Good day. At this time I would like to welcome everyone to the Medtronic Incorporated first quarter earnings release conference call. [Operator instructions.] I'll now turn the call over to Jeff Warren, vice president of investor relations. Please go ahead sir.

Good morning and welcome to Medtronic' first quarter conference call and webcast. During the next hour, Bill Hawkins, Medtronic chairman and chief executive officer, and Gary Ellis, chief financial officer, will provide comments on the results of our fiscal year 2011 first quarter, which ended July 30, 2010. After our prepared remarks, we will be happy to take your questions. A few logistical comments. Earlier this morning we issued a press release containing our financial statements and a revenue by business summary. You should also note that some of the statements made during this call may be considered forward-looking statements, and that actual results might differ materially from those projected in the forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC, and we do not undertake to update any forward-looking statement. In addition, the reconciliations of any non-GAAP financial measures are available on the Investors portion of the Medtronic website. Finally, the extra week of sales in the first quarter of fiscal year 2010 make it difficult to compare this quarter's results. While we cannot precisely calculate the effect of last year's extra week across each of our businesses, we believe that adjusting this quarter's revenue growth rates by reducing last year's revenue by approximately $200 million better reflects the adjusted operational growth. Thus, unless we say otherwise, all references to quarterly results increasing or decreasing are in comparison to the first quarter of fiscal year 2010, and revenue growth rates have been adjusted for the effect of the extra week last year and foreign currency. These adjustment details can be found in the reconciliation tables included with our earnings press release. And with that, I'm now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Bill Hawkins.

Good morning, and thank you Jeff. This morning we reported first quarter revenue of $3.8 billion, which represents a decline of 4% as reported, or a 2% increase after adjusting for the effect of foreign currency and the extra week last year. Q1 non-GAAP earnings of $868 million and diluted earnings per share of $0.80 increased 5% and 8% respectively. Q1 was a difficult quarter, in a challenging environment. It was complex for a variety of reasons, including the fact that we had an extra selling week last year and difficult sequential comparisons in the U.S. ICD market. Let me first address the challenges and the factors we were surprised by in the quarter. The biggest surprise was the magnitude of the market slowdown in our two largest businesses, CRDM and spinal, and how the slowdown escalated in late June through July. Although Gary will walk you through the details in a moment, I would like to begin with a few broad observations. We believe there were three primary factors contributing to our top line results. First, we saw a deceleration in volumes and procedures, driven both by decreased utilization and increased payer pushback. We believe this led to hospitals decreasing their level of bulk purchases in July across many of our businesses and geographies. In the macroeconomic environment of high unemployment and increasing patient deductibles also affected some of our markets, most notably in spine. In Europe, although we did not see a dramatic change from recent austerity measures, we did see some impact in certain markets. The second factor affecting our quarterly results was an increase in pricing pressure. As you know, ASP pressure is not a new issue, and we have appropriately planned for ASP declines. However, this quarter we saw pricing pressure manifest itself in a few new ways. In our spinal business, we saw revenues per-procedure decline, driven by changes in product mix. We also saw reduced reimbursement in places like Japan, where our zone and foreign reference pricing changes resulted in significant ASP declines on some of our products in CRDM, cardiovascular, and spinal. In other product lines, such as drug eluting stents, we have seen competitors being very aggressive with price around the globe. In addition, the influence of the economic buyer is increasing in large hospital systems. Next, let me comment on our own performance. Although many of our product lines performed well in line with our expectations, I was disappointed by the fact that we were not able to maintain some of our recent share gains in ICDs and that we lost share in drug eluting stents. However, I was pleased by the strong performance in diabetes and surgical technologies. We also continue to see solid double-digit growth in our emerging markets and in our emerging therapies. Given the recent trends and uncertainty of our markets, we are adjusting our expectations for the remainder of the year. At our analyst meeting in June, we based our revenue outlook of 5% to 8% on market growth in the range of 4% to 7%. It has been very difficult to forecast market growth during this turbulent time. Based on our analysis, we estimate our markets grew in the 3% to 4% range in Q1. Given this market growth, we believe it is prudent to remain conservative. Thus, we are adjusting our FY11 revenue outlook to 2% to 5% constant currency growth, which includes the negative impact of the extra week last year. And Gary will add more perspective to this in comments. This is a challenging time for all healthcare companies, but our one Medtronic strategy that we have been implementing over the past three years has prepared the company well for times like these. The actions that we have taken over the past few years, including