first internet-based medical information system that allows patients to download information collected by their devices over a standard telephone line to a secure website for clinicians. Clinicians access their patients' data by logging onto the clinician website. With the information obtained through the CareLink Network, the physician can determine whether or not the device is operating at optimal parameters. If not, the physician can arrange to meet the patient and adjust the operation of the device with an external programmer. Although currently the CareLink Network is USFDA approved only for our GEM family of ICDs, it is designed to support all of our implanted cardiac rhythm devices as future USFDA approvals are obtained. In January 2002, we acquired Paceart, a leader in database systems for pacemakers, implantable defibrillators and arrhythmia management systems. Paceart, complemented by our CareLink Patient Management Network, provides offerings for increasing clinic capacity for patient monitoring and follow-up.

        External Defibrillators.    Nationally, the survival rate for victims of sudden cardiac arrest is less than 5% because the average response time to an emergency call for help is six to 12 minutes. Chances of survival are reduced significantly if the victim is not treated within five minutes. Our LIFEPAK® series offers a broad range of external defibrillators for multiple user needs and environments ranging from hospitals to emergency medical units to public places such as airports, sports arenas, schools and workplaces. Today there are more than 350,000 LIFEPAK devices distributed worldwide.

        By developing products, such as those for heart failure, that provide therapies for previously untreated heart arrhythmic conditions, we demonstrate our continued dedication to treating people with chronic disease and restoring them to fuller lives.

    Customers and Competitors

        The primary medical specialists who use our implanted cardiac rhythm devices include electrophysiologists, implanting cardiologists and cardiovascular surgeons. We hold a leading market position among implantable cardiology device manufacturers. Our primary competitors in this business are Guidant Corporation and St. Jude Medical, Inc.

5

Vascular

        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. The conditions treated by this business and the principal products produced by this business are described below.

    Conditions Treated

        Our vascular business offers minimally invasive products for the treatment of coronary vascular disease as well as diseases and conditions of the peripheral (non-coronary) arteries. Coronary vascular disease and peripheral vascular disease are described below.

•

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



•

Peripheral vascular disease — narrowing or blockage of arteries or veins outside the heart



•

Abdominal aortic aneurysm (AAA) — weakening and ballooning of the abdominal aorta

        The table to the right sets forth the net sales of our vascular products as a percentage of our total net sales for each of the last three fiscal years.

    Principal Products

        Our vascular products include coronary and peripheral stents and related delivery systems, stent graft systems to treat abdominal aortic aneurysm, distal embolic protection systems and a broad line of balloon angioplasty catheters, guide catheters, guidewires, diagnostic catheters and accessories.

        Coronary Stents.    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 using a thin, flexible tube, called a catheter, that is threaded through the coronary artery system to the site of the arterial blockage. A balloon on the end of the catheter is inflated, pressing the obstructive plaque against the wall of the vessel to improve blood flow. We offer a variety of balloon angioplasty catheters, including our Stormer™Over-The-Wire Balloon Dilatation Catheter system which received USFDA clearance for U.S. commercial sales in May 2002.

        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. We offer a variety of coronary stents, including our S7™ Coronary Stent System and its next generation, the Driver™Coronary Stent System, currently in clinical trials.

        We are continuing development work on a new delivery system for use in either balloon angioplasty or stent delivery. This new delivery system represents a fundamental shift from existing technologies. We expect to begin clinical trials in Europe later this summer and we anticipate that the new delivery system

6

will be available in the U.S. in late fiscal 2003. The decrease in vascular net sales in fiscal 2002 was primarily due to a September 2001 court order that required us to stop selling our line of rapid exchange perfusion delivery systems in the U.S. after finding that our systems infringed a competitor's patent. We continue to offer all of our coronary stents with other delivery systems in the U.S. and with rapid exchange delivery systems outside the U.S.

        Coating Technologies.    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 balloon angioplasty or placement of a stent. Although no drug-eluting stents have been commercially released in the U.S. market yet, they have become a significant competitive factor in the worldwide market for stents. Evidence of the effectiveness of drug-eluting stents in preventing restenosis is preliminary. In May 2002, we entered into an agreement with Abbott Laboratories that grants us co-exclusive use of Abbott's proprietary immunosupressant drug ABT-578 (a rapamycin analog) in our drug-eluting stent program, as well as the phosphoryl choline (PC) coating Abbott has licensed from Biocompatibles International PLC for use in conjunction with ABT-578. This proprietary biocompatible polymer has been shown in clinical studies to be a safe polymeric drug-eluting platform.

        In exchange for use of these coating systems, we have agreed to supply Abbott with our current over-the-wire stent delivery systems worldwide and our rapid exchange stent delivery systems outside the United States as well as our new single operator stent delivery system currently undergoing preclinical testing in the United States.

        Distal Embolic Protection System.    Our GuardWire Plus™ Temporary Occlusion and Aspiration System is designed to capture debris that might otherwise flow downstream toward the heart, where it may result in complications such as a heart attack or stroke. The system consists of a balloon-tipped guide wire which is inflated briefly to stop blood flow and prevent the escape of any material dislodged from the wall of the vessel during balloon angioplasty or placement of a stent. This debris is then removed from the blood vessel by using our Export® Aspiration Catheter before the balloon of the GuardWire Plus is deflated and blood flow restored. The GuardWire Plus system received USFDA clearance for marketing in the U.S. in June 2001. It is the first embolic protection system commercially available in the U.S. and is indicated for use in diseased saphenous vein graft interventions for individuals whose saphenous veins were used as grafts in prior coronary artery bypass surgery.

        Endovascular Stent Grafts and Peripheral Stents.    Our vascular product line includes a range of endovascular stent grafts and other peripheral vascular products. These include the AneuRx® and Talent™ stent grafts for minimally invasive abdominal aortic aneurysm repair. The AneuRx stent graft system is available in the United States and Europe while the Talent stent graft system is available only in Europe. 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. Our Bridge™ Assurant™ Balloon-Expandable Stent Delivery System for biliary treatment was commercially released in the U.S. in May 2002.

    Customers and Competitors

        The primary medical specialists who use our products treating coronary vascular disease are interventional cardiologists, while products treating peripheral artery 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.

Cardiac Surgery

        Our cardiac surgery business offers a broad range of products for use by cardiac surgeons in the operating room. Together our cardiac surgery, cardiac rhythm management and vascular businesses offer

7

an extensive array of products and services for cardiac care. The conditions treated by our cardiac surgery business and its principal products are described below.

    Conditions Treated

        Our cardiac surgery products are used in the treatment of the conditions described below.

•

Coronary artery disease — in patients who cannot be effectively treated with angioplasty or stents



•

Heart valve disease — disease of, or damage to, the heart valves that limits the heart's ability to pump blood, including stenosis, or narrowing of the valve opening, and regurgitation, where the valve may not close completely

        When physicians determine that they cannot effectively treat a blockage in a coronary artery using balloon angioplasty or stents, 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 reroute 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. Approximately 850,000 bypass procedures are performed each year worldwide.

        The table above sets forth the net sales of our cardiac surgery products as a percentage of our total net sales for each of the last three fiscal years.

    Principal Products

        Our cardiac surgery products consist of positioning and stabilization systems for beating heart surgery, perfusion systems for arrested heart surgery, products for the repair and replacement of heart valves and surgical accessories.

        Beating Heart Surgery.    Increasingly, physicians are performing coronary artery bypass surgery on the beating heart to avoid the complexity and potential risks of stopping the heart. To assist physicians performing beating heart surgery, we offer positioning and stabilization technologies. Our Starfish™ 2 Heart Positioner, commercially released in the U.S. in May 2002, uses suction technology to gently lift and position the beating heart to expose arteries on any of its surfaces. The Starfish heart positioner is designed to work in concert with our Octopus® 3 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 25% of the 350,000 coronary artery bypass surgeries that take place in the U.S. each year.

        Arrested Heart Surgery.    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 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 that maintain and monitor blood circulation and coagulation status, oxygen supply and body temperature during open heart surgery. As beating heart

8

surgery has become more popular, the market for arrested heart surgery products has been declining. For patients undergoing cardiac surgery, our Cardioblate™ device is designed to allow surgeons to efficiently restore a normal heart rhythm by neutralizing the cells causing troublesome electrical activity.

        Heart Valves.    Our heart valve product line includes tissue and mechanical valves and repair products for damaged or diseased heart valves. 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. We also market other tissue and mechanical heart valves to replace the heart's aortic and mitral valves. The market continues to shift from mechanical to tissue valves, which is beneficial to us because of our broad selection of tissue valve products.

    Customers and Competitors

        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 and St. Jude Medical, Inc.

Neurological and Diabetes

        The neurological and diabetes business is comprised of market-leading franchises in neurological, neurologic technologies, diabetes, gastroenterology and urology. The conditions treated by our neurological and diabetes business and its principal products are described below.

    Conditions Treated

        Our neurological and diabetes business offers products for the treatment of the conditions described below.

•

Neurological disorders — including chronic pain, Parkinson's disease, tremor, spasticity, hydrocephalus and traumatic brain injury



•

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



•

Gastroenterology and Urology — including gastroparesis, gastroesophageal reflux disease, incontinence and enlarged prostate (benign prostatic hyperplasia)

        The table above sets forth the net sales of our neurological and diabetes products as a percentage of our total net sales for each of the last three fiscal years. The increase in fiscal 2002 net sales was mainly due to the acquisition of our diabetes business in August 2001, as described below under "Diabetes."

    Principal Products

        Our neurological and diabetes products consist of therapeutic and diagnostic devices, including implantable neurostimulation systems, external and implantable drug administration devices, continuous glucose monitoring systems, hydrocephalic shunts and drainage devices, surgical instruments and functional diagnostic equipment.

9

        Neurological.    Medtronic is a pioneer in the field of restorative neuroscience using site-specific neurostimulation and drug delivery to modulate and restore the normal function of the central nervous system. We produce implantable systems that deliver drugs or electrical stimulation to the spinal cord and brain to treat pain and movement disorders. In January 2002, the USFDA approved the Activa® Parkinson's Control Therapy for commercial release in the U.S. to relieve the debilitating slowness, stiffness, shaking and abnormal, involuntary movements that are common symptoms of advanced Parkinson's disease. The Activa system delivers carefully controlled pulses of electrical stimulation to precisely targeted areas of the brain using an implanted medical device similar to a cardiac pacemaker. The Kinetra™ neurostimulator provides dual-channel brain stimulation for bilateral treatment of both Parkinson's disease and Essential Tremor through a single device. We began commercial sales of the Kinetra neurostimulator throughout Europe and Canada in October 1999. The Kinetra neurostimulator is awaiting USFDA clearance in the U.S.

        We are the market leader and primary innovative force in the field of spinal cord stimulation for the treatment of chronic pain. The Synergy Versitrel™ implantable neurostimulator approved by the USFDA in January 2002 is designed to treat patients with chronic debilitating pain and joins our Synergy™ and Itrel®3 neurostimulator offerings. The Synergy and Synergy Versitrel systems deliver neurostimulation through one or two leads surgically placed near the spinal cord. Stimulation patterns are adjustable along multiple parameters, with the stimulation levels delivered by each lead controlled separately. Pain-relieving stimulation is felt as a slight tingling sensation. We also offer hand-held programmers or controllers for patients with our Activa, Kinetra, Synergy Versitrel, Synergy and Itrel 3 devices.

        We offer a complete line of implantable drug delivery systems, including both programmable and fixed-rate devices that are used to treat chronic malignant and non-malignant pain, spasticity and colorectal cancer that has spread to the liver. The SynchroMed® EL drug delivery system is a small, programmable, implantable drug pump that is placed in the abdomen together with a catheter that delivers medication directly to the fluid-filled area that bathes the spinal cord. By delivering precise doses of medication directly to the central nervous system, the SynchroMed EL drug delivery system reduces the amount of medication necessary to control pain and spasticity, thereby minimizing undesirable side effects. The SynchroMed system is programmable to deliver pre-determined dosages of medication. The handheld N'Vision™ Programmer, commercially released in Europe in May 2002, is a common programmer platform intended for use with all of our neurostimulators, InterStim® stimulators, Enterra™ stimulators and SynchroMed drug pumps. The Personal Therapy Manager™, also commercially released in Europe in May 2002, allows patients to adjust their dose within physician prescribed limits to optimize pain control or spasticity management. The N'Vision Programmer and the Personal Therapy Manager are awaiting USFDA approval in the U.S.

        We are the market leader in medical technology for the management of cerebrospinal fluid. In February 2002, the USFDA cleared for U.S. commercial release our Strata™ valve used in the treatment of hydrocephalus, an abnormal accumulation of cerebrospinal fluid in the ventricles of the brain. The Strata valve is a hydrocephalic shunt that diverts excess cerebrospinal fluid from the brain cavity to the abdomen where it becomes reabsorbed by the body. Each year, about 160,000 people worldwide receive a hydrocephalic shunt. The Strata™ valve was commercially released in Europe in February 2000.

        Our neurological product group also includes powered surgical tools, including pneumatic instrumentation for surgical dissection of bones, biometals, bioceramics and bioplastics, as well as instruments for use in orthopedic, otolaryngological, maxillofacial and craniofacial procedures.

        Diabetes.    We entered the diabetes market in August 2001 with the acquisition of MiniMed Inc. and Medical Research Group described under "Acquisitions and Investments" below.

        More than 150 million people are afflicted with diabetes worldwide, with about 20 million in the U.S. In people with diabetes, the body cannot properly use energy from food. Type 1 diabetes occurs when the pancreas is unable to produce insulin. In order to survive, a person must administer insulin using injections

10

or an insulin pump. Type 2 diabetes results from the body's inability to make enough or properly use insulin. 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 addition, it is a major factor in both heart disease and impotence. Diabetes is the most costly chronic condition facing America's healthcare system, with more than $100 billion spent annually on diabetes and its complications, including $44 billion in direct medical costs.

        With the acquisitions of MiniMed Inc. and Medical Research Group in August 2001, we are now the leader in advanced device-based medical systems for the treatment of diabetes. Our products are used for intensive insulin management and include external pumps and related disposables, a continuous glucose monitoring system, an implantable insulin pump (currently approved for distribution in Europe but not yet cleared for marketing in the U.S.) and an implantable glucose sensor, which is in clinical trials. Currently, our pumps are available for use by Type 1 diabetes patients. In February 2002, we announced the U.S. market launch of our Paradigm™ insulin infusion pump. The Paradigm pump joined our existing Model 508 pump, currently the leading choice in insulin pump therapy. Pump wearers can deliver insulin without accessing the pump by using a hand-held remote programmer. The Paradigm pump is the smallest full-featured pump available on the market and the easiest to use. 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 longer-acting insulin, it helps diabetes patients to better control their glucose levels within a near-normal range, offering both short-term and long-term health benefits.

        Gastroenterology and Urology.    Our diagnostic and therapeutic products for gastroenterology and urology include Enterra™ Therapy for gastroparesis, Bravo™ pH monitoring system and Gatekeeper Reflux Repair System™ for the evaluation and treatment, respectively, of gastroesophageal reflux disease (GERD), or acid reflux, InterStim Therapy for urinary and bowel control, TUNA® (transurethral needle ablation) therapy for enlarged prostate and functional diagnostic equipment. We entered the GERD market with the acquisition of Endonetics, Inc., in December 2001 and the enlarged prostate market with the acquisition of VidaMed, Inc. in April 2002 described under "Acquisitions and Investments" below.

        In May 2002, we began U.S. commercial sales of the Bravo pH monitoring system, the first catheter-free diagnostic system for measuring acid levels in the esophagus to evaluate GERD. A common disorder that is frequently misdiagnosed, GERD is caused when the lower esophageal sphincter that separates the stomach from the esophagus becomes weak and ineffective, allowing stomach contents to flow back, or reflux, into the esophagus. The Gatekeeper Reflux Repair System for the non-invasive treatment of GERD is undergoing clinical trials in the United States and Europe.

        Our InterStim Therapy for Urinary Control treats urinary retention and symptoms of an overactive bladder, including urinary urge incontinence and significant symptoms of urgency-frequency, by delivering mild electrical impulses to the sacral nerves with an implantable medical device similar to a cardiac pacemaker. The sacral nerves, located in the lower back, influence bladder function. Reimbursement in the U.S. for InterStim Therapy increased threefold in January 2002 to reflect more accurately the time, resources and expertise associated with implanting these devices. The improved reimbursement rate acknowledges the value of sacral nerve stimulation to treat urinary control problems and will help broaden the use of the treatment for more patients.

        TUNA, or transurethral needle ablation, is designed to treat benign prostatic hyperplasia ("BPH"), an aggressive and naturally occurring condition that enlarges the prostate gland, afflicting up to 23 million men worldwide. TUNA is a non-surgical procedure that uses low-level, precisely controlled radio frequency energy to diminish prostate tissue while protecting adjacent structures from harm. TUNA reduces the risk of side effects, such as incontinence and impotence, often associated with transurethral resection of the prostrate, the standard surgical treatment for BPH.

11

    Customers and Competitors

        The primary medical specialists who use our neurological products are neurosurgeons, neurologists and pain management specialists and those who use our neurologic technology products are neurosurgeons 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. and Arrow International, Inc. Our primary competitors for neurologic technology products are Johnson & Johnson, Stryker Corporation and Anspach Companies. Our primary competitors for diabetes products are Disetronic Medical Sytems, Inc. and Animas Corporation. Our primary competitors for gastroenterology and urology products are Boston Scientific Corporation and Urologix, Inc.

Spinal and Ear, Nose and Throat ("ENT")

        We offer a range of products and therapies to treat a variety of disorders of the cranium and spine that often dramatically affect the quality of life and to treat diseases and conditions affecting the ear, nose and throat. The conditions treated, and products offered, by this business are described below.

    Conditions Treated

        Our Spinal and ENT business offers products for treatment of the conditions described below.

•

Spinal disorders — herniated disc, congenital spine disorders, degenerative disc disease, tumor, trauma/fracture and stenosis



•

Ear, Nose and Throat — diseases and conditions affecting the ear, nose and throat

        The table to the right sets forth the net sales of our Spinal and ENT products as a percentage of our total net sales for each of the last three fiscal years.

    Principal Products

        Spinal and ENT products which are used in surgical procedures of the head and spine include thoracolumbar, cervical and interbody spinal devices, surgical navigation tools and surgical products used by ENT physicians.

        Spinal.    We produce devices, instruments, computer-assisted visualization products and biomaterials used by spine surgeons, orthopedic surgeons and neurosurgeons in the treatment of disorders of the cranium and spine, including a wide range of sophisticated internal bone fixation devices. More than 150,000 Americans undergo spinal fusion each year to treat low back pain and other spinal problems. Spinal fusions, currently one of the most common types of spine surgery, essentially "weld" two or more vertebrae together to eliminate pain caused by movement of the unstable vertebrae. We also offer a range of fixation and fusion products used in such procedures.

12

        Our spinal business leads the industry in the development of Minimal Access Spinal Technologies (MAST). The introduction of the METRx™ Microdiscectomy System used to treat herniated discs and the CD HORIZON® SEXTANT™ Spinal System used for minimally invasive fixation of the lumbar spine are examples of ongoing efforts in this area to provide better alternatives to conventional surgery.

        In July 2002, we received USFDA approval of our INFUSE™ Bone Graft used with the LT-CAGE™ Lumbar Tapered Fusion Device for treatment of certain types of spinal degenerative disc disease, a common cause of low back pain. The INFUSE Bone Graft contains a recombinant human bone morphogenetic protein or rhBMP-2, which induces the body to grow its own bone where needed, eliminating the need for a painful second surgery to harvest bone from elsewhere in the body. This product resulted from a strategic alliance with Genetics Institute (now Wyeth BioPharma) and demonstrates our commitment to the advancement of science in the spine field.

        Our image-guided surgery systems use sophisticated multi-dimensional imaging and navigation technologies that enable neurosurgeons to optimize their surgical plans and use this advanced surgical information during the procedure and delivery of therapies. Our FluoroNav® and iON™ fluoroscopic navigation systems enable intra-operative visualization and navigation for spinal and orthopedic procedures, while significantly reducing radiation exposure for patients, physicians and operating room staff. These advanced imaging and navigation technologies enable physicians to perform safer, less invasive surgical procedures that improve outcomes.

        Ear, Nose and Throat.    We are the leading provider of products for ENT surgical specialists, offering the broadest product line for the surgical treatment of ENT disorders, including powered systems for tissue removal and sinus micro-endoscopy, image-guided surgery systems, nerve monitoring systems, implantable devices and biomaterials. Our Meniett™ pulse generator is used for the treatment of Meniere's disease, a disorder of the inner ear that causes vertigo, tinnitus and hearing loss. The Meniett device is used to normalize the hydrodynamic system of the inner ear.

    Customers and Competitors

        The primary medical specialists who use our spinal products are spine surgeons, orthopedic surgeons and neurosurgeons and those who use our ENT products are ENT surgeons (otorhinolaryngologists). Our primary competitors in the spinal business are Johnson & Johnson, Synthes-Stratec, Inc. and Sulzer A.G. and in the ENT business are Gyrus Group PLC and Stryker Corporation.

Research and Development

        Our research and development staff regularly works with clinicians and 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. We spent the following amounts on research and development: $646.3 million in fiscal 2002 (10.1% of net sales), $577.6 million in fiscal 2001 (10.4% of net sales), and $488.2 million in fiscal 2000 (9.7% of net sales). These funds have been applied toward improving existing products and therapies, expanding their applications for use and developing new products.

        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 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 have not engaged in significant customer- or government-sponsored research.

Acquisitions and Investments

        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

13

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, we have historically 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.

        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 financial condition or operating results.

        In August 2001, we acquired MiniMed Inc. and a related company, Medical Research Group, Inc., for a total of approximately $3.8 billion in cash. With these acquisitions we became a leading provider of external programmable insulin pumps and continuous glucose monitoring systems, and a leader in the development of implantable insulin pumps and glucose sensors.

        In December 2001, we acquired Endonetics, Inc., a privately held company, for approximately $67 million in cash. Endonetics develops diagnostic and therapeutic devices to manage gastrointestinal conditions, including the Bravo pH monitoring system for patients experiencing or suspected of having gastroesophageal reflux disease. We acquired Endonetics to accelerate our entry into the gastrointestinal market.

        In April 2002, we acquired VidaMed, Inc. for approximately $329 million in cash. With VidaMed's TUNA system for the non-surgical treatment of enlarged prostate glands, we added a significant product to our urology business.

        In April 2002, we also acquired the remaining equity in a joint venture it had formed to distribute spinal products in Japan for $128 million in cash, of which $58 million will be paid over the next seven years.

        In June 2002, we entered into an agreement to acquire Spinal Dynamics Corporation ("SDC"), a developer of an artificial cervical disc that can provide greater neck mobility after surgery. Currently, this product is available in Europe and under clinical review in the U.S. The transaction is valued at approximately $270 million and is expected to be completed during the second quarter of fiscal 2003.

Markets and Distribution Methods

        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.

        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 fosters 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 to 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.

14

        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 purchasing groups to enhance purchasing power. As a result, transactions with customers have become increasingly significant and 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 revenue.

Patents and Licenses

        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 genuine Medtronic 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.

        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. Although our intellectual property rights are important to our success, our business as a whole is not materially dependent on any particular patent or license.

        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 we believe that the patent litigation incident to our business will generally not have a material adverse impact on our financial position or liquidity, it may be material to the consolidated results of operations of any one period. See "Item 3 — Legal Proceedings" for additional information.

Competition and Industry

        We compete in the therapeutic and diagnostic medical markets both in the U.S and around 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 smaller 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:

•

product reliability


•

product performance


•

product technology


•

product quality


•

breadth of product lines


•

product services


•

customer support


•

price

15

        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 health care 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 addressing areas of significant demand in the marketplace, obtain regulatory approvals and manufacture and successfully market these products.

United States and Non-United States Operations

        We sell products in more than 120 countries. For financial reporting purposes, revenues and long-lived assets attributable to significant geographic areas are presented in Note 15 to the consolidated financial statements and incorporated herein by reference to our 2002 Annual Report to Shareholders (the "2002 Annual Report").

        Operation in countries outside the U.S. is 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 rapidly changing business conditions and currency exposure. Currency exchange rate fluctuations can affect income from, and profitability of, non-U.S. operations. 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 Results of Operations and Financial Condition and Note 4 to the consolidated financial statements, incorporated herein by reference to our 2002 Annual Report. Certain countries also limit or regulate the repatriation of earnings to the U.S. Non-U.S. operations in general present complex tax and money management issues requiring sophisticated analysis to meet our financial objectives.

Production and Raw Materials

        We manufacture most of our products at 17 major manufacturing facilities located in the U.S. and throughout the world. We purchase many of the components and raw materials used in manufacturing these products from numerous suppliers in the U.S. and abroad. 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 USFDA'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, or our inability to develop alternative sources for such supply, could adversely affect our operations.

Employees

        On April 26, 2002, we employed approximately 28,000 full-time and full-time equivalent 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.

Seasonality

        Worldwide sales do not reflect any significant degree of seasonality.

16

Government Regulation and Other Considerations

        Our medical devices are subject to regulation by numerous government agencies, including the U.S. Food and Drug Administration 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.

        Authorization to commercially distribute a new medical device in the United States 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 medical device first marketed before May 1976. 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 USFDA investigational device regulations. We must receive an order from the USFDA finding substantial equivalence before we can commercially distribute the new medical device. Modifications to approved medical devices can generally be made without compliance with the 510(k) process if the changes do not significantly affect safety or effectiveness.

        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 human clinical data for the medical device. The USFDA 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.

        Both before and after a product is commercially released, we have ongoing responsibilities under USFDA regulations. The USFDA reviews design and manufacturing practices, labeling and record keeping for medical devices, and manufacturers' required reports of adverse experience and other information to identify potential problems with marketed medical devices. If the USFDA 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 USFDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order 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 USFDA may also enjoin and restrain certain violations of applicable law pertaining to medical devices, or initiate action for criminal prosecution of such violations. The USFDA also administers certain controls over the export of medical devices from the U.S.

        International sales of our medical devices that have not received USFDA approval are subject to USFDA export requirements. Each foreign country where 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 USFDA. 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.

        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.

        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. This has created an increasing level of price sensitivity among customers for our products. Some third-party payers must also approve coverage for new or innovative devices or therapies before they will reimburse healthcare providers using the medical devices or therapies. Even though a new medical

17

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 payers. Although we believe we are well-positioned to respond to changes resulting from the worldwide trend toward cost containment as a result of our manufacturing efficiencies and cost-controls, uncertainty as to the nature of any future legislation or changes makes it difficult for us to predict the potential impact of these trends on future operating results.

        We operate in an industry susceptible to significant product liability claims. These claims may be brought by individuals seeking relief for themselves 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.

        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 in manufacturing and sterilization processes. While it is difficult to quantify the potential impact of compliance with environmental protection laws, we believe that such compliance will not have a material impact on our financial position, results of operations or liquidity.

        In previous years, a portion of our insurable risks were covered by insurance policies, which had shifted to increasingly higher levels of self-insurance retentions. Rates charged by insurance companies for coverage on most of our insurance policies have significantly increased for several reasons, including the current economic factors impacting the insurance industry and the terrorist attacks of September 11, 2001. As a result of these dramatic increases, we elected to transition to self-insurance at the beginning of fiscal 2003, and will continue to evaluate obtaining insurance coverage in the future. Based on historical loss trends, we believe that our self-insurance program 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 financial position, results of operations and liquidity.

Cautionary Factors That May Affect Future Results

        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 for future results. Our forward-looking statements generally relate to growth strategies, financial results, product development, regulatory approvals, competitive strengths, the scope of our intellectual property rights, and sales efforts. Words such as "anticipates," "believes," "could" "estimates," "expects," "forecast," "intend," "may," "plan," "possible," "project," "should," "will" and similar expressions generally identify our forward-looking statements. 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:

•

Effective management of and reaction to risks involved in our business, including:


•

our ability to achieve manufacturing efficiencies, gross margin benefits from our manufacturing process and supply chain programs


•

our ability to manage financial assets, including effective cash management


•

our ability to successfully complete planned clinical trials and to develop products on a timely basis


•

timing, size and nature of strategic initiatives, market opportunities and research and technology platforms available to us


•

price and volume fluctuations in the stock markets and their effect on the market prices of technology and healthcare companies

18

•

the efficient integration of acquired businesses


•

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


•

our ability to anticipate and react effectively to the changing managed-care environment


•

our ability to effectively manage our inventory mix and inventory levels


•

our ability to maintain or increase research and development expenditures


•

our ability to maintain our effective tax rate




•

Competitive factors, including:

•

pricing pressures, both in the United States and abroad



•

development of new products by competitors having superior performance compared to our current products



•

technological advances, patents and registrations obtained by competitors



•

issues with licensors, suppliers and distributors




•

Difficulties and delays inherent in the development, manufacturing, marketing and sale of medical products, including:

•

lengthy and costly regulatory clearance processes, which may result in lost market opportunities or harm product commercialization



•

our ability to obtain favorable third-party payer reimbursement authorizations for our products



•

the suspension or revocation of authority to manufacture, market or distribute existing products



•

the imposition of additional or different regulatory requirements, such as those affecting manufacturing and labeling



•

ongoing efficacy or safety concerns for existing products



•

seizure or recall of products



•

the failure to obtain, limitations on the use of, or the loss of patent and other intellectual property rights




•

Governmental action, including:

•

impact of continued healthcare cost-containment efforts



•

new laws and judicial decisions related to healthcare availability and payment for healthcare products and services or the marketing and distribution of products



•

changes in the U.S. Food and Drug Administration and foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market opportunity



•

the impact of more vigorous compliance and enforcement activities



•

changes in the tax and environmental laws affecting our business




•

Legal disputes, including:

•

disputes over intellectual property rights



•

product liability claims

19

•

claims asserting securities law violations



•

claims asserting violations of federal law in connection with Medicare and/or Medicaid reimbursement



•

derivative shareholder actions



•

claims asserting antitrust violations



•

environmental matters




•

General economic conditions, including:

•

international and domestic business conditions



•

political instability in foreign countries



•

interest rates



•

foreign currency exchange rates



•

changes in the rate of inflation



•

the market value of our investments in other companies



•

our ability to reduce the impact of these conditions on our results




•

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.

        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.

        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) could affect, our ability to implement our business strategy and may 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.

        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 historic 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.

Executive Officers of Medtronic

        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 of office

20

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.

Arthur D. Collins, Jr., age 54, 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.

Jeffrey A. Balagna, age 41, has been Senior Vice President and Chief Information Officer of the Company 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.

Michael F. DeMane, age 46, has been Senior Vice President and President, Spinal, ENT and SNT, since February 2002 and President, Spinal, since January 2000. Prior to that, he was President, Interbody Technologies division of Sofamor Danek, from June of 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.

Janet S. Fiola, age 60, 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.

Robert M. Guezuraga, age 53, has been Senior Vice President and President, Cardiac Surgery, since August 1999, and 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.

William A. Hawkins, age 48, joined the Company as Senior Vice President and President, Vascular, in January 2002. He served as President and Chief Executive Officer of Novoste Corp. from 1998 to 2002, was Corporate Vice President of American Home Products Corporation and President of its Sherwood Davis & Geck Division from April 1997 to May 1998. Prior to that 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.

Stephen H. Mahle, age 56, has been Senior Vice President and President, Cardiac Rhythm Management, since January 1998. Prior to that, he was President, Brady Pacing, from May 1995 to December 1997 and Vice President and General Manager, Brady Pacing, from January 1990 to May 1995. Mr. Mahle has been with the Company for 30 years and served in various general management positions prior to 1990.

Stephen N. Oesterle, M.D. age 51, 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, 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

21

held other academic positions and directed interventional cardiology programs at Georgetown University and in Los Angeles.

Robert L. Ryan, age 59, has been Senior Vice President and Chief Financial Officer since April 1993. Prior to joining the Company, Mr. Ryan was Vice President, Finance, and Chief Financial Officer of Union Texas Petroleum Corp. from May 1984 to April 1993, Controller from May 1983 to May 1984, and Treasurer from March 1982 to May 1983.

David J. Scott, age 49, has been Senior Vice President and General Counsel since joining the Company in May 1999 and Secretary since January 2000. Prior to that, Mr. Scott was General Counsel of London-based United Distillers & Vintners from December 1997 to April 1999, General Counsel of London-based International Distillers & Vintners ("IDV") from April 1996 to November 1997, and Senior Vice President and General Counsel of IDV's operating companies in North and South America from January 1993 to March 1996.

Scott R. Ward, age 42, has been Senior Vice President and President, Neurological and Diabetes, since February 2002, 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.

Keith E. Williams, age 49, became Senior Vice President and Chief Quality Officer in February 2002, and was Senior Vice President and President, Neurological, Spinal and ENT, from August 2000 to February 2002. Prior to that he served as Senior Vice President and President, Asia/Pacific, from May 1999 to August 2000. Mr. Williams joined the Company in April 1997 as President, Asia/Pacific. Prior to that he held various sales, marketing and general management positions with GE's Medical Systems division for 23 years, including President, GE Medical Systems China, from 1993 to 1996.

Barry W. Wilson, age 58, has been Senior Vice President since September 1997 and President, International, since April 2001. He was President, Europe, Middle East and Africa, from April 1995 to March 2001. Prior to that, Mr. Wilson was President 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.

Item 2.    Properties

        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, Denmark, France, India, Ireland, Japan, 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.

        We also maintain sales and administrative offices in the United States at approximately 90 locations in 33 states or jurisdictions and outside the United States at approximately 107 locations in 32 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.

Item 3.    Legal Proceedings

        In October 1997, Cordis Corporation ("Cordis"), a subsidiary of Johnson & Johnson, filed suit in federal court in the District Court of Delaware against Arterial Vascular Engineering, Inc., which we acquired in January 1999 ("AVE"). The suit alleged that AVE's modular stents infringe certain patents now

22

owned by Cordis. Boston Scientific Corporation is also a defendant in this suit. In December 2000, a Delaware jury rendered a verdict that the previously marketed MicroStent® and GFX® stents infringe valid claims of two patents and awarded damages to Cordis totaling approximately $270.0 million. In March 2002, the Court entered an order in favor of AVE, deciding as a matter of law that AVE's MicroStent and GFX stents do not infringe the patents. Cordis has publicly stated its intention to file an appeal.

        In December 1997, Advanced Cardiovascular Systems, Inc. ("ACS"), a subsidiary of Guidant Corporation, sued AVE in federal court in the Northern District of California alleging that AVE's modular stents infringe certain patents held by ACS, and is seeking injunctive relief and monetary damages. AVE denied infringement and in February 1998, AVE sued ACS in federal court in the District Court of Delaware alleging infringement of certain of its stent patents, for which AVE is seeking injunctive relief and monetary damages. The cases have been consolidated in Delaware and an order has been entered staying the proceedings until September 2002.

        In August 1999, more than 12 years after its business operations were abandoned, Stenticor, Inc. ("Stenticor") and two of its shareholders filed suit in California state court in Santa Rosa alleging that certain of Stenticor's trade secrets were misappropriated by AVE and two individuals who were former officers and/or shareholders of Stenticor. The lawsuit alleges that Stenticor owned the modular stent design used in certain stents sold by AVE, and that the individual defendants misappropriated those trade secrets to Endovascular Support Systems, which ultimately transferred them to AVE. Plaintiffs have also asserted claims for breach of contract, breach of fiduciary duty, misrepresentation and unfair competition. Defendants have asserted a counterclaim for professional negligence, and AVE has agreed to indemnify the individual defendants except in certain circumstances. Trial is scheduled for August 2002.

        In June 2000, Medtronic filed suit in United States District Court in Minnesota against Guidant Corporation seeking a declaration that our Jewel® AF device does not infringe certain patents held by Guidant and/or that such patents were invalid. Thereafter, Guidant filed a counterclaim alleging that the Jewel AF and the Gem III AT infringe certain patents relating to atrial fibrillation. The case is in the discovery stage.

        In September 2000, Cordis filed an additional suit against AVE in the District Court of Delaware alleging that AVE's S670, S660 and S540 stents infringe the patents asserted in the October 1997 Cordis case above. The Court has stayed proceedings in this suit until the appeals have been decided in the 1997 case above.

        In January 2001, DePuy/AcroMed, Inc., a subsidiary of Johnson & Johnson, Inc., filed suit in U.S. District Court in Massachusetts alleging that MSD was infringing a patent relating to a design for a multiaxial pedicle screw. In March 2002, DePuy/AcroMed supplemented its allegations, and now claims that MSD's M10, M8 and Vertex screws infringe the patent. The suit is in discovery stages.

        In May 2001, Medtronic Sofamor Danek, Inc. ("MSD"), our subsidiary, filed a lawsuit against Dr. Gary Karlin Michelson and Karlin Technology, Inc. (together, "KTI") in the U.S. District Court for the Western District of Tennessee. The suit seeks damages and injunctive relief against KTI for breach of purchase and license agreements relating to intellectual property in the field of threaded and non-threaded spinal interbody implants, fraud, breach of non-competition obligations and other claims. In October 2001, KTI filed several counterclaims against MSD as well as a third party complaint against Sofamor Danek Holdings, Inc., a related entity, seeking damages and injunctive relief based on several claims, including breach of contract, infringement of several patents, fraud and unfair competition. The case is in discovery and trial is scheduled for January 2003.

        In June 2001, MiniMed Inc. ("MiniMed") and its directors were named in a putative class action lawsuit filed in the Superior Court of the State of California for the County of Los Angeles. The plaintiffs purport to represent a class of stockholders of MiniMed asserting claims in connection with our acquisition of MiniMed, alleging violation of fiduciary duties owed by MiniMed and its directors to the MiniMed

23

stockholders. Among other things, the complaint sought preliminary and permanent injunctive relief to prevent completion of the acquisition. In August 2001, the Court denied the plaintiffs' request for injunctive relief to prevent completion of the acquisition.

        In December 2001, VidaMed, Inc. and its directors were named in a putative class action suit in the Court of Chancery of the State of Delaware for the County of Newcastle. The plaintiffs purport to represent a class of shareholders of VidaMed asserting claims in connection with our acquisition of VidaMed, alleging that VidaMed and its directors violated various fiduciary duties to the VidaMed shareholders.

        We believe that we have meritorious defenses against the above claims and intend to vigorously contest them. The outcomes of the litigation matters discussed above are not considered probable or cannot be reasonably estimated. Accordingly, we have recorded no reserves regarding these matters on our financial statements as of April 26, 2002. We record a liability when a loss is known or considered probable and the amount can be reasonably estimated. If a loss is not probable or a probable loss cannot be reasonably estimated, a liability is not recorded. While it is not possible to predict the outcome of the actions discussed above, we believe that costs associated with them will not have a material adverse impact on our financial position or liquidity, but may be material to the consolidated results of operations of any one period.

        In December 1999, ACS sued Medtronic and AVE in federal court in the Northern District Court of California alleging that the S670 rapid exchange perfusion stent delivery system infringes a patent held by ACS. ACS filed a demand for arbitration with the American Arbitration Association in Chicago simultaneously with the lawsuit. AVE filed an answer denying infringement based on its license to the patent for perfusion catheters as part of the assets acquired from C.R. Bard in 1998. The parties have arbitrated all claims against all of AVE's rapid exchange perfusion angioplasty balloons and stent delivery systems. In April 2002, the arbitrators found the rapid exchange perfusion devices to be unlicensed and awarded damages to ACS in the amount of $158.0 million plus prejudgment interest. The U.S. District Court in the Northern District of California has confirmed the award. We have paid and satisfied the judgment. We had already discontinued sales of rapid exchange perfusion devices in the U.S. in September 2001. The $158.0 million in damages plus the prejudgment interest are reflected in fiscal 2002 consolidated financial results.

        In March 2000, Boston Scientific Corporation ("BSX") sued AVE in federal court in the Northern District of California alleging that the S670 rapid exchange perfusion stent delivery system infringes a patent held by Boston Scientific. As previously disclosed, arbitration hearings were held in April 2001 and, in July 2001, the arbitrators issued an award in favor of BSX, finding infringement, awarding approximately $169.0 million in damages plus legal fees and costs to BSX, and allowing for an injunction against future sales in the U.S. of certain rapid exchange perfusion delivery systems. We recognized these and other related expenses during the fourth quarter of fiscal 2001 and first quarter of fiscal 2002. In September 2001, the U. S. District Court for the Northern District of California issued an order confirming the arbitration award, including imposition of the injunction. AVE has filed an appeal and a bond to stay enforcement of the money judgment until the appeal is resolved.