driving operational efficiencies, reducing product costs, reallocating resources, and focusing on span of control and delayering the organization, have positioned us well to withstand periods of slower market growth. Looking forward, I am confident that we have the right strategy for the long term, and when the markets turn we will emerge even stronger. We are continuing to execute on our plans to deliver superior innovation for global growth. As we discussed at our analyst meeting in June, emerging markets will be an increasingly important driver of Medtronic's growth, and this quarter reaffirmed that strategy. Our strong global organization generated high-teens emerging market growth in the quarter, with particularly strong growth in India, Latin America, and China. In fact, I was in China two weeks ago for the opening of the Medtronic patient care center in Beijing, the first of its kind in providing a much-needed place where patients and their families can meet with medical technology experts and physicians to better understand the treatment options available. This is just one of the many examples where Medtronic is investing to expand patient access and drive long term growth in emerging markets. We expect that the emerging market mix of our overall revenue will triple in the next five years. Along with emerging markets, we are also focused on driving growth in our emerging technologies. Our global AF and transcatheter valve businesses posted strong double digit growth. Our DBS business also saw healthy growth, particularly in Europe, where Activa PC has been very well received. We were pleased to see the New England Journal of Medicine publish in June positive data on the largest randomized, controlled trial of Medtronic DBS for Parkinson's disease. In diabetes, our continuous glucose monitoring business had another quarter of strong growth. In June, I was in Orlando for the annual ADA meeting, where the positive results of the landmark Star 3 Trial were announced and subsequently published in the New England Journal of Medicine. Star 3 is the largest randomized, controlled trial of sensor-augmented pumping and it showed that Medtronic's sensor-augmented pumps helped patients achieve better glucose control than multiple daily injections. In addition to raising the bar on clinical evidence, we are continuing to advance innovation in medical technologies. We have one of the most robust pipelines in the history of the company. We can already see our new products making a difference in Europe, where our Protecta SmartShock family of ICDs, AF Solution catheters, Core Valve transcatheter valve, Integrity bare-metal stent, Restore sensors spinal cord stimulator, and [unintelligible] insulin pump all positively contributed to our quarterly results. We are also making solid progress on bringing these innovative technologies to the U.S. market. In CRDM, we are working diligently with the FDA to resolve our Mounds View warning letter. The FDA began their reinspection on July 21. While we are hopeful that we can resolve this before the end of the calendar year, our revenue outlook reflects a more conservative assumption. In spinal, we remain focused on refreshing our entire product portfolio. Solera, which is in its limited release phase, together with the recently launched TSRH 3Dx, are receiving very positive surgeon feedback. In biologics, we were encouraged by the positive FDA advisory panel recommendation for Amplify, and anticipate approval later this fiscal year. We continue to supplement our organic innovation and growth with tuck-in acquisitions that leverage our broad global footprint. Last week we announced our agreement to acquire Osteotech, which will enhance our strong portfolio of biologic products by adding best in class DBMs, consistent with our strategy of expanding our portfolio in the very attractive biologics market. We also closed on the acquisition of ATS Medical earlier this month, strengthening our structural heart product portfolio, especially in emerging markets. Finally, I would like to comment on the solid bottom line performance and the financial strength of the company. Despite having a difficult quarter from a revenue perspective, we were able to deliver significantly faster growth of the bottom line. The initiatives we have implemented over the past three years to take out over $600 million in product costs, was very apparent this quarter, where we protected our gross margins in the face of increased pricing pressure. We remain focused on returning value to our shareholders. In June, the board of directors increased our dividend by 10%, which was our 33rd consecutive year of increasing our dividend. We also repurchased over $500 million of our stock in the quarter. In these uncertain times, the strength of our diversified portfolio, both in terms of business and geography, is more important than ever. Although we have experienced a slowdown in the markets of our largest businesses, the investments we are making in emerging markets and emerging therapies will allow us to achieve market-leading performance over the long term. Looking ahead, we expect to continue to see demand for products that deliver not just clinical efficacy but overall value to the health care system. We are leveraging our world class capabilities to generate the appropriate clinical and economic evidence for our therapies. In this new era of health care reform, where the economic buyer has a growing influence, our size, scale, and broad portfolio, position us well to succeed. While I'm not happy about our top line results this quarter, I am confident that the growth strategies that we are pursuing will succeed over the long run. I will now turn the call over to Gary, who will take you through a more detailed look at our quarterly results.