        In June 2000, Edwards LifeSciences, Inc. ("Edwards") filed suit in the U.S. District Court in Delaware alleging infringement of certain patents directed to prosthetic aortic heart valves and a holder for annuloplasty rings. In March 2001, Edwards amended its complaint to add a patent relating to a holder device for prosthetic mitral heart valves that employ a suture loop guard. The parties have settled the litigation relating to the patents for aortic heart valves and a holder for annuloplasty rings. The settlement is reflected in consolidated fiscal 2002 results. Patent issues relating to the holder with suture loop guards were resolved in favor of Medtronic through binding arbitration in July 2002.

        Note 13 to the consolidated financial statements in Medtronic's 2002 Annual Report is incorporated herein by reference.

24

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

        Not applicable.

PART II

Item 5.    Market for Medtronic's Common Equity and Related Shareholder Matters

        The information in the section entitled "Price Range of Medtronic Stock" in Medtronic's 2002 Annual Report is incorporated herein by reference.

Item 6.    Selected Financial Data

        The information for the fiscal years 1998 through 2002 in the section entitled "Selected Financial Data" in Medtronic's 2002 Annual Report is incorporated herein by reference.

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

        The information in the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" in Medtronic's 2002 Annual Report is incorporated herein by reference.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        The information in Management's Discussion and Analysis of Results of Operations and Financial Condition in the section entitled "Market Risk" and Note 4 to the consolidated financial statements in Medtronic's 2002 Annual Report is incorporated herein by reference.

Item 8.    Financial Statements and Supplementary Data

        The consolidated financial statements and notes thereto, together with the report thereon of independent accountants contained in Medtronic's 2002 Annual Report, are incorporated herein by reference.

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

        Not applicable.

PART III

Item 10.    Directors and Executive Officers of Medtronic

        The information on pages 3 through 6 of Medtronic's Proxy Statement for its 2002 Annual Shareholders' Meeting and the information entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in such Proxy Statement is incorporated herein by reference. See also "Executive Officers of Medtronic" on pages 20 through 22 hereof.

Item 11.    Executive Compensation

        The sections entitled "Proposal 1 — Election of Directors — Director Compensation" and "Executive Compensation" in Medtronic's Proxy Statement for its 2002 Annual Shareholders' Meeting are incorporated herein by reference.

25

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

        The section entitled "Share Ownership Information" in Medtronic's Proxy Statement for its 2002 Annual Shareholders' Meeting is incorporated herein by reference.

Equity Compensation Plan Information

        The following table provides information as of April 26, 2002 about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans, including the 1979 Nonqualified Stock Option Plan, the 1994 Stock Award Plan, the 1995 Employees Stock Purchase Plan and the 1998 Outside Director Stock Compensation Plan.

	(a)	(b)		(c)
Plan Category(1)	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	57,254,235	$	36.81	49,855,550
Equity compensation plans not approved by security holders(2)	468,610	$	33.06	2,523,001

(1)

The table does not include information regarding options, warrants or rights we have assumed in connection with acquisitions completed prior to April 26, 2002. In connection with such acquisitions, we have assumed options, warrants and rights to purchase securities of the acquired company that were outstanding at the time of the acquisition, and have treated these as options, warrants and rights to acquire Medtronic common stock based upon conversion ratios negotiated in each acquisition. As of April 26, 2002, 8,001,467 shares of our common stock were issuable upon the exercise of options, warrants and rights assumed in connection with acquisitions and the weighted average exercise price of such options, warrants and rights was $20.83 per share. No additional options, warrants or rights may be granted under the plans that govern options, warrants or rights we have assumed in connection with acquisitions.

(2)

The Medtronic, Inc. 1998 Outside Director Stock Compensation Plan (the "1998 Plan") was approved by Medtronic's Board of Directors and became effective in March 1998. Under the rules of the New York Stock Exchange, no shareholder approval was required for the 1998 Plan. The 1998 Plan provides that non-employee directors receive compensation as follows: (1) on the date of first becoming a director, the director receives a one-time stock option grant to purchase a number of shares equal to two times the amount of the annual retainer divided by the fair market value ("FMV") of a share of Medtronic stock on the date of grant; (2) an annual retainer which can be taken as 100% cash or 100% stock options at the director's election; if options are chosen, the number of shares will equal four times the amount of the annual retainer divided by the FMV of a share of Medtronic stock on the last day of the plan year; (3) an annual stock option grant on the first day of the plan year for Medtronic stock equal to the amount of the annual retainer divided by the FMV of a share of Medtronic stock on the date of grant; and (4) a number of deferred stock units on the last day of each plan year equal to one-half of the amount of the annual retainer divided by the average of the FMV of a share of Medtronic stock for the last 20 trading days during the plan year. All options vest 100% on the date of grant except that such options may not be exercised until the shareholders elect the

26

director for the first time. The annual retainer described in item (2) above is reduced by 25% if a non-employee director does not attend at least 75% of the total meetings of the Board and Board committees on which such director served during the relevant plan year. For the plan year beginning in September 2002, the number of deferred units will be based on the full amount of the annual retainer and, if a retainer replacement grant is elected, the grant will reflect all committee chair fees in addition to the retainer.

Item 13.    Certain Relationships and Related Transactions

        The section entitled "Proposal 1 — Election of Directors — Certain Transactions" in Medtronic's Proxy Statement for its 2002 Annual Shareholders' Meeting is incorporated herein by reference.

PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

1.    Financial Statements

The sections entitled "Report of Independent Accountants" and "Statements of Consolidated Earnings" — years ended April 26, 2002, April 27, 2001 and April 30, 2000 in Medtronic's 2002 Annual Report are incorporated herein by reference.

The section entitled "Consolidated Balance Sheets" — April 26, 2002 and April 27, 2001 in Medtronic's 2002 Annual Report is incorporated herein by reference.

The section entitled "Statements of Consolidated Shareholders' Equity" — years ended April 26, 2002, April 27, 2001 and April 30, 2000 in Medtronic's 2002 Annual Report is incorporated herein by reference.

The section entitled "Statements of Consolidated Cash Flows" — years ended April 26, 2002, April 27, 2001, and April 30, 2000 in Medtronic's 2002 Annual Report is incorporated herein by reference.

The section entitled "Notes to Consolidated Financial Statements" in Medtronic's 2002 Annual Report is incorporated herein by reference.

2.    Financial Statement Schedules

Schedule II. Valuation and Qualifying Accounts — years ended April 26, 2002, April 27, 2001 and April 30, 2000 (set forth on page 31 of this report)

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

3.    Exhibits

3.1	Medtronic Restated Articles of Incorporation, as amended (Exhibit 3.1).(a)
3.2	Medtronic Bylaws, as amended to date.
4.1	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).(b)
4.2	Indenture, dated as of September 11, 2001, between Medtronic, Inc. and Wells Fargo Bank Minnesota, National Association (Exhibit 4.2).(c)

27

	4.3	Registration Rights Agreement, dated as of September 11, 2001, among Medtronic, Inc., Banc of America Securities LLC, Goldman, Sachs & Co., and Morgan Stanley & Co. Incorporated (Exhibit 4.3).(c)
*	10.1	1994 Stock Award Plan, as amended.
*	10.2	Management Incentive Plan (Exhibit 10.2).(d)
*	10.3	1979 Nonqualified Stock Option Plan, as amended.
*	10.4	Form of Employment Agreement for Medtronic executive officers (Exhibit 10.5).(a)
*	10.5	Capital Accumulation Plan Deferral Program (Exhibit 10.6).(a)
*	10.6	Executive Nonqualified Supplemental Benefit Plan (Restated May 1, 1997) (Exhibit 10.10).(f)
*	10.7	Stock Option Replacement Program (Exhibit 10.8).(a)
*	10.8	1998 Outside Director Stock Compensation Plan, as amended.
*	10.9	Amendment effective March 5, 1998 to the 1979 Nonqualified Stock Option Plan (Exhibit 10.14).(e)
*	10.10	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.
	12.1	Computation of ratio of earnings to fixed charges.
	13	Those portions of Medtronic's 2002 Annual Report expressly incorporated by reference herein, which shall be deemed filed with the Commission.
	21	List of Subsidiaries.
	23	Consent and Report of Independent Accountants (set forth on page 30 of this report).
	24	Powers of Attorney.

(a)

Incorporated herein by reference to the cited exhibit in Medtronic's Annual Report on Form 10-K for the year ended April 27, 2001, filed with the Commission on July 26, 2001.

(b)

Incorporated herein by reference to the cited exhibit in Medtronic's Report on Form 8-A, including the exhibits thereto, filed with the Commission on November 3, 2000.

(c)

Incorporated herein by reference to the cited exhibit in Medtronic's Report on Form 8-K/A filed with the Commission on November 13, 2001.

(d)

Incorporated herein by reference to the cited exhibit in Medtronic's Annual Report on Form 10-K for the year ended April 30, 2000, filed with the commission on July 21, 2000.

(e)

Incorporated herein by reference to the cited exhibit in Medtronic's Annual Report on Form 10-K for the year ended April 30, 1998, filed with the Commission on July 21, 1998.

(f)

Incorporated herein by reference to the cited exhibit in Medtronic's Annual Report on Form 10-K for the year ended April 30, 1997, filed with the Commission on July 23, 1997.

*Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

(b)

Reports On Form 8-K

        A report on Form 8-K, Item 5 was filed on April 12, 2002 respecting the completion of our acquisition of VidaMed, Inc.

28

SIGNATURES

        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.

	MEDTRONIC, INC.
Dated: July 16, 2002
	By:	/s/ ARTHUR D. COLLINS, JR.
		Arthur D. Collins, Jr. Chairman of the Board and Chief Executive Officer

        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.

Dated: July 16, 2002	By:	/s/ ARTHUR D. COLLINS, JR.
		Arthur D. Collins, Jr. Chairman of the Board and Chief Executive Officer
Dated: July 16, 2002	By:	/s/ ROBERT L. RYAN
		Robert L. Ryan Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
MICHAEL R. BONSIGNORE WILLIAM R. BRODY, M.D., PH.D. PAUL W. CHELLGREN ARTHUR D. COLLINS, JR. ANTONIO M. GOTTO, JR., M.D., D.PHIL.
BERNADINE P. HEALY, M.D. SHIRLEY ANN JACKSON, PH.D DENISE M. O'LEARY JEAN-PIERRE ROSSO JACK W. SCHULER GORDON M. SPRENGER	DIRECTORS

        David J. Scott, 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.

Dated: July 16, 2002.	By:	/s/ DAVID J. SCOTT
		David J. Scott Attorney-In-Fact Senior Vice President, General Counsel and Secretary

29

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Medtronic, Inc.:

        Our audits of the consolidated financial statements referred to in our report dated May 22, 2002, except for Note 16, which is as of July 10, 2002, appearing in the 2002 Annual Report to Shareholders of Medtronic, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(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.

/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota
May 22, 2002

CONSENT OF INDEPENDENT ACCOUNTANTS

        We hereby consent to the incorporation by reference in each Registration Statement on Form S-8 (Registration Nos. 2-65157, 2-68408, 33-169, 33-36552, 2-65156, 33-24212, 33-37529, 33-44230, 33-55329, 33-63805, 33-64585, 333-04099, 333-07385, 333-65227, 333-71259, 333-71355, 333-74229, 333-75819, 333-90381, 333-52840, 333-44766, 333-66978, 333-68594) and the Registration Statement on Form S-3 (Registration No. 333-74994) of Medtronic, Inc. of our report dated May 22, 2002, except for Note 16, which is as of July 10, 2002, relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated May 22, 2002 relating to the financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota
July 18, 2002

30

MEDTRONIC, INC. AND SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in millions of dollars)

		Balance at Beginning of Period		Charges/ (Credits) to Earnings			Other Changes (Debit) Credit			Balance at End of Period
Allowance for doubtful accounts:
	Year ended 4/26/02	$	34.9	$	22.6		$	(13.6	)(a)	$	77.5
				$	33.3	(c)	$	0.3	(b)
	Year ended 4/27/01	$	30.2	$	9.0		$	(4.5	)(a)	$	34.9
							$	0.2	(b)
	Year ended 4/30/00	$	33.2	$	6.7		$	(10.4	)(a)	$	30.2
							$	0.7	(b)

(a)

Uncollectible accounts written off, less recoveries.

(b)

Reflects primarily the effects of foreign currency fluctuations.

(c)

Allowance related to current year acquisitions.

31

EXHIBITS INDEX

	3.1	Medtronic Restated Articles of Incorporation, as amended (Exhibit 3.1).(a)
	3.2	Medtronic Bylaws, as amended to date.
	4.1	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).(b)
	4.2	Indenture, dated as of September 11, 2001, between Medtronic, Inc. and Wells Fargo Bank Minnesota, National Association (Exhibit 4.2).(c)
	4.3	Registration Rights Agreement, dated as of September 11, 2001, among Medtronic, Inc., Banc of America Securities LLC, Goldman, Sachs & Co., and Morgan Stanley & Co. Incorporated (Exhibit 4.3).(c)
*	10.1	1994 Stock Award Plan, as amended.
*	10.2	Management Incentive Plan (Exhibit 10.2).(d)
*	10.3	1979 Nonqualified Stock Option Plan, as amended.
*	10.4	Form of Employment Agreement for Medtronic executive officers (Exhibit 10.5).(a)
*	10.5	Capital Accumulation Plan Deferral Program (Exhibit 10.6).(a)
*	10.6	Executive Nonqualified Supplemental Benefit Plan (Restated May 1, 1997) (Exhibit 10.10).(f)
*	10.7	Stock Option Replacement Program (Exhibit 10.8).(a)
*	10.8	1998 Outside Director Stock Compensation Plan, as amended.
*	10.9	Amendment effective March 5, 1998 to the 1979 Nonqualified Stock Option Plan (Exhibit 10.14).(e)
*	10.10	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.
	12.1	Computation of ratio of earnings to fixed charges.
	13	Those portions of Medtronic's 2002 Annual Report expressly incorporated by reference herein, which shall be deemed filed with the Commission.
	21	List of Subsidiaries.
	23	Consent and Report of Independent Accountants (set forth on page 30 of this report).
	24	Powers of Attorney.

(a)

Incorporated herein by reference to the cited exhibit in Medtronic's Annual Report on Form 10-K for the year ended April 27, 2001, filed with the Commission on July 26, 2001.

(b)

Incorporated herein by reference to the cited exhibit in Medtronic's Report on Form 8-A, including the exhibits thereto, filed with the Commission on November 3, 2000.

(c)

Incorporated herein by reference to the cited exhibit in Medtronic's Report on Form 8-K/A filed with the Commission on November 13, 2001.

(d)

Incorporated herein by reference to the cited exhibit in Medtronic's Annual Report on Form 10-K for the year ended April 30, 2000, filed with the commission on July 21, 2000.

(e)

Incorporated herein by reference to the cited exhibit in Medtronic's Annual Report on Form 10-K for the year ended April 30, 1998, filed with the Commission on July 21, 1998.

(f)

Incorporated herein by reference to the cited exhibit in Medtronic's Annual Report on Form 10-K for the year ended April 30, 1997, filed with the Commission on July 23, 1997.

*Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

EX-3.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 3.2

BYLAWS
OF
MEDTRONIC, INC.
(As Amended through April 18, 2002)

ARTICLE 1—MEETINGS OF SHAREHOLDERS

1.1

Regular Meetings.    Regular meetings of the shareholders of the corporation shall be held each year on the date and at the time set by the Board of Directors or by the chief executive officer. At each regular meeting the shareholders shall elect the Board of Directors and shall transact such other business as shall come properly before the meeting, in accordance with applicable provisions of the Articles of Incorporation and these Bylaws.

1.2

Special Meetings.    A special meeting of the shareholders may be called for any purpose or purposes at any time by the chief executive officer; by the chief financial officer; by the Board of Directors or any two or more members thereof; or by one or more shareholders holding not less than ten percent of the voting power of all shares of the corporation entitled to vote (except that a special meeting for the purpose of considering any action to directly or indirectly facilitate or effect a business combination, including any action to change or otherwise affect the composition of the Board of Directors for that purpose, must be called by twenty-five percent or more of the voting power of all shares of the corporation entitled to vote), who shall demand such special meeting by written notice given to the chief executive officer or the chief financial officer of the corporation specifying the purposes of such meeting.

1.3

Meetings Held Upon Shareholder Demand.    Within thirty days after receipt by the chief executive officer or the chief financial officer of a demand from any shareholder or shareholders entitled to call a meeting of the shareholders, it shall be the duty of the Board of Director to cause a special meeting of shareholders to be duly called and held on notice no later than ninety days after receipt of such demand. If the Board of Directors fails to cause such a meeting to be called and held as required by this Section, the shareholder or shareholders making the demand may call the meeting by giving notice as provided in Section 1.5 hereof at the expense of the corporation.

1.4

Place of Meetings.    Meetings of the shareholders shall be held at the principal executive office of the corporation or at such other place, within or without the State of Minnesota, as is designated by the Board of Directors or the chief executive officer, except that a meeting called by or at the demand of a shareholder shall be held in the county where the principal executive office of the corporation is located.

1.5

Notice of Meeting.    Except as otherwise specified in Section 1.6 or required by law, written notice of each meeting of shareholders, setting out the place, date and time of any regular or special meeting, shall be given not less than four days prior to the date of the meeting to each holder of shares entitled to vote. Notice of any special meeting shall state the purpose or purposes of the proposed meeting, and business transacted at all special meetings shall be confined to the purposes stated in the notice. A shareholder may waive notice of any meeting before, at or after the meeting, in writing, orally or by attendance. Attendance at a meeting by any shareholder is a waiver of notice of that meeting unless the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at the meeting and does not participate in the consideration of the item at that meeting.

1.6

Quorum and Adjourned Meeting.    The holders of a majority of the voting power of the shares entitled to vote at a meeting, represented either in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of shareholders. If a quorum is present when a duly called or held meeting is convened, the shareholders present may continue to transact business until adjournment, even though the withdrawal of a number of shareholders originally present leaves less than the proportion or number otherwise required for a quorum. In case a quorum is

not present at any meeting, the meeting may be adjourned from time to time without notice other than announcement at the time of adjournment of the date, time and place at which the meeting will be reconvened. At any adjourned meeting in which a quorum is present, any business may be transacted which might have been transacted at the original meeting.

1.7

Voting.    At each meeting of the shareholders every shareholder having the right to vote shall be entitled to vote in person or by proxy duly appointed by an instrument in writing subscribed by such shareholder. Each shareholder shall have one vote for each share having voting power standing in such shareholder's name on the books of the corporation except as may be otherwise provided in the terms of the share. Upon the demand of any shareholder, the vote for directors or the vote upon any question before the meeting shall be by ballot. All elections shall be determined and all questions decided by a majority vote of the number of shares entitled to vote and represented at any meeting at which there is a quorum except in such cases as shall otherwise be required by statute, the Articles of Incorporation or these Bylaws.

1.8

Record Date.    The Board of Directors may fix a date, not exceeding sixty days preceding the date of any meeting of shareholders, as a record date for the determination of the shareholders entitled to notice of and entitled to vote at such meeting. When a date is so fixed, only shareholders on that date are entitled to notice of and permitted to vote at that meeting of shareholders, notwithstanding any transfer of any shares on the books of the corporation after any record date so fixed.

ARTICLE 2—DIRECTORS

2.1

Quorum and Voting.    A majority of the directors currently holding office shall constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present may adjourn a meeting from time to time without further notice until a quorum is present. If a quorum is present when a duly called or held meeting is convened, the directors present may continue to transact business until adjournment, even though the withdrawal of a number of directors originally present leaves less than the proportion or number otherwise required for a quorum.

2.2

Place of Meetings.    Each meeting of the Board of Directors shall be held at the principal executive office of the corporation or at such other place as may be designated from time to time by a majority of the members of the Board, provided that if the Board shall not have designated the place of the meeting, the chief executive officer of the corporation (if then a director of the corporation) may designate a place other than the principal executive office of the corporation for any such meeting called by such chief executive officer in such officer's capacity as a director.

2.3

Regular Meetings.    Regular meetings of the Board of Directors for the election of officers and the transaction of any other business shall be held without notice at the place of and immediately after each regular meeting of the shareholders.

2.4

Special Meetings.    A special meeting of the Board of Directors may be called for any purpose or purposes at any time by any member of the Board by giving not less than twenty-four hours' notice to all directors of the date, time and place of the meeting, provided that when notice is mailed, at least four days' notice shall be given. The notice need not state the purpose of the meeting. If a meeting schedule is adopted by the Board, or if the day or date, time and place of a Board meeting have been announced at a previous Board meeting, no notice is required. Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken.

2.5

Waiver of Notice.    A director may waive notice of a meeting of the Board. A waiver of notice by a director entitled to notice is effective whether given before, at or after the meeting, and whether given in writing, orally or by attendance. Attendance by a director at a meeting is a waiver of notice of that meeting, except where the director objects at the beginning of the meeting to the

transaction of business because the meeting is not lawfully called or convened and does not participate thereafter in the meeting.

2.6

Absent Directors.    A director may give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes of the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected.

2.7

Electronic Communications.    (a)    A conference among directors by any means of communication through which the directors may simultaneously hear each other during the conference constitutes a Board meeting, if the same notice is given of the conference as would be required for a meeting, and if the number of directors participating in the conference would be sufficient to constitute a quorum at a meeting. Participation in a meeting by that means constitutes presence in person at the meeting.

(b)    A director may participate in a Board meeting not described in paragraph (a) by any means of communication through which the director, other directors so participating, and all directors physically present at the meeting may simultaneously hear each other during the meeting. Participation in a meeting by that means constitutes presence in person at the meeting.

2.8

Action Without a Meeting.    An action required or permitted to be taken at a Board meeting may be taken without a meeting by written action signed by all of the directors. If the Articles of Incorporation so provide, any action, other than an action requiring shareholder approval, may be taken by written action signed by the number of directors that would be required to take the same action at a meeting of the Board at which all directors were present. The written action is effective when signed by the required number of directors, unless a different effective time is provided in the written action. When written action is permitted to be taken by less than all directors, all directors shall be notified immediately of its text and effective date.

2.9

Compensation.    Directors who are not salaried officers of the corporation shall receive such fixed sum and expenses per meeting attended or such fixed annual sum or both as shall be determined from time to time by resolution of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving this corporation in any other capacity and receiving proper compensation therefor.

2.10

Committees.    The Board of Directors may, by resolution approved by the affirmative vote of a majority of the Board, establish committees having the authority of the Board in the management of the business of the corporation only to the extent provided in the resolution. Each such committee shall consist of one or more natural persons (who, except as set forth below, need not be directors) appointed by affirmative vote of a majority of the directors present at a duly held Board meeting, and shall, except in the case of a committee of disinterested persons, be subject at all times to the direction and control of the Board. A majority of the members of a committee shall constitute a quorum for the transaction of business. Such committees include but are not limited to the following:

(a)    Audit Committee.    The directors shall by resolution appoint members of the Board who are independent of management and who are free of any relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment, as an Audit Committee with such powers and duties as the Board may deem appropriate, subject to review by the Board of Directors.

(b)    Compensation Committee.    The directors shall by resolution appoint members of the Board who are independent of management and who are free of any relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment, as a

Compensation Committee with such powers and duties as the Board may deem appropriate, subject to review by the Board of Directors.

(c)    Committee of Disinterested Persons.    The Board may by resolution establish a committee composed of two or more disinterested directors or other disinterested persons to determine whether it is in the best interests of the corporation to pursue a particular legal right or remedy of the corporation and whether to cause the dismissal or discontinuance of a particular proceeding that seeks to assert a right or remedy on behalf of the corporation. The committee, once established, is not subject to the direction or control of, or termination by, the Board. A vacancy on the committee may be filled by a majority vote of the remaining committee members. The good faith determinations of the committee are binding upon the corporation and its directors, officers and shareholders. The committee terminates when it issues a written report of its determinations to the Board.

ARTICLE 3—OFFICERS

3.1

Number and Designation.    The corporation shall have one or more natural persons exercising the functions of the offices of chief executive officer and chief financial officer. The Board of Directors may elect or appoint such other officers or agents as it deems necessary for the operation and management of the corporation with such powers, rights, duties and responsibilities as may be determined by the Board, including, but not limited to, a Chairman of the Board, a President, one or more Executive Officers, a Secretary, a Treasurer and a Controller, each of whom shall have the powers, rights, duties and responsibilities set forth in these Bylaws unless otherwise determined by the Board. Any of the offices or functions of those offices may be held by the same person.

3.2

Election, Term of Office and Qualification.    At the first meeting of the Board following each election of directors, the Board shall elect officers who shall hold office until the next election of officers or until their successors are elected or appointed and qualify, provided, however, that any officer may be removed with or without cause by the affirmative vote of a majority of the Board of Directors present (without prejudice, however, to any contract rights of such officer).

3.3

Resignation.    Any officer may resign at any time by giving written notice to the corporation. The resignation is effective without acceptance when the notice is given to the corporation, unless a later effective date is specified in the notice.

3.4

Vacancies in Office.    A vacancy in any office of the corporation by reason of death, resignation, removal, disqualification or otherwise may, or in the case of a vacancy in the office of chief executive officer or chief financial officer, shall be filled for the unexpired term by the Board of Directors.

3.5

Chief Executive Officer.    Unless provided otherwise by a resolution adopted by the Board of Directors, the chief executive officer (a) shall have general active management of the business of the corporation; (b) shall, when present and in the absence of the Chairman of the Board, preside at all meetings of the shareholders and Board of Directors; (c) shall see that all orders and resolutions of the Board are carried into effect; (d) shall sign and deliver in the name of the corporation any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the corporation, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated by the Articles, these Bylaws or the Board to some other officer or agent of the corporation; (e) may appoint such divisional or staff officers, a secretary, a treasurer and a controller, each of whom shall have the powers, rights, duties and responsibilities delegated to him or her by the chief executive officer; (f) may maintain records of and certify proceedings of the Board and shareholders; and (g) shall perform such other duties as may from time to time be assigned by the Board.

3.6

Chief Financial Officer.    Unless provided otherwise by a resolution adopted by the Board of Directors, the chief financial officer (a) shall keep accurate financial records for the corporation; (b) shall deposit all monies, drafts and checks in the name of and to the credit of the corporation

in such banks and depositories as the Board of Directors shall designate from time to time; (c) shall endorse for deposit all notes, checks and drafts received by the corporation as ordered by the Board, making proper vouchers therefor; (d) shall disburse corporate funds and issue checks and drafts in the name of the corporation, as ordered by the Board; (e) shall render to the chief executive officer and the Board of Directors, whenever requested, an account of all of such officer's transactions as chief financial officer and of the financial condition of the corporation; and (f) shall perform such other duties as may be prescribed by the Board of Directors or the chief executive officer from time to time.

3.7

(a)    Chairman of the Board.    The Chairman of the Board shall preside at all meetings of the shareholders and directors and shall be an ex-officio member of all committees of the Board, except as otherwise prescribed by the Board of Directors. In the event of absence or disability of the President, the Chairman of the Board shall succeed to the powers and shall perform the duties of the President until such absence or disability has terminated or the Board of Directors has elected a new President or designated a Vice President or Vice Presidents to succeed to the powers and duties of the President. In general, the Chairman of the Board shall have the powers and duties usually vested in the office of Chairman of the Board, and shall have such other duties as may be prescribed by the Board of Directors.

(b)    Vice Chairman.    The Vice Chairman of the Board shall have such duties as may be prescribed by the Board of Directors.

3.8

President.    Unless otherwise determined by the Board, the President shall be the chief executive officer of the corporation. The President shall preside at all meetings of the shareholders and directors in the absence of the Chairman of the Board.

3.9

Executive Officers.    The executive officers may include Executive Vice Presidents, divisional Presidents, Vice Presidents and other officers who shall have such powers and shall perform such duties as may be specified in these Bylaws or prescribed by the Board of Directors. In the event of absence or disability of the President, the Board of Directors may designate a Vice President or Vice Presidents to succeed to the power and duties of the President.

3.10

Secretary.    The Secretary shall be secretary of and shall attend all meetings of the shareholders and Board of Directors. The Secretary shall give proper notice of meetings of shareholders and directors and shall keep minutes of such meetings and other actions of the Board. The Secretary shall certify proceedings of the Board of Directors and shareholders, shall have charge of the share registers and stock transfer records of the corporation and shall perform such other duties as may be prescribed by the Board of Directors or the chief executive officer from time to time.

3.11

Treasurer.    The Treasurer shall perform such duties as may be prescribed by the Board of Directors or the chief executive officer from time to time.

3.12

Controller.    The Controller shall prepare financial reports, establish controls and perform such other duties as may be prescribed by the Board of Directors or the chief executive officer from time to time.

3.13

Delegation.    Unless prohibited by a resolution approved by the affirmative vote of a majority of the directors present, an officer elected or appointed by the Board may, without the approval of the Board, delegate some or all of the duties and powers of the office to other persons.

ARTICLE 4—INDEMNIFICATION

4.1

Indemnification.    The corporation shall indemnify such persons, for such expenses and liabilities, in such manner, under such circumstances, and to such extent, as permitted by Minnesota Statutes, Section 302A.521, as now enacted or hereafter amended, or as required or permitted by other provisions of law.

4.2

Insurance.    The corporation may purchase and maintain insurance on behalf of any person in such person's official capacity against any liability asserted against and incurred by such person in or

arising from that capacity, whether or not the corporation would otherwise be required to indemnify the person against the liability.

ARTICLE 5—SHARES AND THEIR TRANSFERS

5.1

Share Certificates and Uncertificated Shares.    Shares of the corporation may be certificated or uncertificated, as provided under Minnesota law. Certificates for such shares shall be numbered (separately for each class) in the order in which they are issued, shall be entered in the books of the corporation as they are issued and shall, unless otherwise determined by the Board, be signed by the chief executive officer, the chief financial officer or any other officer of the corporation. A signature upon a certificate may be a facsimile. Certificates on which a facsimile signature of a former officer, transfer agent or registrar appears may be issued with the same effect as if such person had that capacity on the date of issue.

5.2

Stock Record.    As used in these Bylaws, the term "shareholder" shall mean the person in whose name outstanding shares of capital stock of the corporation are currently registered on the stock record books of the corporation. The corporation shall keep, at its principal executive office or at another place or places within the United States determined by the Board, a share register not more than one year old containing the names and addresses of the shareholders and the number and classes of shares held by each shareholder. The corporation shall also keep at its principal executive office or at another place or places within the United States determined by the Board, a record of the dates on which certificates representing shares were issued. Every certificate surrendered to the corporation for exchange or transfer shall be canceled and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled (except as provided for in Section 5.4 of this Article 5).

5.3

Transfer of Shares.    Transfer of shares shall be made on the books of the corporation and may be authorized only by the shareholder named in the stock record books of the corporation (or his legal representative or duly authorized attorney-in-fact) and, in the case of shares represented by a certificate, upon surrender for cancellation of the certificate(s) for such shares. The shareholder in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation, provided that when any transfer of shares shall be made as collateral security and not absolutely, such fact, if known to the corporation or to the transfer agent, shall be so expressed in the entry of transfer, and provided further, that the Board of Directors may establish a procedure whereby a shareholder may certify that all or a portion of the shares registered in the name of the shareholder are held for the account of one or more beneficial owners.

5.4

Lost Certificate.    Any shareholder claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact in such form as the Board of Directors may require, and shall, if the directors so require, give the corporation a bond of sufficient indemnity in form and with one or more sureties satisfactory to the Board in order to indemnify the corporation against any claim that may be made against it on account of the alleged loss or destruction of such certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to have been destroyed or lost.

5.5

Record Date.    The Board of Directors may fix a date, not exceeding sixty days preceding the date fixed for the payment of any dividend or other distribution, as a record date for the determination of the shareholders entitled to receive payment of such dividend or other distribution, and in such case only shareholders of record on the date so fixed shall be entitled to receive payments of such dividend or other distribution, notwithstanding any transfer of any shares on the books of the corporation after any record date so fixed.

ARTICLE 6—GENERAL PROVISIONS

6.1

Distributions, Acquisitions of Shares.    The Board of Directors may authorize distributions upon the shares of the corporation or acquisitions by the corporation of such shares to the extent permitted by law.

6.2

Fiscal Year.    The fiscal year of the corporation shall be established by the Board of Directors.

6.3

No Corporate Seal.    There shall be no corporate seal.

6.4

Voting Securities Held by the Corporation.    Unless otherwise ordered by the Board of Directors, the chief executive officer shall have full power and authority on behalf of the corporation (i) to attend and to vote at any meeting of security holders of other companies in which the corporation may hold securities; (ii) to execute any proxy for such meeting on behalf of the corporation; and (iii) to execute a written action in lieu of a meeting of such other company on behalf of this corporation. At such meeting, by such proxy or by such writing in lieu of meeting, the chief executive officer shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the corporation might have possessed and exercised if it had been present. The Board of Directors may from time to time confer like powers upon any other person or persons.

6.5

Amendments.    The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the corporation, subject to the power of the shareholders to change or repeal the same, provided, however, that the Board shall not adopt, amend or repeal any Bylaw fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the Board, or fixing the number of directors or their classifications, qualifications or terms of office, but may adopt or amend a Bylaw that increases the number of directors.

QuickLinks

BYLAWS OF MEDTRONIC, INC. (As Amended through April 18, 2002)

EX-10.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.1

1994 STOCK AWARD PLAN


(Amended and Restated as of October 25, 2001)

        1.    Purpose.    The purpose of this 1994 Stock Award Plan (the "Plan") is to motivate key personnel to produce a superior return to the shareholders of Medtronic, Inc. (the "Company") and its Affiliates by offering such individuals an opportunity to realize Stock appreciation, by facilitating Stock ownership, and by rewarding them for achieving a high level of corporate performance. This Plan is also intended to facilitate recruiting and retaining key personnel of outstanding ability.

        2.    Definitions.    The capitalized terms used in this Plan have the meanings set forth below.

        (a)  "Affiliate" means any corporation that is a "parent corporation" or "subsidiary corporation" of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, or any successor provision, and, for purposes other than the grant of Incentive Stock Options, any joint venture in which the Company or any such "parent corporation" or "subsidiary corporation" owns an equity interest.

        (b)  "Agreement" means the agreement, whether in written or electronic form, between the Company or an Affiliate and a Participant containing the terms and conditions of an Award (not inconsistent with this Plan), together with all amendments to such agreement, which amendments may be unilaterally made by the Company unless such amendments are deemed by the Committee to be materially adverse to the Participant or are not required as a matter of law. The Agreement and any amendments thereto shall be deemed accepted and agreed upon by the Participant upon receipt, without the necessity of obtaining the Participant's signature.

        (c)  "Award" means a grant made under this Plan in the form of Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or any Other Stock-Based Award.

        (d)  "Board" means the Board of Directors of the Company.

        (e)  "Change in Control" means:

        (i)    Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that, for purposes of this Section 2(e)(i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company (2) any acquisition by the Company or any of its subsidiaries, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries, (4) any acquisition by an underwriter temporarily holding securities pursuant to an offering of such securities or (5) any acquisition pursuant to a transaction that complies with clauses (A), (B) and (C) of clause (iii); or

        (ii)  Individuals who, as of the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or

threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

        (iii)  Consummation of a reorganization, merger, statutory share exchange or consolidation (or similar corporate transaction) involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity (a "Business Combination"), in each case, unless, immediately following such Business Combination, (A) substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 55% of, respectively, the then outstanding shares of common stock and the total voting power of (1) the corporation resulting from such Business Combination (the "Surviving Corporation") or (2) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 80% or more of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), in substantially the same proportion as their ownership, immediately prior to the Business Combination, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner of 30% or more of the outstanding shares of common stock and the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination; or

        (iv)  Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

Notwithstanding the foregoing provisions of this definition, a Change in Control shall not be deemed to occur with respect to a Participant if the acquisition of the 30% or greater interest referred to in clause (i) is by a group, acting in concert, that includes the Participant or if at least 40% of the then outstanding common stock or combined voting power of the then outstanding voting securities (or voting equity interests) of the Surviving Corporation or, if applicable, the Parent Corporation shall be beneficially owned, directly or indirectly, immediately after a Business Combination by a group, acting in concert, that includes that Participant.

        (f)    "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time, or any successor statute.

        (g)  "Committee" means the persons designated by the Board to administer this Plan under Section 3 hereof. The Committee shall consist of not less than three members of the Board and, except as otherwise determined by the Board, such persons shall be "non-employee directors" under Exchange Act Rule 16b-3 and "outside directors" under Section 162(m) of the Code.

        (h)  "Company" means Medtronic, Inc., a Minnesota corporation, or any successor to all or substantially all of its businesses by merger, consolidation, purchase of assets or otherwise.

        (i)    "Disability" means the disability of a Participant such that the Participant is considered disabled under any retirement plan of the Company which is qualified under Section 401 of the Code, or, in the case of a Participant employed by a non-U.S. Affiliate or in a non-U.S. location, under any retirement plan or long-term disability plan of the Company or such Affiliate applicable to such Participant, or as otherwise determined by the Committee.

        (j)    "Employee" means any full-time or part-time regular employee (including officers) of the Company or an Affiliate. For purposes of this Plan, a regular employee is an employee who is on

the regular payroll of the Company or an Affiliate and who is identified in the personnel records of the Company or an Affiliate as being an employee. Except with respect to grants of Incentive Stock Options, "Employee" shall also include other individuals who are not regular employees of the Company or an Affiliate but who provide services to the Company or an Affiliate in the capacity of an independent contractor and to whom the Company specifically chooses to grant an Award and therefore treat as a Participant. References in this Plan to "employment" and related terms shall include the providing of services in any such capacity.

        (k)  "Exchange Act" means the Securities Exchange Act of 1934, as amended; "Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act as in effect with respect to the Company or any successor regulation.

        (l)    "Fair Market Value" as of any date means, unless otherwise expressly provided in this Plan:

        (i)    the closing sale price of a Share (A) on the composite tape for New York Stock Exchange ("NYSE") listed shares, or (B) if the Shares are not quoted on the NYSE composite tape, on the principal United States securities exchange registered under the Exchange Act on which the Shares are listed, or (C) if the Shares are not listed on any such exchange, on the National Association of Securities Dealers, Inc. Automated Quotation System National Market System, on that date, or, if no sale of Shares shall have occurred on that date, on the next preceding day on which a sale of Shares occurred, or

        (ii)  if clause (i) is not applicable, what the Committee determines in good faith to be 100% of the fair market value of a Share on that date. In the case of an Incentive Stock Option, if such determination of Fair Market Value is not consistent with the then current regulations of the Secretary of the Treasury, Fair Market Value shall be determined in accordance with said regulations. The determination of Fair Market Value shall be subject to adjustment as provided in Section 14(f) hereof.

        (m)  "Fundamental Change" means a dissolution or liquidation of the Company, a sale of substantially all of the assets of the Company, a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation, or a statutory share exchange involving capital stock of the Company.

        (n)  "Incentive Stock Option" means any Option designated as such and granted in accordance with the requirements of Section 422 of the Code or any successor to such section.

        (o)  "Non-Employee Director" means a member of the Board who is not an employee of the Company or any Affiliate.

        (p)  "Non-Qualified Stock Option" means an Option other than an Incentive Stock Option.

        (q)  "Other Stock-Based Award" means an Award of Stock or an Award based on Stock other than Options, Stock Appreciation Rights, Restricted Stock or Performance Shares.

        (r)  "Option" means a right to purchase Stock, including both Non-Qualified Stock Options and Incentive Stock Options.

        (s)  "Participant" means an Employee to whom an Award is made.

        (t)    "Performance Period" means the period of time as specified in an Agreement over which Performance Shares are to be earned.

        (u)  "Performance Shares" means a contingent award of a specified number of Performance Shares, with each Performance Share equivalent to one Share, a variable percentage of which may vest depending upon the extent of achievement of specified performance objectives during the applicable Performance Period.

        (v)  "Plan" means this 1994 Stock Award Plan, as amended and in effect from time to time.

        (w)  "Restricted Stock" means Stock granted under Section 10 hereof so long as such Stock remains subject to one or more restrictions.

        (x)  "Retirement" means retirement of an Employee as defined 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 the Employee has 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 retirement plan of the Company or any Affiliate applicable to the Employee due to employment by a non-U.S. Affiliate or employment in a non-U.S. location, or as otherwise determined by the Committee.

        (y)  "Share" means a share of Stock.

        (z)  "Stock" means the common stock, $.10 par value per share (as such par value may be adjusted from time to time), of the Company.

        (aa) "Stock Appreciation Right" means a right, the value of which is determined relative to appreciation in value of Shares pursuant to an Award granted under Section 8 hereof.

        (bb) "Subsidiary" means a "subsidiary corporation," as that term is defined in Section 424(f) of the Code, or any successor provision.

        (cc) "Successor" with respect to a Participant means the legal representative of an incompetent Participant or, if the Participant is deceased, the legal representative of the estate of the Participant or the person or persons who may, by bequest or inheritance, or valid beneficiary designation under Section 14(i) hereof, acquire the right to exercise an Option or Stock Appreciation Right or receive cash and/or Shares issuable in satisfaction of an Award in the event of a Participant's death.

        (dd) "Term" means the period during which an Option or Stock Appreciation Right is outstanding or the period during which the restrictions placed on Restricted Stock or any other Award are in effect.

        Except when otherwise indicated by the context, reference to the masculine gender shall include, when used, the feminine gender and any term used in the singular shall also include the plural.

        3.Administration.

        (a)  Authority of Committee.    The Committee shall administer this Plan. The Committee shall have exclusive power to make Awards and to determine when and to whom Awards will be granted, and the form, amount and other terms and conditions of each Award, subject to the provisions of this Plan. The Committee may determine whether, to what extent and under what circumstances Awards may be settled, paid or exercised in cash, Shares or other Awards or other property, or cancelled, forfeited or suspended. The Committee shall have the authority to interpret this Plan and any Award or Agreement made under this Plan, to establish, amend, waive and rescind any rules and regulations relating to the administration of this Plan, to determine the terms and provisions of any Agreements entered into hereunder (not inconsistent with this Plan), and to make all other determinations necessary or advisable for the administration of this Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent it shall deem desirable. The determinations of the Committee in the administration of this Plan, as described herein, shall be final, binding and conclusive.

        (b)  Delegation of Authority.    The Committee may delegate all or any part of its authority under this Plan to (i) one or more subcommittees which may consist solely of "non-employee directors" under Exchange Act Rule 16b-3 and "outside directors" under Section 162(m) of the Code and (ii) persons who are not non-employee directors for purposes of determining and administering Awards solely to Employees who are not then subject to the reporting requirements of Section 16 of the Exchange Act.

        (c)  Rule 16b-3.    It is the intent that this Plan and all Awards granted pursuant to it shall be administered by the Committee (or a subcommittee thereof) so as to permit this Plan and Awards to comply with Exchange Act Rule 16b-3. If any provision of this Plan or of any Award would otherwise frustrate or conflict with the intent expressed in this Section 3(c), that provision to the extent possible shall be interpreted and deemed amended in the manner determined by the Committee so as to avoid such conflict.

        (d)  Indemnification.    To the full extent permitted by law, each member and former member of the Committee and each person to whom the Committee delegates or has delegated authority under this Plan shall be entitled to indemnification by the Company against and from any loss, liability, judgment, damages, cost and reasonable expense incurred by such member, former member or other person by reason of any action taken, failure to act or determination made in good faith under or with respect to this Plan.

        4.Shares Available; Maximum Payouts.

        (a)  Shares Available.    The number of additional Shares available for distribution under this Plan as of April 30, 2000 is 58,000,000 (which brings the total number of shares authorized for distribution under this Plan since inception to 102,800,000, as adjusted to date pursuant to Section 14(f)). All shares are subject to adjustment under Section 14(f) hereof.

        (b)  Shares Again Available.    Any Shares subject to the terms and conditions of an Award under this Plan which are not used because the terms and conditions of the Award are not met may again be used for an Award under this Plan.

        (c)  Unexercised Awards.    Any unexercised or undistributed portion of any terminated, expired, exchanged, or forfeited Award or any Award settled in cash in lieu of Shares shall be available for further Awards.

        (d)  No Fractional Shares.    No fractional Shares may be issued under this Plan. Fractional Shares will be rounded to the nearest whole Share.

        (e)  Maximum Payouts.    No more than 35% of all Shares subject to this Plan may be granted in the aggregate pursuant to Restricted Stock, Performance Share and Other Stock-Based Awards. No Participant may be granted Options, Stock Appreciation Rights, Performance Shares or any combination thereof relating to more than 2,000,000 Shares over a one-year period under this Plan.

        5.    Eligibility.    Awards may be granted under this Plan to any Employee at the discretion of the Committee.

        6.General Terms of Awards.

        (a)  Awards.    Awards under this Plan may consist of Options (either Incentive Stock Options or Non-Qualified Stock Options), Stock Appreciation Rights, Performance Shares, Restricted Stock and Other Stock-Based Awards. Awards of Restricted Stock may, in the discretion of the Committee, provide the Participant with dividends or dividend equivalents and voting rights prior to vesting (whether vesting is based on a period of time during which employment must continue or on attainment of specified performance conditions).

        (b)  Amount of Awards.    Each Agreement shall set forth the number of Shares of Restricted Stock, Stock or Performance Shares subject to such Agreement, or the number of Shares to which the Option applies or with respect to which payment upon the exercise of the Stock Appreciation Right is to be determined, as the case may be, as determined by the Committee in its sole discretion.

        (c)  Term.    Each Agreement, other than those relating solely to Awards of Stock without restrictions, shall set forth the Term of the Award and any applicable Performance Period for Performance Shares, as the case may be, but in no event shall the Term of an Award (other than Awards granted in lieu of cash compensation) or the Performance Period be longer than ten years

after the date of grant. In addition to the accelerated vesting provided pursuant to Sections 7(c), 8(b), 9(b), 10(b) and 11(b) hereof in the event of a Change in Control, an Agreement with a Participant may permit acceleration of vesting and of the expiration of the applicable Term upon such terms and conditions as shall be set forth in the Agreement, which may, but need not, include, without limitation, acceleration resulting from the occurrence of a Fundamental Change, or the Participant's death, Disability or Retirement. Acceleration of the Performance Period of Performance Shares shall be subject to Sections 9(b) and 9(c) hereof.

        (d)  Agreements.    Each Award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions, as determined by the Committee, which shall apply to such Award in addition to the terms and conditions specified in this Plan. All provisions of the Plan, which by their terms apply to an Award, shall apply regardless of whether such terms are expressly set forth in the Award Agreement, except to the extent that the Agreement for that Award expressly provides otherwise.

        (e)  Transferability.    During the lifetime of a Participant to whom an Award is granted, only such Participant (or such Participant's legal representative or, if so provided in the applicable Agreement in the case of a Non-Qualified Stock Option, a permitted transferee as hereafter described) may exercise an Option or Stock Appreciation Right or receive payment with respect to Performance Shares or any other Award. No Award of Restricted Stock (prior to the expiration of the restrictions), Options, Stock Appreciation Rights, Performance Shares or other Award (other than an award of Stock without restrictions) may be sold, assigned, transferred, exchanged, or otherwise encumbered, and any attempt to do so shall be of no effect. Notwithstanding the immediately preceding sentence, (i) an Award shall be transferable to a Successor in the event of a Participant's legal incompetency or death and (ii) an Agreement may provide that a Non-Qualified Stock Option shall be transferable to any member of a Participant'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 members of such Participant's "immediate family" or partnerships in which such family members are the only partners; provided, however, that (1) the Participant receives no consideration for the transfer and (2) such transferred Non-Qualified Stock Option shall continue to be subject to the same terms and conditions as were applicable to such Non-Qualified Stock Option immediately prior to its transfer.

        (f)    Termination of Employment.    Except as otherwise determined by the Committee or provided by the Committee in an applicable Agreement, in case of termination of employment, the following provisions shall apply:

        (1)  Options and Stock Appreciation Rights.

        (i)    Death.    If a Participant who has been granted an Option or Stock Appreciation Rights shall die before such Option or Stock Appreciation Rights have expired, the Option or Stock Appreciation Rights shall become exercisable in full, and may be exercised by the Participant's Successor at any time, or from time to time, within three years after the date of the Participant's death, in the case of an Option or Stock Appreciation Right granted before April 30, 2000 and within five years after the date of the Participant's death in the case of an Option or Stock Appreciation Right granted on or after April 30, 2000.

        (ii)  Disability or Retirement.    If a Participant's employment terminates because of Disability or Retirement, the Option or Stock Appreciation Rights shall become exercisable in full, and the Participant may exercise his or her Options or Stock Appreciation Rights at any time, or from time to time, within three years after the date of such termination, in the case of an Option or Stock Appreciation Right granted before April 30, 2000, and within five years after the date of such termination in the case of an Option or Stock Appreciation Right granted on or after April 30, 2000.

        (iii)  Reasons other than Death, Disability or Retirement.    If a Participant's employment terminates for any reason other than death, Disability or Retirement, the unvested or unexercised portion of any Award held by such Participant shall terminate (a) on the date of termination of employment for Awards granted before April 30, 2000, and (b) at the close of business on the date 30 days after the date of termination of employment for Awards granted on or after April 30, 2000, provided, however, that no further vesting shall occur after the date of termination of employment.

        (iv)  Expiration of Term.    Notwithstanding the foregoing paragraphs (i)-(iii), in no event shall an Option or a Stock Appreciation Right be exercisable after expiration of the Term of such Award.

        (2)  Performance Shares.    If a Participant's employment with the Company or any of its Affiliates terminates during a Performance Period because of death, Disability or Retirement, or under other circumstances provided by the Committee in its discretion in the applicable Agreement, the Participant shall be entitled to a payment of Performance Shares at the end of the Performance Period based upon the extent to which achievement of performance targets was satisfied at the end of such period (as determined at the end of the Performance Period) and prorated for the portion of the Performance Period during which the Participant was employed by the Company or any Affiliate. Except as provided in this Section 6(f)(2), in the applicable Agreement, or in Section 9(b) or 9(c) hereof, if a Participant's employment terminates with the Company or any of its Affiliates during a Performance Period, then such Participant shall not be entitled to any payment with respect to that Performance Period.

        (3)  Restricted Stock.    In case of a Participant's death, Disability or Retirement, the Participant shall be entitled to receive that number of shares of Restricted Stock under outstanding Awards that has been pro rated for the portion of the Term of the Awards during which the Participant was employed by the Company or any Affiliate, and with respect to such Shares all restrictions shall lapse. Upon termination of employment for any reason other than death, Disability or Retirement, any shares of Restricted Stock whose restrictions have not lapsed (including pursuant to Section 10(b) hereof) will automatically be forfeited in full and cancelled by the Company upon such termination of employment.

        (g)  Rights as Shareholder.    A Participant shall have no rights as a shareholder with respect to any securities covered by an Award until the date the Participant becomes the holder of record.

        7.Stock Options.

        (a)  Terms and Exercisability of All Options.    Each Option shall be granted pursuant to an Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option. Only Non-Qualified Stock Options may be granted to Employees who are not regular employees of the Company or an Affiliate. The purchase price of each Share subject to an Option shall be determined by the Committee and set forth in the Agreement, but shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted. The Agreement shall specify a vesting schedule under which the Option becomes available to exercise, subject to any acceleration that may be provided in the Agreement or in this Plan. Only the vested portion of an Option may be exercised. When exercising an Option, the purchase price of the Shares shall be paid in full at the time of exercise, provided that, to the extent permitted by law, Participants may simultaneously exercise Options and sell the Shares thereby acquired pursuant to a brokerage or similar relationship and use the proceeds from such sale to pay the purchase price of such Shares. The purchase price may be paid in cash, or by delivery of cash proceeds of such a simultaneous exercise and sale or by delivery to the Company, physically or by attestation, of Shares already owned by such Participant, provided that any such Shares not acquired on the open market shall have been owned for at least 6 months (with such Shares having a total fair market value as of the date the Option is exercised equal to the total exercise cost of the Shares being purchased pursuant to the Option), or a combination thereof, unless otherwise provided in the Agreement. Each Option shall be exercisable in whole or in part on the terms provided in the Agreement. In

no event shall any Option be exercisable at any time after its Term. When an Option is no longer exercisable, it shall be deemed to have lapsed or terminated.

        (b)  Incentive Stock Options.    In addition to the other terms and conditions applicable to all Options:

        (i)    the aggregate Fair Market Value (determined as of the date the Option is granted) of the Shares with respect to which Incentive Stock Options held by an individual first become exercisable in any calendar year (under this Plan and all other incentive stock option plans of the Company and its Affiliates) shall not exceed $100,000 (or such other limit as may be required by the Code), if such limitation is necessary to qualify the Option as an Incentive Stock Option, and to the extent an Option or Options granted to a Participant exceed such limit, such Option or Options shall be treated as a Non-Qualified Stock Option;

        (ii)  an Incentive Stock Option shall not be exercisable and the Term of the Award shall not be more than ten years after the date of grant (or such other limit as may be required by the Code) if such limitation is necessary to qualify the Option as an Incentive Stock Option;

        (iii)  the Agreement covering an Incentive Stock Option shall contain such other terms and provisions which the Committee determines necessary to qualify such Option as an Incentive Stock Option; and

        (iv)  notwithstanding any other provision of this Plan to the contrary, no Participant may receive an Incentive Stock Option under this Plan if, at the time the Award is granted, the Participant owns (after application of the rules contained in Section 424(d) of the Code, or its successor provision) Shares possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its subsidiaries, unless (A) the option price for such Incentive Stock Option is at least 110% of the Fair Market Value of the Shares subject to such Incentive Stock Option on the date of grant and (B) such Option is not exercisable after the date five years from the date such Incentive Stock Option is granted.

        (c)  Change in Control.    For all Options granted prior to October 25, 2001, and for all Options granted after such date except in the latter case where otherwise expressly provided in the Agreement relating to an Option, upon the occurrence of a Change in Control, each then-outstanding Option, whether or not previously exercisable, shall vest and be exercisable in full.

        8.Stock Appreciation Rights.

        (a)  In General.    An Award of a Stock Appreciation Right shall entitle the Participant, subject to terms and conditions determined by the Committee, to receive upon exercise of the Stock Appreciation Right all or a portion of the excess of (i) the Fair Market Value of a specified number of Shares on the date of exercise of the Stock Appreciation Right over (ii) a specified price which shall not be less than 100% of the Fair Market Value of such Shares on the date of grant of the Stock Appreciation Right. A Stock Appreciation Right may be granted in connection with a previously or contemporaneously granted Option, or independent of any Option. If issued in connection with an Option, the Committee may impose a condition that exercise of a Stock Appreciation Right cancels the Option with which it is connected and exercise of the connected Option cancels the Stock Appreciation Right. Each Stock Appreciation Right may be exercisable in whole or in part on the terms provided in the Agreement. No Stock Appreciation Right shall be exercisable at any time after its Term. When a Stock Appreciation Right is no longer exercisable, it shall be deemed to have lapsed or terminated. Except as otherwise provided in the applicable Agreement, upon exercise of a Stock Appreciation Right, payment to the Participant (or to his or her Successor) shall be made in the form of cash, Stock or a combination of cash and Stock as promptly as practicable after such exercise. The Agreement may provide for a limitation upon the amount or percentage of the total appreciation on which payment (whether in cash and/or Stock) may be made in the event of the exercise of a Stock Appreciation Right.

        (b)  Change in Control.    For all Stock Appreciation Rights granted prior to October 25, 2001, and for all Stock Appreciation Rights granted after such date except in the latter case where otherwise expressly provided in the Agreement relating to a Stock Appreciation Right, upon the occurrence of a Change in Control, each then-outstanding Stock Appreciation Right, whether or not previously exercisable, shall vest and be exercisable in full.

        9.Performance Shares.

        (a)  Initial Award.    An Award of Performance Shares shall entitle a Participant (or a Successor) to future payments based upon the achievement of performance targets established in writing by the Committee. Payment shall be made in Stock, or a combination of cash and Stock, as determined by the Committee, provided that at least 25% of the value of the vested Performance Shares shall be distributed in the form of Stock. With respect to those Participants who are "covered employees" within the meaning of Section 162(m) of the Code and the regulations thereunder, such performance targets shall consist of one or any combination of two or more of revenue, revenue per employee, earnings before income tax (profit before taxes), earnings before interest and income tax, net earnings (profits after tax), earnings per employee, tangible, controllable or total asset turnover, earnings per share, operating income, total shareholder return, market share, return on equity, before- or after-tax return on net assets, distribution expense, inventory turnover, or economic value added (economic profit), and any such targets may relate to one or any combination of two or more of corporate, group, unit, division, Affiliate or individual performance. The Agreement may establish that a portion of the maximum amount of a Participant's Award will be paid for performance, which exceeds the minimum target but falls below the maximum target applicable to such Award. The Agreement shall also provide for the timing of such payment. The Committee shall determine the extent to which (i) performance targets have been attained, (ii) any other terms and conditions with respect to an Award relating to such Performance Period have been satisfied, and (iii) payment is due with respect to a Performance Share Award.

        (b)  Change in Control.    For all Performance Share Awards granted prior to October 25, 2001, and for all Performance Share Awards granted after such date except in the latter case where otherwise expressly provided in the Agreement relating to a Performance Share Award, upon the occurrence of a Change in Control, a Participant who has been awarded Performance Shares (but has not yet received payment of such shares) shall be entitled to a pro rata payment of such Performance Shares. The pro rata payment shall be made to the Participant as of the date of the Change in Control, in shares or cash (at the election of the Company) equal to the number of Shares covered by the Performance Shares multiplied by the performance-based accrual percentage pertaining to such Performance Shares as of the Change in Control, multiplied by a fraction the numerator of which is the number of months elapsed from the date the Performance Shares were granted through the date of the Change in Control and the denominator of which is the number of months from the date the Performance Shares were granted through the Performance Shares' scheduled maturity date.

        (c)  Acceleration and Adjustment for Other Reasons.    In addition to the acceleration upon a Change in Control provided pursuant to Section 9(b) hereof, the Agreement may permit an acceleration of the Performance Period and an adjustment of performance targets and payments with respect to some or all of the Performance Shares awarded to a Participant, upon such terms and conditions as shall be set forth in the Agreement, upon the occurrence of certain events, which may, but need not, include without limitation a Fundamental Change, the Participant's death, Disability or Retirement, a change in accounting practices of the Company or its Affiliates, or, with respect to payments in Stock for Performance Share Awards, a reclassification, stock dividend, stock split or stock combination as provided in Section 14(f) hereof.

        (d)  Valuation.    Each Performance Share earned after conclusion of a Performance Period shall have a value equal to the average of the Fair Market Values of a Share for the 20 consecutive business days ending on and including the last day of such Performance Period.

        10.Restricted Stock.

        (a)  In General.    Restricted Stock may be granted in the form of Shares registered in the name of the Participant but held by the Company until the end of the Term of the Award. Any employment conditions, performance conditions and the Term of the Award shall be established by the Committee in its discretion and included in the applicable Agreement. The Committee may provide in the applicable Agreement for the lapse or waiver of any such restriction or condition based on such factors or criteria as the Committee, in its sole discretion, may determine. No Award of Restricted Stock may vest earlier than one year from the date of grant, except as provided in the applicable Agreement or in Section 10(b) hereof.

        (b)  Change in Control.    For all Restricted Stock Awards granted prior to October 25, 2001, and for all Restricted Stock Awards granted after such date except in the latter case where otherwise expressly provided in the Agreement relating to a Restricted Stock Award, upon the occurrence of a Change in Control, all restrictions with respect to shares of Restricted Stock shall lapse.

        11.Other Stock-Based Awards.

        (a)  In General.    The Committee may from time to time grant Awards of Stock, and other Awards under this Plan (collectively herein defined as "Other Stock-Based Awards"), including, without limitation, those Awards pursuant to which Shares may be acquired in the future, such as Awards denominated in Stock units, securities convertible into Stock and phantom securities. The Committee, in its sole discretion, shall determine the terms and conditions of such Awards provided that such Awards shall not be inconsistent with the terms and purposes of this Plan. The Committee may, in its sole discretion, direct the Company to issue Shares subject to restrictive legends and/or stop transfer instructions which are consistent with the terms and conditions of the Award to which such Shares relate.

        (b)  Change in Control.    Unless otherwise specifically provided in the Agreement related to the grant of an Other Stock-Based Award, upon a Change in Control any such Award shall vest and/or pay out in full, as applicable, as if the award had continued to maturity with all applicable conditions and targets satisfied.

        12.    Prior Automatic Grants to Non-Employee Directors.    The provisions of Section 12 of the Plan as in effect prior to April 30, 2000 shall be applicable to automatic grants of Non-Qualified Stock Options (and related Limited Rights) made prior to March 5, 1998 to Non-Employee Directors.

        13.    Prior Elective Grants to Non-Employee Directors.    The provisions of Section 13 of the Plan as in effect prior to April 30, 2000 shall be applicable to grants of Restricted Stock made prior to March 5, 1998 to Non-Employee Directors pursuant to their elections to receive such grants in lieu of all or a portion of their annual fees for their services as Non-Employee Directors.

        14.General Provisions.

        (a)  Effective Date of this Plan.    This Plan shall become effective as of April 29, 1994, provided that this Plan is approved and ratified by the affirmative vote of the holders of a majority of the outstanding Shares of Stock present or represented and entitled to vote in person or by proxy at a meeting of the shareholders of the Company no later than August 31, 1994. This Plan, as amended and restated, is effective as of April 30, 2000.

        (b)  Duration of this Plan.    This Plan shall remain in effect until all Stock subject to it shall be distributed or all Awards have expired or lapsed, whichever is latest to occur, or this Plan is terminated pursuant to Section 14(e) hereof. No Award of an Incentive Stock Option shall be made more than ten years after the effective date provided in the second sentence of Section 14(a) hereof (or such other limit as may be required by the Code) if such limitation is necessary to qualify the Option as an Incentive Stock Option. The date and time of approval by the Committee of the granting of an Award shall be considered the date and time at which such Award is made or granted, notwithstanding the date of any Agreement with respect to such Award; provided, however,

that the Committee may grant Awards other than Incentive Stock Options to be effective and deemed to be granted on the occurrence of certain specified contingencies.

        (c)  Right to Terminate Employment.    Nothing in this Plan or in any Agreement shall confer upon any Participant who is an Employee the right to continue in the employment of the Company or any Affiliate or affect any right which the Company or any Affiliate may have to terminate or modify the employment of the Participant with or without cause.

        (d)  Tax Withholding.    The Company may withhold from any payment of cash or Stock to a Participant or other person under this Plan an amount sufficient to cover any required withholding taxes, including the Participant's social security and Medicare taxes (FICA) and federal, state and local income tax with respect to income arising from payment of the Award. The Company shall have the right to require the payment of any such taxes before issuing any Stock pursuant to the Award. In lieu of all or any part of a cash payment from a person receiving Stock under this Plan, the individual may elect to cover all or any part of the minimum statutory FICA, federal, state and local income tax withholdings required under the applicable tax laws through a reduction of the number of Shares delivered to such individual, with such Shares valued in the same manner as used in computing such minimum withholding taxes.

        (e)  Amendment, Modification and Termination of this Plan.    Except as provided in this Section 14(e), the Board may at any time amend, modify, terminate or suspend this Plan. Except as provided in this Section 14(e), the Committee may at any time alter or amend any or all Agreements under this Plan to the extent permitted by law. Plan amendments are subject to approval of the shareholders of the Company only if such approval is necessary to maintain this Plan in compliance with the requirements of Exchange Act Rule 16b-3, Section 422 of the Code, their successor provisions, or any other applicable law or regulation. No termination, suspension or modification of this Plan may materially and adversely affect any right acquired by any Participant (or a Participant's legal representative) or any Successor under an Award granted before the date of termination, suspension or modification, unless otherwise agreed by the Participant in the Agreement or otherwise or required as a matter of law. It is conclusively presumed that any adjustment for changes in capitalization provided for in Section 9(c) or 14(f) hereof does not adversely affect any right of a Participant under an Award.

        (f)    Adjustment for Changes in Capitalization.    In the event of any change in corporate capitalization (including, but not limited to, a change in the number of Shares outstanding), arising from a stock split, Fundamental Change, Change in Control, or other corporate transaction, including, without limitation, any merger, consolidation, separation, spin-off, distribution of stock or property of the Company, share exchange, reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee or Board may make such substitution or adjustments in the aggregate number and type of shares reserved for issuance under the Plan, and the maximum limitation upon Awards to be granted to any Participant, in the number, type and option price of shares subject to outstanding Stock Options and Stock Appreciation Rights, in outstanding Performance Shares and payments with respect to outstanding Performance Shares in the number and type of shares subject to other outstanding Awards granted under the Plan and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion; provided however,    that the number of shares subject to any Award shall always be a whole number. Such adjusted option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right connected with any Stock Option.

        (g)  Fundamental Change.    In the event of a proposed Fundamental Change: (a) involving a merger, consolidation or statutory share exchange, unless appropriate provision shall be made (which the Committee may, but shall not be obligated to, make) for the protection of the outstanding Options and Stock Appreciation Rights by the substitution of options, stock appreciation rights and appropriate voting common stock of the corporation surviving any such merger or consolidation or, if appropriate, the parent corporation of the Company or such

surviving corporation, to be issuable upon the exercise of options or used to calculate payments upon the exercise of stock appreciation rights in lieu of Options, Stock Appreciation Rights and capital stock of the Company, or (b) involving the dissolution or liquidation of the Company, the Committee may, but shall not be obligated to, declare, at least twenty days prior to the occurrence of the Fundamental Change, and provide written notice to each holder of an Option or Stock Appreciation Right of the declaration, that each outstanding Option and Stock Appreciation Right, whether or not then exercisable, shall be cancelled at the time of, or immediately prior to the occurrence of, the Fundamental Change in exchange for payment to each holder of an Option or Stock Appreciation Right, within 20 days after the Fundamental Change, of cash equal to (i) for each Share covered by the cancelled Option, the amount, if any, by which the Fair Market Value (as defined in this Section 14(g)) per Share exceeds the exercise price per Share covered by such Option or (ii) for each Stock Appreciation Right, the price determined pursuant to Section 8 hereof, except that Fair Market Value of the Shares as of the date of exercise of the Stock Appreciation Right, as used in clause (i) of Section 8, shall be deemed to mean Fair Market Value for each Share with respect to which the Stock Appreciation Right is calculated determined in the manner hereinafter referred to in this Section 14(g). At the time of the declaration provided for in the immediately preceding sentence, each Stock Appreciation Right and each Option shall immediately become exercisable in full and each person holding an Option or a Stock Appreciation Right shall have the right, during the period preceding the time of cancellation of the Option or Stock Appreciation Right, to exercise the Option as to all or any part of the Shares covered thereby or the Stock Appreciation Right in whole or in part, as the case may be. In the event of a declaration pursuant to this Section 14(g), each outstanding Option and Stock Appreciation Right that shall not have been exercised prior to the Fundamental Change shall be cancelled at the time of, or immediately prior to, the Fundamental Change, as provided in the declaration. Notwithstanding the foregoing, no person holding an Option or Stock Appreciation Right shall be entitled to the payment provided for in this Section 14(g) if such Option or Stock Appreciation Right shall have expired or terminated. For purposes of this Section 14(g) only, "Fair Market Value" per Share means the cash plus the fair market value, as determined in good faith by the Committee, of the non-cash consideration to be received per Share by the shareholders of the Company upon the occurrence of the Fundamental Change, notwithstanding anything to the contrary provided in this Plan.

        (h)  Other Benefit and Compensation Programs.    Payments and other benefits received by a Participant under an Award shall not be deemed a part of a Participant's regular, recurring compensation for purposes of any termination, indemnity or severance pay laws and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided by the Company or an Affiliate, unless expressly so provided by such other plan, contract or arrangement or the Committee determines that an Award or portion of an Award should be included to reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of competitive cash compensation.

        (i)    Beneficiary Upon Participant's Death.    A Participant may designate a beneficiary to succeed to the Participant's Awards under the Plan in the event of the Participant's death by filing a beneficiary form with the Company and, upon the death of the Participant, such beneficiary shall succeed to the rights of the Participant to the extent permitted by law and the terms of this Plan and the applicable Agreement. In the absence of a validly designated beneficiary who is living at the time of the Participant's death, the Participant's executor or administrator of the Participant's estate shall succeed to the Awards, which shall be transferable by will or pursuant to laws of descent and distribution.

        (j)    Forfeitures.    In the event an Employee has received or been entitled to payment of cash, delivery of Stock or a combination thereof pursuant to an Award within the period beginning six months prior to the Employee's termination of employment with the Company and its Affiliates and ending when the Award terminates or is cancelled, the Company, in its sole discretion, may

require the Employee to return or forfeit the cash and/or Stock received with respect to the Award (or its economic value as of (i) the date of the exercise of Options or Stock Appreciation Rights, (ii) the date of, and immediately following, the lapse of restrictions on Restricted Stock or the receipt of Stock without restrictions, or (iii) the date on which the right of the Employee to payment with respect to Performance Shares vests, as the case may be) in the event of 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 specified in the related Agreement. 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 the Employee's 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 the Employee of such exercise, at the Employee's 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 14(j) by preventing or terminating the exercise of any Awards or the acquisition of Shares or cash thereunder. In the event an Employee fails or refuses to forfeit the cash and/or Shares demanded by the Company (adjusted for any intervening stock splits), the Employee shall be liable to the Company for damages equal to the number of Shares demanded times the highest closing price per share of the Stock during the period between the applicable date specified in (i) through (iii) above 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.

        (k)  Unfunded Plan.    This Plan shall be unfunded and the Company shall not be required to segregate any assets that may at any time be represented by Awards under this Plan. Neither the Company, its Affiliates, the Committee, nor the Board shall be deemed to be a trustee of any amounts to be paid under this Plan nor shall anything contained in this Plan or any action taken pursuant to its provisions create or be construed to create a fiduciary relationship between the Company and/or its Affiliates, and a Participant or Successor. To the extent any person acquires a right to receive an Award under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company.

        (l)    Limits of Liability.

        (i)    Any liability of the Company to any Participant with respect to an Award shall be based solely upon contractual obligations created by this Plan and the Agreement.

        (ii)  Except as may be required by law, neither the Company nor any member or former member of the Board or of the Committee, nor any other person participating (including participation pursuant to a delegation of authority under Section 3(b) hereof) in any determination of any question under this Plan, or in the interpretation, administration or application of this Plan, shall have any liability to any party for any action taken, or not taken, in good faith under this Plan.

        (m)  Compliance with Applicable Legal Requirements.    No certificate for Shares distributable pursuant to this Plan shall be issued and delivered unless the issuance of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended and in effect from time to time or any successor statute, the Exchange Act and the requirements of the exchanges on which the Company's Shares may, at the time, be listed.

        (n)  Deferrals and Settlements.    The Committee may require or permit Participants to elect to defer the issuance of Shares or the settlement of Awards in cash under such rules and procedures as it may establish under this Plan. It may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts. Participants who are eligible to participate in the Medtronic, Inc. Capital Accumulation Plan Deferral Program ("CAP") shall

be entitled to defer some or all of the cash portion of any Performance Shares granted to them hereunder in accordance with the terms of the CAP.

        15.    Governing Law.    To the extent that federal laws do not otherwise control, this Plan and all determinations made and actions taken pursuant to this Plan shall be governed by the laws of Minnesota, without giving effect to conflicts of law provisions, and construed accordingly.

        16.    Severability.    In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

        17.    Termination of Prior Plans.    Effective upon the approval of this Plan by the Company's shareholders as provided by Section 14(a) hereof, no further grants of options, performance shares or restricted stock or any other awards shall be made under the Company's 1979 Restricted Stock and Performance Share Award Plan, 1979 Nonqualified Stock Option Plan, 1989 Phantom Stock Award Plan or 1991 Restricted Stock Plan for Non-Employee Directors (the "Prior Plans"). Thereafter, all grants and awards made under the Prior Plans prior to such approval by the shareholders shall continue in accordance with the terms of the Prior Plans.

QuickLinks

1994 STOCK AWARD PLAN (Amended and Restated as of October 25, 2001)

EX-10.3

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.3

MEDTRONIC, INC.
1979 NONQUALIFIED STOCK OPTION PLAN
(As Amended and Restated Through June 27, 1991)

SECTION I

DEFINITIONS

        Whenever used herein, the following terms shall have the meanings indicated below:

(a)

"Approved Retirement" means retirement on or after age 55 provided the Optionee has been employed by the Company or a Subsidiary for at least ten years or retirement on or after age 62.

(b)

"Board of Directors" or "Board" means the Board of Directors of Medtronic, Inc. as constituted from time to time.

(c)

"Common Stock" means the common stock, $.10 par value per share, of Medtronic, Inc.

(d)

"Company" means Medtronic, Inc.

(e)

"Disability" means the disability of an Optionee such that he or she is considered disabled under any retirement plan of the Company which is qualified under Section 401 of the Internal Revenue Code of 1954, as amended (the same definition of "Disability" shall apply to an Optionee who is a non-employee director of the Company, as if the non-employee director were an employee), or as otherwise determined by the Stock Option Committee.

(f)

"Limited Rights" means all rights granted under Section XIII of the Plan.

(g)

"Optionee" means an employee of the Company or of any Subsidiary or a non-employee director of the Company to whom an option has been granted under the Plan.

(h)

"Plan" means this amended and restated Medtronic, Inc. 1979 Nonqualified Stock Option Plan, as amended hereafter from time to time.

(i)

"Stock Option Committee" or "Committee" means the committee of three or more members of the Board who shall be appointed by and serve at the pleasure of the Board. Each of the members of the Stock Option Committee shall be a "disinterested person" within the meaning of Rule 16b-3, as then in effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended.

(j)

"Subsidiary" means a corporation of which the Company owns or controls, directly or indirectly 50% or more of the voting power. Subsidiary includes any corporation which becomes a Subsidiary after adoption of the Plan.

SECTION II

PURPOSE

        The purpose of the Plan with respect to employees is to promote the success of the Company and its Subsidiaries by facilitating the employment and retention of competent personnel and by furnishing incentive to employees upon whose efforts the success of the Company and its Subsidiaries will depend to a large degree, and with respect to non-employee directors is to aid in attracting and retaining non-employee directors, to compensate non- employee directors for their contributions in a manner consistent with shareholder interests, and to increase non-employee directors' holdings of Common Stock of the Company.

SECTION III

DURATION OF THE PLAN

        Options may be granted pursuant to the Plan from time to time until the earlier of (a) the grant of the maximum number of options which may be granted hereunder to employees and non-employee directors as a result of the application of the limitations set forth in Section VI hereof, or (b) the termination of the Plan upon written resolution of the Board of Directors. No termination of the Plan shall, without consent of the Optionee, adversely affect any previously granted option which has not been cancelled and is still outstanding as of the date of the Plan's termination except as provided in Section X in the event of a sale, merger, consolidation or liquidation of the Company.

        Notwithstanding any contrary foregoing provisions, the amendment to the Plan as of November 20, 1990, in the form ratified by the Board on April 25, 1991, to provide for additional non-employee director options in the form of regular annual grants and associated Limited Rights pursuant to Section VII(B)(a)(ii) of the Plan and otherwise modify Section VII(B) of the Plan is subject to and conditioned upon obtaining approval of such amendment by the holders of a majority of the voting power of the stock of the Company present and entitled to vote on the matter at the 1991 Annual Meeting of Shareholders of the Company. In addition, the Company has requested or will request a letter from the staff of the Securities and Exchange Commission concurring with the Company's opinion that the regular annual grants of options and associated Limited Rights to non-employee directors pursuant to Section VII(B)(a)(ii) of the Plan are exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended, by compliance with Rule 16b-3 promulgated thereunder, and that existing and future non-employee directors who receive such annual option grants and Limited Rights automatically granted under the Plan will continue to be "disinterested persons" within the meaning of Rule 16b-3 for the purpose of the Plan and other stock related benefit plans of the Company which they administer. In the event the amendment does not receive shareholders' approval at the Company's annual meeting of shareholders to be held in 1991 or the Company does not receive the aforementioned concurring letter from the Securities and Exchange Commission staff, then the amendment to the Plan providing for regular annual grants of options and associated Limited Rights to non-employee directors and otherwise modifying Section VII(B) of the Plan shall be deemed null and void and the Plan shall continue thereafter in effect in the form existing prior to such amendment on November 20, 1990.

        Upon receiving such shareholders' approval and the aforementioned concurring letter from the staff of the Securities and Exchange Commission, this Plan, as amended, shall be effective as of November 20, 1990.

SECTION IV

ADMINISTRATION

        The Plan shall be administered by the Stock Option Committee which shall have all of the powers vested in it under the provisions of the Plan, including but not limited to exclusive authority (where applicable and within the limitations described herein) to determine the employees to whom, and the time or times at which, options shall be granted, the number of shares to be subject to each option and the option price and terms and conditions of each option. The Stock Option Committee shall have full power and authority to administer and interpret the Plan, to make, amend and rescind rules, regulations and guidelines for administering the Plan, to prescribe the form and conditions of the respective stock option agreements (which may vary from Optionee to Optionee) evidencing each option, to waive (except as to matters expressly provided for in the Plan) conditions upon the exercise of any option under the terms of any stock option agreement, to modify or amend any stock option agreement (provided, that if any modification or amendment materially and adversely affects the interests of the Optionee party to such stock option agreement, it shall be effective only upon consent given thereto by the Optionee), and to make all other determinations necessary or advisable for the administration of the Plan. The Stock Option Committee's interpretations of the Plan, and all actions taken and determinations made by the Stock Option Committee pursuant to the power vested in it

hereunder shall be conclusive and binding on all parties concerned. No member of the Stock Option Committee shall be liable for any action taken or determination made in good faith in connection with the administration of the Plan.

        Any action of the Stock Option Committee with respect to the administration of the Plan shall be taken pursuant to a majority vote of such Committee members or pursuant to the written consent of all Committee members.

        Notwithstanding any contrary provisions of the Plan, the Stock Option Committee shall have no discretion with respect to the granting of an option and associated Limited Rights to a non-employee director or to alter or amend any terms, conditions and eligibility requirements of an option and associated Limited Rights granted, or to be granted, to a non-employee director under the Plan, it being understood that the granting and terms, conditions and eligibility requirements of such options and associated Limited Rights are to be governed solely by the provisions set forth in the Plan pertaining thereto.

SECTION V

ELIGIBLE PARTICIPANTS

        Options may be granted under the Plan to employees, including officers, of the Company or its Subsidiaries who are not members of the Stock Option Committee, and such options shall have the terms and conditions specified in Section VII(A) and elsewhere in the Plan. In addition, options shall be granted under the Plan to each non-employee director, and such options shall have the terms and conditions specified in Section VII(B) and elsewhere in the Plan.

SECTION VI

AVAILABLE STOCK

        An aggregate of 3,650,000 shares (after giving effect to the Company's two-for-one stock splits effected through 100% stock dividends effective August 31, 1989 and August 30, 1991) of the Company's authorized but unissued shares of Common Stock (subject to substitution or adjustment as provided in Section X of this Plan) has been made available for issuance upon exercise of options granted under the Plan. A maximum of 200,000 of such 3,650,000 shares shall be made subject to options granted to non-employee directors under the Plan. In the event that any option or portion thereof under the Plan for any reason expires or terminates prior to the exercise thereof, the shares of Common Stock allocable to the unexercised portion of such option shall continue to be reserved for options under the Plan and may again be optioned hereunder.

SECTION VII(A)

TERMS AND CONDITIONS OF EMPLOYEE OPTIONS

        Each option granted pursuant to the Plan to an employee shall be evidenced by a written stock option agreement (which may vary from Optionee to Optionee) signed by an officer of the Company and by the Optionee in such form as the Stock Option Committee shall determine when the option is granted, which stock option agreement shall contain in substance the following terms and conditions:

        (a)    Number of Shares and Option Price.    The Committee shall specify in the stock option agreement the number of shares to which it pertains. The option price per share of Common Stock shall be determined by the Committee, shall be stated in the stock option agreement and shall not be less than 100% of the per share fair market value of the Company's Common Stock on the day the option is granted. In no event may the option price be less than the par value of such Common Stock. For purposes hereof, the per share "Fair Market Value" of the Common Stock shall mean the highest closing price of such Stock on the New York Stock Exchange Composite Transactions Listing (or on another established stock exchange, where applicable) on the date the option is granted or, if no sale of such Stock has occurred on such exchange on that date, on the next preceding date on which there was

a sale of such Stock. In the event the Common Stock is not listed on the New York Stock Exchange Composite Transactions Listing (or on any established stock exchange) as of the date the option is granted, the per share "Fair Market Value" of the Common Stock shall be the mean between the "bid" and the "asked" prices quoted by a recognized market maker in such Stock on the date the option is granted.