Thanks Bill. First quarter revenue of $3.773 billion increased 2% after adjusting for a $21 million unfavorable effect of foreign currency and the extra week last year. Breaking this out geographically, revenue in the U.S. was $2.229 billion, down 2%, while sales outside the U.S. were $1.544 billion, increasing 6%. Q1 international revenue growth included greater China growth of 24%, growth in Latin America of 17%, Europe and Central Asia grew 7%, and Japan declined 5%. After adjusting for IPR&D and certain acquisition related costs and noncash charge to interest expense due to the accounting rule changes governing convertible debt, first quarter earnings and diluted earnings per share on a non-GAAP basis were $868 million and $0.80 respectively. GAAP earnings and diluted earnings per share were $830 million and $0.76 respectively. I will now move on to a more detailed analysis of our results, starting with our cardiac and vascular group. Cardiac and vascular group revenue of $2.027 billion grew 1%. Growth was driven by strong international results from our AF solutions, structural heart, and endovascular businesses, as well as our recent Invatec acquisition. This was offset by weaker results in CRDM implantables and Physio-Control. CRDM revenue of $1.226 billion declined 3%. We estimate the worldwide CRDM market growth rate slowed by approximately 300 basis points sequentially in Q1. Based on these current market conditions, we believe it is more reasonable to model flat FY11 revenue growth for our CRDM business, assuming CRDM market growth for the remainder of our fiscal year of 0% to 3%, and includes the negative impact of our extra week last year. While we are hopeful that we can resolve our Mounds View warning letter before the end of the calendar year, this revenue outlook reflects a more conservative assumption. Worldwide ICB revenue of $722 million declined 1%. Our U.S. ICB business declined 3% and the U.S. ICB market declined in the low single digits. Pricing pressure increased to the low- to mid -single digit range due to the ongoing mix shift to replacements, as well as our lack of new products as we await Protecta. From a share perspective, although we lost share sequentially, our share is consistent with where it was prior to the market disruption. This quarter, hospitals were less willing to place bulk orders than in past quarters, affecting market sales. Our international ICB business grew 4% and the international ICB market grew in the upper single digits. Our performance can be attributed to our ongoing challenges in Japan, where we have lost share due to a combination of legacy field quality issues and the lack of a smaller defibrillation lead in smaller DF-4 connectors. We anticipate we will be able to gain back share when we launch Protecta and additional left heart leads in the second half of the fiscal year. In Europe we saw the market improve sequentially, with growth back in the mid- to high-single digits. In addition, we held our share and saw stabilized pricing sequentially, driven by the launch of Protecta, with its price uplift. Physicians showed great enthusiasm for Protecta's proprietary SmartShock technology, which dramatically reduces the incidents of inappropriate shocks. Pacing revenue of $473 million declined 7%, while the market declined in the mid-single digits. Our U.S. pacing business declined 8%, and the market declined in the mid-single digits. ASP trends remain consistent with low- to mid-single digit declines, and our share has remained stable for the past four quarters. We are focused on bringing the Revo MRI SureScan pacemaker to the U.S. market, which we believe will improve pricing and allow us to recapture share. Our international pacing business declined 6%, and for the first time in recent history the market declined in the mid-single digits. The international market decline was driven by Japan, where procedures were down in the negative mid-single digits, in part due to replacements pulled ahead in the prior year due to the Kappa Sigma field issue. ASPs experienced low-teens declines driven by R-Zone and foreign reference pricing adjustments. Our Japan pacing share stabilized sequentially as we launched the Advisa DR. In Europe, the pacing market saw some acceleration into the low-single digits. However, we lost share in Europe as our pricing declines were in the mid-single digits. We believe that we will see some improvements in our pricing and share following the broader launch in Q2 of our Advisa and Ensura MRI SureScan pacing systems into the remainder of the European market, including Germany and France. Our Arctic Front and Ablation Frontiers catheters continue to perform well in Europe, and our AF Solutions team continues to seek clarity from the FDA on whether they will take Arctic Front to panel. At this point, we believe that U.S. approval of Arctic Front could occur in the second half of this fiscal year, and approval for our Ablation Frontiers catheter could occur in calendar year 2011. Cardiovascular revenue of $717 million grew 10%, with double-digit growth across all three businesses. Coronary and peripheral revenue of $372 million grew 11% and it included $35 