        (b)    Term and Exercisability of Option.    The stock option agreement shall state the term during which the option granted under the Plan may be exercised, which term shall be established in each case by the Stock Option Committee but in no event shall the option be exercisable after the ten-year anniversary date of the option's grant. In each case, the Stock Option Committee shall specify in the stock option agreement whether the option is exercisable immediately, in installments of a specified amount, or otherwise. Notwithstanding any stock option agreement's inclusion of an installment schedule or other exercise schedule or entitlement which effectively precludes full and immediate exercise of an option, the stock option agreement may provide that the option will become immediately exercisable in full upon the occurrence of particular events or as the Stock Option Committee may thereafter determine to be advisable. (Without limitation, such particular events may include the following: (i) the making of a tender offer, exchange offer, or similar offer for all, or any part exceeding ten percent of, the outstanding shares of Common Stock by any party other than the Company, its Subsidiaries, or other persons or entities controlling, controlled by, or under common control with, the Company; (ii) a filing of notification with the U.S. Department of Justice or Federal Trade Commission under Clayton Act Section 7A relative to the proposed acquisition of the Company's voting securities, as the result of which the acquiring person will hold fifteen percent or more of such voting securities, unless the Board of Directors has first approved the proposed acquisition; (iii) a change in control of the Company in a transaction or occurrence, or a series of related transactions or occurrences, resulting from a material change in ownership of Common Stock and evidenced by cessation in service as Company directors of a majority of those persons theretofore serving as members of the Board; (iv) the Company's sale of all its assets in contemplation of the discontinuance of its business, or a merger, consolidation or liquidation of the Company; or (v) a determination by the Stock Option Committee that immediate exercisability would be in the best interests of the Company and advisable for protection of the rights intended to be granted under the option. Any such provisions included in the stock option agreement and contingent upon stated particular events will be enforceable against the Company and its successors in interest, in accordance with the stock option agreement terms, upon the occurrence of those events.)

        An Optionee may exercise his or her option granted under the Plan using as consideration in payment of the exercise price for the number of option shares being purchased, (i) cash (or an equivalent check, money order, or other payment medium acceptable to the Company); or (ii) if approved by the Committee in its sole discretion and subject to such rules as the Committee may adopt, other Medtronic Common Stock currently registered in the name of, or beneficially owned by, the Optionee and surrendered in due form for transfer to the Company. In the case of payment using Medtronic Common Stock, such stock shall be valued at its Fair Market Value, as defined in Section VII(A), Paragraph (a) of the Plan except that the date for determination of such fair market value shall be the date of proper surrender of such stock to Medtronic.

        (c)    Withholding Taxes.    The stock option agreement shall state that when the option or a portion of the option is exercised, the Company or a Subsidiary is authorized to deduct from any payment of any kind owed to the Optionee any federal, state, local or other taxes required by law to be withheld with respect to the shares of Common Stock being purchased upon exercise of the option. The stock option agreement shall also state that alternatively, upon exercise of the option or a portion of the option, the Company or a Subsidiary shall have the right to require the Optionee to remit to the Company or the Subsidiary an amount necessary to satisfy any federal, state, local or other withholding tax requirements prior to the delivery of any certificate or certificates for the shares of Common Stock purchased upon exercise of the option or portion of such option.

        The Committee may permit the Optionee to elect to satisfy federal and state withholding tax obligations relating to exercise of a Plan option by having the Company withhold shares of Medtronic

Common Stock subject to such option in satisfaction of the obligations. Any such election by an Optionee must be made on or before the date that the amount of tax to be withheld is determined (the "Tax Date"). Any shares of Medtronic Common Stock so withheld by the Company shall be valued at their per share "Fair Market Value", which shall mean for the purposes of this Paragraph (c) the closing market price of Medtronic Common Stock on the New York Stock Exchange Composite Transactions Listing on the Tax Date (or such other meaning as the Committee may hereafter adopt). The use and availability of the election to have option shares withheld to satisfy federal and state withholding tax requirements is subject in general, and in particular instances, to the Committee's complete discretion and such rules and procedures as the Committee may adopt.

        (d)    Termination of Employment (for Reasons Other Than Death, Disability or Approved Retirement).    If an Optionee ceases to be employed by the Company (and ceases to be or is not employed by any Subsidiary) for any reason other than Death, Disability or Approved Retirement, any unexercised and unexpired option of such Optionee shall terminate as of the date on which the Optionee's employment is so terminated unless, upon or as soon as practicable after such termination of the Optionee's employment, the Stock Option Committee permits such unexercised and unexpired option to continue and be exercisable during a period then set by the Committee and expiring not later than the original stated expiration date of the option; provided, in such event, the option shall be exercisable during such period only to the extent the option was exercisable on the date of the Optionee's termination of employment. The Stock Option Committee shall determine in a fair and equitable manner whether sick leave or other authorized leaves of absence for military or governmental service shall constitute termination of employment for purposes of this Paragraph and, in its sole discretion, may determine that the termination of employment of an Optionee who is re-employed by the Company or any Subsidiary within six months after such termination shall not constitute termination of employment for purposes of this Paragraph.

        If an Optionee's employment is terminated for "Cause," the time at which such employee ceases to be an employee for purposes of this subparagraph shall mean the time at which such employee is instructed or notified to cease performing his or her job responsibilities for the Company or any Subsidiary permanently, whether or not for other reasons such as payroll, benefits or compliance with legal procedures or requirements he or she may still have other attributes of an employee. For purposes of this subparagraph, "Cause" shall mean (i) failure to comply with any material policies and procedures of the Company, (ii) conduct reflecting dishonesty or disloyalty to the Company, or which may have a negative impact on the reputation of the Company, (iii) commission of a felony, theft or fraud, or violations of law involving moral turpitude or (iv) failure to perform the material duties of his or her employment.

        (e)    Termination of Employment by Reason of Disability or Approved Retirement.    If the Optionee ceases to be employed by the Company (and ceases to be or is not employed by any Subsidiary) before the original stated expiration of an option of such Optionee and such termination of employment is due to Disability or Approved Retirement, such option shall become exercisable in full, to the extent not previously exercised, as of the date of the Optionee's termination of employment and shall be exercisable until the 12-month anniversary of such termination of employment or until the original stated expiration of the option, whichever shall first occur. The Stock Option Committee may extend the period during which an Optionee's option is exercisable under this Paragraph (e) provided such period so extended does not exceed the original stated expiration of the option.

        (f)    Death of Optionee.    If the Optionee shall die (i) while employed by the Company or a Subsidiary, (ii) within the period of time, if any, during which the Stock Option Committee has permitted the Optionee to exercise his or her options upon termination of employment as provided in Paragraph (d) of this Section VII(A), or (iii) within the period of time during which the Optionee's options may be exercised after his or her Disability or Approved Retirement as provided in Paragraph (e) of this Section VII(A), and in any case shall not have fully exercised an option of such Optionee, such option shall become exercisable in full, to the extent not previously exercised, as of the date of the Optionee's death and shall be exercisable until the 12-month anniversary of the Optionee's death or until the original stated expiration of the option, whichever shall first occur. The Stock Option

Committee may extend the period during which an option is exercisable under this Paragraph (f) provided such period so extended does not exceed the original stated expiration of the option.

        (g)    Company's Purchase Right in Certain Circumstances.    Notwithstanding any contrary provisions of the Plan set forth other than in this subparagraph (g), if an Optionee's employment is terminated either (i) for "Cause", as defined in this subparagraph (g), or (ii) voluntarily on the part of the Optionee (other than retirement on or after the Optionee's "normal retirement date" as defined in the Medtronic, Inc. and Participating Employer's Retirement Plan) without the express written consent of the Chairman of the Board or Chief Executive Officer of the Company (or by the Stock Option Committee in the event the terminated Optionee is the Chairman of the Board or Chief Executive Officer), the Company shall have the right and option (referred to herein as the "Purchase Right") to purchase from the Optionee or from the estate, legal representative or surviving joint tenant of the Optionee, that number of shares of Common Stock of the Company which is equal to the number of shares which had been purchased pursuant to exercise by the Optionee of any option granted under the Plan (the "Option Shares") within six months prior to the employment termination date. The decision to grant such express written consent regarding termination (which consent may be given before or after the Optionee's employment termination) or to exercise the Company's Purchase Right shall be based solely on the judgment of the Chairman or the Chief Executive Officer, or of the Stock Option Committee in the event the terminated Optionee is the Chairman or the Chief Executive Officer, given the facts and circumstances of each particular case, made in his, her or its complete discretion, as to whether such consent or exercise is in the operational interest of the Company. The Purchase Right shall also cover any shares of Common Stock of the Company received from adjustments which pertained to the Option Shares and which were made as a result of any of the types of transactions referred to in Section X. (The shares which are subject to the Company's Purchase Right are referred to herein collectively as the "Purchase Right Shares"). Such Purchase Right may be exercised by the Company within 90 days after the date of the Optionee's employment termination for a purchase price equal to the total amount paid as the option exercise price by the Optionee for the Option Shares so purchased by the Optionee upon his or her option exercise. Such Purchase Right shall be deemed to be exercised upon the Company's mailing written notice of such exercise, postage prepaid, addressed to Optionee at Optionee's most recent home address as shown on the personnel records of Company. Each stock option agreement authorized on or after November 9, 1989 under this Section VII(A) shall contain an agreement of the Optionee on Optionee's behalf and on behalf of Optionee's estate, legal representative or surviving joint tenant, as the case may be, to deliver to the Company, on the date specified in such notice (which date shall not be less than five business days following the date such notice is sent by the Company), a certificate or certificates for such number of Purchase Right Shares, duly endorsed for transfer to the Company against payment of the purchase price thereof. The provisions of this subparagraph (g) shall be effective as to any option granted under the Plan on or after November 9, 1989. The Purchase Right of the Company may not be exercised on or after the occurrence of any one or more "Event" specified in the second paragraph of Section XIII, including subparagraphs (A), (B), and (C) thereof, as to any Shares. Solely for the purposes of this subparagraph (g), "Cause" shall mean (i) failure to comply with any material policies and procedures of the Company, (ii) conduct reflecting dishonesty, or disloyalty to the Company, or which may have a negative impact on the reputation of the Company, (iii) commission of a felony, theft or fraud, or violations of law involving moral turpitude, or (iv) failure to perform the material duties of his or her employment. The provisions of this subparagraph (g) are not intended to, and shall not, modify or otherwise affect the provisions of Section XII, subparagraph (b) of the Plan (concerning employment).

        (h)    Other Provisions.    The stock option agreement (which may vary from Optionee to Optionee) authorized under this Section VII(A) shall contain such other provisions as the Stock Option Committee deems advisable.

SECTION VII(B)

TERMS AND CONDITIONS OF NON-EMPLOYEE DIRECTOR OPTIONS

        Options shall be granted to each non-employee director in accordance with the terms and conditions of this section. Notwithstanding any contrary provisions of this Section VII(B), any employee director who terminates his employment after the 1988 Annual Meeting of Shareholders and who at any time thereafter is a non-employee director of the Company shall not be entitled to receive a grant of an option under this section. For purposes of this Section VII(B), per share Fair Market Value shall have the meaning set forth in Section VII(A)(a) of the Plan.

        (a)    Eligibility and Grant of Option.

        (i)    Initial Option Grant.    All non-employee directors elected or re-elected to the Board at the 1988 Annual Meeting of Shareholders or elected or appointed thereafter shall be entitled to receive, by virtue of serving as directors of the Company, an initial grant of an option to purchase authorized but unissued Common Stock. Each non-employee director elected or re-elected to the Board at the 1988 Annual Meeting of Shareholders shall be granted an option on the date of such election or re-election to purchase the number of shares of Common Stock determined by dividing $100,000 by the per share Fair Market Value of the Common Stock on the date of grant, and rounding up or down to the nearest whole share. After this single grant, non-employee directors elected or re-elected to the Board at the 1988 Annual Meeting of Shareholders shall no longer be eligible to receive any additional grant of options under this Section VII(B)(a)(i). Each non-employee director elected or appointed to the Board after the 1988 Annual Meeting of Shareholders that was not elected or re-elected at the 1988 Annual Meeting of Shareholders shall receive an initial grant of an option, on the date such director first becomes a director, to purchase a number of shares of Common Stock determined by dividing $100,000 (or if the annual retainer fee of the non-employee directors is increased subsequent to the 1988 Annual Meeting of Shareholders from the $12,500 annual retainer fee in effect at the time of the 1988 Annual Meeting of Shareholders, $100,000 plus a percentage increase in such $100,000 amount which is equal to the percentage increase in such $12,500 annual retainer fee subsequent to the 1988 Annual Meeting of Shareholders and prior to the initial election or appointment of such director) by the per share Fair Market Value of the Common Stock on the date of grant, and rounding up or down to the nearest whole share. No increase in the annual retainer fee of the non-employee directors after a person becomes a non-employee director shall increase the number of shares of Common Stock for which the options granted under this Section VII(B)(a)(i) to such non-employee director may be exercised. Options granted under this Section VII(B)(a)(i) are hereinafter referred to collectively as "Initial Options" and individually as an "Initial Option".

        (ii)    Annual Option Grants.    Immediately following the Annual Meeting of Shareholders in August 1991 and every annual meeting thereafter, each non-employee director serving as a director of the Company immediately following such annual meeting who has previously been granted an Initial Option for serving as a director of the Company prior to such annual meeting shall be entitled to receive, by virtue of serving as a director of the Company, in addition to the Initial Option previously granted to the director, a grant, on the date of the annual meeting, of an option to purchase authorized but unissued Common Stock (hereinafter referred to collectively as "Annual Options" and individually as an "Annual Option"). The number of shares of Common Stock subject to an Annual Option shall be the sum of (A) the annual retainer fee for non-employee directors in effect when the grant is made, (B) the aggregate meeting fees in effect when the grant is made for seven regular Board and fourteen Board Committee meetings and (C) one annual Committee Chairmanship fee in effect when the grant is made, divided by the per share Fair Market Value of the Common Stock on the date of the grant, and rounding up or down to the nearest whole share. No increase in the annual retainer fee, Board or Board Committee meeting fee or Committee Chairmanship fee for non-employee directors of the Company following a grant of an Annual Option shall increase the number of shares of Common Stock for which such Annual Option may be exercised.

        (b)    Term and Exercisability of Options.    The Initial Option and the Annual Options granted to a non-employee director shall vest and become exercisable one full year after the date of grant, provided, however, that in no event shall a non-employee director initially appointed by the Board of Directors be entitled to exercise either an Initial Option or an Annual Option granted to such director under the Plan unless, and until such time as, such director shall have been elected to the Board of Directors by the shareholders of the Company. Notwithstanding the foregoing, vesting of an option granted to a non-employee director who shall have been elected by the shareholders of the Company shall accelerate and the option shall become immediately exercisable in full upon the occurrence of any "Event" as such term is defined in Section XIII of the Plan, and an option granted to a non-employee director who shall have been elected by the shareholders of the Company shall accelerate and become immediately exercisable in full in the event the non-employee director holding such option ceases to serve as a director of the Company due to Death or Disability or due to retirement under the policies of the Company then in effect providing for retirement of directors from the Board of Directors ("Retirement"). Options granted to a non-employee director shall expire at the earlier of (i) the 10-year anniversary date of the option's grant, or (ii) the 5-year anniversary date of the occurrence of the earliest of the Death, Disability or Retirement of the non-employee director or the date the non-employee director otherwise ceases to be a director of the Company, provided that the option granted to a non-employee director initially appointed by the Board of Directors shall expire on the date such director ceases to be a director of the Company unless such director shall have been elected by the shareholders subsequent to the grant of the option to such director.

        (c)    Option Price.    The option exercise price for shares of Common Stock subject to a non-employee director's Initial Option or any Annual Option shall be the per share Fair Market Value of the Common Stock, as such term is defined in Section VII(A)(a) of the Plan, on the date the option is granted. A non-employee director may exercise his or her Initial Option or Annual Option using as payment any form of consideration provided for in the final paragraph of Section VII(A)(b) of the Plan, which form of payment shall be within the sole discretion of the non-employee director, notwithstanding anything stated in Section VII(A)(b) of the Plan.

        (d)    Withholding Taxes.    When an Initial Option or an Annual Option or a portion of an Initial Option or an Annual Option is exercised, the Company is authorized to deduct from any payment of any kind owed to the Optionee any federal, state, local or other taxes required by law to be withheld with respect to the shares of Common Stock being purchased upon exercise of the option. Upon exercise of an Initial Option or an Annual Option or a portion of an Initial Option or an Annual Option, the Company shall have the right to require the Optionee to remit to the Company an amount necessary to satisfy any federal, state, local or other withholding tax requirements prior to the delivery of any certificate or certificates for the shares of Common Stock purchased upon exercise of the option or portion of such option.

        (e)    Option Agreement.    The option granted to each non-employee director under the Plan shall be evidenced by a written stock option agreement incorporating by reference the terms of the Plan and signed by an officer of the Company and by the Optionee.

SECTION VIII

COMPLIANCE WITH LAWS

        No shares of Common Stock shall be issued pursuant to the Plan unless and until there has been compliance, in the opinion of the Company's counsel, with all applicable legal requirements, including without limitation, those relating to securities laws and stock exchange listing requirements. The Company shall not be deemed by reason of granting an option under this Plan to have any obligation to register the shares of Common Stock subject to the Plan under the Securities Act of 1933, as amended, or to maintain in effect any registration of such shares, or to list such shares on any exchange. As a condition to the issuance of Common Stock to the Optionee, the Stock Option Committee may require the Optionee to (a) represent that the shares of Common Stock are being acquired for investment and not resale and to make such other representations as the Committee shall

deem necessary or appropriate to qualify the issuance of the shares as exempt from the Securities Act of 1933 and any other applicable securities laws, and (b) represent that the Optionee shall not dispose of the shares of Common Stock in violation of the Securities Act of 1933 or any other applicable securities laws. The Company reserves the right to place a legend on any stock certificate issued upon exercise of an option granted pursuant to the Plan to assure compliance with this Section VIII.

SECTION IX

RIGHTS OF A SHAREHOLDER

        An Optionee or a transferee of an option (permitted under Paragraph (d) of Section XII) shall have no rights as a shareholder with respect to any shares covered by his or her option until a stock certificate evidencing such shares is issued to him or her. No adjustment shall be made for dividends ordinary or extraordinary (whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is actually issued (except as otherwise provided in Section X of this Plan).

SECTION X

RECAPITALIZATION, SALE, MERGER, CONSOLIDATION OR LIQUIDATION

        In the event of any increase or decrease in the total number of issued and outstanding shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment or the payment of a stock dividend or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company, the maximum number of shares of Common Stock which may be issued under the Plan (including the maximum number of shares which shall be made subject to options granted to non-employee directors under Section VI), the number of shares of Common Stock covered by each outstanding option and the price per share thereof shall be equitably adjusted by the Stock Option Committee to reflect such change.

        In the event of a sale by the Company of all of its assets and the consequent discontinuance of its business, or in the event of a merger, consolidation or liquidation, the Stock Option Committee may, as of the time of the adoption of the plan for sale, merger, consolidation or liquidation, amend or adjust the provisions of the Plan and the then outstanding options, including but not limited to amendments providing for a complete termination of the Plan or providing for the continuation of the Plan with respect to the exercise of those options or the portions thereof which, under the provisions of the Plan, were exercisable as of the date of adoption by the Board of such plan for sale, merger, consolidation or liquidation; provided, that in any event Optionees holding options shall be given either (a) a reasonable time within which to exercise such exercisable portions of their respective options prior to the effectiveness of such sale, merger, consolidation or liquidation, or (b) the right to exercise their respective options as to an equivalent number of shares of stock of the corporation succeeding the Company by reason of such sale, merger, consolidation or liquidation.

        The grant of an option pursuant to this Plan shall not limit in any way the right or power of the Company or the Board of Directors to make adjustments, reclassifications, reorganizations or changes in the Company's capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any portion of the Company's business or assets.

SECTION XI

AMENDMENT OF THE PLAN

        The Board of Directors may at any time alter, amend, revise, suspend or discontinue the Plan; provided, that such action (except as permitted in Section X in the event of a sale, merger, consolidation or liquidation) shall not materially adversely affect options previously granted under the Plan without the consent of the Optionees and provided further, that no alteration, amendment, revision, suspension or discontinuance of the Plan may, without the approval of the shareholders of the Company, alter the provisions of the Plan so as to (a) materially increase the total number of shares of

Common Stock which may be issued under the Plan except as provided in Section X hereof, (b) materially increase the benefits accruing to Optionees under the Plan, (c) materially change the requirements as to eligibility for participation in the Plan, or (d) change the terms, conditions, or eligibility requirements of an option and associated Limited Rights granted or, subject to the right of the Board of Directors to discontinue the Plan, to be granted to each non-employee director under the Plan. In no event shall the eligibility requirements for the receipt of Initial Options or Annual Options by non-employee directors or the formula for determining the amount of shares of Common Stock subject to Initial Options or Annual Options granted to non-employee directors or the timing of the grant or the exercise price of the Initial Options or Annual Options granted to non-employee directors be amended more than once every six months other than to comply with changes in the Internal Revenue Code.

SECTION XII

MISCELLANEOUS

        (a)    No Obligation to Exercise Option.    The granting of an option shall impose no obligation upon the Optionee to exercise such option.

        (b)    Employment.    The granting of an option to an Optionee who is an employee shall neither confer upon the Optionee any rights respecting continued employment nor limit the Company's or any Subsidiary's right to terminate such employment.

        (c)    Disputes.    Any dispute or disagreement which arises under or as a result of, or any way relates to, the interpretation, construction or application of the Plan or any stock option agreement issued under the Plan shall be determined by the Stock Option Committee and such determination by the Stock Option Committee shall be final, binding and conclusive.

        (d)    Nontransferability of Options.    No option granted under the Plan may be transferred by an Optionee otherwise than by will or by the laws of descent and distribution, and during the Optionee's lifetime the option may be exercised only by the Optionee or his or her guardian or legal representative.

SECTION XIII

LIMITED RIGHTS

        The Stock Option Committee may, in its discretion, grant Limited Rights to the holder of any option granted under the Plan (the "Related Option") with respect to all or any portion of the shares covered by the Related Option (whether heretofore or hereafter granted), provided, however, that in conjunction with the automatic one-time grant of an Initial Option to a non-employee director under the Plan and the regular grants of Annual Options to non-employee directors under the Plan, such non-employee director or directors shall simultaneously be granted Limited Rights with respect to all of the shares of Common Stock covered by such Initial Option and Annual Options. Each Limited Right granted to Optionees who are not non-employee directors shall relate to a specific Related Option and may be granted at any time either concurrently with the grant of the Related Option or at any time the Related Option is outstanding. Each Limited Right shall be evidenced by a written limited right certificate signed by an officer of the Company.

        Limited Rights shall be exercisable at any time within the thirty day period after any of the following events (an "Event"), whether or not the Related Option is exercisable and regardless of whether the Optionee is an employee, or a non-employee director, at the time of exercise, so long as the Optionee is an employee, or a non-employee director, immediately preceding the Event (provided that in no event shall a non-employee director initially appointed by the Board of Directors be entitled to exercise the Limited Rights granted to such director under the Plan unless, and until such time as, such director shall have been elected to the Board of Directors by the shareholders of the Company):

(A)

a majority of the directors of the Company shall be persons other than persons

(1)

for whose election proxies shall have been solicited by the Board of Directors of the Company or



(2)

who are then serving as directors appointed by the Board of Directors to fill vacancies on the Board of Directors caused by death or resignation (but not by removal) or to fill newly created directorships,




(B)

30% or more of the outstanding voting stock of the Company is acquired or beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, or any successor rule thereto) by any person (other than the Company, a Subsidiary of the Company or the Optionee) or group of persons, not including the Optionee, acting in concert, or



(C)

the stockholders of the Company approve a definitive agreement or plan to



(i)

merge or consolidate the Company with or into another corporation (other than (1) a merger or consolidation with a Subsidiary of the Company or (2) a merger in which the Company is the surviving corporation and either (a) no outstanding voting stock of the Company (other than fractional shares) held by stockholders immediately prior to the merger is converted into cash (except upon the exercise by stockholders of the Company of statutory dissenters' rights), securities, or other property or (b) all holders of outstanding voting stock of the Company (other than fractional shares) immediately prior to the merger (except those that exercise statutory dissenters' rights) have substantially the same proportionate ownership of the voting stock of the Company or its parent corporation immediately after the merger),



(ii)

exchange, pursuant to a statutory exchange of shares of voting stock of the Company held by stockholders of the Company immediately prior to the exchange, shares of one or more classes or series of voting stock of the Company for shares of another corporation or other securities, cash or other property,



(iii)

sell or otherwise dispose of all or substantially all of the assets of the Company (in one transaction or a series of transactions) or



(iv)

liquidate or dissolve the Company,

unless a majority of the voting stock (or the voting equity interest) of the surviving corporation or of any corporation (or other entity) acquiring all or substantially all of the assets of the Company (in the case of a merger, consolidation or disposition of assets) or the Company or its parent corporation (in the case of a statutory share exchange) is, immediately following the merger, consolidation, statutory share exchange or disposition of assets, beneficially owned by the Optionee or a group of persons, including the Optionee, acting in concert.

        Notwithstanding the provisions of the immediately preceding paragraph, no Limited Right shall be exercised within a period of six months after the date of grant of the Limited Right.

        If Limited Rights are exercised, the Related Option shall no longer be exercisable to the extent of the number of shares with respect to which the Limited Rights were exercised. Upon the exercise or termination of a Related Option (other than termination of the Related Option by reason of termination of an Optionee's employment with the Company within thirty days after an Event), Limited Rights granted with respect thereto shall terminate to the extent of the number of shares as to which the Related Option was exercised or terminated.

        A person entitled to exercise a Limited Right may, subject to its terms and conditions and the terms and conditions of the Plan, exercise such Limited Right in whole or in part by giving written notice to the Company of an election to exercise such Limited Right. The date the Company receives the notice is the exercise date. Upon exercise of Limited Rights, the holder shall promptly be paid an amount in cash for each share with respect to which the Limited Rights are exercised equal to the

difference between the option exercise price per share of Common Stock covered by the Related Option (or, in the case of Limited Rights which are exercised pursuant to the terms hereof after termination of employment, the former Related Option) and the Fair Market Value per share of Common Stock covered by the Related Option as of the date of exercise of the Limited Right.

        For purposes of this Section XIII, "Fair Market Value" shall be defined as provided in Section VII(A)(a) hereof, except that all references in Section VII(A)(a) to "the date the option is granted" shall, solely for purposes of this Section XIII, be deemed to be references to the date of exercise of the Limited Right. If the Common Stock of the Company is not listed on a national securities exchange or quoted by a recognized market maker in such Stock, the fair market value, solely for purposes of this Section XIII, shall be the fair market value of such Stock as of the date of exercise of the Limited Right as established in good faith by the Board or Committee. For purposes of the Plan, the date that a Related Option is granted shall be the date that it is originally granted (regardless of when the related Limited Right is granted).

        A Limited Right may not be assigned and shall be transferable only if and to the extent that the Related Option is transferable. The Company maywithhold any applicable withholding taxes from any cash payment due upon exercise of a Limited Right.

QuickLinks

MEDTRONIC, INC. 1979 NONQUALIFIED STOCK OPTION PLAN (As Amended and Restated Through June 27, 1991)

EX-10.8

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.8

MEDTRONIC, INC.
1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN
(As Amended through June 27, 2002)

        1.    Purpose.    The purpose of this Plan is to facilitate recruiting and retaining non-employee directors of outstanding ability.

        2.    Definitions.    The capitalized terms used in this Plan have the meanings set forth below.

        (a)  "Account" means a bookkeeping account maintained for a Participant to which Deferred Stock Units are credited pursuant to Section 6.

        (b)  "Affiliate" means any corporation that is a "parent corporation" or "subsidiary corporation" of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, or any successor provision, and any joint venture in which the Company or any such "parent corporation" or "subsidiary corporation" owns an equity interest.

        (c)  "Agreement" means a written contract entered into between the Company or an Affiliate and a Participant containing the terms and conditions of an Option granted hereunder (not inconsistent with this Plan).

        (d)  "Annual Option" means an Option granted pursuant to Section 5 (c) of this plan.

        (e)  "Annual Retainer" of a Participant means the fixed annual fee for such Participant in effect on the first day of the year for which such Annual Retainer is payable for services to be rendered as a Non-Employee Director of the Company.

        (f)    "Award means an Option granted pursuant to Section 5 of this Plan or a credit of Deferred Stock Units pursuant to Section 6 of this Plan.

        (g)  "Board" means the Board of Directors of the Company.

        (h)  "Change in Control" shall mean:

        (i)    Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this clause (a), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company or any of its subsidiaries, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries, (4) any acquisition by an underwriter temporarily holding securities pursuant to an offering of such securities or (5) any acquisition pursuant to a transaction that complies with clauses (i), (ii) and (iii) of clause (c); or

        (ii)  Individuals who, as of the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be considered as though such individual were a

1

member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

        (iii)  Consummation of a reorganization, merger, statutory share exchange or consolidation (or similar corporate transaction) involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity (a "Business Combination"), in each case, unless, immediately following such Business Combination, (i) substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 55% of, respectively, the then outstanding shares of common stock and the total voting power of (A) the corporation resulting from such Business Combination (the "Surviving Corporation") or (B) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 80% or more of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), in substantially the same proportion as their ownership, immediately prior to the Business Combination, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 30% or more of the outstanding shares of common stock and the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (iii) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination; or

        (iv)  Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

        Notwithstanding the foregoing provisions of this definition, a Change in Control shall not be deemed to occur with respect to the Participant if the acquisition of the 30% or greater interest referred to in clause (a) is by a group, acting in concert, that includes the Participant or if at least 40% of the then outstanding common stock or combined voting power of the then outstanding voting securities (or voting equity interests) of the Surviving Corporation or, if applicable, the Parent Corporation shall be beneficially owned, directly or indirectly, immediately after a Business Combination by a group, acting in concert, that includes the Participant.

        (i)    "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time, or any successor statute.

        (j)    "Committee" means any committee of the Board designated by the Board to administer this Plan under Section 3 hereof, of which shall be composed of not less that two members, each of whom shall be a "non-employee director" as defined in Exchange Act Rule 16b-3.

        (k)  "Company means Medtronic, Inc., a Minnesota corporation, or any successor to all or substantially all of its businesses by merger, consolidation, purchase of assets or otherwise.

        (l)    "Deferred Stock Unit" means the right to receive one Share pursuant to Section 6 of this Plan.

2

        (m)  "Disability" means the disability of a Participant such that the Participant would, if an employee, be considered disabled under any retirement plan of the Company which is qualified under Section 401 of the Code.

        (n)  "Discretionary Option" means an Option granted pursuant to Section 5(f).

        (o)  "Exchange Act" means the Securities Exchange Act of 1934, as amended; "Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act as in effect with respect to the Company or any successor regulation.

        (p)  "Fair Market Value" as of any date means, unless otherwise expressly provided in this Plan:

        (i)    the closing sale price of a Share (A) on the composite tape for New York Stock Exchange ("NYSE") listed shares, or (B) if the Shares are not quoted on the NYSE composite tape, on the principal United States securities exchange registered under the Exchange Act on which the shares are listed, or (C) if the Shares are not listed on any such exchange, on the National Association of Securities Dealers, Inc. Automated Quotation System National Market System, in any case on the date immediately preceding that date, or, if no sale of Shares shall have occurred on that date, on the next preceding day on which a sale of Shares occurred, or

        (ii)  if clause (i) is not applicable, what the Committee determines in good faith to be 100% of the fair market value of a Share on that date. However, if the applicable securities exchange or system has closed for the day at the time the event occurs that triggers a determination of Fair Market Value, all references in this paragraph to the "date immediately preceding that date" shall be deemed to be references to "that date." The determination of Fair Market Value shall be subject to adjustment as provided in Section 7(e) hereof. For purposes of this definition, each Option granted and each Deferred Stock Unit credited pursuant to this Plan shall be deemed conclusively to have been granted or credited, as applicable, prior to the close of the applicable securities exchange or system on the date of grant or credit, as applicable.

        (q)  "Fundamental Change" means a dissolution or liquidation of the Company, a sale of substantially all of the assets of the Company, a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation, or a statutory share exchange involving capital stock of the Company.

        (r)  "Initial Option" means an Option granted pursuant to Section 5(b).

        (s)  "Initial Plan Year" means the period from March 5, 1998 through August 31, 1998.

        (t)    "Meeting" means a regular or special meeting of the Board or of a committee of the Board on which a particular Participant serves that is actually held.

        (u)  "Non-Employee Director" means a member of the Board who is not an employee of the Company or any Affiliate.

        (v)  "Option" means a right to purchase Stock.

        (w)  "Participant" means any Non-employee Director to whom an Award is made.

        (x)  "Plan" means this 1998 Outside Director Stock Compensation Plan, as amended and in effect from time to time.

        (y)  "Plan Year" means the Initial Plan Year, or the period from September 1 of 1998 or any subsequent year, through the following August 31.

        (z)  "Pro-Ration Factor" means: (A) in the case of a Participant who is a Non-Employee Director for the entire Plan Year in question and attends at least 75 percent of the Meetings that occur during such Plan Year (such Meetings, the "Plan Year Meetings"), 100 percent; (B) in the case of a

3

Participant who is a Non-Employee Director for only a portion of a Plan Year and attends at least 75 percent of the Meetings that occur during that portion of a Plan Year (such meetings, the "Applicable Meetings"), a percentage determined by dividing the number of Applicable Meetings by the total number of Plan Year Meetings for that Plan Year; and (C) in the case of a Non-Employee Director who fails to satisfy the Meeting attendance requirement of clause (A) or (B), as applicable, 75 percent of the percentage specified in clause (A) or (b), as applicable.

        (aa) "Replacement Factor" is defined in Section 5(d)(ii).

        (bb) "Replacement Option" means an Option granted pursuant to Section 5(d) of this Plan.

        (cc) "Retirement Option" means an Option granted pursuant to Section 5(e) of this Plan.

        (dd) "Share" means a share of Stock.

        (ee) "Stock" means the common stock, $.10 par value per share (as such par value may be adjusted from time to time), of the Company.

        (ff)  "Subsidiary" means a "subsidiary corporation," as that term is defined in Section 424(f) of the Code, or any successor provision.

        (gg) "Successor" with respect to a Participant means the legal representative of an incompetent Participant and, if the Participant is deceased, the legal representative of the estate of the Participant or the person or persons who may, by bequest or inheritance, or pursuant to a transfer permitted under Section 5(i) of this Plan, acquire the right to exercise an Option or receive Shares issuable in satisfaction of Deferred Stock Units in the event of the Participant's death.

        (hh) "Term" means the period during which an Option may be exercised.

        Except when otherwise indicated by the context, reference to the masculine gender shall include, when used, the feminine gender and any term used in the singular shall also include the plural.

        3.    Administration.

        (a)    Authority of Committee.    The Committee or its delegee shall administer this Plan. The Committee shall have the authority to interpret this Plan and any Award or Agreement made under this Plan, to establish, amend, waive and rescind any rules and regulations relating to the administration of this Plan (including without limitation the manner in which Participants shall make elections provided for herein), to determine the terms and provisions of any Agreements entered into hereunder (not inconsistent with this Plan), and to make all other determinations necessary or advisable for the administration of this Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent it shall deem desirable. The determinations of the Committee in the administration of this Plan, as described herein, shall be final, binding and conclusive.

        (b)    Indemnification.    To the full extent permitted by law, each member and former member of the Committee and each person to whom the Committee delegates or has delegated authority under this Plan shall be entitled to indemnification by the Company against and from any loss, liability, judgment, damage, cost and reasonable expense incurred by such member, former member or other person by reason of any action taken, failure to act or determination made in good faith under or with respect to this Plan.

        4.    In General.

        (a)    Shares Available.    The number of Shares available for distribution under this Plan is 3,000,000 (subject to adjustment under Section 7(e) hereof). Any Shares subject to the terms and conditions of an Award under this Plan which are not used because the terms and conditions of the Award are not met may again be used for an Award under this Plan. Any unexercised or undistributed

4

portion of any terminated, expired, exchanged, or forfeited Award or any Award settled in cash in lieu of Shares shall be available for further Awards.

        (b)    No Fractional Shares.    No fractional Shares may be issued under this Plan; fractional Shares will be rounded to the nearest whole Share.

        (c)    Rights as Shareholder.    A participant shall have no rights as a shareholder with respect to any securities covered by an Award until the date the Participant becomes the holder of record.

        5.    Options.

        (a)    Agreements.    Each Option granted under this Plan shall be evidenced by an Agreement setting forth the terms and conditions thereof.

        (b)    Initial Option Grants.    Each Non-Employee Director first elected or appointed to the Board on or after January 15, 1998 shall automatically be granted, on the later of (i) the date such director first becomes a director and (ii) March 5, 1998, an Option (an "Initial Option") to purchase that number of Shares determined by dividing (i) two times the amount of the Annual Retainer as in effect immediately following such election or appointment by (ii) the Fair Market Value of a Share on the date of grant. No increase in the Annual Retainer of the Non-Employee Directors after a person becomes a Non-Employee Director shall increase the number of Shares subject to the Initial Option granted to such Non-Employee Director. An employee of the Company or an Affiliate who terminates such employment and thereafter becomes a Non-Employee Director is not entitled to receive an Initial Option but will be entitled to receive Annual Options and Replacement Options. A Non-Employee Director is not entitled to receive more than one Initial Option during his or her lifetime.

        (c)    Annual Option Grants.    On the first day of each Plan Year other than the Initial Plan Year, each Non-employee Director shall automatically be granted an Option (the "Annual Option") to purchase that number of Shares equal to (i) the amount of the Annual Retainer in effect as of such day, divided by (ii) the Fair Market Value of a Share on the date of the grant. If there is an increase in the Annual Retainer after the Annual Option is granted in a given year, each Non-Employee Director shall automatically be granted, as of the date such increase is approved, a supplemental Annual Option to purchase that number of Shares equal to (i) the amount of the increase in such Annual Retainer divided by (ii) the Fair Market Value of a Share on the date of the grant.

        (d)    Replacement Option Grant.    (i) Each Non-Employee Director shall be provided with the opportunity to elect, in advance of the first day of each Plan Year (or upon becoming a Non-Employee Director, if later), to receive the Annual Retainer and all committee chair fees for such Plan Year (collectively, the "Eligible Earnings") in the form of a grant of an Option (a "Replacement Option") under this Section 5(d) rather than in cash. Each Non-Employee Director who makes such an election who remains a member of the Board on the last day of the relevant Plan Year shall automatically be granted on such day an Option (the "Replacement Option") to purchase that number of Shares equal to (A) the Replacement Factor (as defined below) times the Eligible Earnings for the Participant for the Plan Year times the Pro-Ration Factor, divided by (B) the Fair Market Value of a Share on the date of grant. A Non-Employee Director who elects to receive a Replacement Option for a Plan Year but retires from the Board prior to the last day of such Plan Year shall automatically be granted on the date of retirement a Replacement Option to purchase that number of Shares equal to (C) the Replacement Factor times the Eligible Earnings for the Participant for the Plan Year times the Pro-Ration Factor divided by (D) the Fair Market Value of the Shares on the date of grant.

        (ii)  The "Replacement Factor means four, or such other number as the Board may designate before the beginning of any Plan Year.

        (e)    Retirement Options.    Each Participant who has elected, in connection with the termination of the Medtronic, Inc. Directors' Retirement Plan (the "Retirement Plan"), to receive Options pursuant to this Section 5(e) shall be granted as of March 5, 1998, an Option (a "Retirement Option") to

5

purchase that number of Shares equal to (i) four times the amount of such Participant's accrued benefit under the Retirement Plan as of March 5, 1998, divided by (ii) the Fair Market Value of a Share on the date of grant.

        (f)    Discretionary Options.    The Board or the Committee may, in its discretion, at any time or from time to time grant to any Non-Employee Director additional Options ("Discretionary Options") to purchase such number of Shares, on such terms and conditions, as it shall determine.

        (g)    Purchase Price; Term and Exercisability of Options.    The purchase price of each share subject to an Option shall be the Fair Market Value of a Share as of the date the Option is granted. Options granted to a Non-Employee Director under this Section 5 shall vest and be exercisable in full on the date of grant, except to the extent the Board provides otherwise with respect to Discretionary Options; provided, however, that in no event shall a Non-Employee Director initially appointed by the Board be entitled to exercise an Option unless, and until such time as, such director shall have been elected to the Board by the shareholders of the Company. Notwithstanding the foregoing, except as otherwise provided by the Board with respect to Discretionary Options, vesting of an Option granted to a Non-Employee Director who shall have been elected by the shareholders of the Company shall accelerate and the Option shall become immediately exercisable in full upon the occurrence of a Change in Control or in the event that the Non-Employee Director ceases to serve as a director of the Company due to death, Disability, resignation or retirement under the policies of the Company then in effect. Options shall expire on the ten-year anniversary date of the Option's grant; provided, that Initial Options and Annual Options (but not Replacement Options or Retirement Options) shall expire on the five-year anniversary date of the date the Non-Employee Director ceases to be a director of the Company for any reason, if earlier than the ten-year anniversary date of the Option's grant; and provided, further, that the Initial Option granted to a Non-Employee Director initially appointed by the Board shall expire on the date such director ceases to be a director of the Company unless such director shall have been elected by the shareholders subsequent to the grant of the Initial Option to such director.

        (h)    Payment of Option Price.    The purchase price of the Shares with respect to which an Option is exercised shall be payable in full at the time of exercise; provided, that to the extent permitted by law, Participants may simultaneously exercise Options and sell the Shares thereby acquired pursuant to a brokerage or similar relationship and use the proceeds from such sale to pay the purchase price of such Shares. The purchase price may also be paid in cash, or through a reduction of the number of Shares delivered to the Participant upon exercise of the Option or by delivery to the Company of Shares held by such Participant for at least six months before such exercise (in each case, such Shares having a Fair Market Value as of the date the Option is exercised equal to the purchase price of the Shares being purchased pursuant to the Option), or a combination thereof, in the discretion of the Participant. In no event shall any Option be exercisable at any time after its Term. When an Option is no longer exercisable, it shall be deemed to have lapsed or terminated.

        (i)    Transferability.    A non-Employee Director may transfer an Option granted pursuant to this Section 5 to any member of such Non-Employee Director'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 members of such Non-Employee Director's "immediate family" or partnerships in which such family members are the only partners; provided, that (i) the transferor receives no consideration for the transfer and (ii) such transferred Option shall continue to be subject to the same terms and conditions as were applicable to such Option immediately prior to its transfer. Unless an Option granted pursuant to this Section 5 shall have expired, in the event of a Non-Employee Director's death, an Option granted to such Non-Employee Director pursuant to this Section 5 shall be transferable to the beneficiary, if any, designated by the Non-Employee Director in writing to the Company prior to the Non-Employee Director's death and such beneficiary shall succeed to the rights of the Non-Employee Director to the extent permitted by law. If no such designation of a

6

beneficiary has been made, the Non-Employee Director's legal representative shall succeed to such Option, which shall be transferable by will or pursuant to the laws of descent and distribution.

        6.    Deferred Stock Units.

        (a)    Annual Credit.    As of the last day of each Plan Year, there shall be credited to the Account of each Participant who is a Non-Employee Director on such day a number of Deferred Stock Units (each representing the right to receive a Share) equal to (i) the Annual Retainer in effect as of such day, times the Pro-Ration Factor, divided by (ii) the average of the Fair Market Value of a Share on each of the last 20 trading days during such Plan Year determined in accordance with clause (i) of Section 2(p) or, if clause (i) of Section 2(p) is inapplicable, the Fair Market Value of a Share as of the last day of such Plan Year determined in accordance with clause (ii) of Section 2(p). There shall be credited to the Account of any Non-Employee Director who retires from the Board prior to the last day of the Plan Year, as of the retirement date, a number of Deferred Stock Units equal to (i) the Annual Retainer in effect as of such date, times the Pro-Ration Factor, divided by (ii) the average of the Fair Market Value of a Share on each of the last 20 trading days during such Plan Year determined in accordance with Section 2(p).

        (b)    Retirement Plan Credit.    The account of each Participant who has elected, in connection with the termination of the Retirement Plan, to be credited with Deferred Stock Units pursuant to this Section 6(b) shall be credited, as of March 5, 1998, with a number of Deferred Stock Units (each representing the right to receive a Share) equal to (i) the amount of such Participant's accrued benefit under the Retirement Plan as of March 5, 1998, divided by (ii) the average of the Fair Market Value of a Share on each of the last 20 trading days ending with March 5, 1998 determined in accordance with clause (i) of Section 2(p) or, if clause (i) of Section 2(p) is inapplicable, the Fair Market Value of a Share as of the last day of such Plan Year determined in accordance with clause (ii) of Section 2(p).

        (c)    Discretionary Credits.    The Board or the Committee may, in its discretion, at any time and from time to time, cause additional Deferred Stock Units (each representing the right to receive a Share) to be credited to the account of any Non-Employee Director.

        (d)    Credits of Dividend Equivalents; Maintenance of Accounts.    The Company shall maintain an Account for each Participant to which the credits provided for in Sections 6(a), (b) and (c) above shall be made. Each Participant's Account shall be credited from time to time with additional Deferred Stock Units to reflect deemed reinvestment of any amounts that would have been paid as cash dividends with respect to the Deferred Stock Units held in such Account if they were Shares. Subject to the provisions of Section 6(e) regarding delivery of Shares, Accounts may be credited with fractional Deferred Stock Units pursuant to this Section 6(d) and Sections 6(a), (b) and (c).

        (e)    Delivery of Shares from Accounts.

        (i)    Each Participant shall be provided the opportunity to elect, in accordance with procedures established by the Committee, whether to receive the balance in his or her account in a single lump sum or in five annual installments. Once made, such an election may be changed, but no such changed election shall take effect until six months after the date the election is made, and in any event such changed election shall not take effect unless it is (A) made at least six months before deliveries pursuant to Section 6(e)(ii) begin and (B) approved by the Board or a committee of the Board if the Committee determines that such approval is necessary or appropriate in light of Exchange Act Rule 16b-3.

        (ii)  The balance in a Participant's Account shall be delivered to the Participant or the Participant's Successor in the form of Shares as soon as practicable after, or beginning as soon as practicable after, the date on which the Participant ceases for any reason to be a member of the Board (the "Termination Date"). If a Participant has elected a lump sum delivery, or if a Participant dies while a member of the Board, the Participant or the Participant's Successor, as applicable, shall receive a number of Shares equal to the total number of Deferred Stock Units in

7

the Participant's Account as of the Termination Date in full satisfaction of all of the Participant's interest in the Account; provided, that any fractional Deferred Stock Units shall be rounded to the nearest higher whole number of Shares. If a Participant has elected installment delivery and ceases to be a member of the Board for any reason other than the death of the Participant, then the Participant shall receive the balance in such Participant's Account in the form of five annual deliveries of Shares (and if a Participant dies after ceasing to be a Board member, any remaining annual deliveries shall be made to the Participant's Successor). The precise number of shares delivered in each installment shall be determined in such a manner as to cause each such delivery to represent approximately one-fifth of the Deferred Stock Units held in such Account as of the Termination Date together with any dividend equivalents credited thereon. Notwithstanding the foregoing, no such installment shall be delivered unless and until the Board or the Committee shall have approved the delivery (unless such approval is not necessary under Exchange Act Rule 16b-3).

        (iii)  Notwithstanding the foregoing, the balance in all Participants' Accounts shall be delivered to the Participants in a single lump sum delivery of Shares upon the occurrence of a Change of Control.

        7.    General Provisions.

        (a)    Effective Date of this Plan.    This Plan shall become effective as of March 5, 1998.

        (b)    Duration of this Plan.    This Plan shall remain in effect until it is terminated pursuant to Section 7(d) hereof.

        (c)    No Right to Board Membership.    Nothing in this Plan or in any Agreement shall confer upon any Participant the right to continue as a member of the Board.

        (d)    Amendment, Modification and Termination of this Plan.    Except as provided in this Section 7(d), the Board may at any time amend, modify, terminate or suspend this Plan or any or all Agreements under this Plan to the extent permitted by law. No termination, suspension or modification of this Plan may materially and adversely affect any right acquired by any Participant (or a Participant's legal representative) or any Successor under an Award granted before the date of termination, suspension or modification, unless otherwise agreed by the Participant in the Agreement or otherwise or required as a matter of law. It is conclusively presumed that any adjustment for changes in capitalization provided for in Section 7(e) hereof does not adversely affect any right of a Participant under an Award.

        (e)    Adjustment for Changes in Capitalization.    Appropriate adjustments in the aggregate number and type of Shares available for Awards under this Plan, in the number and type of Shares subject to Awards then outstanding and in the Option exercise price as to any outstanding Options and in the number of Defined Stock Units in the Accounts, may be made by the Committee in its sole discretion to give effect to adjustments made in the number or type of Shares through a Fundamental Change, recapitalization, reclassification, stock dividend, stock split, stock combination, or other relevant change, provided that fractional Shares shall be rounded to the nearest whole Share.

        (f)    Fundamental Change.    In the event of a proposed Fundamental Change: (a) involving a merger, consolidation or statutory share exchange, unless appropriate provision shall be made (which the Board may, but shall not be obligated to, make) for the protection of the outstanding Options by the substitution of appropriate voting common stock of the corporation surviving any such merger or consolidation or, if appropriate, the parent corporation of the Company or such surviving corporation, to be issuable upon the exercise of Options, or (b) involving the dissolution or liquidation of the Company, the Board may, but shall not be obligated to, declare, at least twenty days prior to the occurrence of the Fundamental Change, and provide written notice to each holder of an Option of the declaration, that each outstanding Option, whether or not then exercisable, shall be canceled at the

8

time of, or immediately prior to the occurrence of, the Fundamental Change in exchange for payment to each holder of an Option, within 20 days after the Fundamental Change, of cash for each Share covered by the canceled Option equal to the amount, if any, by which the Fair Market Value (as defined in this Section 7(f)) per Share exceeds the exercise price per Share covered by such Option. At the time of the declaration provided for in the immediately preceding sentence, each Option shall immediately become exercisable in full and each person holding an Option shall have the right, during the period preceding the time of cancellation of the Option, to exercise the Option as to all or any part of the Shares covered thereby. In the event of a declaration pursuant to this Section 7(f), each outstanding Option that shall not have been exercised prior to the Fundamental Change shall be canceled at the time of, or immediately prior to, the Fundamental Change, as provided in the declaration. Notwithstanding the foregoing, no person holding an Option shall be entitled to the payment provided for in this Section 7(f) if such Option shall have previously expired. For purposes of this Section 7(f) only, "Fair Market Value" per Share means the cash plus the fair market value, as determined in good faith by the Board, of the non-cash consideration to be received per Share by the shareholders of the Company upon the occurrence of the Fundamental Change, notwithstanding anything to the contrary provided in this Plan.

        (g)    Limits of Liability.

        (i)    Any liability of the Company to any Participant with respect to an Award shall be based solely upon contractual obligations created by this Plan and the Agreement.

        (ii)  Except as may be required by law, neither the Company nor any member or former member of the Board or of the Committee, nor any other person participating (including participation pursuant to a delegation of authority under Section 3(a) hereof) in any determination of any question under this Plan, or in the interpretation, administration or application of this Plan, shall have any liability to any party for any action taken, or not taken, in good faith under this Plan.

        (h)    Compliance with Applicable Legal Requirements.    No certificate for Shares distributable pursuant to this Plan shall be issued and delivered unless the issuance of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended and in effect from time to time or any successor statute, the Exchange Act and the requirements of the exchanges on which the Company's Shares may, at the time, be listed.

        (i)    Removal for Cause.    Notwithstanding any other provision of this Plan, this Section 7(i) shall apply in the event a Participant is removed from the Board for cause before a Change of Control. In such event: (i) all of the Participant's Options shall immediately expire and be forfeited, and (ii) unless the Board or the Committee specifically determines otherwise in connection with or after such removal, the balance in such Participant's Account shall be delivered to the Participant in a single lump sum delivery of Shares after the expiration of six months from the date of such removal. In addition, if the Participant has received or been entitled to delivery of Shares pursuant to the exercise of an Option within six months before such removal, the Board or the Committee, in its sole discretion, may require the Participant to return or forfeit all or a portion of such Shares and receive back the exercise price (if any) paid therefor, or may require the Participant to pay to the Company the economic value of such Shares less such exercise price, determined as of the date of the exercise of Options in the event of any of the following occurrences (whether before or after such removal): competition 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 action or event that the Board may determine warrants such a requirement. The Board's or Committee's right to require such return or forfeiture must be exercised within 90 days after the later of the date of such removal or the discovery of such an occurrence, but in no event later than 15 months after such removal.

9

        (8)    Governing Law.    To the extent that federal laws do not otherwise control, this Plan and all determinations made and actions taken pursuant to this Plan shall be governed by the laws of Minnesota and construed accordingly.

        (9)    Severability.    In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

        (10)    Effect of Prior Plan.    From and after the Effective Date of this Plan, no further awards shall be made to Non-Employee Directors under the Company's 1994 Stock Award Plan the "Prior Plan"). Thereafter, all grants and awards made under the Prior Plan prior to such Effective Date shall continue in accordance with the terms of the Prior Plan.

10

QuickLinks

MEDTRONIC, INC. 1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN (As Amended through June 27, 2002)

EX-10.10

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.10

        In October 2000, Medtronic, Inc. Board of Directors adopted a new Shareholder Rights Plan referenced in Exhibit 4.1 to the Annual Report on Form 10-K for the year ended April 26, 2002 (the "New Plan") to replace the Company's existing Shareholder Rights Plan (the "Existing Plan"). At that time, the Company's Management Incentive Plan, 1998 Outside Director Stock Compensation Plan, Capital Accumulation Plan Deferred Program and Executive Nonqualified Supplemental Benefit Plan (the "Stock/Compensation Plans") each contained change in control provisions identical to those in the Existing Plan. In October 2001, the Board of Directors amended each of the Stock/Compensation Plans to conform the definition of "change in control" to the definition in the New Plan. A copy of the definition is attached as Attachment A.

Attachment A

Change in Control

        A "Change in Control" shall mean:

a)

Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding shares of common stock of Medtronic, Inc. (the "Company") (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that, for purposes of this clause (a), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company or any of its subsidiaries, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries, (4) any acquisition by an underwriter temporarily holding securities pursuant to an offering of such securities or (5) any acquisition pursuant to a transaction that complies with clauses (i), (ii) and (iii) of clause (c); or



b)

Individuals who, as of the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or



c)

Consummation of a reorganization, merger, statutory share exchange or consolidation (or similar corporate transaction) involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity (a "Business Combination"), in each case, unless, immediately following such Business Combination, (i) substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 55% of, respectively, the then outstanding shares of common stock and the total voting power of (A) the corporation resulting from such Business Combination (the "Surviving Corporation") or (B) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 80% or more of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), in substantially the same proportion as their ownership, immediately prior to the Business Combination, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 30% or more of the outstanding shares of common stock and the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (iii) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent

Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination; or

d)

Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

Notwithstanding the foregoing provisions of this definition, a Change in Control shall not be deemed to occur with respect to the Participant if the acquisition of the 30% or greater interest referred to in clause (a) is by a group, acting in concert, that includes the Participant or if at least 40% of the then outstanding common stock or combined voting power of the then outstanding voting securities (or voting equity interests) of the Surviving Corporation or, if applicable, the Parent Corporation shall be beneficially owned, directly or indirectly, immediately after a Business Combination by a group, acting in concert, that includes the Participant.

QuickLinks

Exhibit 10.10

EX-12.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 12.1

MEDTRONIC, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)

        The ratio of earnings to fixed charges for the year ended April 26, 2002, was computed based on Medtronic's 2002 Annual Report on Form 10-K. The ratio of earnings to fixed charges for the fiscal years ended April 27, 2001, April 30, 2000, 1999, 1998, and 1997 was computed based on Medtronic's historical consolidated financial information included in Medtronic's Annual Report on Form 10-K filed on July 26, 2001.

								Year ended April 30,
		Year ended April 26, 2002			Year ended April 27, 2001 (7)
								2000			1999		1998		1997
Earnings:
	Income before extraordinary items and cumulative effect of accounting changes	$	984.0		$	1,046.0		$	1,084.2		$	466.7	$	587.7	$	582.0
	Income taxes		540.2			503.4			530.6			358.4		316.8		304.4
	Minority interest		3.0			1.4			4.4			3.3		2.4		1.8
	Amortization of capitalized interest		0.1			0.1			—			—		—		—
	Capitalized interest (2)		(0.3	)		(3.5	)		(0.2	)		—		—		—
		$	1,527.0		$	1,547.4		$	1,619.0		$	828.4	$	906.9	$	888.2
Fixed Charges:
	Interest expense (3)	$	45.2		$	17.6		$	14.0		$	29.2	$	15.5	$	15.4
	Capitalized interest (2)		0.3			3.5			0.2			—		—		—
	Amortization of debt issuance costs (4)		32.0			—			—			—		—		—
	Rent interest factor (5)		16.3			15.5			14.9			14.2		12.2		11.5
		$	93.8		$	36.6		$	29.1		$	43.4	$	27.7	$	26.9
Earnings before income taxes and fixed charges		$	1,620.8		$	1,584.0		$	1,648.1		$	871.8	$	934.6	$	915.1
Ratio of earnings to fixed charges (6)			17.3			43.3			56.6			20.1		33.7		34.0

(1)

On December 21, 2000, November 5, 1999, January 28, 1999, January 27, 1999, and September 30, 1998, Medtronic acquired PercuSurge, Inc., Xomed Surgical Products, Inc., Arterial Vascular Engineering, Inc., Sofamor Danek Group, Inc., and Physio-Control International Corporation, respectively. These five acquisitions were accounted for under the pooling of interests method of accounting. As such, the ratios of earnings to fixed charges presented above include the effects of the mergers.

(2)

Capitalized interest consists of interest related to the construction of Medtronic's new World Headquarters.

(3)

Interest expense consists of interest on indebtedness.

(4)

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 on September 17, 2001.

(5)

Approximately one-third of rental expense is deemed representative of the interest factor.

(6)

Earnings for the fiscal years ended April 26, 2002 and April 27, 2001 and April 30, 2000, 1999, 1998, and 1997 include special, in-process research and development, and other non-recurring charges of $615.8 million (of which $32.0 million is included in interest expense), $347.2 million (of

1

which $8.4 million is included in cost of sales), $13.8 million, $554.1 million (of which $29.0 million is included in cost of sales), $205.3 million (of which $12.9 million is included in cost of sales), and $55.5 million, respectively.

On a supplemental basis, the ratio of earnings to fixed charges excluding special, in-process research and development, and other non-recurring charges would have been 23.8, 52.7, 57.0, 32.9, 41.1, and 36.1 for the fiscal years ended April 26, 2002, April 27, 2001, and April 30, 2000, 1999, 1998, and 1997, respectively.

(7)

In April 2001, Medtronic changed its fiscal year end from April 30 to the last Friday in April.

2

QuickLinks

MEDTRONIC, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)

EX-13

MEDTRONIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Understanding Our Financial Information

Our fiscal 2002 financial information is summarized in this Management's Discussion and Analysis, the Consolidated Financial Statements, and the related Notes. This information is important, but can appear overwhelming. The following helpful hints will assist you in fully understanding our financial information.

Organization of Financial Information    Management's Discussion and Analysis, presented on pages 13 to 32 of this report, provides material historical and prospective disclosures enabling investors and other users to assess our financial condition and results of operations.

        The consolidated financial statements, excluding notes, are presented on pages 35 to 38 of this report, and include the statements of consolidated earnings, consolidated balance sheets, statements of consolidated shareholders' equity and statements of consolidated cash flows.

        The notes, which are an integral part of the consolidated financial statements, are located on pages 39 to 68 of this report. These notes provide additional information required to fully understand the nature of amounts included in the consolidated financial statements.

Financial Trends    Throughout these financial sections, you will read about both recurring and non-recurring transactions or events that materially contribute to or reduce earnings and materially affect financial trends. We define purchased in-process research and development (IPR&D), restructuring, certain litigation and other charges as non-recurring charges. These charges result from unique facts and circumstances that likely will not recur with similar materiality or impact on continuing operations. See page 22 of this report and Note 3 to the consolidated financial statements for more information regarding these transactions. While these items are important in understanding and evaluating financial trends, other transactions or events may also have a material impact. A complete understanding of these transactions is necessary in order to estimate the likelihood that these trends will continue.

Accounting Policies and Critical Accounting Estimates    We have adopted various accounting policies to prepare the consolidated financial statements in accordance with accounting principles generally accepted in the United States (U.S.). Our most significant accounting policies are disclosed in Note 1 to the consolidated financial statements.

        The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions, including those related to bad debts, inventories, intangible assets, property, plant and equipment, minority investments, legal proceedings, purchased in-process research and development, warranty obligations, product liability, pension and postretirement obligations, revenue, income taxes, and restructuring activities. 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 differ from these estimates.

        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

13

changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include the following:

Legal Proceedings    We are involved in a number of legal actions, 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 would require significant expenditures. 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 the 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.

Minority Investments    We make long-term, strategic investments in companies that are in varied stages of development. We account for these investments under the cost or the equity method of accounting, as appropriate. Publicly traded investments accounted for under the cost method are adjusted to fair value at the end of each quarter based on their quoted market price. Required adjustments to the carrying value of these investments are recorded in shareholders' equity as Accumulated other non-owner changes in equity unless an unrealized loss is not considered recoverable during the period we expect to hold the investment. If an unrealized loss is not considered recoverable, the loss will be recognized in the statements of consolidated earnings in the period it is determined to be unrecoverable. Investments accounted for under the cost method that do not have a quoted market price are reviewed for impairment at fiscal year end or when changes in circumstance or the occurrence of events suggest our investment is not recoverable. Investments accounted for under the equity method are recorded at the amount of our investment and adjusted each period for our share of the investee's income or loss and dividends paid. Investments accounted for under the equity method are reviewed for impairment at each fiscal year end or when changes in circumstance or the occurrence of events suggest our investment is not recoverable. As of April 26, 2002 and April 27, 2001, we had $260.2 million and $159.0 million, respectively, of minority investments. Of these investments, $204.6 million and $117.2 million, respectively, represent investments in companies that do not have quoted market prices.

Valuation of Purchased In-Process Research and Development, Goodwill, and Other Intangible Assets    When we acquire another company, the purchase price is allocated, as applicable, between in-process research and development, other identifiable intangible assets, tangible assets, and goodwill as required by generally accepted accounting principles in the U.S. Purchased in-process research and development 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 in-process research and development and other intangible assets requires us to make significant estimates. The amount of the purchase price allocated to purchased in-process research and development and other intangible assets is determined by estimating the future cash flows of each project or technology and discounting the net cash flows back to their present values. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods. For purchased in-process research and development, these methodologies include consideration of the risk of the project not achieving commercial feasibility.

        Goodwill represents the excess of the aggregate purchase price over the fair value of net assets, including in-process research and development, of the acquired businesses. Goodwill is tested for impairment annually, or more frequently if changes in circumstance or the occurrence of events suggest an 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

14

cash flows. Goodwill, net of amortization, is $4,034.6 million and $995.9 million as of April 26, 2002 and April 27, 2001, respectively. The increase during fiscal 2002 was primarily the result of the MiniMed, Inc. (MiniMed) acquisition.

        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 25 years. We review these intangible assets for impairment annually or as changes in circumstance or the occurrence of events suggests the remaining value is not recoverable.

Tax Strategies    We operate in multiple tax jurisdictions both in the U.S. and outside the U.S. Accordingly, we must determine the appropriate allocation of income to each of these jurisdictions. This determination requires us to make several estimates and assumptions. Tax audits associated with the allocation of this income, and other complex 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.

Financial Obligations    Our financial obligations are summarized on page 27 of this report.

Derivatives    We do not use derivatives for speculative purposes. Derivatives are used to mitigate certain currency risks. Our accounting policy for derivatives and summary of the application of the derivative 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 in Note 4 to the consolidated financial statements.

Our Business

We are the world's leading medical technology company, providing lifelong solutions for people with chronic disease. Primary products include medical devices and technology to treat bradycardia pacing, tachyarrhythmia management, heart failure, atrial fibrillation, coronary and peripheral vascular disease, heart valve replacement, extracorporeal cardiac support, minimally invasive cardiac surgery, malignant and non-malignant pain control, diabetes, urological disorders, gastroenterological ailments, movement disorders, spinal and neurosurgery, neurodegenerative disorders and ear, nose and throat (ENT) surgery.

Overview of Fiscal 2002 Operating Results

Net Sales by Fiscal Year
(in millions)

In fiscal 2002, we completed several acquisitions that have strengthened and diversified our product lines to allow for growth in future years. Two of these acquisitions, MiniMed and Medical Research

15

Group, Inc. (MRG), were completed in the second quarter for a total purchase price of $3,807.2 million. MiniMed is the world leader in the design, development, manufacture, and marketing of advanced medical systems for the treatment of diabetes. MRG designs and develops technologies related to implantable pumps and sensors used in the treatment of diabetes. These two companies provide the foundation of our diabetes business. In the third quarter we acquired Endonetics, Inc. (Endonetics), which develops technologies for the diagnosis and treatment of gastroesophageal reflux disease (GERD), for $67.2 million. In the fourth quarter, we acquired VidaMed, Inc. (VidaMed), which designs, develops, and manufactures products that provide non-surgical treatment for benign prostatic hyperplasia (BPH), for $328.6 million. These two acquisitions increased the breadth of our product offerings in our urology and gastroenterology business. Our fiscal 2002 operating results include the results of each of these acquired entities since their respective acquisition dates.

        Fiscal 2002 consolidated net sales increased by $859.0 million, or 17.3%, on a constant currency basis, to $6,410.8 million. Foreign exchange translation had an unfavorable impact on net sales of $90.5 million when compared to last year, which reduced the growth rate to 15.5%. Our growth was primarily driven by new product introductions in the U.S. and the acquisitions discussed above, which resulted in a 20.8% increase in U.S. consolidated net sales to $4,448.6 million. New product introductions outside the U.S. contributed to an increase of 12.0%, on a constant currency basis, to $1,962.2 million. New product introductions were spread throughout each operating segment and across major product lines. Acquisitions had minimal impact on net sales outside the U.S. as these entities were historically focused on the U.S. markets. For more detail regarding these increases, see our discussion of net sales by operating segment in the "Net Sales" section of this discussion and analysis.

        Fiscal 2001 consolidated net sales increased by $535.5 million, or 13.7% on a constant currency basis, to $5,551.8 million. Foreign exchange translation had an unfavorable impact on net sales of $149.2 million when compared to fiscal 2000, which reduced the growth rate to 10.7%. This increase in net sales was balanced among our operating segments and by geography, as discussed in the "Net Sales" section of this discussion and analysis.

        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 "Market Risk" section of this discussion and analysis and Note 4 to the consolidated financial statements for further details on foreign currency instruments and our related risk management strategies).

Earnings and Earnings Per Share    (dollars in millions, except per share data):

	Fiscal Year						Percent Increase/ (Decrease)
	2002		2001		2000		FY02/01		FY01/00
Net earnings excluding non-recurring charges	$	1,477.2	$	1,282.1	$	1,095.7	15.2	%	17.0	%
Non-recurring charges	$	493.2	$	236.1	$	11.5	N/A		N/A
Net earnings	$	984.0	$	1,046.0	$	1,084.2	(5.9	%)	(3.5	%)
Diluted earnings per share	$	0.80	$	0.85	$	0.89	(5.9	%)	(4.5	%)
Non-recurring charges per share	$	0.40	$	0.19	$	0.01	N/A		N/A
Diluted earnings per share excluding non-recurring charges	$	1.21	$	1.05	$	0.90	15.2	%	16.7	%

16

        The non-recurring charges in each fiscal year included the following (see page 20 and Note 3 to the consolidated financial statements for more detail regarding non-recurring charges):

•

Fiscal 2002: net after tax charges totaling $493.2 million primarily for purchased in-process research and development, litigation, restructuring charges, and debt issuance costs related to the MiniMed and MRG acquisitions.



•

Fiscal 2001: net after tax charges totaling $236.1 million primarily for litigation and related asset write-downs, transaction costs related to the merger with PercuSurge, Inc. (PercuSurge) and restructuring initiatives aimed at further streamlining operations.



•

Fiscal 2000: after tax charges of $27.5 million primarily for transaction costs related to the merger with Xomed Surgical Products, Inc. (Xomed), a litigation settlement and restructuring initiatives. In connection with the substantial completion of the 1999 restructuring initiatives, the Company identified and reversed $16.0 million, net of tax effects, of previously recorded reserves no longer considered necessary, resulting in a net after tax charge for fiscal 2000 of $11.5 million.

Net Sales

Presented below is net sales by operating segment for fiscal years 2002, 2001, and 2000:

Fiscal Year 2002 (in millions)	Fiscal Year 2001 (in millions)	Fiscal Year 2000 (in millions)
Consolidated Net Sales $6,410.8	Consolidated Net Sales $5,551.8	Consolidated Net Sales $5,016.3

Cardiac Rhythm Management (CRM)    CRM products consist primarily of pacemakers, implantable and external defibrillators, leads and ablation products. CRM net sales grew 12.6%, on a constant currency basis, from fiscal 2001 to fiscal 2002, to $2,943.8 million. While the increase is the result of strong growth across all product lines, fiscal 2002 highlights include the following:

•

Worldwide net sales of implantable defibrillators grew 18%, on a constant currency basis, driven by strong market acceptance of the GEM® family of defibrillators and the Marquis™ DR, which received United States Food and Drug Administration (USFDA) approval in March 2002. The Marquis DR offers faster charge times for increased patient safety and improved longevity for less frequent replacement.



•

Worldwide pacing net sales grew 10%, on a constant currency basis, highlighted by release of the following:



•

InSync® device, which was released in the U.S., is designed to improve the pumping capability for patients with congestive heart failure. The InSync allows physicians to program and control the contractions of the right and left sides of the heart independently. It also includes heart-failure specific diagnostic capabilities.



•

Kappa® 900 pacemaker, which was released in the U.S., provides atrial monitoring and diagnostic functions to help physicians make more precise patient management decisions.



•

Attain™ Over-the-Wire left heart lead, which was market released outside the U.S., is designed to facilitate cardiac resynchronization therapy in patients with failing hearts.

17

•

Medtronic CareLink™ Programmer with Remote View™, which was released both in the U.S. and certain countries outside the U.S., enables clinicians to review data about implantable cardiac devices in real time and consult remotely with another clinician via personal computer. It also assesses stored patient and device diagnostics, and allows for device programming.

        CRM net sales grew 9.3%, on a constant currency basis, from fiscal 2000 to fiscal 2001. This growth is attributable to an 8% increase in pacing systems and a 14% increase in implantable defibrillators. The increase in pacing systems was driven by strong sales of the market leading Kappa, Sigma™ and Vitatron® brand pacemakers. The increase in net sales of implantable defibrillators was driven by the launch of the Medtronic Jewel® AF, the world's first implantable cardioverter defibrillator for treating multiple and rapid rhythm problems, the GEM III and the GEM III AT™ for the treatment of atrial and ventricular fibrillation.

        Looking ahead, we received USFDA approval of the InSync implantable cardioverter defibrillator (ICD) in June of 2002. The InSync ICD provides cardiac resynchronization therapy and will help us to continue to penetrate the large heart failure market.

Neurological and Diabetes    Neurological and Diabetes products consist primarily of implantable neurostimulation devices, implantable drug administration systems, neurosurgery products, urology products, functional diagnostics equipment, gastroenterology products, and medical systems for the treatment of diabetes. Neurological and Diabetes net sales increased by 59.7%, on a constant currency basis, from fiscal 2001 to fiscal 2002, to $1,024.5 million. Excluding diabetes, neurological net sales increased 16.2%, on a constant currency basis, to $744.4 million.

        The increase in neurological net sales was generated by growth in several product lines, with the following three being the primary growth leaders:

•

Activa® Parkinson's Control Therapy for the treatment of movement disorders associated with advanced Parkinson's disease, which received USFDA approval in the third quarter of fiscal 2002.



•

Lioresal Intrathecal Baclofen Therapy for the treatment of severe spasticity.



•

InterStim® Therapy for the treatment of bladder control problems.

        We entered the diabetes business by acquiring MiniMed and MRG in the second quarter of fiscal 2002. With these acquisitions, we have established ourselves as the world leader in the design, development, manufacture, and marketing of advanced infusion insulin pumps for the treatment of diabetes. Diabetes net sales grew 21.2% over the prior year when MiniMed and MRG operated as stand alone companies. This growth was generated by the sale of external pumps and disposables and benefited in part by leveraging our global distribution infrastructure. In addition, a notable driver of this growth came from full U.S. launch of the Paradigm™ Insulin Pump, which is the smallest and easiest to use full-featured pump available on the market.

        Neurological net sales increased by 16.5%, on a constant currency basis, from fiscal 2000 to fiscal 2001, to $644.8 million. This growth was driven by the launch in fiscal 2001 of the Medtronic Synergy™ neurostimulation device for pain and the Medtronic IsoMed® Constant-Flow Infusion System used in the treatment of chronic pain and colorectal cancer.

        Looking ahead, our Neurological and Diabetes segment should continue to benefit from our acquisitions of MiniMed, MRG, and VidaMed. VidaMed provides non-surgical treatment for benign prostatic hyperplasia (BPH) and was acquired late in the fourth quarter of fiscal 2002. The Neurological and Diabetes operating segment is also expected to benefit from the acquisition of Endonetics and the introduction in the first quarter of fiscal 2003 of our Bravo pH Monitoring

18

System™, a catheter-free diagnostic system that allows for the measurement of esophageal pH levels in patients experiencing or suspected of having gastroesophageal reflux disease (GERD).

Spinal and ENT (Ear, Nose and Throat)    Spinal and ENT products include thoracolumbar, cervical and interbody spinal devices, surgical navigation tools, and surgical products used by ENT physicians. Spinal and ENT net sales increased by 24.0%, on a constant currency basis, from fiscal 2001 to fiscal 2002, to $1,021.2 million. Spinal net sales increased by more than 25%, on a constant currency basis, when compared to last year. The growth in Spinal for fiscal 2002 was primarily attributable to increased demand for therapies to treat a wide range of spinal disorders for which we offer several market leading products. Specific highlights include strong sales of thoracolumbar products (which pertain to the thoracic and lumbar vertebrae), including the TSRH®-3D spinal instrumentation system and the CD HORIZON® spinal system, and interbody products, which benefited from the full market release of the LT-CAGE™, a lumbar tapered fusion device for use in spinal fusion surgery. Late in the year, we introduced the SEXTANT™ minimally invasive system. This system improves surgical techniques to significantly reduce the size of the incision and resulting pain, scarring, and recovery time associated with conventional spinal fusion surgery. ENT net sales grew approximately 15%, on a constant currency basis, when compared to the same period a year ago.

        Spinal and ENT net sales increased by 23.5%, on a constant currency basis, from fiscal 2000 to fiscal 2001. This increase was driven by growth across many existing products, including engineered bone dowels, bone wedges, and spinal cages. The growth was also fueled by new products such as the LT-CAGE™ and the StealthStation® TREON™ Treatment Guidance System, to further improve accuracy and precision during spinal surgery.

        We received USFDA approval for our INFUSE™ bone morphogenetic protein (or bone graft) for spinal fusion in July of 2002. The INFUSE Bone Graft, when used with our LT-CAGE, treats certain types of spinal degenerative disc disease, which commonly cause low back pain. By using the INFUSE Bone Graft, physicians are able to eliminate the second surgery normally required to harvest the patient's bone. After more than three decades of study, the INFUSE Bone Graft is the first product of its kind widely available.

Vascular    Vascular products consist of coronary stents, balloon and guiding catheters, and peripheral vascular products. Vascular sales decreased by 0.6%, on a constant currency basis, from fiscal 2001 to fiscal 2002, to $902.3 million. This decrease reflects a 9% decrease, on a constant currency basis, in coronary vascular products, partially offset by a 91% increase, on a constant currency basis, in products that treat abdominal aortic aneurysms (AAA). The decrease in net sales related to coronary vascular products is due to being enjoined from selling our rapid exchange perfusion delivery system in the U.S., beginning in September 2001, as a result of an arbitration award received in July 2001. This arbitration award found that certain of our rapid exchange perfusion delivery systems infringed a competitor's patent. This injunction resulted in a reduction of U.S. rapid exchange perfusion delivery system net sales of approximately $50.0 million per quarter. We continue to offer all of our coronary stents with alternative delivery systems in the U.S. and rapid exchange delivery systems outside the U.S. We are currently pursuing several options to reenter the U.S. single operator market. The increase in net sales of products to treat AAA was led by full availability of all sizes of the AneuRx® Stent Graft System during the year.

        Vascular net sales grew by 20.7%, on a constant currency basis, from fiscal 2000 to fiscal 2001. Over the same period, coronary vascular net sales grew by approximately 23%. This growth was driven by strong acceptance of the full-featured S660™ and S670™ coronary stents, the BeStent 2™ coronary stent, and the commercial release of the S7™ coronary stent system, in both over-the-wire and rapid exchange versions in the last quarter of fiscal 2001.

        Looking ahead, we expect our strategic alliance with Abbott Laboratories to accelerate our entry into the drug-eluting stent market. After fiscal 2002 year end, we received USFDA approval of the

19

Stormer™ Over-the-Wire balloon catheter and the Bridge™ Assurant peripheral stent. Also, development work continues on a new vascular delivery system. This new delivery system represents a fundamental shift from existing technologies. The delivery system is expected to be commercially available in the U.S. later in fiscal 2003 for both balloon angioplasty and stent delivery.

Cardiac Surgery    Cardiac Surgery products include perfusion systems, heart valves, minimally invasive cardiac surgery products and surgical accessories. Cardiac Surgery net sales increased 8.5%, on a constant currency basis, from fiscal 2001 to fiscal 2002, to $519.0 million. Perfusion systems net sales declined 4%, on a constant currency basis, from the prior year, reflecting the continued industry shift toward beating heart procedures. As a result of this shift in the market, net sales from minimally invasive heart surgery products increased by approximately 55%, on a constant currency basis, driven by the continued acceptance of the Medtronic Octopus® tissue stabilizer and the Medtronic Starfish™ heart positioner. Heart valve revenue increased approximately 19%, on a constant currency basis. The market continues to shift from mechanical to tissue valves, which is particularly beneficial given our broad offerings of tissue valve products, led by the Mosaic® tissue valve.

        Cardiac Surgery net sales increased by 8.0%, on a constant currency basis, from fiscal 2000 to fiscal 2001. The growth in fiscal 2001 was the result of the growth in tissue valve sales and minimally invasive cardiac surgery products.

        Looking ahead, we expect to continue to benefit from the shift in market demand from mechanical valves to tissue valves as well as from procedures performed on an arrested heart to beating heart procedures.

Costs and Expenses

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

	Fiscal Year
	2002		2001		2000
Cost of products sold	25.8	%	25.4	%	25.2	%
Research & development	10.1		10.4		9.7
Selling, general & administrative	30.6		30.4		31.5
Special charges	4.5		6.1		0.3
Purchased in-process research & development	4.6		0.0		0.0
Other (income)/expense	0.5		1.2		1.4
Interest (income)/expense	0.1		(1.3	)	(0.3	)

Cost of Products Sold    Fiscal 2002 costs of products sold as a percent of net sales increased by 0.4 percentage points from fiscal 2001 to 25.8%. The increase in cost of sales as a percent of net sales is primarily the result of the following two factors: (1) the unfavorable impact of foreign exchange rates compared to the prior year, and (2) lower gross margins on recent acquisitions. The margins realized by these acquisitions, however, are expected to improve as operations reflect the efficiencies gained by our integration. In the second quarter of fiscal 2002, we incurred an additional $10.0 million of expense resulting from the write-up of MiniMed inventory in accordance with purchase accounting rules, which also contributed to the increase in cost of products sold as a percent of net sales. Fiscal 2001 costs of products sold as a percent of net sales, of 25.4%, remained materially consistent with fiscal 2000.

Research and Development    Consistent with prior years, we have continued to invest heavily in the future by spending aggressively on research and development efforts, with research and development spending representing 10.1% of net sales, or $646.3 million, in fiscal 2002. We are committed to developing technological enhancements and new indications for existing products, as well as less

20

invasive and new technologies to address unmet patient needs and to help reduce patient care costs and length of hospital stay.