million of revenue from our Invatec acquisition. The Invatec integration activities are on track, and we are already realizing sales synergies. Drug-eluting stent revenue in the quarter was $167 million, including $49 million in the U.S. and $18 million in Japan. The DES market continued to decline around the world, driven by aggressive price competition. Resolute now represents 70% of our international DES mix, driven in part by the favorable results of the RESOLUTE All Comers trial presented at EuroPCR and published in the New England Journal of Medicine, which showed noninferiority to Xience. In bare metal stents, we have gained nearly 300 basis points of share on the strength of our Integrity BMS. By the end of the calendar year, we plan to launch the Integrity BMS in the U.S. and the Resolute Integrity drug-eluting stent internationally. Structural heart revenue of $224 million increased 10%, driven by the strength of CoreValve. The TCV market continues to grow faster than our expectations, and we continue to command half the market. More importantly, we continue to have a leading share position in the transfemoral segment, the preferred implanting method. Our discussions with the FDA on CoreValve are going well, and we have now received additional clarity from the FDA on pre-clinical device testing requirements. Based on the FDA’s recent input, we anticipate having an approved IDE with first implants early this fall. At this point, we have completed site selections, started site education, and are ready to drive rapid enrollment as soon as the IDE is approved. Our acquisition of ATS Medical closed on August 12th, and integration activities are underway. Endovascular revenue of $121 million grew 10%, with strong double-digit growth in international markets, driven by the continued adoption of Endurant abdominal and Valiant Captivia thoracic stent grafts. Endovascular experienced a softer quarter in the U.S., as macro-economic conditions have led to slowing growth of procedures. Physio-Control revenue of $84 million declined 7%, which was significantly below our expectations for the quarter. The majority of the shortfall was the result of a supplier constraint issue that caused a significant backlog of orders for the LIFEPAK 15 and LIFEPAK 20 products. We have now resolved this issue and expect to ship the backordered product this quarter. Turning to our restorative therapies group, revenue of $1.746 billion grew 2%. Growth was driven by strong performances in diabetes and surgical technologies, offset by weaker results in spinal. Spinal revenue of $829 million declined 5%. We estimate the U.S. spine market growth slowed by approximately 400 basis points sequentially in Q1, and is now growing in the low- to mid-single digits. The decline accelerated as we moved through the quarter, and was driven equally by market declines in both procedures and price mix. Current macroeconomic conditions are clearly having an effect, with patients postponing elective procedures due to high co-pays and expired benefits. Payers are also implementing new fusion procedure guidelines, which are lengthening the time required to get pre-approvals. We continue to work on turning our spine businesses around. Netting out the effect of the market slowdown in Q1, we performed about where we expected relative to the market as we continue to progress toward returning the business to market growth by the end of FY11. However, based on current market conditions, we believe that it is more reasonable to model flat FY11 revenue growth for our spinal business, which includes the negative impact of the extra week last year and assumes spine market growth for the remainder of our fiscal year of 3% to 4%. Core spinal revenue of $622 million declined 6%, with core spinal, core metal constructs declining 1%. Despite market softness, we continue to see pockets of improving growth in core spinal. Solera, our next-generation posterior fixation system, remains in its preliminary limited release period and feedback from multiple geographies continues to be positive. We currently have approximately 100 sets in the field and expect to more than triple this by the end of Q3 when we begin the broader global launch. Our recently launched TSRH 3Dx system is also performing well, growing 18% sequentially. Clydesdale, our inter-body implant for our DLIF procedure, continues to have strong unit growth of over 40% as we continue to penetrate into the direct lateral segment. BKP revenue declined 16% as we faced the last quarter of tough comparisons following last year’s New England Journal of Medicine article on vertebroplasty. We continue to make progress in differentiating balloon kyphoplasty, as BKP procedures were flat sequentially while vertebroplasty procedures were down in the high single digits. This quarter, we introduced our new ActivOs 10 cement, and are anticipating several other product launches this fiscal year, including the Xpander II balloon, Express curette, and Xpede cement as we further strengthen our BKP system, expanding our leadership in the face of competition. Biologics revenue of $207 million declined 1%. InFuse had stable unit volume, but sales continued to be affected by a mix shift to smaller kits. Dental sales of InFuse were up approximately 20%. We also continue to see success in our other biologics segments. We gained share in DBMs with Progenix, and are seeing price increases in ceramics with increasing use of our Mastergraft strips. We look forward to the addition of Osteotech’s products to further bolster our other biologics offering. Neuromodulation revenue of $370 million increased 5%, or 6% after adjusting for the divestiture of our Bravo pH monitoring business. Results were driven by double-digit growth in DBS and uro gastro. We were also pleased to see our pain stim share stabilize, as we had better sales execution this quarter. The U.S. pain stim market rebounded somewhat in the quarter, with mid-single digit growth driven by mid- to high-single digit procedure growth and ASP declines consistent with prior quarters. The market remains below its historical levels, due in part to increasing payer challenges. In Europe, our recently launched RestoreSensor neurostimulator is exceeding our expectations. The physician and patient response has been very positive. We continue to work on bringing RestoreSensor to the U.S., and development continues on Activa SC for DBS and the Ascenda catheter for our implantable drug pumps. We remain cautiously optimistic that our InterStim therapy for bowel control will be approved later this fiscal year, pending resolution of our neuro-related FDA warning letter. Diabetes revenue of $312 million grew 12%, driven by a solid quarter in international, which posted strong mid-teens growth. Our recently launched Veo insulin pump had a great quarter in Europe and Asia, where pumps grew nearly 30%. Our market-leading CGM business continued a solid track record, with strong global growth above 20%, including high-teens growth in the U.S. We also launched the iPro 2 professional CGM in the quarter in nearly 50 countries and intend to launch it in the U.S. later this year. Looking ahead, we plan on launching our Nex sensor in the U.S. later in FY11, and the Enlite sensor early in FY12. Surgical technologies revenue of $235 million grew 9%, or 11% after adjusting for the fiscal year 2010 divestiture of our ophthalmic business. The strong growth in the quarter was driven by growth in the navigation, monitoring, and image-guided surgery lines, as the business started to see a thawing of U.S. hospital capital budgets and customers upgraded to our new technology. Turning to the rest of the income statement, the gross profit margin was 76.3%. Gross margin in the first quarter of last year was 75.6%. FX positively affected gross margins by 20 basis points. We continue to see the benefits of the broad portfolio of initiatives we have underway to reduce our cost of goods sold by over $1 billion by fiscal year 2012. We continue to expect gross margins in the range of 75.5 to 76% for fiscal 2011. First quarter R&D spending of $370 million was 9.8% of revenue. We remain committed to investing in new technologies to drive future growth, and expect R&D spending of approximately 9.5% for fiscal 2011. First quarter SG&A expenditures of $1.334 billion represented 35.4% of sales, compared to 34.8% of sales in the first quarter last year. Foreign exchange had a negligible effect, but our Invatec acquisition had a 15 basis point negative effect on SG&A as a percent of sales. SG&A as a percent of sales clearly came in higher than we expected, due to the revenue shortfall that occurred late in the quarter. Going forward, we plan to adjust spending and continue to expect FY11 SG&A to be in the range of 34%, plus or minus 25 basis points. This reflects our continued focus on initiatives to drive leverage, partially offset by the effect of acquisitions and the deliberate investments we are making in FY11 to support new product launches and drive growth. Net other expense for the quarter was $47 million, compared to $96 million in the prior year. The year over year decrease is primarily a result of higher gains from our hedging programs, which were $54 million during the quarter, compared to $34 million in gains in the comparable period last year. As you know, we hedge our operating results to reduce volatility in our earnings. Included in the Q1 results was an increase in licensing payments we received in our coronary and peripheral business. Looking ahead, based on current FX rates, we anticipate net other expense will be in the range of $80 million to $100 million in Q2. For fiscal 2011, we expect net other expense of $300 million to $340 million, which includes hedging gains in the range of $175 million to $200 million, based on current exchange rates. Net interest expense for the quarter was $74 million. Excluding the $43 million non-cash charge to interest expense, due to the accounting rules governing convertible debt, net interest expense on a non-GAAP basis was $31 million. As of July 30th, 2010, we had approximately $9 billion in cash and cash investments. We also have $2.6 billion of debt repayment occurring later this fiscal year. Looking ahead, we expect our cash to continue to increase. However, low interest rates will negatively affect our return on