        Presented below are the most important products that received USFDA approval and/or were launched in the U.S. in fiscal 2002:

Product	Applicable for	Date
D2 Balloon Catheters	Coronary artery disease	June 2001
GuardWire Plus™	Embolic protection	June 2001
Starfish Heart Positioner	Beating heart by-pass surgery	June 2001
Mosaic Tissue Valve	Heart valve replacement	August 2001
InSync System	Heart failure with ventricular dysynchrony	August 2001
Bridge SE Bilary Stent	Peripheral vascular disease	October 2001
Sprint Quattro™ Secure Lead	Abnormally rapid heart rates	November 2001
Kappa 900	Abnormally slow heart rates	December 2001
Synergy Versitrel Neurostimulator	Chronic pain	January 2002
Activa Parkinson's Control Therapy	Parkinson's disease	January 2002
Cardioblate™ Ablation System	General ablation of cardiac tissue	January 2002
Paradigm Insulin Infusion Pump	Diabetes	February 2002
Strata™ Valve	Hydrocephalus (dilation of the cerebral ventricals)	February 2002
S660 Coronary Stent System	Coronary artery disease	February 2002
Marquis DR ICD	Abnormally rapid heart rates	March 2002
Medtronic CareLink Programmer	Allows for remote view of data by physicians	March 2002

21

Selling, General and Administrative    Fiscal 2002 selling, general and administrative expense as a percentage of net sales increased by 0.2 percentage points from fiscal 2001 to 30.6%. This increase primarily relates to the impact of recent acquisitions on the consolidated cost structure. We continue to be committed to controlling costs through identification of efficiencies in conjunction with the integration of acquisitions and the implementation of cost control measures in our existing businesses.

        Fiscal 2001 selling, general and administrative expense as a percentage of net sales decreased by 1.1 percentage points from fiscal 2000 to 30.4%. The majority of this decrease was attributable to continued cost control measures, partially offset by increased field sales coverage expenses.

Non-recurring Charges    Non-recurring charges taken during the previous three years were as follows:

		Fiscal Year
(in millions)
		2002			2001			2000
Special charges:
	Litigation	$	244.9		$	231.3		$	15.5
	Asset write-downs		6.9			59.9			6.2
	Restructuring charges		29.2			23.0			2.3
	Acquisition-related charges		0.0			4.2			14.7
	Gain on equity investment		(36.8	)		0.0			0.0
	Foundation contribution		47.6			20.4			0.0
	Changes in estimates		(1.0	)		0.0			(24.9	)
Total special charges			290.8			338.8			13.8
Inventory write-off			0.0			8.4			0.0
Purchased IPR&D			293.0			0.0			0.0
Acquisition-related debt issue costs			32.0			0.0			0.0
Total non-recurring charges			615.8			347.2			13.8
Less tax impact			(122.6	)		(111.1	)		(2.3	)
Total non-recurring charges, after tax		$	493.2		$	236.1		$	11.5

Special Charges    In fiscal 2002, we recorded $244.9 million of charges related to legal settlements. The largest of the settlements, payable to a competitor, was for $167.3 million including interest and costs related to an April 2002 arbitration panel's ruling. This ruling found that our rapid exchange perfusion delivery systems used in products for coronary angioplasty are not covered by the license that Arterial Vascular Engineering, Inc. (AVE) had acquired from C.R. Bard, Inc. and therefore infringed the competitor's patents. We stopped selling the rapid exchange perfusion delivery systems in U.S. markets in September 2001 as a result of a separate case brought by a competitor with respect to the same product. That case was decided in a July 2001 arbitration panel ruling and was recorded in the fourth quarter of fiscal 2001 as discussed below. However, in the first quarter of fiscal 2002, we recorded an additional charge of $27.0 million related to the July 2001 arbitration award. Other litigation charges of $21.9 million and $9.1 million were incurred in the fourth and second quarters, respectively. A non-product settlement charge of $19.6 million was recorded in our third quarter and pertains to business matters that occurred in prior years and is protected by a confidentiality agreement.

        In the first quarter of fiscal 2002, we also recorded a charge of $35.1 million to finalize the initiatives to restructure certain neurological sales offices, reduce and consolidate certain manufacturing operations, and streamline and reorganize our European sales organizations to further integrate acquisitions. These restructuring initiatives were announced in the fourth quarter of fiscal 2001 and resulted in the termination of approximately 650 employees, a net reduction of 450 positions, and annualized savings of approximately $35.0 to $40.0 million. Included in this charge were $6.9 million of write-downs for assets which will no longer be utilized and a reversal of a $1.0 million reserve related

22

to our fiscal 2000 Latin America restructuring initiatives no longer considered necessary as the restructuring initiatives had been completed.

        In fiscal 2002, we also recorded a $36.8 million gain on an equity investment that was contributed to the Medtronic Foundation.

        In fiscal 2001, we recorded net charges of $231.3 million for litigation and related expenses. The vast majority of this charge relates to two adverse patent infringement decisions that were received subsequent to our fiscal 2001 year end, but prior to issuance of the fiscal 2001 financial statements. In June 2001, an appeals court affirmed an earlier judgment against us in a patent infringement lawsuit commenced by a competitor. The amount of the judgment plus interest totaled $52.1 million. In July 2001, we received the arbitration decision described above relating to certain of our rapid exchange perfusion delivery systems, and ordering damages of approximately $169.0 million, plus legal costs. An injunction against sales of these products in the U.S. was issued in September 2001. During the year we incurred several other charges for smaller litigation settlements. In addition, we received a favorable settlement of $20.4 million in the third quarter that was contributed to the Medtronic Foundation.

        In fiscal 2001, as a result of the July 2001 arbitration award described above, we wrote off $66.6 million of assets related to our rapid exchange perfusion technology. Specifically, we wrote off $21.0 million of intangible assets directly related to the rapid exchange perfusion technology, and $37.2 million of the goodwill previously recorded for the Bard cath lab acquisition. The goodwill impairment amount was determined on a pro rata basis using the relative fair values of the long-lived assets and identifiable intangibles acquired from C.R. Bard, Inc. The arbitration panel also allowed for an injunction on future U.S. sales of these delivery systems, and accordingly, we wrote off $8.4 million of excess rapid exchange perfusion inventory to cost of sales. During the year we also wrote off assets of less than $2.0 million related to the fiscal 2001 restructuring initiatives discussed below.

        During fiscal 2001, we recorded $23.0 million of restructuring related charges. As previously mentioned, during the fourth quarter of fiscal 2001, we announced restructuring initiatives aimed at further streamlining operations. We recognized $13.6 million of the total estimated charges in fiscal 2001. We also recorded a restructuring charge of $9.4 million related to the integration of PercuSurge, which we acquired in the third quarter, and a charge of $4.2 million for transaction costs in connection with the acquisition.

        In fiscal 2000, we recorded charges for a litigation settlement and transaction costs in connection with the merger with Xomed. We also incurred restructuring and asset impairment charges related to the termination of a distribution relationship and the conversion of certain direct sales operations in Latin America to distributor arrangements. These restructuring efforts were substantially complete in fiscal 2001, with all remaining efforts finalized in fiscal 2002. In fiscal 2000, we also reversed a reserve of $24.9 million, which was no longer considered necessary. These reserves had been established in connection with our 1999 restructuring activities related to our mergers with Physio-Control, Sofamor Danek, and AVE and our purchase of Avecor.

Purchased In-Process Research and Development    In the third quarter of fiscal 2002, we acquired Endonetics. At the date of the acquisition, we expensed $32.7 million of the purchase price for purchased in-process research and development related to the Gatekeeper™ Reflux Repair System (Gatekeeper), which had not yet reached technological feasibility and had no alternative future use. The Gatekeeper is a therapeutic medical device comprised of hydrogel prostheses that are implanted in the esophageal wall. At the time of the acquisition, we did not have a therapeutic product offering in the Gastroesophageal Reflux Disease (GERD) market. We believe the Gatekeeper will distinguish itself in this market by its ease of use, ability to reduce treatment costs associated with extended drug therapies, and its less invasive approach to treating GERD. At the time of acquisition, the Gatekeeper was in human clinical trials. The clinical trials must be completed before regulatory approval can be

23

obtained. In fiscal year 2002, we incurred $1.3 million of costs and expect to incur $1.0 to $3.0 million of annual costs in fiscal years 2003 and 2004 to bring this product to commercialization. Total expected project cost, including costs already incurred and expected to be incurred, is $6.4 to $10.4 million. These costs are being funded by internally generated cash flows.

        In the second quarter of fiscal 2002, we acquired MiniMed. At the date of the acquisition, we expensed $35.4 million of the purchase price for purchased in-process research and development related to a disposable pump that had not yet reached technological feasibility and had no alternative future use. Disposable pumps are designed to be used as an infusion system that is attached to the body using an adhesive and delivers a pre-set constant rate of drug. At the time of the acquisition, MiniMed did not have a primary product offering in the insulin-using Type 2 diabetes market. We believe the disposable pump will distinguish itself in the Type 2 market by its convenience and ease of use. At the time of acquisition, the disposable pump was still under development and had not been approved for sale by regulatory authorities. In fiscal 2002, we incurred $3.9 million in costs and expect to incur $2.0 to $4.0 million of costs in fiscal 2003. Although we are currently evaluating the underlying technology related to this project, we anticipate we will incur up to $4.0 million of annual costs in fiscal years 2004 and 2005 to bring a disposable pump product to commercialization. Total expected project costs, including costs already incurred, are approximately $26.1 to $36.1 million. These costs are being funded with internally generated cash flows.

        In connection with the MiniMed acquisition discussed above, we acquired MRG in the second quarter of the current fiscal year. At the date of acquisition, we expensed $224.9 million of the purchase price for purchased in-process research and development related to a long-term glucose sensor and an implantable glucose monitoring sensor that had not yet reached technological feasibility and had no alternative future use. At the time of the acquisition, MRG had no product offerings in the diabetes market, and these projects were expected to enable MRG to enter this high-potential implantable market. The long-term glucose sensor is designed to be used with an implantable pump to automatically maintain glucose levels by continuously monitoring and adjusting the rate of insulin infusion without the need for frequent intervention by the physician or patient. At the time of the acquisition, the long-term glucose sensor was in human clinical trials. The clinical trials need to be completed before regulatory approval can be obtained. The implantable glucose monitoring system is used by patients to monitor glucose levels. At the time of the acquisition, MRG had filed, and received approval from the USFDA, for the investigational device exemption, allowing MRG to proceed with clinical studies. In fiscal year 2002, we incurred $3.3 million of costs and expect to incur $7.0 to $10.0 million of annual costs in fiscal years 2003, 2004, and 2005, to bring this product to commercialization. Total expected project cost, including costs already incurred, is $33.5 to $42.5 million. These costs are being funded by internally generated cash flows. The fair values assigned to the long-term glucose sensor and to the implantable glucose monitoring system were $219.7 million and $4.4 million, respectively. Other minor product categories were valued at $0.8 million.

        The value assigned to Endonetics' purchased in-process research and development was based on a valuation prepared internally, using a methodology consistent with valuation techniques used by independent appraisers. The values assigned to purchased in-process research and development for MiniMed and MRG were based on a valuation prepared by an independent third-party appraisal company. All values were determined by identifying research projects in areas for which technological feasibility had not been established. All values were determined by estimating the revenue and expenses associated with a project's sales cycle and by estimating 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 purchased in-process research and development.

        We expect that all the acquired in-process research and development will reach technological feasibility, but there can be no assurance that the commercial viability of these products will actually be

24

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 look to other alternatives to provide these therapies.

        No charges were taken in fiscal 2001 or fiscal 2000 related to purchased in-process research and development as all acquisitions in those years were accounted for using the pooling-of-interest method of accounting, which does not require assigning value to purchased in-process research and development.

Acquisition-Related Debt Issue Costs    Debt issue costs in fiscal 2002 relate to the costs incurred to issue contingent convertible debentures totaling $2,012.5 million in September 2001. The total costs incurred to issue the debentures were $32.0 million, which were recorded in interest expense. The net proceeds from the debentures were used to repay a substantial portion of the bridge financing obtained in connection with the acquisitions of MiniMed and MRG. See Note 6 to the consolidated financial statements for more information regarding these debentures.

Other Income/Expense    Other income/expense includes intellectual property amortization expense, royalty income and expense, minority investment gains and losses and foreign currency hedging gains and losses. In fiscal years 2001 and 2000, other income/expense included goodwill amortization. Other expense, net decreased by approximately $30.0 million from fiscal 2001 to fiscal 2002. This decrease primarily relates to our discontinuance of goodwill amortization in accordance with Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets," which was adopted in the first quarter of fiscal 2002, and higher gains on foreign currency hedging activities, partially offset by increased amortization expense of purchased technology resulting from acquisitions made during the year, and increased royalty expense in our vascular business. Had goodwill been amortized in fiscal 2002 using methodologies and assumptions consistent with fiscal 2001 and amounts consistent with April 27, 2001, we would have recognized an additional $61.7 million of expense.

        Other expense, net decreased by approximately $6.2 million in fiscal 2001 as compared to fiscal 2000. This decrease is primarily the result of increased gains from foreign currency hedging activities.

Interest Income/Expense    In fiscal 2002, net interest expense was $6.6 million, a decrease of $80.8 million from net interest income of $74.2 million in fiscal 2001. This decrease is primarily attributable to lower average interest rates and higher average borrowings used to finance the MiniMed and MRG acquisitions. Also included in fiscal 2002 net interest expense was $32.0 million of debt issue costs associated with contingent convertible debentures issued in connection with the MiniMed and MRG acquisitions.

Income Taxes

										Percentage Point Increase/ (Decrease)
	Fiscal Year
(dollars in millions)
	2002			2001			2000			FY02/01		FY01/00
Provision for income taxes	$	540.2		$	503.4		$	530.6		N/A		N/A
Effective tax rate		35.4	%		32.5	%		32.9	%	2.9		(0.4	)
Impact of non-recurring charges		4.4	%		0.1	%		0.2	%	4.3		(0.1	)
Effective tax rate excluding non-recurring charges		31.0	%		32.4	%		32.7	%	(1.4	)	(0.3	)

25

        The increase in the impact of non-recurring charges primarily relates to charges of $293.0 million in fiscal 2002 for purchased in-process research and development. These charges are not deductible for income tax purposes.

        The reduction in the fiscal 2002 and 2001 effective income tax rate, excluding the impact of non-recurring charges, is due to tax planning initiatives, including benefits of our tax-advantaged facilities in Switzerland, Ireland and Puerto Rico. We expect to further reduce our effective income tax rate in fiscal 2003 as we pursue additional tax savings opportunities.

Liquidity and Capital Resources

	Fiscal Year
(dollars in millions)
	2002			2001
Working capital	$	(496.9	)	$	2,397.5
Current ratio*		0.9 : 1.0			2.8 : 1.0
Cash, cash equivalents, and short-term investments	$	533.7		$	1,231.7
Short-term borrowings and long-term debt	$	2,525.6		$	158.7
Net cash position**	$	(1,991.9	)	$	1,073.0
Long-term investments	$	637.0		$	683.2

*

Current ratio is the ratio of current assets to current liabilities.

**

Net cash position is the sum of cash, cash equivalents, and short-term investments less short-term borrowings and long-term debt.

        The decrease in our working capital, current ratio, and net cash position primarily relates to approximately $4,057.6 million of cash paid in fiscal 2002 for our current year acquisitions, net of cash received. These cash payments were funded by a combination of cash generated from operations and proceeds from a bridge loan. The bridge loan was subsequently repaid with proceeds of $2,012.5 million from the issuance of contingent convertible debentures. See the "Debt and Capital" section of this analysis for information regarding the terms of the contingent convertible debentures, including the put feature, as well as our lines of credit. We believe our existing unused lines of credit of $1,241.6 million, if needed, will satisfy our foreseeable working capital requirements.

        During fiscal 2000, we entered into an agreement that expires in fiscal 2003, to sell, at our discretion, specific pools of our Japanese trade receivables. At April 26, 2002 and April 27, 2001, we had sold approximately $62.7 million and $60.0 million, respectively, of our trade receivables to a financial institution. The discount cost related to the sale was immaterial and was recorded as interest expense in the accompanying consolidated financial statements.

26

Long-Term Contractual Obligations and Other Commercial Commitments

        Presented below is a summary of contractual obligations and other minimum commercial commitments. See Notes 4, 6, and 12 to the consolidated financial statements for additional information regarding foreign currency contracts, long-term debt, and lease obligations, respectively.

	Maturity by Fiscal Year
(in millions)
	Total		2003		2004		2005		2006		2007		Thereafter
Long-term debt, excluding capital leases	$	11.2	$	3.6	$	7.5	$	0.1	$	—	$	—	$	—
Capital leases		3.0		1.1		0.7		0.3		0.3		0.3		0.3
Foreign currency contracts(1)		907.5		601.0		279.1		27.4		—		—		—
Operating leases(2)		123.9		34.5		28.2		21.7		17.9		13.1		8.5
Inventory purchases(2)(3)		150.0		118.6		20.1		5.4		2.1		3.2		0.6
Commitments to fund minority investments(2)(4)		208.8		18.1		15.7		107.0		68.0		—		—
Other		104.2		12.6		39.6		13.6		12.7		13.8		11.9
Total	$	1,508.6	$	789.5	$	390.9	$	175.5	$	101.0	$	30.4	$	21.3

(1)

As these obligations were entered into as hedges, the majority of these obligations will be funded by the underlying assets.

(2)

In accordance with accounting principles generally accepted in the U.S., these obligations are not reflected in the accompanying consolidated balance sheet.

(3)

Our inventory purchase commitments do not exceed our projected requirements over the related terms and are in the normal course of business.

(4)

Certain commitments related to the funding of minority investments 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.

Debt and Capital

        The Company's capital structure consists of equity and interest-bearing debt. Interest-bearing debt as a percent of total capital was 28.2% at April 26, 2002 and 2.8% at April 27, 2001. The Company has existing lines of credit, which includes our syndicated credit facilities, totaling $1,745.2 million with various banks, of which approximately $1,241.6 million is available at April 26, 2002.

        On September 17, 2001, we completed a $2,012.5 million private placement of 1.25% contingent convertible debentures due September 15, 2021. Each debenture is convertible into our common stock at an initial conversion price of $61.81 per share. We may be required to repurchase the securities at the option of the holders in September 2002, 2004, 2006, 2008, 2011, and 2016. The purchase price would be equal to the principal amount of the debentures plus any accrued and unpaid interest on the debentures to the repurchase date. Our current and foreseeable capital structure and liquidity position are sufficient to meet the obligation if the holders require us to repurchase the securities. If the repurchase option is exercised, we may elect to repurchase the securities with cash, our common shares, or some combination thereof. We may elect to redeem the securities for cash at any time after September 2006. The net proceeds from this offering were used to repay a substantial portion of the outstanding bridge financing obtained in connection with the acquisitions of MiniMed and MRG.

        In connection with the issuance of the convertible debentures, Standard and Poor's Ratings Group and Moody's Investors Service issued us strong long-term debt ratings of AA- and A1, respectively. These ratings rank us in the top 10% of all U.S. companies rated by these agencies.

        To increase our liquidity and flexibility to support ongoing operations and working capital needs, we implemented a $1,000.0 million commercial paper program effective December 14, 2001. In March 2002, this commercial paper program was increased to $1,500.0 million. This program allows us to issue debt securities with maturities up to 364 days from the date of issuance. At April 26, 2002,

27

outstanding commercial paper totaled $249.8 million. The weighted average annual original maturity of the commercial paper outstanding was approximately 24 days and the weighted average annual interest rate was 1.81%.

        In connection with the issuance of the commercial paper, Standard and Poor's Rating Group and Moody's Investors Service issued us strong short-term debt ratings of A-1+ and P-1, respectively. These ratings rank us in the top 10% of all U.S. companies rated by these agencies.

        In conjunction with the commercial paper program, we signed two syndicated credit facilities totaling $1,250.0 million with various banks on January 24, 2002. The two credit facilities consist of a 364-day $750.0 million facility and a five-year $500.0 million facility. The purpose of these syndicated credit facilities is to provide backup funding for the commercial paper program as well as general corporate purposes. 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 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 at April 26, 2002 was approximately $2,274.6 million. The agreements also contain other customary covenants and events of default.

Return on Equity

	Fiscal Year
	2002		2001		2000
Return on equity	16.5	%	20.9	%	26.1	%
Effects of non-recurring charges	6.8	%	4.1	%	(1.1	%)
Return on equity excluding non-recurring charges	23.3	%	25.0	%	25.0	%

        One of our key financial objectives is achieving an annual return on equity (ROE) of at least 20%, excluding non-recurring charges. ROE compares net earnings to average shareholders' equity and is a key measure of management's ability to utilize the shareholders' investment in Medtronic effectively.

        In the first quarter of fiscal 2002, our Board of Directors authorized a repurchase program to purchase up to 25.0 million shares of common stock. During fiscal 2002, 670,000 shares were repurchased at an average repurchase price of $38.20. No shares were repurchased in fiscal 2001. In fiscal 2000, we had a systematic repurchase program under which we repurchased 13.0 million shares at an average price of $38.39. This systematic repurchase program was discontinued in the fourth quarter of fiscal 2000.

Operations Outside of the United States

The following charts illustrate U.S. net sales versus net sales outside the U.S. by fiscal year:

Fiscal Year 2002 (in millions)	Fiscal Year 2001 (in millions)	Fiscal Year 2000 (in millions)
Consolidated Net Sales $6,410.8	Consolidated Net Sales $5,551.8	Consolidated Net Sales $5,016.3

28

        From fiscal 2001 to fiscal 2002, consolidated net sales outside the U.S. have not grown as fast as U.S. consolidated net sales as a result of foreign exchange rate fluctuations and as growth of U.S. sales have been particularly strong across several product lines. The increase in the U.S. is also driven by net sales from MiniMed, which was acquired in the second quarter of fiscal 2002, as MiniMed primarily operated in the U.S. During fiscal 2003, we will benefit as we continue to integrate MiniMed's operations with our global distribution infrastructure. These increases were partially offset by a decrease in Vascular net sales. From fiscal 2000 to fiscal 2001, consolidated net sales outside the U.S. did not grow as fast as U.S. consolidated net sales as a result of foreign exchange rate fluctuations.

        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 located outside of the U.S. totaled $617.7 million at April 26, 2002, or 38.6% of total outstanding accounts receivable, and $527.6 million at April 27, 2001, or 41.8% of total outstanding accounts receivable. Operations outside the U.S. could be negatively impacted by unfavorable changes in political, labor or economic conditions, unexpected changes in regulatory requirements or potentially adverse foreign tax consequences, among other factors.

Market Risk

Due to the global nature of our operations, we are subject to the exposures that arise from foreign exchange rate fluctuations. We manage these exposures using operational and economic hedges as well as derivative financial instruments. The primary currencies hedged are the Yen and the Euro.

        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. Our risk management activities for fiscal 2002 were successful in minimizing the net earnings and cash flow impact of currency fluctuations despite volatile market conditions.

        We had forward exchange contracts outstanding in notional amounts of $907.5 million and $382.3 million at April 26, 2002 and April 27, 2001, respectively. The fair value of all foreign currency derivative contracts outstanding at April 26, 2002 was $40.5 million, which does not represent our annual exposure. A sensitivity analysis of changes of the fair value of all derivative foreign exchange contracts outstanding at April 26, 2002 indicates that, if the U.S. dollar uniformly weakened by 10% against all currencies, the fair value of these contracts would decrease by $85.6 million. Conversely, if the U.S. dollar uniformly strengthened by 10% against all major currencies, the fair value of these contracts would increase by $77.8 million. Any gains and losses on the fair value of derivative contracts would be largely offset by losses and gains on the underlying transactions. These offsetting gains and losses are not reflected in the above analysis.

        We are also exposed to interest rate changes affecting principally our investments in interest rate sensitive instruments. A sensitivity analysis of the impact on our interest rate sensitive financial instruments of a hypothetical 10% decrease in short-term interest rates compared to interest rates at April 26, 2002 indicates that the fair value of these instruments would increase by $1.8 million. Conversely, a 10% increase would decrease the value of these instruments by $1.7 million.

Government Regulation and Other Considerations

Our medical devices are subject to regulation by numerous government agencies, including the USFDA and comparable foreign agencies. To varying degrees, each of these agencies requires us to comply with

29

laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices.

        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 medical device first marketed before May 1976. 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 USFDA investigational device regulations. We must receive an order from the USFDA finding substantial equivalence before we can commercially distribute the new medical device. Modifications to approved medical devices can generally be made without compliance with the 510(k) process if the changes do not significantly affect safety or effectiveness.

        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 human clinical data for the medical device. The USFDA 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.

        Both before and after a product is commercially released, we have ongoing responsibilities under USFDA regulations. The USFDA reviews design and manufacturing practices, labeling and recordkeeping for medical devices, and manufacturers' required reports of adverse experience and other information to identify potential problems with marketed medical devices. If the USFDA 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 USFDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order 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 USFDA may also enjoin and restrain certain violations of applicable law pertaining to medical devices, or initiate action for criminal prosecution of such violations. The USFDA also administers certain controls over the export of medical devices from the U.S.

        International sales of our medical devices that have not received USFDA approval are subject to USFDA export requirements. Each foreign country where 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 USFDA. 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.

        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.

        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. This has created an increasing level of price sensitivity among customers for our products. Some third-party payers must also approve coverage for new or innovative devices or therapies before they will reimburse healthcare providers using 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

30

governmental and private third-party payers. Although we believe we are well-positioned to respond to changes resulting from the worldwide trend toward cost containment as a result of our manufacturing efficiencies and cost controls, uncertainty as to the nature of any future legislation or changes makes it difficult for us to predict the potential impact of these trends on future operating results.

        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 we believe that the patent litigation incident to our business will generally not have a material adverse impact on our financial position or liquidity, it may be material to the consolidated financial results of operations of any one period. See Note 13 to the consolidated financial statements for additional information.

        We operate in an industry susceptible to significant product liability claims. These claims may be brought by individuals seeking relief for themselves 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.

        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 in manufacturing and sterilization processes. While it is difficult to quantify the potential impact of compliance with environmental protection laws, we believe that such compliance will not have a material impact on our financial position, results of operations or liquidity.

        In previous years, a portion of our insurable risks were covered by insurance policies, which had shifted to increasingly higher levels of self-insurance retentions. Rates charged by insurance companies for coverage on most of our insurance policies have significantly increased for several reasons, including the current economic factors impacting the insurance industry and the terrorist attacks of September 11, 2001. As a result of these dramatic increases, we elected to transition to self-insurance at the beginning of fiscal 2003 and will continue to evaluate obtaining insurance coverage in the future. Based on historical loss trends, we believe that our self-insurance program 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 financial position, results of operations and liquidity.

Cautionary Factors That May Affect Future Results

        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. 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. 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, and sales efforts. 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.

        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

31

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 historic results. We note these factors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.

32

MEDTRONIC, INC.
REPORT OF MANAGEMENT

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. Where necessary, they reflect estimates based on management's judgment.

        Management relies upon established accounting procedures and related systems of internal control for meeting its responsibilities to maintain reliable financial records. These systems are designed to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's intentions. Internal auditors periodically review the accounting and control systems, and these systems are revised if and when weaknesses or deficiencies are found.

        The Audit Committee of the Board of Directors, composed of independent directors, meets regularly with management, the Company's internal auditors, and its independent accountants to discuss audit scope and results, internal control evaluations, and other accounting, reporting, and financial matters. The independent accountants and internal auditors have access to the Audit Committee without management's presence.

Arthur D. Collins, Jr.
Chairman of the Board and Chief Executive Officer

Robert L. Ryan
Senior Vice President and Chief Financial Officer

33

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and
Board of Directors of Medtronic, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related statements of consolidated earnings, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Medtronic, Inc., and its subsidiaries at April 26, 2002 and April 27, 2001, and the results of their operations and their cash flows for each of the three years in the period ended April 26, 2002, 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 auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
May 22, 2002, except for Note 16, which is as of July 10, 2002

34

MEDTRONIC, INC.
STATEMENTS OF CONSOLIDATED EARNINGS

			Fiscal Year
(in millions, except per share data)
			2002		2001			2000
Net sales			$	6,410.8	$	5,551.8		$	5,016.3
Costs and expenses:
	Cost of products sold			1,652.7		1,410.6			1,265.8
	Research and development expense			646.3		577.6			488.2
	Selling, general and administrative expense			1,962.8		1,685.2			1,578.8
	Special charges			290.8		338.8			13.8
	Purchased in-process research and development			293.0		—			—
	Other (income)/expense			34.4		64.4			70.6
	Interest (income)/expense			6.6		(74.2	)		(15.7	)
		Total costs and expenses		4,886.6		4,002.4			3,401.5
Earnings before income taxes				1,524.2		1,549.4			1,614.8
Provision for income taxes				540.2		503.4			530.6
		Net earnings	$	984.0	$	1,046.0		$	1,084.2
Earnings per share
	Basic		$	0.81	$	0.87		$	0.91
	Diluted		$	0.80	$	0.85		$	0.89
Weighted average shares outstanding
	Basic			1,211.6		1,203.0			1,194.7
	Diluted			1,224.4		1,226.0			1,223.4

See accompanying notes to consolidated financial statements.

35

MEDTRONIC, INC.
CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)			April 26, 2002			April 27, 2001
Assets
Current Assets:
	Cash and cash equivalents		$	410.7		$	1,030.3
	Short-term investments			123.0			201.4
	Accounts receivable, less allowances of $77.5 and $34.9, respectively			1,522.5			1,226.1
	Inventories			748.1			729.5
	Deferred tax assets			324.4			281.5
	Prepaid expenses and other current assets			359.3			288.0
		Total Current Assets		3,488.0			3,756.8
Property, Plant, and Equipment, net				1,451.8			1,176.5
Goodwill, net				4,034.6			995.9
Patents and Other Intangible Assets, net				1,060.3			239.4
Long-Term Investments				637.0			683.2
Other Assets				232.8			187.1
		Total Assets	$	10,904.5		$	7,038.9
Liabilities and Shareholders' Equity
Current Liabilities:
	Short-term borrowings		$	2,516.1		$	145.4
	Accounts payable			268.2			205.9
	Accrued compensation			340.3			248.2
	Accrued income taxes			148.5			204.1
	Other accrued expenses			711.8			555.7
		Total Current Liabilities		3,984.9			1,359.3
Long-Term Debt				9.5			13.3
Deferred Tax Liabilities				233.8			—
Long-Term Accrued Compensation				98.3			88.3
Other Long-Term Liabilities				146.9			68.5
	Total Liabilities			4,473.4			1,529.4
Commitments and Contingencies				—			—
Shareholders' Equity:
	Preferred stock—par value $1.00; 2,500,000 shares authorized, none outstanding			—			—
	Common stock—par value $0.10; 1.6 billion shares authorized, 1,215,208,524 and 1,209,514,816 shares issued and outstanding			121.5			121.0
	Retained earnings			6,493.0			5,576.3
	Accumulated other non-owner changes in equity			(168.0	)		(168.8	)
				6,446.5			5,528.5
	Receivable from Employee Stock Ownership Plan			(15.4	)		(19.0	)
		Total Shareholders' Equity		6,431.1			5,509.5
		Total Liabilities and Shareholders' Equity	$	10,904.5		$	7,038.9

See accompanying notes to consolidated financial statements.

36

MEDTRONIC, INC.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

(in millions)			Common Stock			Retained Earnings			Accumulated Other Non- Owner Changes in Equity			Receivable from ESOP			Total Shareholders' Equity
Balance April 30, 1999			$	119.1		$	3,791.4		$	(95.1	)	$	(26.2	)	$	3,789.2
Net earnings				—			1,084.2			—			—			1,084.2
Other non-owner changes in equity
	Unrealized gain (loss) on investments, net of $8.3 tax benefit			—			—			(15.6	)		—			(15.6	)
	Translation adjustment			—			—			(38.7	)		—			(38.7	)
	Minimum pension liability			—			—			(2.5	)		—			(2.5	)
		Total comprehensive income		—			—			—			—			1,027.4
Adjustment for poolings of interest				—			0.6			—			—			0.6
Dividends paid				—			(189.5	)		—			—			(189.5	)
Issuance of common stock under employee benefits and incentive plans				2.0			192.0			—			—			194.0
Issuance of common stock by pooled entities				—			16.9			—			—			16.9
Repurchases of common stock				(1.3	)		(496.1	)		—			—			(497.4	)
Income tax benefit from restricted stock and nonstatutory stock options				—			164.6			—			—			164.6
Repayments from ESOP				—			—			—			6.7			6.7
Balance April 30, 2000			$	119.8		$	4,564.1		$	(151.9	)	$	(19.5	)	$	4,512.5
Net earnings				—			1,046.0			—			—			1,046.0
Other non-owner changes in equity
	Unrealized gain (loss) on investments, net of $10.6 tax expense			—			—			19.4			—			19.4
	Translation adjustment			—			—			(39.2	)		—			(39.2	)
	Minimum pension liability			—			—			2.9			—			2.9
		Total comprehensive income		—			—			—			—			1,029.1
Adjustment for poolings of interests				—			(1.4	)		—			—			(1.4	)
Dividends paid				—			(240.7	)		—			—			(240.7	)
Issuance of common stock under employee benefits and incentive plans				1.2			147.5			—			—			148.7
Income tax benefit from restricted stock and nonstatutory stock options				—			60.8			—			—			60.8
Repayments from ESOP				—			—			—			0.5			0.5
Balance April 27, 2001			$	121.0		$	5,576.3		$	(168.8	)	$	(19.0	)	$	5,509.5
Net earnings				—			984.0			—			—			984.0
Other non-owner changes in equity
	Unrealized gain (loss) on investments, net of $11.9 tax benefit			—			—			(22.1	)		—			(22.1	)
	Translation adjustment			—			—			(1.8	)		—			(1.8	)
	Minimum pension liability			—			—			3.8			—			3.8
	Unrealized gain (loss) on derivatives			—			—			20.9			—			20.9
		Total comprehensive income		—			—			—			—			984.8
Dividends paid				—			(278.8	)		—			—			(278.8	)
Issuance of common stock under employee benefits and incentive plans				0.6			119.9			—			—			120.5
Fair value of options issued in connection with acquisition				—			75.2			—			—			75.2
Repurchases of common stock				(0.1	)		(25.5	)		—			—			(25.6	)
Income tax benefit from restricted stock and nonstatutory stock options				—			41.9			—			—			41.9
Repayments from ESOP				—			—			—			3.6			3.6
Balance April 26, 2002			$	121.5		$	6,493.0		$	(168.0	)	$	(15.4	)	$	6,431.1

See accompanying notes to consolidated financial statements.

37

MEDTRONIC, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS

					Fiscal Year
(in millions)
					2002			2001			2000
Operating Activities
	Net earnings				$	984.0		$	1,046.0		$	1,084.2
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization				329.8			297.3			243.9
		Special charges, net				243.2			317.1			8.5
		Purchased in-process research and development				293.0			—			—
		Deferred income taxes				50.9			(152.2	)		71.1
		Changes in operating assets and liabilities:
			Accounts receivable			(188.9	)		(44.1	)		(193.2	)
			Inventories			30.4			(44.5	)		(120.0	)
			Prepaid expenses and other assets			(113.1	)		45.6			(118.6	)
			Accounts payable and accrued liabilities			(13.3	)		31.8			249.0
			Accrued income tax receivable/payable			(55.6	)		333.4			(178.8	)
			Other long-term liabilities			29.8			1.1			(19.7	)
				Net cash provided by operating activities		1,590.2			1,831.5			1,026.4
Investing Activities
	Additions to property, plant and equipment					(386.4	)		(439.7	)		(342.5	)
	Acquisitions, net of cash acquired					(4,057.6	)		—			—
	Sales and maturities of marketable securities					941.0			923.0			268.9
	Purchases of marketable securities					(721.0	)		(1,390.0	)		(258.4	)
	Other investing activities					(157.7	)		(118.8	)		(45.0	)
				Net cash used in investing activities		(4,381.7	)		(1,025.5	)		(377.0	)
Financing Activities
	Increase (decrease) in short-term borrowings					2,353.5			(152.2	)		59.1
	Payments on long-term debt					(11.1	)		(10.2	)		(9.7	)
	Issuance of long-term debt					7.0			8.7			0.6
	Dividends to shareholders					(278.8	)		(240.7	)		(189.5	)
	Repurchases of common stock					(25.6	)		—			(497.4	)
	Issuance of common stock					120.5			148.7			210.9
				Net cash provided by (used in) financing activities		2,165.5			(245.7	)		(426.0	)
	Effect of exchange rate changes on cash and cash equivalents					6.4			2.2			(3.0	)
Net Change in Cash and Cash Equivalents						(619.6	)		562.5			220.4
Cash and cash equivalents at beginning of year						1,030.3			467.8			247.4
Cash and Cash Equivalents at End of Year					$	410.7		$	1,030.3		$	467.8
Supplemental Cash Flow Information
	Cash paid during the year for:
		Income taxes			$	536.5		$	338.1		$	401.8
		Interest				38.3			17.0			14.0
Supplemental Noncash Investing and Financing Activities
	Issuance of stock options in connection with an acquisition				$	75.2		$	—		$	—

See accompanying notes to consolidated financial statements.

38

MEDTRONIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in millions, except per share data)

1.    Summary of Significant Accounting Policies

Nature of Operations    Medtronic, Inc. (Medtronic or the Company) is a world leading medical technology company, providing lifelong solutions for people with chronic disease. The Company provides innovative products and therapies for the health care needs of medical professionals and their patients. Primary products include those for bradycardia pacing, tachyarrhythmia management, heart failure, atrial fibrillation, coronary and peripheral vascular disease, heart valve replacement, extracorporeal cardiac support, minimally invasive cardiac surgery, malignant and non-malignant pain, diabetes, urological disorders, gastroenterological ailments, movement disorders, spinal and neurosurgery, neurodegenerative disorders and ear, nose and throat (ENT) surgery.

        The Company is headquartered in Minneapolis, Minnesota, and markets its products 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.

Principles of Consolidation    The consolidated financial statements include the accounts of Medtronic, Inc., and all of its subsidiaries. All significant intercompany transactions and accounts have been eliminated.

Fiscal Year End    During fiscal 2001, the Company changed its fiscal year end from April 30 to the last Friday in April. This change to a 52/53-week fiscal year did not have a material effect on the Company's consolidated financial statements as both fiscal 2002 and 2001 include 52 weeks of operations.

Reclassifications    Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Use of Estimates    The preparation of the financial statements in conformity with accounting principles generally accepted 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 from those estimates.

Cash Equivalents    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 valued at cost, which approximates fair value.

Investments    Investments in debt and equity securities that have readily determinable fair values are classified and accounted for as available-for-sale or held-to-maturity. Available-for-sale securities consist of equity securities and debt instruments that are recorded at fair value in short-term and long-term investments, with the change in fair value recorded, net of taxes, as a component of accumulated other non-owner changes in equity. As of April 26, 2002, all investments were classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost in short-term and long-term investments. As of April 27, 2001, held-to-maturity investments consisted principally of U.S. government and corporate debt securities that the Company has the positive intent and ability to hold until maturity. 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.

39

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

	April 26, 2002		April 27, 2001
Finished goods	$	418.5	$	400.7
Work in process		120.1		131.5
Raw materials		209.5		197.3
Total	$	748.1	$	729.5

Property, Plant and Equipment    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 were as follows:

	April 26, 2002			April 27, 2001			Lives
Land and land improvements	$	64.0		$	57.7		20 years
Buildings and leasehold improvements		650.8			510.1		up to 40 years
Equipment		1,547.5			1,215.4		3-7 years
Construction in progress		226.8			274.1		—
		2,489.1			2,057.3
Less: Accumulated depreciation		(1,037.3	)		(880.8	)
Property, Plant and Equipment, net	$	1,451.8		$	1,176.5

Goodwill and Other Intangible Assets    Goodwill represents the excess of the purchase price over the fair value of net assets, including in-process research and development, of acquired businesses. Upon adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," in the first quarter of fiscal 2002, the Company no longer amortized goodwill. See Note 5 for pro forma effects of adopting this standard.

        Other intangible assets consist primarily of purchased technology, patents, and trademarks and are amortized using the straight-line method over the estimated useful lives, ranging from 3 to 25 years. The Company reviews intangible assets for impairment annually or more frequently if changes in circumstance or the occurrence of events suggests the remaining value is not recoverable. The test for impairment of goodwill and other intangible assets requires the Company to make several estimates about fair value, most of which are based on projected future cash flows.

Revenue Recognition    Medtronic sells its products primarily through a direct sales force. As a result, 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 transfers to customers and there are no remaining obligations that will affect the customer's final acceptance of the sale. The Company records estimated sales returns, discounts and rebates as a reduction of net sales in the same period revenue is recognized.

        In cases where the Company utilizes distributors, it recognizes revenue upon shipment provided that all revenue recognition criteria have been met.

40

        The Company has entered into certain agreements with buying organizations to sell Medtronic's products to participating hospitals at pre-negotiated prices. Revenue generated under these agreements is recognized following the same revenue recognition criteria discussed above.

Research and Development    Research and development costs are expensed when incurred.

Purchased In-Process Research and Development (IPR&D)    When Medtronic acquires another company, 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 value. The discount rate used is determined at the time of the acquisition and includes consideration of the assessed risk of the project not being developed to a stage of commercial feasibility.

Other Income/Expense    In fiscal years 2001 and 2000, other income/expense primarily includes goodwill and intellectual property amortization expense, royalty income and expense, realized minority investment gains and losses, and realized foreign currency hedging gains and losses. In fiscal 2002, other income/expense included the above items except for goodwill amortization, which, in accordance with SFAS No. 142, "Goodwill and Intangible Assets," is no longer recorded. The Company adopted SFAS No. 142 in the first quarter of fiscal 2002. Had the Company amortized goodwill in fiscal 2002 using methodologies and assumptions consistent with fiscal 2001 and amounts consistent with April 27, 2001, the Company would have recognized an additional $61.7 of expense.

Stock-Based Compensation    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" and related Interpretations. Accordingly, the Company would record compensation expense if the quoted market price on the date of grant exceeds the exercise price. Such expense, calculated for stock options as the number of options granted multiplied by the amount the market price exceeds the exercise price, would be recognized on the date of grant for fully vested options. For options with a vesting period, the expense is recognized over the vesting period. The Company has not recognized any stock option related employee compensation expense in fiscal years 2002, 2001, or 2000. Pro forma disclosures of net earnings and earnings per share, as if the fair value method, as defined in SFAS No. 123, "Accounting for Stock-Based Compensation," had been applied are presented in Note 9.

Foreign Currency Translation    Assets and liabilities are translated to U.S. dollars at year-end exchange rates, while elements of the income statement are translated at average exchange rates in effect during the year. Foreign currency transaction gains and losses are included in the statement of consolidated earnings as other income/expense. Gains and losses arising from the translation of net assets located outside the U.S. are recorded as a component of accumulated other non-owner changes in equity.

41

Accumulated Other Non-Owner Changes in Equity    Presented below is a summary of activity for each component of other non-owner changes in equity for fiscal years 2002, 2001, and 2000:

	Unrealized Gain (Loss) on Investments			Translation Adjustment			Minimum Pension Liability			Unrealized Gain (Loss) on Derivatives		Accumulated Other Non- Owner Changes in Equity
Balance April 30, 1999	$	9.1		$	(100.0	)	$	(4.2	)	$	—	$	(95.1	)
Period change		(15.6	)		(38.7	)		(2.5	)		—		(56.8	)
Balance April 30, 2000		(6.5	)		(138.7	)		(6.7	)		—		(151.9	)
Period change		19.4			(39.2	)		2.9			—		(16.9	)
Balance April 27, 2001		12.9			(177.9	)		(3.8	)		—		(168.8	)
Period change		(22.1	)		(1.8	)		3.8			20.9		0.8
Balance April 26, 2002	$	(9.2	)	$	(179.7	)	$	—		$	20.9	$	(168.0	)

Derivatives    On April 28, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, 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 income unless the derivative qualifies as a hedge. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other non-owner changes in equity until the hedged item is recognized in earnings. Upon adoption, the Company recorded a cumulative after tax unrealized gain of $35.7, $54.9 pre-tax, in accumulated other non-owner changes in equity.

        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 as freestanding derivatives. All derivative instruments are recorded at fair value on the balance sheet.

        Forward contracts designated as cash flow hedges are designed to hedge the variability of cash flows associated with forecasted transactions denominated in foreign currency that will take place in the next two years. Changes in value of derivatives designated as cash flow hedges are recorded in accumulated other non-owner changes in equity 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 other income/expense.

        Net investment hedges are designed to hedge long-term investments in foreign operations. The effectiveness of net investment hedges is measured on a spot to spot basis. The effective portion of the change in the fair value of net investment hedges is recorded as foreign currency translation adjustments in accumulated other non-owner changes in equity, while the ineffective portion resulting from the time value of the hedging instrument is recorded in earnings as other income/expense.

        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 in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and liabilities.

42

        It is the Company's policy to enter into foreign currency hedging transactions only to the extent true exposures exist; the Company does not enter into foreign currency hedging transactions for speculative purposes. Principal currencies hedged are the Yen and the Euro.

        At inception, if 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. When a derivative is no longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded in earnings.

Earnings Per Share    Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share is computed based on the weighted average number of common shares outstanding 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. Presented below is a reconciliation between basic and diluted weighted average shares outstanding:

			Fiscal Year
			2002	2001	2000
Basic			1,211.6	1,203.0	1,194.7
	Effect of dilutive securities:
		Employee stock options	10.9	19.3	20.6
		Other	1.9	3.7	8.1
Diluted			1,224.4	1,226.0	1,223.4

New Accounting Standards    In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires companies to recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of the fair value can be made. The identified asset retirement costs are capitalized as part of the carrying amount of the asset and depreciated over the remaining useful life. SFAS No. 143 is effective for the Company in fiscal 2004. Adoption is not expected to have an impact on the Company's statements of consolidated earnings or financial position.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 establishes a single model for the impairment of long-lived assets and broadens the presentation of discontinued operations to include more disposal transactions. SFAS No. 144 is effective for the Company in fiscal 2003. Adoption is not expected to have an impact on the Company's statements of consolidated earnings or financial position.

2.    Business Combinations

Purchase Method    On April 12, 2002, the Company acquired all of the outstanding shares of VidaMed, Inc. (VidaMed) for cash consideration of $328.6, including estimated fees and expenses associated with the merger. VidaMed manufactures and markets a transurethral needle ablation system to treat benign prostatic hyperplasia, a condition also known as enlarged prostate. This acquisition is expected to strengthen the Company's offerings of urological products, reduce costs through economies of scale, and foster growth by leveraging common technologies and the Company's international distribution structure.

43

        In connection with the acquisition of VidaMed, the Company acquired $165.8 of technology-based intangible assets that have a useful life of 15 years. Goodwill of $201.2 related to the acquisition was assigned entirely to the Neurological and Diabetes operating segment.

        On December 18, 2001, the Company acquired all of the outstanding shares of Endonetics, Inc. (Endonetics) for cash consideration of $67.2, including fees and expenses associated with the merger. Endonetics develops diagnostic and therapeutic devices for the management of gastrointestinal diseases. The Company acquired Endonetics to accelerate the Company's entrance into the gastrointestinal market. Through effective integration, the Company expects to be able to reduce costs through economies of scale, and foster growth by leveraging common technologies and the Company's international distribution structure.

        In connection with the acquisition of Endonetics, the Company acquired $32.1 of technology-based intangible assets that have a useful life of 12 years and $32.7 of in-process research and development that was expensed on the date of acquisition. Goodwill of $11.5 related to the acquisition was assigned entirely to the Neurological and Diabetes operating segment.

        On August 28, 2001, the Company acquired all of the outstanding common shares of MiniMed, Inc. (MiniMed) and Medical Research Group, Inc. (MRG) for cash consideration totaling $3,807.2. MiniMed is the market leader in the design, development, manufacture and marketing of advanced medical systems for the treatment of diabetes. MRG designs and develops technologies related to implantable pumps and sensors used in the treatment of diabetes. These acquisitions represent a new platform to the Company, offering device-based medical solutions for the treatment of diabetes. The Company expects to drive growth by leveraging common technologies and the Company's international distribution structure and to reduce costs through economies of scale.

        Each share of MiniMed and MRG common stock was valued at $48.00 and $17.00, respectively. The total acquisition cost for MiniMed was $3,377.7, which includes fees and expenses associated with the merger, the cash cost of employee stock options surrendered in the acquisition, and an estimate of the fair value of employee stock options that were exchanged for approximately 2.7 million options to purchase Medtronic common stock. The stock options were valued at approximately $75.2 using the Black-Scholes option-pricing model. The total acquisition cost of MRG was $429.5, which represents $397.7 to acquire common shares outstanding with third parties, $31.8 of common shares owned by MiniMed, the cash cost of employee stock options surrendered in the acquisition, and fees and expenses associated with the merger.

        In connection with the acquisition of MiniMed, the Company acquired intangible assets valued at $589.2 that have a weighted average useful life of approximately 13 years. The intangible assets that make up that amount include technology-based assets of $324.5 (15-year weighted average useful life) and trademarks and tradenames of $264.7 (10-year useful life). In connection with the acquisition of MRG, the Company acquired technology-based assets valued at $7.8 that have a 15-year useful life. Also as part of the MiniMed and MRG acquisitions, the Company assigned, in total, $260.3 and $2,749.9 for in-process research and development and goodwill, respectively. The in-process research and development was expensed on the date of acquisition. The goodwill for these acquisitions was assigned entirely to the Neurological and Diabetes operating segment.

        In connection with the acquisitions of MiniMed and MRG, the Company formulated plans for workforce reductions, employee relocations, the closure and consolidation of sales offices in the U.S. and Europe, and the termination of certain contractual obligations. The costs of employee termination and relocation benefits relate to the elimination or relocation of approximately 365 positions in the areas of manufacturing and distribution, administration, engineering, and sales and marketing. As of April 26, 2002, approximately 107 employees had been terminated. The Company expects to complete these integration activities within one year of the date of acquisition. Until these activities are finalized, the allocation of the purchase price is subject to adjustment.

44

        The purchase accounting liabilities recorded in connection with the MiniMed and MRG acquisitions are summarized below:

	August 28, 2001		Change in Estimate		Utilized			April 26, 2002
Facility reductions	$	2.1	$	—	$	—		$	2.1
Severance and relocation costs		15.0		1.3		(8.9	)		7.4
Contractual obligations		5.7		8.2		—			13.9
Total	$	22.8	$	9.5	$	(8.9	)	$	23.4

        The change in estimate relates primarily to an anticipated settlement of a contractual dispute outstanding at the time of the acquisition.

        In addition to the above acquisitions, on April 19, 2002, the Company acquired the remaining equity in a joint venture (Kobayashi) it had formed with Kobayashi Pharmaceutical Co. Ltd. in 1996 to distribute the Company's spinal products in Japan. The remaining equity of Kobayashi was purchased for $128.0 of cash, of which $58.0 will be paid over the next seven years. The Company expects that this purchase will accelerate revenues and earnings growth of spinal products by increasing its operating flexibility and by reducing distribution overhead.

        Included in the $128.0 purchase price of Kobayashi is a non-compete agreement valued at $39.4 with a useful life of 7 years, and customer and product-based intangible assets valued at $18.6, with useful lives of 12 years (approximately 9-year total weighted average useful life). Goodwill of $63.0 related to this purchase was assigned entirely to the Spinal and ENT operating segment.

        The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as a result of these acquisitions:

		VidaMed		Endonetics		MiniMed		MRG		Kobayashi
Current assets		$	14.9	$	0.4	$	222.0	$	52.9	$	44.6
Property, plant and equipment			0.4		0.5		146.5		4.0		3.3
Intangible assets			165.8		32.1		589.2		7.8		58.0
In-process research and development assets			—		32.7		35.4		224.9		—
Goodwill			201.2		11.5		2,604.9		145.0		63.0
Deferred tax asset—long-term			—		—		—		10.2		—
Long-term other assets			—		—		1.1		1.4		3.9
	Total assets acquired	$	382.3	$	77.2	$	3,599.1	$	446.2	$	172.8
Current liabilities		$	17.7	$	4.5	$	73.1	$	13.8	$	40.2
Deferred tax liability—long-term			36.0		5.3		148.3		—		4.6
Other long-term liabilities			—		0.2		—		2.9		—
	Total liabilities assumed	$	53.7	$	10.0	$	221.4	$	16.7	$	44.8
Net assets acquired		$	328.6	$	67.2	$	3,377.7	$	429.5	$	128.0

        The goodwill recorded as a result of these acquisitions is not deductible for tax purposes. The results of operations related to the acquired portion of each entity has been included in the Company's statements of consolidated earnings.

        The following unaudited pro forma data sets forth the combined results of operations for the years ended April 26, 2002 and April 27, 2001 as if the acquisitions of VidaMed, Endonetics, MiniMed, MRG, and the remaining portion of Kobayashi had occurred on May 1, 2000. The unaudited pro forma results of operations for the year ending April 26, 2002 include the results of operations for each acquisition for the year ended April 26, 2002. As all of the acquired companies reported based on

45

calendar quarters, the unaudited pro forma results of operations for the year ending April 27, 2001 include the results of operations for each acquisition for the twelve-month period ended March 31, 2001. The pro forma data gives effect to actual operating results prior to the acquisitions, adjustments to eliminate material intercompany items between MiniMed and MRG, and adjustments to reflect increased interest expense, increased intangible asset amortization, increased fixed asset depreciation, and income taxes. No effect has been given to cost reductions or operating synergies in this presentation. As a result, these pro forma amounts are not necessarily indicative of the results that would have been obtained if the acquisitions had occurred as of the beginning of the periods presented or that may occur in the future.

		Fiscal Year
		2002		2001
Net sales		$	6,552.6	$	5,873.9
Net income			888.4		957.4
Earnings per common share:
	Basic	$	0.73	$	0.80
	Diluted	$	0.73	$	0.78

        Pro forma net income for the twelve months ended April 26, 2002 includes $293.0 of non-deductible charges related to assets written off as in-process research and development; $20.4 of debt issuance costs, net of tax; $18.8 of non-deductible merger-related costs incurred by MiniMed prior to the acquisition; a $6.9 after tax write-up of MiniMed inventory to fair value; and a $2.4 after tax charge related to a settlement agreement entered into by MiniMed prior to the acquisition.

Pooling-of-Interests Method    On December 21, 2000, the Company issued approximately 3.7 million shares of its common stock in exchange for all of the outstanding capital stock of PercuSurge, Inc. (PercuSurge) in a transaction valued at approximately $231.0. PercuSurge is a leading developer of interventional embolic protection devices and currently markets a patented system that helps remove embolic material that is often dislodged during the treatment of arteriosclerosis.

        On November 5, 1999, the Company issued approximately 21.4 million shares of its common stock in exchange for all of the outstanding capital stock of Xomed Surgical Products, Inc. (Xomed) in a transaction valued at approximately $850.0, including $25.0 of assumed debt. Xomed is a leading developer, manufacturer and marketer of surgical products for use by ear, nose and throat physicians. Xomed offers a broad line of products that include powered tissue-removal systems, nerve monitoring systems, disposable fluid-control products, image guided surgery systems and bioabsorbable products.

        These acquisitions have been accounted for as pooling-of-interests, and accordingly, the Company's historical results have been restated to include the results of these acquisitions. The Company's consolidated financial results for fiscal 2000 have been restated as follows:

	Fiscal Year 2000
	Net Sales		Net Earnings
Medtronic (as previously reported)	$	5,014.6	$	1,098.5
PercuSurge		1.7		(14.3	)
Combined	$	5,016.3	$	1,084.2

        The combined results for the fiscal year ended April 30, 2000 represent the previously reported results of Medtronic for that fiscal year combined with the historical results of PercuSurge for the twelve months ended March 31, 2000. Effective May 1, 2000, PercuSurge's year end was changed from December 31 to the last Friday in April to conform to the Company's fiscal year end. Accordingly, PercuSurge's results for the one-month period ended April 30, 2000 have been excluded from the

46

Company's combined results and have been reported as an adjustment to May 1, 2000 retained earnings. PercuSurge's net sales and net loss for the one-month period ended April 30, 2000 were $0.1 and $1.4, respectively.

3.    Special, IPR&D, and Other Charges

The Company defines special charges (such as certain litigation and restructuring), IPR&D, and other charges as non-recurring charges. These charges result from unique facts and circumstances that likely will not recur with similar materiality or impact on continuing operations. Special, IPR&D, and other charges taken during fiscal years 2002, 2001, and 2000 were as follows:

		Fiscal Year
		2002			2001			2000
Special charges:
	Litigation	$	244.9		$	231.3		$	15.5
	Asset write-downs		6.9			59.9			6.2
	Restructuring charges		29.2			23.0			2.3
	Acquisition-related charges		0.0			4.2			14.7
	Gain on equity investment		(36.8	)		0.0			0.0
	Foundation contribution		47.6			20.4			0.0
	Changes in estimates		(1.0	)		0.0			(24.9	)
Total special charges			290.8			338.8			13.8
Inventory write-off			0.0			8.4			0.0
Purchased IPR&D			293.0			0.0			0.0
Acquisition-related debt issue costs			32.0			0.0			0.0
Total charges			615.8			347.2			13.8
Less tax impact			(122.6	)		(111.1	)		(2.3	)
Total charges, after tax		$	493.2		$	236.1		$	11.5

Special Charges    In fiscal 2002, the Company recorded $244.9 of charges related to legal settlements. The largest of the charges was for $167.3 including interest and costs related to an April 2002 arbitration panel's ruling that found the Company's rapid exchange perfusion delivery systems used in products for coronary angioplasty are not covered by the license that Arterial Vascular Engineering, Inc. (AVE) had acquired from C.R. Bard, Inc. and therefore infringed their patents. The Company acquired AVE in fiscal 1999 and believed that in this acquisition the Company acquired the U.S. licensing rights to the rapid exchange perfusion delivery systems. The Company stopped selling the rapid exchange perfusion delivery systems in U.S. markets in September 2001 as a result of a separate case brought by a competitor with respect to the same product. That case was resolved in the July 2001 arbitration panel ruling and was recorded in the fourth quarter of fiscal 2001 as discussed below. However, in the first quarter of fiscal 2002, the Company recorded an additional charge of $27.0 related to the July 2001 arbitration award. Other litigation charges of $21.9 and $9.1 were incurred in the fourth and second quarter, respectively. A non-product settlement charge of $19.6 was recorded in the third quarter and pertains to business matters that occurred in prior years and is protected by a confidentiality agreement.

        In the first quarter of fiscal 2002, the Company also recorded a charge of $35.1 to finalize the initiatives to restructure certain neurological sales organizations, reduce and consolidate certain manufacturing operations, and streamline and reorganize European sales organizations to further integrate acquisitions. These restructuring initiatives were announced in the fourth quarter of fiscal 2001 and resulted in the termination of approximately 650 employees, a net reduction of 450 positions, and annualized savings of approximately $35.0 to $40.0. Of the 650 employees identified for

47

termination, 306 have been terminated as of April 26, 2002. Also included in fiscal 2002 special charges is $6.9 of write-downs for assets which will no longer be utilized and a reversal of a $1.0 reserve related to the fiscal 2000 Latin America restructuring initiatives no longer considered necessary as the restructuring initiatives had been completed.

        In fiscal 2002, the Company also recorded a $36.8 gain on an equity investment that was contributed to the Medtronic Foundation.

        In fiscal 2001, the Company recorded net charges of $231.3 for litigation and related expenses. The vast majority of this charge relates to two adverse patent infringement decisions that were received subsequent to fiscal 2001, but prior to the issuance of the fiscal 2001 financial statements. In June 2001, an appeals court affirmed an earlier judgment against the Company in a patent infringement lawsuit commenced by a competitor. The amount of the judgment plus interest totaled $52.1. In July 2001, the Company received the arbitration decision described above relating to certain of the Company's rapid exchange perfusion delivery systems, and ordering damages of approximately $169.0, plus legal costs. An injunction against sales of these products in the U.S. was issued in September 2001. During the year, the Company incurred several other charges for smaller litigation settlements. In addition, the Company received a favorable settlement of $20.4 in the third quarter that was contributed to the Medtronic Foundation.

        In fiscal 2001, as a result of the July 2001 arbitration award described previously, the Company wrote off $66.6 of assets related to the Company's rapid exchange perfusion technology. Specifically, the Company wrote off $21.0 of intangible assets directly related to the rapid exchange perfusion technology, and $37.2 of the goodwill previously recorded for the Bard cath lab acquisition. The goodwill impairment amount was determined on a pro rata basis using the relative fair values of the long-lived assets and identifiable intangibles acquired from C.R. Bard, Inc. The arbitration panel also allowed for an injunction on future U.S. sales of these delivery systems, and accordingly, the Company wrote off $8.4 of excess rapid exchange perfusion inventory to cost of sales. During the year, the Company also wrote off assets of less than $2.0 related to the fiscal 2001 restructuring initiatives discussed previously.

        During fiscal 2001, the Company recorded $23.0 of restructuring related charges. As previously mentioned, during the fourth quarter of the fiscal 2001, the Company announced restructuring initiatives aimed at further streamlining operations. The Company recognized $13.6 of the total estimated charges in fiscal 2001. The Company also recorded a restructuring charge of $9.4 related to the integration of PercuSurge, which was acquired in the third quarter and a charge of $4.2 for transaction costs in connection with the acquisition of PercuSurge. A summary of the activity related to the fiscal 2001 restructuring initiatives is as follows:

	Fiscal 2001 Charges		Utilized in 2001			Balance at April 27, 2001		Fiscal 2002 Charges		Utilized in 2002			Balance at April 26, 2002
Facility reductions	$	1.3	$	—		$	1.3	$	6.7	$	(4.8	)	$	3.2
Severance and related costs		10.8		(1.5	)		9.3		17.4		(14.9	)		11.8
Contractual obligations		10.9		—			10.9		5.1		(6.5	)		9.5
Total restructuring-related accruals	$	23.0	$	(1.5	)	$	21.5	$	29.2	$	(26.2	)	$	24.5

        In fiscal 2000, the Company recorded charges for a litigation settlement and transaction costs in connection with the merger with Xomed. The Company also incurred restructuring and asset impairment charges related to the termination of a distribution relationship and the conversion of certain direct sales operations in Latin America to distributor arrangements. These restructuring efforts were substantially complete in fiscal 2001, with all remaining efforts finalized in fiscal 2002. In fiscal 2000, the Company also reversed a reserve of $24.9, which was no longer considered necessary. These reserves had been established in connection with the 1999 restructuring activities related to the

48

Company's mergers with Physio-Control, Sofamor Danek, and AVE and the purchase of Avecor. A summary of the activity related to the fiscal 2000 restructuring initiative is as follows:

	Fiscal 2000 Charges		Utilized in 2000		Balance at April 30, 2000		Utilized in 2001			Balance at April 27, 2001		Changes in estimates			Balance at April 26, 2002
Facility reductions	$	0.9	$	—	$	0.9	$	(0.2	)	$	0.7	$	(0.7	)	$	—
Severance and related costs		1.4		—		1.4		(1.1	)		0.3		(0.3	)		—
Total restructuring-related accruals	$	2.3	$	—	$	2.3	$	(1.3	)	$	1.0	$	(1.0	)	$	—

        During fiscal 1997, Sofamor Danek recorded a product liability litigation charge of $50.0 to recognize the anticipated costs associated with the defense and conclusion of certain product liability cases in which Sofamor Danek is named a defendant (see Note 13). During fiscal 1999, the Company recorded an additional $25.0 reserve necessary to conclude outstanding litigation. The Company utilized $1.2 of these charges in fiscal 1997, $11.6 in fiscal 1998, $21.7 in fiscal 1999, $12.4 in fiscal 2000, $0.9 in fiscal 2001, and $23.6 in fiscal 2002.

49

        A summary of all restructuring initiatives is as follows:

	Balance at April 30, 1999		Fiscal 2000 Charges		Utilized in 2000			Changes in Estimates			Balance at April 30, 2000		Fiscal 2001 Charges		Utilized in 2001			Balance at April 27, 2001		Fiscal 2002 Charges		Changes in Estimates			Utilized in 2002			Balance at April 26, 2002
Facility reductions	$	9.7	$	0.9	$	(9.7	)	$	3.8		$	4.7	$	1.3	$	(4.0	)	$	2.0	$	6.7	$	(0.7	)	$	(4.8	)	$	3.2
Severance and related costs		73.6		1.4		(41.7	)		(21.2	)		12.1		10.8		(13.3	)		9.6		17.4		(0.3	)		(14.9	)		11.8
Contractual obligations		40.7		—		(33.8	)		(0.2	)		6.7		10.9		(6.7	)		10.9		5.1		—			(6.5	)		9.5
Total restructuring-related accruals	$	124.0	$	2.3	$	(85.2	)	$	(17.6	)	$	23.5	$	23.0	$	(24.0	)	$	22.5	$	29.2	$	(1.0	)	$	(26.2	)	$	24.5

        Reserve balances at April 26, 2002 include amounts necessary to complete the restructuring initiatives announced during the fourth quarter of fiscal 2001 and the termination of certain distributors associated with the integration of PercuSurge.

Purchased In-Process Research and Development    In the third quarter of fiscal 2002, the Company acquired Endonetics. At the date of the acquisition, $32.7 of the purchase price was expensed for purchased in-process research and development related to the Gatekeeper Reflux Repair System (Gatekeeper), which had not yet reached technological feasibility and had no alternative future use. The Gatekeeper is a therapeutic medical device comprised of hydrogel prostheses that are implanted in the esophageal wall. After implantation, the hydrogel prostheses swell in size and create a mechanical barrier that prevents stomach acids from entering the esophagus. At the time of the acquisition, the Company did not have a therapeutic product offering in the Gastroesophageal Reflux Disease (GERD) market. The Company believes the Gatekeeper will distinguish itself in this market by its ease of use, ability to reduce treatment costs associated with extended drug therapies, and its less invasive approach to treating GERD. At the time of acquisition, the Gatekeeper was in human clinical trials. The clinical trials must be completed before regulatory approval can be obtained. In fiscal year 2002, the Company incurred $1.3 in costs and expects to incur $1.0 to $3.0 of annual costs in fiscal years 2003 and 2004 to bring this product to commercialization. Total expected project cost, including costs already incurred and expected to be incurred, is $6.4 to $10.4. These costs are being funded by internally generated cash flows.

        In the second quarter of fiscal 2002, the Company acquired MiniMed. At the date of the acquisition, $35.4 of the purchase price was expensed for purchased in-process research and development related to a disposable pump that had not yet reached technological feasibility and had no alternative future use. Disposable pumps are designed to be used as an infusion system that is attached to the body using an adhesive and that delivers a pre-set constant rate of drug. At the time of the acquisition, MiniMed did not have a primary product offering in the insulin-using Type 2 diabetes market. The Company believes the disposable pump will distinguish itself in the Type 2 market by its convenience and ease of use. At the time of acquisition, the disposable pump was still under development and had not been approved for sale by regulatory authorities. In fiscal 2002, the Company incurred $3.9 in costs and expects to incur $2.0 to $4.0 of costs in fiscal 2003. Although the Company is currently evaluating the underlying technology related to this project, the Company anticipates it will incur up to $4.0 of annual costs in fiscal years 2004 and 2005 to bring a disposable pump product to commercialization. Total expected project costs, including costs already incurred, are approximately $26.1 to $36.1. These costs are being funded with internally generated cash flows.

        In connection with the MiniMed acquisition discussed above, we acquired MRG in the second quarter of the current fiscal year. At the date of acquisition, $224.9 of the purchase price was expensed for purchased in-process research and development related to a long-term glucose sensor and an implantable glucose monitoring sensor that had not yet reached technological feasibility and had no alternative future use. At the time of the acquisition, MRG had no product offerings in the diabetes market, and these projects were expected to enable MRG to enter this high-potential implantable market. The long-term glucose sensor is designed to be used with an implantable pump to automatically maintain glucose levels by continuously monitoring and adjusting the rate of insulin

50

infusion without the need for frequent intervention by the physician or patient. At the time of the acquisition, the long-term glucose sensor was in human clinical trials. The clinical trials need to be completed before regulatory approval can be obtained. The implantable glucose monitoring system is used by patients to monitor glucose levels. At the time of the acquisition, MRG had filed, and received approval from the USFDA, for the investigational device exemption allowing MRG to proceed with clinical studies. In fiscal year 2002, the Company incurred $3.3 in costs and expects to incur $7.0 to $10.0 of annual costs in fiscal years 2003, 2004, and 2005, to bring this product to commercialization. Total expected project cost, including costs already incurred, is $33.5 to $42.5. These costs are being funded by internally generated cash flows. The fair values assigned to the long-term glucose sensor and to the implantable glucose monitoring system were $219.7 and $4.4, respectively. Other minor product categories were valued at $0.8.

        The value assigned to Endonetics' purchased in-process research and development was based on a valuation prepared internally, using a methodology consistent with valuation techniques used by independent appraisers. The values assigned to purchased in-process research and development for MiniMed and MRG were based on a valuation prepared by an independent third-party appraisal company. All values were determined by identifying research projects in areas for which technological feasibility had not been established. All values were determined by estimating the revenue and expenses associated with a project's sales cycle and by estimating 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 purchased in-process research and development.

        The Company expects that all the acquired in-process research and development 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 look to other alternatives to provide these therapies.

        No charges were taken in fiscal 2001 or fiscal 2000 related to purchased in-process research and development as all acquisitions in those years were accounted for using the pooling-of-interest method of accounting, which does not require assigning value to purchased in-process research and development.

Acquisition-Related Debt Issue Costs    Debt issue costs in fiscal 2002 relate to the costs incurred to issue contingent convertible debentures totaling $2,012.5 in September 2001. The total costs incurred to issue the debentures were $32.0, which are recorded in interest expense. The net proceeds from the debentures were used to repay a substantial portion of the bridge financing obtained in connection with the acquisitions of MiniMed and MRG. See Note 6 for more information regarding these debentures.

4.    Financial Instruments

The carrying amounts of cash and cash equivalents and short-term debt approximate fair value due to their short maturities. In addition, the carrying amount of short-term investments, foreign currency derivative instruments, and long-term debt approximated fair value at April 26, 2002 and April 27, 2001.

        The fair value of certain short-term and long-term equity investments was estimated based on their quoted market prices or those of similar investments. For long-term investments that have no quoted market prices and are accounted for on a cost basis, a reasonable estimate of fair value was made using available market and financial information. The fair value of foreign currency derivative instruments

51

was estimated based on quoted market prices at April 26, 2002 and April 27, 2001. The fair value of long-term debt was based on the current rates offered to the Company for debt of similar maturities.

        Information regarding the Company's available-for-sale instruments is as follows:

	Fiscal Year
	2002			2001			2000
Cost	$	774.2		$	700.6		$	144.0
Gross unrealized gains		2.0			31.1			6.2
Gross unrealized losses		(16.2	)		(12.1	)		(16.3	)
Fair value	$	760.0		$	719.6		$	133.9
Proceeds from sales	$	60.8		$	49.2		$	70.4
Net gains realized	$	39.9		$	21.0		$	22.4
Impairment losses recognized	$	2.0		$	15.5		$	—

        Net gains realized and proceeds from sales of available-for-sale instruments exclude amounts related to available-for-sale debt investments. Gains recognized upon sale of these instruments are recorded as interest income. Gains or losses from the sale of available-for-sale equity instruments are recorded as other income/expense in the accompanying statements of consolidated earnings, with the exception of the $36.8 gain in fiscal 2002 related to an equity investment that was contributed to the Medtronic Foundation. This gain was classified as a special charge. In addition, gains and losses from the sale of available-for-sale securities are calculated based on the specific identification method.

        The Company had no held-to-maturity investments at April 26, 2002. Held-to-maturity investments were recorded at amortized cost of $165.0 at April 27, 2001, which approximated fair value.

Foreign Exchange Risk Management    The Company uses operational and economic hedges as well as derivative financial instruments to manage the impact of foreign exchange rate changes on earnings and cash flows. In order to reduce the uncertainty of foreign exchange rate movements, the Company enters into various contracts with major international financial institutions that change in value as foreign exchange rates change. These contracts, which typically expire within two years, are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets, liabilities or net investments. Foreign currency transactions, primarily export intercompany sales, occur throughout the year and are probable but not firmly committed. Principal currencies hedged are the Yen and the Euro.

        Notional amounts of contracts outstanding at April 26, 2002 and April 27, 2001 were $907.5 and $382.3, respectively. Aggregate foreign currency transaction gains were $74.6, $44.3, and $30.8 in fiscal years 2002, 2001, and 2000, respectively. These gains, which were offset by losses on the related assets, liabilities and transactions being hedged, were recorded in other income/expense in the accompanying consolidated financial statements.

Concentrations of Credit Risk    Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of interest-bearing investments, foreign currency exchange contracts, and trade accounts receivable.

        The Company maintains cash and cash equivalents, investments, and certain other financial instruments with various major financial institutions. The Company performs periodic evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

        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

52

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 health care 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 those countries' national economies. As of April 26, 2002, no customer represented more than 10% of the outstanding accounts receivable.

Derivatives    Net gains included in cumulative translation adjustment relating to net investment hedges totaled $5.4 in fiscal 2002. No gains or losses relating to ineffectiveness of cash flow hedges were recognized in earnings in fiscal 2002. No hedges were derecognized or discontinued during fiscal 2002.

        The following table summarizes activity in accumulated non-owner changes in equity related to all derivatives classified as cash flow hedges in fiscal 2002 (amounts are net of tax):

Beginning Balance, April 28, 2001:		$	—
	Cumulative effect of adoption of SFAS 133		35.7
	Net gains reclassified to earnings		(44.8	)
	Change in fair value of hedges		30.0
Accumulated derivative gains			20.9
Ending Balance, April 26, 2002		$	20.9

        The entire cumulative effect of adoption was reclassified to earnings during fiscal 2002. The Company expects that $20.2, net of tax, of the balance in accumulated derivative gains at April 26, 2002, will be reclassified to earnings over the next twelve months.

5.    Goodwill and Other Intangible Assets

Goodwill    In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which eliminated the systematic amortization of goodwill. The Company adopted SFAS No. 142 during the first quarter of fiscal year 2002. Had SFAS No. 142 been effective May 1, 1999, net income and earnings per share for fiscal years 2001 and 2000 would have been reported as the following amounts:

		Fiscal Year
		2001		2000
Net Income:
	As reported	$	1,046.0	$	1,084.2
	Effect of goodwill amortization		38.4		37.8
	As adjusted	$	1,084.4	$	1,122.0
Basic earnings per share:
	As reported	$	0.87	$	0.91
	Effect of goodwill amortization		0.03		0.03
	As adjusted	$	0.90	$	0.94
Diluted earnings per share:
	As reported	$	0.85	$	0.89
	Effect of goodwill amortization		0.03		0.03
	As adjusted	$	0.88	$	0.92

53

        The changes in the carrying amount of goodwill for the years ended April 26, 2002 and April 27, 2001, are as follows:

	Fiscal Year
	2002		2001
Beginning balance	$	995.9	$	1,069.0
Goodwill as a result of acquisitions		3,036.3		6.7
Write-off related to arbitration award		—		(37.2	)
Amortization expense		—		(56.9	)
Currency adjustment, net		2.4		14.3
Ending balance	$	4,034.6	$	995.9

        The Company completed its annual impairment test of all goodwill and concluded there was no impairment of goodwill.

Other Intangible Assets    Balances of acquired intangible assets, excluding goodwill, were as follows:

			Purchased Technology and Patents			Trademarks and Tradenames			Other			Total
As of April 26, 2002:
Amortizable intangible assets:
		Original cost	$	810.7		$	264.7		$	182.9		$	1,258.3
		Accumulated amortization		(119.4	)		(17.6	)		(61.0	)		(198.0	)
	Carrying value		$	691.3		$	247.1		$	121.9		$	1,060.3
	Weighted average original useful life (in years)			14.5			10.0			11.3

			Purchased Technology and Patents			Trademarks and Tradenames		Other			Total
As of April 27, 2001:
Amortizable intangible assets:
		Original cost	$	212.9		$	—	$	168.0		$	380.9
		Accumulated amortization		(66.0	)		—		(75.5	)		(141.5	)
	Carrying value		$	146.9		$	—	$	92.5		$	239.4
	Weighted average original useful life (in years)			12.5			—		11.9

        Amortization expense for the fiscal years ended April 26, 2002, April 27, 2001, and April 30, 2000 was approximately $63.5, $40.8, and $41.0, respectively.

        Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets for the next five fiscal years is as follows:

Fiscal Year	Amortization Expense
2003	$	99.7
2004		96.6
2005		94.2
2006		93.2
2007		89.7

54

6.    Financing Arrangements

        Debt consisted of the following:

		Average Interest Rate		Maturity Date	April 26, 2002		April 27, 2001
Short-Term Borrowings
	Contingent convertible debentures		1.3%	2002-2021	$	2,012.5	$	—
	Commercial paper		1.8%	2002		249.8		—
	Bank borrowings		1.5%	—		249.1		142.7
	Current portion of long-term debt		2.2%	—		4.7		2.7
Total Short-Term Borrowings					$	2,516.1	$	145.4
Long-Term Debt
	Various notes		1.2%	2004	$	3.0	$	6.4
	Subordinated convertible note		5.5%	2004		4.5		4.5
	Capitalized lease obligations		6.5%	2002-2008		2.0		2.4
Total Long-Term Debt					$	9.5	$	13.3

Contingent Convertible Debentures    In September 2001, the Company completed a private placement of contingent convertible debentures totaling $2,012.5, due 2021. The debentures bear interest at 1.25% per annum, which is payable semiannually. Each debenture is convertible into shares of Medtronic's common stock at an initial conversion price of $61.81 per share. The Company may be required to repurchase the securities at the option of the holders in September 2002, 2004, 2006, 2008, 2011, and 2016. The purchase price would be equal to the principal amount of the debentures plus any accrued and unpaid interest on the debentures to the repurchase date. As a result of the put option in September 2002, these debentures have been classified as short-term borrowings in the accompanying consolidated balance sheets. If the repurchase option is exercised, the Company may elect to repurchase the securities for cash, common stock, or a combination thereof. The Company may elect to redeem the securities for cash at any time after September 2006. The net proceeds from this offering were used to repay a substantial portion of the bridge financing obtained in connection with the acquisitions of MiniMed and MRG.

Commercial Paper    On December 14, 2001, the Company implemented a $1,000.0 commercial paper program. In March 2002, this commercial paper program was increased to $1,500.0. This program allows the Company to issue debt securities with maturities up to 364 days from the date of issuance. At April 26, 2002, outstanding commercial paper totaled $249.8. The weighted average annual original maturity of the commercial paper outstanding was approximately 24 days and the weighted average annual interest rate was 1.81%.

Bank Borrowings    Bank borrowings consisted 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.

Credit Arrangements    The Company has existing lines of credit of approximately $1,745.2 with various banks, of which approximately $1,241.6 was available at April 26, 2002. The existing lines of credit include two syndicated credit facilities totaling $1,250.0 with various banks, which the Company signed on January 24, 2002. The two credit facilities consist of a 364-day $750.0 facility and a five-year $500.0 facility. The purpose of these syndicated credit facilities is to provide backup funding for the commercial paper program. Interest rates on these credit facilities are determined by a pricing matrix based on the Company's long-term debt rating assigned by Standard and Poor's Ratings Group and Moody's Investors Service. Facility fees are payable on the credit and determined in the same manner as the interest rates. Under terms of the agreements, the consolidated tangible net worth of the

55

Company shall 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. As of April 26, 2002, our consolidated tangible net worth was $2,274.6. The agreements also contain other customary covenants and events of default.

        During fiscal 2000, the Company entered into an agreement expiring in 2003 to sell, at its discretion, specific pools of its Japanese trade receivables. The Company had sold approximately $62.7 and $60.0 of its trade receivables to a financial institution as of April 26, 2002 and April 27, 2001, respectively. The discount cost related to the sale was immaterial and was recorded as interest expense in the accompanying consolidated financial statements.

        Maturities of long-term debt for the next five fiscal years are as follows:

Fiscal Year	Obligation
2003	$	4.7
2004		8.2
2005		0.4
2006		0.3
2007		0.3
Thereafter		0.3
Total	$	14.2

7.    Shareholders' Equity

On August 25, 1999, the Company's shareholders approved an amendment to Medtronic's Restated Articles of Incorporation to increase the number of authorized shares of common stock from 800.0 million to 1.6 billion. On the same date the Board of Directors approved a two-for-one split of the Company's common stock effective September 24, 1999, in the form of a 100% stock dividend payable to shareholders of record at the close of business on September 10, 1999. The stock split resulted in the issuance of 587.4 million additional shares and the reclassification of $58.7 from retained earnings to common stock, representing the par value of the shares issued. All references in the consolidated financial statements to earnings per share and average number of shares outstanding amounts have been restated to reflect the stock split for all periods presented.

Shareholder Rights Plan    Under a Shareholder Rights Plan adopted by the Company's board of directors in October 2000, all shareholders receive, along with each common share owned, a preferred stock purchase right entitling them to purchase from the Company one ¹/5000 of a share of Series A Junior Participating Preferred Stock at an exercise price of $400 per share. 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.

        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

56

group becomes an Acquiring Person from 15% to no less than 10% of the outstanding common stock. The rights expire on October 26, 2010.

8.    Employee Stock Ownership Plan

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. The Company makes contributions to the plan that are used, in part, by the ESOP to make loan 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:

	Fiscal Year
	2002			2001			2000
Interest expense	$	1.4		$	1.7		$	2.0
Dividends paid		(3.7	)		(3.3	)		(2.8	)
Compensation expense		4.2			3.4			6.7
Total expense	$	1.9		$	1.8		$	5.9

        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. Allocations of 2.57%, 2.50%, and 2.70% of qualified compensation were made to plan participants' accounts in fiscal years 2002, 2001, and 2000, respectively. During fiscal 2000, and in connection with the Company's 50th Anniversary, the Company made a special allocation to participant accounts of approximately 1.2 million shares. The Company match on the supplemental retirement plan is made in the form of an annual allocation of Medtronic stock to the participants' employee stock ownership plan account and the expense to the Company related to this match is included in the previous table.

        At April 26, 2002 and April 27, 2001, cumulative allocated shares remaining in the trust were 10,269,112 and 9,625,388 and unallocated shares were 6,011,566 and 7,235,074, respectively. Of the remaining unallocated shares at April 26, 2002 and April 27, 2001, 1,364,531 and 1,223,508, respectively, were committed to be allocated. Unallocated shares are released based on the ratio of current debt service to total remaining principal and interest. The loan from the Company to the ESOP is payable over 20 years, ending on April 30, 2010. Interest is payable annually at a rate of 9.0%. The receivable from the ESOP is recorded as a reduction of the Company's shareholders' equity and allocated and unallocated shares of the ESOP are treated as outstanding common stock in the computation of earnings per share.

9.    Stock Purchase and Award Plans

1994 Stock Award Plan    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 36.5 million shares available under this plan for future grants at April 26, 2002.

        Under the provisions of the 1994 stock award plan, 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.

        In fiscal 1998, the Company adopted a new stock compensation plan for outside directors which replaced the provisions in the 1994 stock award plan relating to awards granted to outside directors. The table below includes awards granted under the new plan, which at April 26, 2002 had 2.5 million shares available for future grants.

57

        A summary of nonqualified option transactions is as follows:

	Fiscal Year
	2002				2001				2000
	Options (in thousands)		Wtd. Avg. Exercise Price		Options (in thousands)		Wtd. Avg. Exercise Price		Options (in thousands)		Wtd. Avg. Exercise Price
Beginning balance	42,267		$	33.11	33,917		$	24.77	24,150		$	19.91
Granted	18,976			44.10	12,291			52.17	14,425			31.42
Exercised	(2,912	)		16.44	(2,789	)		15.09	(3,278	)		9.88
Canceled	(1,669	)		43.66	(1,152	)		32.45	(1,380	)		8.29
Outstanding at year end	56,662		$	37.34	42,267		$	33.11	33,917		$	24.77
Exercisable at year end	29,045		$	32.38	22,238		$	26.69	17,195		$	18.83

58

        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:

	Fiscal Year
	2002				2001				2000
	Options (in thousands)		Wtd. Avg. Exercise Price		Options (in thousands)		Wtd. Avg. Exercise Price		Options (in thousands)		Wtd. Avg. Exercise Price
Beginning balance	8,086		$	15.94	11,726		$	15.49	25,053		$	14.73
Additional shares assumed	2,684			34.16	446			15.49	2.956			11.95
Exercised	(2,438	)		16.70	(3,767	)		14.15	(15,415	)		10.23
Canceled	(330	)		40.05	(319	)		19.43	(868	)		16.83
Outstanding at year end	8,002		$	20.83	8,086		$	15.94	11,726		$	15.49
Exercisable at year end	7,620		$	20.58	6,930		$	14.76	9,281		$	15.80

        A summary of stock options as of April 26, 2002, including options assumed as a result of acquisitions, is as follows:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Options (in thousands)	Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contractual Life (in years)	Options (in thousands)	Wtd. Avg. Exercise Price
$0.01-$2.50	72	$	0.98	2.0	69	$	0.99
2.51-5.00	1,815		4.42	1.9	1,815		4.42
5.01-7.50	2,823		6.37	2.5	2,716		6.36
7.51-10.00	834		9.07	3.7	815		9.08
10.01-20.00	5,448		15.78	4.7	5,405		15.77
20.01-30.00	7,254		24.20	5.5	5,391		24.37
30.01-40.00	15,283		33.86	6.8	10,032		33.90
40.01-50.00	20,367		44.25	9.2	5,099		43.92
50.01-69.82	10,768		52.84	8.2	5,323		53.72
$0.01-$69.82	64,664	$	35.30	7.1	36,665	$	29.98

        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.

        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. These awards are expensed over their vesting period, ranging from three to five years. Total expense recognized for restricted stock, performance share and other stock awards was $10.2, $14.2, and $5.2 in fiscal years 2002, 2001, and 2000, respectively.

        If the Company had elected to recognize compensation expense for its stock-based compensation plans based on the fair values at the grant dates consistent with the methodology prescribed by SFAS

59

No. 123, "Accounting for Stock-Based Compensation," net income and earnings per share would have been reported as follows:

		Fiscal Year
		2002		2001		2000
Net Earnings
	As reported	$	984.0	$	1,046.0	$	1,084.2
	Pro forma		824.4		926.4		1,009.1
Basic Earnings Per Share
	As reported	$	0.81	$	0.87	$	0.91
	Pro forma		0.68		0.77		0.84
Diluted Earnings Per Share
	As reported	$	0.80	$	0.85	$	0.89
	Pro forma		0.67		0.76		0.82

        The weighted average fair value per stock option granted in fiscal years 2002, 2001, and 2000 was $16.25, $25.34, and $16.58, respectively. The fair value was estimated using the Black-Scholes option-pricing model using the following weighted average assumptions:

	Fiscal Year
Assumptions
	2002		2001		2000
Risk-free interest rate	4.47	%	5.85	%	6.09	%
Expected dividend yield	0.52	%	0.38	%	0.47	%
Annual volatility factor	27.2	%	37.8	%	38.1	%
Expected option term	7 years		7 years		7 years

Stock Purchase Plan    The stock purchase plan enables employees to contribute up to 10% of their wages toward the purchase of the Company's common stock at 85% of the market value. Employees purchased 1,401,294 shares at $34.26 per share in fiscal 2002. As of April 26, 2002, plan participants have had approximately $30.9 withheld to purchase shares at a price which is 85% of the market value of the Company's common stock on the first or last day of the plan year ending October 31, 2002, whichever is less.

10.  Income Taxes

The provision for income taxes is based on earnings before income taxes reported for financial statement purposes. The components of earnings before income taxes were:

Fiscal Year	2002		2001		2000
U.S.	$	795.9	$	1,062.2	$	1,033.0
International operations, including Puerto Rico		728.3		487.2		581.8
Earnings before income taxes	$	1,524.2	$	1,549.4	$	1,614.8

60

        The provision for income taxes consisted of:

			Fiscal Year
			2002		2001			2000
Taxes currently payable:
	U.S. federal		$	261.2	$	432.2		$	102.9
	U.S. state and other			21.9		17.6			22.9
	International operations, including Puerto Rico			163.9		144.6			163.0
		Total currently payable		447.0		594.4			288.8
Deferred tax expense (benefit):
	U.S. federal and state			50.4		(150.3	)		94.9
	International operations, including Puerto Rico			0.9		(3.3	)		(16.8	)
		Net deferred tax expense (benefit)		51.3		(153.6	)		78.1
Tax expense recorded directly in shareholders' equity				41.9		62.6			163.7
Total provision			$	540.2	$	503.4		$	530.6

        Deferred taxes arise because of different tax 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" (generally items that can be used as a tax deduction or credit in future periods) and "deferred tax liabilities" (generally items for which the Company has received a tax deduction and have not yet been recorded in the statement of consolidated earnings). Deferred tax assets (liabilities) were comprised of the following:

			Fiscal Year
			2002			2001
Deferred tax assets:
	Inventory (Intercompany profit in inventory and excess of tax over book valuation)		$	78.9		$	121.0
	Accrued liabilities			207.7			159.9
	Other			233.7			98.3
		Total deferred tax assets		520.3			379.2
Deferred tax liabilities:
	Intangible assets			(333.1	)		(31.6	)
	Accumulated depreciation			(17.0	)		(17.1	)
	Unrealized (gain) loss on investments			(6.3	)		(7.1	)
	Other			(73.3	)		(27.9	)
		Total deferred tax liabilities		(429.7	)		(83.7	)
Net deferred tax assets			$	90.6		$	295.5

61

        The Company's effective income tax rate varied from the U.S. federal statutory tax rate as follows:

		Fiscal Year
		2002		2001		2000
U.S. federal statutory tax rate		35.0	%	35.0	%	35.0	%
Increase (decrease) in tax rate resulting from:
	U.S. state taxes, net of federal tax benefit	1.4		1.1		1.4
	Research & development credit	(0.9	)	(1.7	)	(1.1	)
	International operations, including Puerto Rico	(6.1	)	(1.9	)	(3.5	)
	Non-recurring charges	6.1		0.7		(0.1	)
	Other, net	(0.1	)	(0.7	)	1.2
Effective tax rate		35.4	%	32.5	%	32.9	%

        Taxes are not provided on undistributed earnings of non-U.S. subsidiaries because such earnings are either permanently reinvested or do not exceed available foreign tax credits. At April 26, 2002, earnings permanently reinvested in subsidiaries outside the U.S. were $933.7.

        At April 26, 2002, approximately $33.7 non-U.S. tax losses were available for carryforward. These carryforwards are subject to valuation allowances and generally expire within a period of one to five years.

        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 2007 and 2020.

        The U.S. Internal Revenue Service (IRS) has settled its audits with the Company for all years through fiscal 1993. Tax years settled with the IRS, however, remain open for foreign tax audits and competent authority proceedings. Competent authority is a process to resolve inter-company pricing disagreements between countries.

11.  Retirement Benefit Plans

The Company has various retirement benefit plans covering substantially all U.S. employees and many employees outside the U.S. The cost of these plans was $30.6 in fiscal 2002, $31.3 in fiscal 2001, and $32.4 in fiscal 2000.

        In the U.S., the Company maintains a qualified pension plan designed to provide guaranteed minimum retirement benefits to substantially all U.S. employees. Pension coverage for non-U.S. employees of the Company is provided, to the extent deemed appropriate, through separate plans. In

62

addition, U.S. and non-U.S. employees of the Company are also eligible to receive specified Company paid health care and life insurance benefits.

		Pension Benefits						Other Benefits
		2002			2001			2002			2001
Change in benefit obligation
Benefit obligation at beginning of year		$	306.4		$	238.0		$	61.7		$	49.2
	Service cost		21.9			21.4			5.0			4.6
	Interest cost		19.4			17.9			4.5			3.6
	Actuarial (gain) loss		45.3			36.4			11.2			5.1
	Benefits paid		(12.5	)		(7.3	)		(2.7	)		(0.8	)
Benefit obligation at end of year		$	380.5		$	306.4		$	79.7		$	61.7
Change in plan assets
Fair value of plan assets at beginning of year		$	391.9		$	291.2		$	40.9		$	26.6
	Actual return on plan assets		(26.6	)		45.1			(1.6	)		2.4
	Employer contributions		73.1			62.5			9.1			14.6
	Benefits paid		(11.6	)		(6.9	)		(4.6	)		(2.7	)
Fair value of plan assets at end of year		$	426.8		$	391.9		$	43.8		$	40.9
Funded status		$	46.3		$	85.5		$	(35.9	)	$	(20.8	)
Unrecognized net actuarial (gain) loss			63.9			(20.4	)		26.0			7.2
Unrecognized prior service cost			25.7			5.0			(0.2	)		—
Prepaid (accrued) benefit cost		$	135.9		$	70.1		$	(10.1	)	$	(13.6	)

        Net periodic benefit cost of plans included the following components:

	Pension Benefits									Other Benefits
	Fiscal Year									Fiscal Year
	2002			2001			2000			2002			2001			2000
Service cost	$	21.9		$	21.4		$	21.8		$	5.0		$	4.6		$	5.1
Interest cost		19.4			17.9			15.4			4.5			3.6			3.2
Expected return on plan assets		(32.3	)		(26.4	)		(21.8	)		(3.9	)		(2.6	)		(2.4	)
Amortization of prior service cost		0.4			(1.4	)		0.3			0.1			—			—
Net periodic benefit cost	$	9.4		$	11.5		$	15.7		$	5.7		$	5.6		$	5.9

        The actuarial assumptions were as follows:

	Pension Benefits				Other Benefits
	Fiscal Year				Fiscal Year
	2002		2001		2002		2001
Weighted average assumptions
Discount rate	6.8	%	7.2	%	7.3	%	7.5	%
Expected return on plan assets	9.2	%	9.2	%	9.5	%	9.5	%
Rate of compensation increase	4.5	%	4.3	%	N/A		N/A
Healthcare cost trend rate	N/A		N/A		8.0	%	8.0	%

        Plan assets for the U.S. plan consist of a diversified portfolio of fixed income investments, debt and equity securities, and cash equivalents. Plan assets include investments in the Company's common stock of $56.1 and $56.6 at April 26, 2002 and April 27, 2001, respectively.

63

        Outside the U.S., the funding of pension plans is not a common practice in certain countries as funding provides no economic benefit. Consequently, the Company has certain non-U.S. plans that are unfunded. It is the Company's policy to fund retirement costs within the limits of allowable tax deductions.

        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 non-qualified plans. The net periodic cost of non-qualified pension plans was $5.3, $5.4, and $4.2 in fiscal 2002, 2001, and 2000, respectively. The unfunded accrued pension cost related to these non-qualified plans totaled $25.6 and $25.7 at April 26, 2002 and April 27, 2001, respectively.

        Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	One-Percentage- Point Increase		One-Percentage- Point Decrease
Effect on postretirement benefit cost	$	1.1	$	(0.9	)
Effect on postretirement benefit obligation		6.3		(5.2	)

Defined Contribution Plans    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. The Company match on the supplemental retirement plan for U.S. employees is made in the form of an annual allocation of Medtronic stock to the participants' ESOP account (see Note 8). Company contributions to the plans are based on employee contributions and Company performance. Expense under these plans was $10.2 in fiscal 2002, $3.8 in fiscal 2001, and $3.4 in fiscal 2000.

12.  Leases

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 then fair rental value.

        Future minimum payments under capitalized leases and non-cancelable operating leases at April 26, 2002 were:

	Capitalized Leases			Operating Leases
2003	$	1.2		$	34.5
2004		0.8			28.2
2005		0.4			21.7
2006		0.4			17.9
2007		0.3			13.1
2008 and thereafter		0.3			8.5
Total minimum lease payments	$	3.4		$	123.9
Less amounts representing interest		(0.4	)		N/A
Present value of net minimum lease payments	$	3.0			N/A

        Rent expense for all operating leases was $54.2, $51.8, and $49.8 in fiscal years 2002, 2001, and 2000, respectively.

64

13.  Commitments and Contingencies

The Company is 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. Related to these legal actions, the Company records a liability when a loss is known or considered probable and the amount can be reasonably estimated. If a loss is not probable or a probable loss cannot be reasonably estimated, a liability is not recorded. While it is not possible to predict the outcome of these actions, the Company believes that costs associated with them will not have a material adverse impact on the Company's financial position or liquidity, but may be material to the consolidated results of operations of any one period.

        In October 1997, Cordis Corporation (Cordis), a subsidiary of Johnson & Johnson, filed suit in federal court in the District Court of Delaware against Arterial Vascular Engineering, Inc. (AVE), which was acquired by the Company in January 1999. The suit alleged that AVE's modular stents infringe certain patents now owned by Cordis. Boston Scientific Corporation is also a defendant in this suit. In December 2000, a Delaware jury rendered a verdict that the previously marketed MicroStent® and GFX® stents infringe valid claims of two patents and awarded damages to Cordis totaling approximately $270.0. In March 2002, the Court entered an order in favor of AVE, deciding as a matter of law that AVE's MicroStent and GFX stents do not infringe the patents. Cordis has filed an appeal.

        In September 2000, Cordis filed an additional suit against AVE in the District Court of Delaware alleging that AVE's S670, S660 and S540™ stents infringe the patents asserted in the October 1997 Cordis case above. The Court has stayed proceedings in this suit until the appeals have been decided in the 1997 case above.

        In December 1997, Advanced Cardiovascular Systems, Inc. (ACS), a subsidiary of Guidant Corporation, sued AVE in federal court in the Northern District of California alleging that AVE's modular stents infringe certain patents held by ACS and is seeking injunctive relief and monetary damages. AVE denied infringement and in February 1998, AVE sued ACS in federal court in the District Court of Delaware alleging infringement of certain of its stent patents, for which AVE is seeking injunctive relief and monetary damages. The cases have been consolidated in Delaware and an order has been entered staying the proceedings until September 2002.

        In August 1999, more than 12 years after its business operations were abandoned, Stenticor, Inc. (Stenticor) and two of its shareholders filed suit in California state court in Santa Rosa alleging that certain of Stenticor's trade secrets were misappropriated by AVE and two individuals who were former officers and/or shareholders of Stenticor. The lawsuit alleges that Stenticor owned the modular stent design used in certain stents sold by AVE, and that the individual defendants misappropriated those trade secrets to Endovascular Support Systems, which ultimately transferred them to AVE. Plaintiffs have also asserted claims for breach of contract, breach of fiduciary duty, misrepresentation and unfair competition. Defendants have asserted a counterclaim for professional negligence, and AVE has agreed to indemnify the individual defendants except in certain circumstances. Trial is scheduled for August 2002.

        In June 2000, Medtronic filed suit in U.S. District Court in Minnesota against Guidant Corporation seeking a declaration that Medtronic's Jewel AF device does not infringe certain patents held by Guidant and/or that such patents were invalid. Thereafter, Guidant filed a counterclaim alleging that the Jewel AF and the Gem III AT infringe certain patents relating to atrial fibrillation. The case is in the discovery stage.

        In January 2001, DePuy/AcroMed, Inc., a subsidiary of Johnson & Johnson, Inc., filed suit in U.S. District Court in Massachusetts alleging that Medtronic Sofamor Danek, Inc. (MSD), a subsidiary of the Company, was infringing a patent relating to a design for a multiaxial pedicle screw. In

65

March 2002, DePuy/AcroMed supplemented its allegations, and now claims that MSD's M10, M8 and Vertex™ screws infringe the patent. The suit is in discovery stages.

        In May 2001, MSD filed a lawsuit against Dr. Gary Karlin Michelson and Karlin Technology, Inc. (together, KTI) in the U.S. District Court for the Western District of Tennessee. The suit seeks damages and injunctive relief against KTI for breach of purchase and license agreements relating to intellectual property in the field of threaded and non-threaded spinal interbody implants, fraud, breach of non-competition obligations and other claims. In October 2001, KTI filed several counterclaims against MSD as well as a third-party complaint against Sofamor Danek Holdings, Inc., a related entity, seeking damages and injunctive relief based on several claims, including breach of contract, infringement of several patents, fraud and unfair competition. The case is in discovery and trial is scheduled for March 2003.

        In June 2001, MiniMed and its directors were named in a putative class action lawsuit filed in the Superior Court of the State of California for the County of Los Angeles. The plaintiffs purport to represent a class of stockholders of MiniMed asserting claims in connection with the merger of MiniMed with the Company, alleging violation of fiduciary duties owed by MiniMed and its directors to the MiniMed stockholders. Among other things, the complaint sought preliminary and permanent injunctive relief to prevent completion of the merger. In August 2001, the Court denied the plaintiffs' request for injunctive relief to prevent completion of the merger.

        In December 2001, VidaMed and its directors were named in a putative class action suit in the Court of Chancery of the State of Delaware for the County of Newcastle. The plaintiffs purport to represent a class of shareholders of VidaMed asserting claims in connection with the merger of VidaMed and the Company, alleging that VidaMed and its directors violated various fiduciary duties to the VidaMed shareholders.

        The Company believes that it has meritorious defenses against the above claims and intends to vigorously contest them. Losses related to the litigation matters discussed above are not considered probable or cannot be reasonably estimated. Accordingly, no reserves have been recorded as of April 26, 2002.

        In March 2000, Boston Scientific Corporation (BSX) sued AVE in federal court in the Northern District of California alleging that the S670 rapid exchange perfusion stent delivery system infringes a patent held by Boston Scientific. As previously disclosed, arbitration hearings were held in April 2001 and, in July 2001, the arbitrators issued an award in favor of BSX, finding infringement, awarding approximately $169.0 in damages plus legal fees and costs to BSX, and allowing for an injunction against future sales in the U.S. of certain rapid exchange perfusion delivery systems. The Company recognized these and other related expenses during the fourth quarter of fiscal 2001 and first quarter of fiscal 2002. In September 2001, the U.S. District Court for the Northern District of California issued an order confirming the arbitration award, including imposition of the injunction. AVE has filed an appeal and a bond to stay enforcement of the money judgment until the appeal is resolved.

        In December 1999, ACS sued the Company and AVE in federal court in the Northern District Court of California alleging that the S670 rapid exchange perfusion stent delivery system infringes a patent held by ACS. ACS filed a demand for arbitration with the American Arbitration Association in Chicago simultaneously with the lawsuit. AVE filed an answer denying infringement based on its license to the patent for perfusion catheters as part of the assets acquired from C.R. Bard in 1998. The parties have arbitrated all claims against all of AVE's rapid exchange perfusion angioplasty balloons and stent delivery systems. In April 2002, the arbitrators found the rapid exchange perfusion devices to be unlicensed and awarded damages to ACS in the amount of $158.0 plus prejudgment interest. The U.S. District Court in the Northern District of California has confirmed the award. The Company has paid and satisfied the judgment. The Company had already discontinued sales of rapid exchange perfusion

66

devices in the U.S. in September 2001. The $158.0 in damages plus the prejudgment interest are reflected in fiscal 2002 consolidated financial results.

        In June 2000, Edwards LifeSciences, Inc. (Edwards) filed suit in the U.S. District Court in Delaware alleging infringement of certain patents directed to prosthetic aortic heart valves and a holder for annuloplasty rings. In March 2001, Edwards amended its complaint to add a patent relating to a holder device for prosthetic mitral heart valves that employ a suture loop guard. The parties have settled the litigation relating to the patents for aortic heart valves and a holder for annuloplasty rings. The settlement is reflected in consolidated fiscal 2002 results. Patent issues relating to the holder with suture loop guards were resolved in favor of the Company through binding arbitration in July 2002.

        The Medtronic Foundation (Foundation), funded entirely by the Company, was established to maintain good corporate citizenship in its communities. In fiscal 2001, the Company made a commitment to contribute $20.4 to the Foundation. In fiscal 2001, the Company partially funded this commitment through the donation of equity securities with a fair value of $8.1. In fiscal 2002, the Company funded the remainder of this commitment. Commitments to the Foundation are expensed when authorized.

        During fiscal year 2002, the Company entered into an investment agreement with a strategic partner in the field of spinal surgery. Pursuant to this agreement, the Company may be required to purchase up to 100% of the strategic partner's outstanding shares for cash consideration of approximately $153.0 if certain product-related milestones and various other favorable operational conditions are achieved. If these milestones and favorable conditions are achieved, the Company expects that they would most likely be met in fiscal years 2005 and 2006.

14.  Quarterly Financial Data

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Fiscal Year
	(unaudited and in millions, except per share data)
Net Sales
2002	$	1,455.7	$	1,571.2	$	1,592.4	$	1,791.5	$	6,410.8
2001		1,310.4		1,361.9		1,361.6		1,517.9		5,551.8
Gross Profit
2002		1,077.6		1,166.2		1,179.6		1,334.7		4,758.1
2001		993.8		1,010.7		1,016.2		1,120.5		4,141.2
Net Earnings
2002—Before charges*		342.0		349.2		364.0		422.0		1,477.2
—After charges*		301.5		66.7		314.9		300.9		984.0
2001—Before charges*		295.5		309.1		313.9		363.6		1,282.1
—After charges*		284.1		309.1		302.8		150.0		1,046.0
Diluted Earnings per Share
2002—Before charges*		0.28		0.29		0.30		0.34		1.21
—After charges*		0.25		0.05		0.26		0.25		0.80
2001—Before charges*		0.24		0.25		0.26		0.30		1.05
—After charges*		0.23		0.25		0.25		0.12		0.85

*

See Note 3 for detail regarding these charges.

15.  Segment and Geographic Information

During the third quarter of fiscal 2002, the Company announced an organizational change in the Neurological, Spinal, Diabetes and ENT operating segment to separate this operating segment into two operating segments; Neurological and Diabetes, and Spinal and ENT. As a result of dividing this

67

segment, the Company now 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 were as follows:

	Fiscal Year
	2002		2001		2000
Cardiac Rhythm Management	$	2,943.8	$	2,656.8	$	2,504.7
Neurological and Diabetes		1,024.5		644.8		568.4
Spinal and ENT		1,021.2		834.1		684.0
Vascular		902.3		928.6		792.5
Cardiac Surgery		519.0		487.5		466.7
	$	6,410.8	$	5,551.8	$	5,016.3

Geographic Information    Certain historical revenue and long-lived asset amounts by geography have been reclassified to reflect revised allocations:

	United States		Europe		Asia Pacific		Other Foreign		Elimi- nations			Consoli- dated
2002
Revenues from external customers	$	4,448.6	$	1,141.8	$	653.6	$	166.8	$	—		$	6,410.8
Intergeographic sales		713.5		450.4		—		11.4		(1,175.3	)		—
Total sales	$	5,162.1	$	1,592.2	$	653.6	$	178.2	$	(1,175.3	)	$	6,410.8
Long-lived assets	$	6,573.5	$	692.1	$	139.3	$	11.6	$	—		$	7,416.5
2001
Revenues from external customers	$	3,683.2	$	1,077.6	$	617.9	$	173.1	$	—		$	5,551.8
Intergeographic sales		572.5		347.1		0.1		45.3		(965.0	)		—
Total sales	$	4,255.7	$	1,424.7	$	618.0	$	218.4	$	(965.0	)	$	5,551.8
Long-lived assets	$	2,563.9	$	653.0	$	48.2	$	17.0	$	—		$	3,282.1
2000
Revenues from external customers	$	3,239.9	$	1,090.4	$	521.2	$	164.8	$	—		$	5,016.3
Intergeographic sales		535.2		261.4		0.1		17.4		(814.1	)		—
Total sales	$	3,775.1	$	1,351.8	$	521.3	$	182.2	$	(814.1	)	$	5,016.3
Long-lived assets	$	1,926.3	$	667.6	$	46.8	$	17.1	$	—		$	2,657.8

        Sales between geographic areas are made at prices that would approximate transfers to unaffiliated distributors. No single customer represents over 10% of the Company's consolidated sales in fiscal 2002, 2001, and 2000.

Note 16—Subsequent Events

On June 28, 2002, the Company announced that it had agreed to acquire Spinal Dynamics Corporation (SDC), a developer of an artificial cervical disc that is designed to maintain mobility of the cervical spine after surgery. This acquisition, valued at approximately $270.0, is expected to be completed during the second quarter of fiscal 2003. Prior to this acquisition, the Company had a minority investment in SDC which was accounted for under the cost method.

68

MEDTRONIC, INC.
SELECTED FINANCIAL DATA

		Fiscal Year
(in millions of dollars, except per share and employee data)
		2002			2001			2000			1999			1998
Operating Results for the Year:
Net sales		$	6,410.8		$	5,551.8		$	5,016.3		$	4,232.5		$	3,423.1
Cost of products sold			1,652.7			1,410.6			1,265.8			1,105.3			873.2
Gross margin percentage			74.2	%		74.6	%		74.8	%		73.9	%		74.5	%
Research and development expense			646.3			577.6			488.2			441.6			378.3
Selling, general and administrative expense			1,962.8			1,685.2			1,578.8			1,325.2			1,106.6
Special charges			290.8			338.8			13.8			374.2			192.4
Purchased in-process research and development			293.0			—			—			150.9			—
Other (income)/expense			34.4			64.4			70.6			33.2			(19.5	)
Interest (income)/expense			6.6			(74.2	)		(15.7	)		(23.0	)		(12.4	)
Earnings before income taxes			1,524.2			1,549.4			1,614.8			825.1			904.5
Provision for income taxes			540.2			503.4			530.6			358.4			316.8
Net earnings		$	984.0		$	1,046.0		$	1,084.2		$	466.7		$	587.7
Per share of common stock:
	Basic earnings per share	$	0.81		$	0.87		$	0.91		$	0.40		$	0.51
	Diluted earnings per share		0.80			0.85			0.89			0.39			0.50
	Cash dividends declared		0.23			0.20			0.16			0.13			0.11
Operating results for the year, excluding non-recurring charges:
Net earnings		$	1,477.2		$	1,282.1		$	1,095.7		$	905.5		$	724.6
Basic earnings per share			1.22			1.07			0.92			0.77			0.63
Diluted earnings per share			1.21			1.05			0.90			0.75			0.61
Financial Position at end of fiscal year:
Working capital		$	(496.9	)	$	2,397.5		$	2,041.9		$	1,456.3		$	1,408.0
Current ratio			0.9 : 1			2.8 : 1			3.1 : 1			2.4 : 1			2.8 : 1
Total assets			10,904.5			7,038.9			5,694.1			5,030.3			3,754.4
Long-term debt			9.5			13.3			14.9			25.3			62.0
Shareholders' equity			6,431.1			5,509.5			4,512.5			3,789.2			2,746.5
Additional Information:
Full-time employees at year-end			25,137			23,290			21,585			20,133			17,050
Full-time equivalent employees at year-end			27,731			26,050			24,985			22,593			18,538

Note: Results include the impact of $615.8, $347.2, $13.8, $554.1, and $205.3 pre-tax non-recurring charges taken during fiscal 2002, 2001, 2000, 1999, and 1998 (see Note 3).

69

MEDTRONIC, INC.
INVESTOR INFORMATION

Price Range of Medtronic Stock

Fiscal Qtr.	1st Qtr.		2nd Qtr.		3rd Qtr.		4th Qtr.
2002 High	$	48.59	$	48.38	$	51.24	$	49.46
2002 Low		41.76		38.99		39.71		43.81
2001 High		57.00		56.25		61.00		54.60
2001 Low		47.00		47.50		48.00		40.71

Prices are closing quotations. On July 5, 2002, there were approximately 48,500 holders of record of the Company's common stock. The regular quarterly cash dividend was 5.75 cents per share for fiscal 2002 and 5.00 cents per share for fiscal 2001.

70

EX-21

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 21

Medtronic, Inc. and subsidiaries

Company	Jurisdiction of Incorporation
Arterial Vascular Engineering Canada, Inc.	Canada
Arterial Vascular Engineering Italia, S.r.l	Italy
Arterial Vascular Engineering Netherlands Holding	Netherlands
Arterial Vascular Engineering UK Limited	United Kingdom
AVE Connaught	Ireland
AVE Galway Limited	Ireland
AVE Ireland Limited	Ireland
AVE Manufacturing, Inc.	California
AVECOR Cardiovascular Limited	United Kingdom
B.V. Medtronic FSC	Netherlands
Bakken Research Center B.V.	Netherlands
Cardiotron Medizintechnik G.m.b.H.	Germany
Dantec Elettronica S.r.l.	Italy
Home Medical Supply of Michigan, Inc.	Michigan
Home Medical Supply, Inc. (TN corp.)	Tennessee
India Biomedical Investment Limited	Minnesota
India Medtronic Private Limited	India
INFIN (International Finance) C.V.	Netherlands
Kobayashi Sofamor Danek K.K.	Japan
Med Rel, Inc.	Minnesota
Medical Education K.K.	Japan
Medical Research Group, Inc.	Delaware
Medtronic (Africa) (Proprietary) Limited	South Africa
Medtronic (Schweiz) A.G. / Medtronic (Suisse) S.A.	Switzerland
Medtronic (Shanghai) Ltd.	China
Medtronic (Thailand) Limited	Thailand
Medtronic A/S	Denmark
Medtronic Aktiebolag	Sweden
Medtronic Asia, Ltd.	Minnesota
Medtronic Australasia Pty. Limited	Australia
Medtronic AVE, Inc.	Delaware
Medtronic AVECOR Cardiovascular, Inc.	Minnesota
Medtronic B.V.	Netherlands
Medtronic Belgium S.A./N.V.	Belgium
Medtronic Bio-Medicus, Inc.	Minnesota
Medtronic China, Ltd.	Minnesota
Medtronic Comercial Ltda.	Brazil
Medtronic Czechia s.r.o.	Czech Republic
Medtronic do Brasil Ltda.	Brazil
Medtronic Dominicana, C. por A.	Dominican Republic
Medtronic Endonetics, Inc.	California
Medtronic Europe Capital Corp.	Cayman Islands
Medtronic Europe S.A.	Switzerland
Medtronic Europe S.A./N.V.	Belgium
Medtronic Finland OY	Finland

1

Medtronic Foundation	Minnesota
Medtronic France S.A.S.	France
Medtronic Functional Diagnostics Asia Limited	Hong Kong
Medtronic Functional Diagnostics SA/NV	Belgium
Medtronic Functional Diagnostics Zinetics, Inc.	Utah
Medtronic Functional Diagnostics, Inc.	New Jersey
Medtronic G.m.b.H.	Germany
Medtronic Hellas Medical Device Commercial S.A.	Greece
Medtronic Holding Switzerland GmbH	Switzerland
Medtronic Hungary Limited	Hungary
Medtronic Iberica S.A.	Spain
Medtronic International Technology, Inc.	Minnesota
Medtronic International, Ltd.	Delaware
Medtronic Interventional Vascular, Inc.	Massachusetts
Medtronic Ireland Holdings Company	Ireland
Medtronic Ireland Limited	Ireland
Medtronic Ireland Manufacturing Limited	Ireland
Medtronic Italia S.p.A.	Italy
Medtronic Japan Capital Corp.	Cayman Islands
Medtronic Japan Co., Ltd.	Japan
Medtronic Korea Co., Ltd.	Korea
Medtronic Latin America, Inc.	Minnesota
Medtronic Limited	United Kingdom
Medtronic Medical Appliance Technology and	China
Service (Shanghai) Ltd.
Medtronic Mediterranean SAL	Lebanon
Medtronic Mexico S. de R.L. de C.V.	Mexico
Medtronic Micro Interventional Systems, Inc.	Minnesota
Medtronic Micro Motion Sciences, Inc.	Delaware
Medtronic MiniMed, Inc.	Delaware
Medtronic NT Co., Ltd.	Japan
Medtronic Oesterreich G.m.b.H.	Austria
Medtronic of Canada Ltd.	Canada
Medtronic PercuSurge, Inc.	Delaware
Medtronic Physio-Control Corp.	Washington
Medtronic Physio-Control International, Inc.	Washington
Medtronic Physio-Control Limited	United Kingdom
Medtronic Physio-Control Manufacturing Corp.	Washington
Medtronic Physio-Control S.r.l.	Italy
Medtronic Poland Sp. zo.o	Poland
Medtronic Portugal — Comercio e Distribuiacao de	Portugal
Aparelhos Medicos Lda
Medtronic PS Medical, Inc.	California
Medtronic Puerto Rico Operations Co.	Cayman Islands
Medtronic Puerto Rico, Inc.	Minnesota
Medtronic S. de R.L. de C.V.	Mexico
Medtronic S.A.I.C.	Argentina
Medtronic Sofamor Danek (UK) Ltd.	United Kingdom

2

Medtronic Sofamor Danek Deggendorf GmbH	Germany
Medtronic Sofamor Danek France S.A.S.	France
Medtronic Sofamor Danek GmbH	Germany
Medtronic Sofamor Danek South Africa (Proprietary)	South Africa
Limited
Medtronic Sofamor Danek USA, Inc.	Tennessee
Medtronic Sofamor Danek, Inc.	Indiana
Medtronic Synectics Aktiebolag	Sweden
Medtronic Treasury International, Inc.	Minnesota
Medtronic Treasury Management, Inc.	Minnesota
Medtronic U.K. Capital Corp.	Cayman Islands
Medtronic USA, Inc.	Minnesota
Medtronic VidaMed, Inc.	Delaware
Medtronic Vingmed AS	Norway
Medtronic World Trade Corporation	Minnesota
Medtronic Xomed France S.A.S.	France
Medtronic Xomed U.K. Limited	United Kingdom
Medtronic Xomed, Inc.	Delaware
Medtronic, Inc.	Minnesota
Medtronic-Mediland (Taiwan) Ltd.	Taiwan
Medtronic-Vicare A/S	Denmark
MiniMed Distribution Corp.	Delaware
MiniMed Europe S.A./N.V.	Belgium
MiniMed Medical Supply, Inc.	Florida
MiniMed Medizinproduktevertriebs GmbH	Germany
MiniMed Nordic AB	Sweden
MiniMed Pharmacies, Inc.	Florida
MiniMed Pty Ltd.	Australia
MiniMed S.A.	France
PercuSurge, S.A.	France
QRS Limited	United Kingdom
SDGI Holdings, Inc.	Delaware
Sofamor Danek Asia Pacific Limited	Hong Kong
Sofamor Danek Australia Pty. Ltd.	Australia
Sofamor Danek China Limited	China
Sofamor Danek Holdings, Inc.	Delaware
Sofamor Danek Italia S.r.l.	Italy
Sofamor Danek Korea Co., Ltd.	Korea
Sofamor Danek Singapore PTE, Ltd.	Singapore
Sofamor S.N.C.	France
Surgical Navigation Technologies, Inc.	Delaware
Synectics Medical Limited	United Kingdom
Synectics Medical Poland Spolka Z.O.O. (Ltd.)	Poland
Vidamed Australia Pty. Limited	Australia
Vidamed International Limited	United Kingdom
Vitafin N.V.	Netherlands
Vitatron (Israel) Limited	Israel
Vitatron A.G.	Switzerland
Vitatron Beheersmaatschappij B.V.	Netherlands
Vitatron Belgium N.V.	Belgium

3

Vitatron Denmark A/S	Denmark
Vitatron G.m.b.H.	Austria
Vitatron G.m.b.H.	Germany
Vitatron Japan Co., Ltd.	Japan
Vitatron Medical B.V.	Netherlands
Vitatron Medical Espana S.A.	Spain
Vitatron Medical Italia S.r.l.	Italy
Vitatron N.V.	Netherlands
Vitatron Nederland B.V.	Netherlands
Vitatron S.A.R.L.	France
Vitatron Sweden Aktiebolag	Sweden
Vitatron U.K. Limited	United Kingdom
Warsaw Orthopedic, Inc.	Indiana
World Medical Manufacturing Corporation	Florida
Xomed Australia PTY Limited	Australia
Xomed France Holdings, SNC	France
X-Trode S.r.l.	Italy

4

QuickLinks

Medtronic, Inc. and subsidiaries

EX-24

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 24

POWER OF ATTORNEY

        Each of the undersigned directors of Medtronic, Inc., a Minnesota corporation, hereby constitutes and appoints each of ARTHUR D. COLLINS, JR. and DAVID J. SCOTT, 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 26, 2002, 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.

        The undersigned have set their hands this 27th day of June 2002.

/s/  MICHAEL R. BONSIGNORE Michael R. Bonsignore	/s/  SHIRLEY ANN JACKSON, PH.D. Shirley Ann Jackson, Ph.D.
/s/  WILLIAM R. BRODY, M.D., PH.D. William R. Brody, M.D., Ph.D.	/s/  DENISE M. O'LEARY Denise M. O'Leary
/s/  PAUL W. CHELLGREN Paul W. Chellgren	/s/  JEAN-PIERRE ROSSO Jean-Pierre Rosso
/s/  ARTHUR D. COLLINS, JR. Arthur D. Collins, Jr.	/s/  JACK W. SCHULER Jack W. Schuler
/s/  ANTONIO M. GOTTO, JR. M.D., D. PHIL. Antonio M. Gotto, Jr. M.D., D. Phil.	/s/  GORDON M. SPRENGER Gordon M. Sprenger
/s/  BERNADINE P. HEALY, M.D. Bernadine P. Healy, M.D.

QuickLinks

Exhibit 24

POWER OF ATTORNEY