this cash. For fiscal 2011, we anticipate net interest expense in the range of $110 million to $120 million, which includes the carrying cost of prefunding existing debt in FY10. In Q1, we generated approximately $700 million in free cash flow, defined as operating cash flow minus capital expenditures. Historically, free cash flow is lower in Q1 due to bonus and incentive payments. Going forward, we would expect free cash flow in excess of $1 billion per quarter. Let’s now turn to our tax rate. Our effective tax rate as reported was 20.2%, and our non-GAAP nominal tax rate was 20.3%. Included in our tax rate for the quarter is a $10 million net benefit associated with foreign dividend distributions, finalization of certain tax returns, and changes to uncertain tax position reserves. We expect our fiscal year 2011 tax rate, including the potential U.S. R&D tax credit, to be in the range of 20.5% to 21.25%. First quarter weighted average shares outstanding, on a diluted basis, were 1.09 billion shares. During the first quarter, we repurchased $640 million of our common stock. As of July 30th, 2010, we had remaining capacity to repurchase approximately 35 million shares under our board authorized stock repurchase plan. For fiscal 2011, we anticipate diluted weighted average shares outstanding of 1.87 billion shares. As before, we have attached an income statement, balance sheet, and cash flow statement to this quarter's press release, and I direct your attention to these statements for additional financial details. Let me conclude by providing an update to our 2011 fiscal year revenue outlook and earnings per share guidance. As Bill mentioned earlier, we are adjusting our revenue outlook given the recent slowdown and uncertainty of our markets. Since our analyst meeting in June, we believe our overall markets have slowed by 200 to 300 basis points. Therefore, we believe it is prudent to adjust full fiscal year 2011 constant currency revenue growth to 2% to 5%. This outlook takes into account our Q1 results, which includes the negative impact of extra week last year, and is based on our estimate that our markets continuing to grow in the 3% to 4% range. While we can’t predict the effect of currency movements, to give you a sense of the potential FX impact if exchange rates were to remain similar to yesterday for the remainder of the year, then our FY11 revenue would be negatively affected by approximately $200 million to $300 million, including a negative $70 million to $90 million effect in Q2. It is also worth pointing out that that we would expect the largest negative FX impact to occur in Q3. Turning to guidance on the bottom line, based on the adjustment we are making to our top line revenue outlook, we are adjusting our earnings per share guidance for fiscal 2011 to a range of $3.40 to $3.48 per share, which includes approximately $0.05 of dilution from the acquisitions of Invatec and ATS Medical, and excluding the impact of acquisition dilution as well as the estimated $0.05 benefit of the extra week in FY10, FY11 EPS growth is expected to be in the range of 9% to 11%. While we are hopeful that we will resolve our Mounds View warning letter and are focused on our spinal segment turn around strategies, until we begin to see the positive impact of these actions reflected in our financial results, we would feel more comfortable modeling earnings per share at the lower end of our guidance range. As in the past, my comments on guidance do not include any unusual charges or gains that might occur during the fiscal year, nor do they include the effect of the non-cash charge to interest expense due to the accounting rules governing convertible debt. Bill and I would now like to open things up for Q&A. In the interest of getting to as many questions as possible, we respectfully request that each caller limit themselves to one question with one follow up. Operator, first question please.

[Operator instructions.] Your first question comes from the line of Matthew Dodd of Citigroup.

Bill, I don't want to get too specific on July, but if you talk about bulking, I've always assumed bulking was predominantly a pacer and ICD issue. What other businesses can be impacted by the quarter end and broadly, do you have any idea how much of an impact that was?

Principally, it is the CRDM. It's a bit in the neuro business and a little bit even in the vascular business, but it's primarily in the CRDM. And there are a couple factors here. One, it was the slowdown in the market. The run rate slowed down. So that had an impact on hospitals taking more inventory when they were burning off inventory, and I think it's also just their preservation of capital.

Just overall, it's tough to estimate exactly where that's at, but our estimate is somewhere in that $20 million to $30 million range is what we've missed, based on historical levels, and that's all we can tell is based on historical levels, we think there's about $20 million to $30 million that was missed there at the end of the quarter.

And then one more quick question. On Mounds View, Bill, it sounds like FDA is back. The calendar end - how conservative is that just on what you knew before, or is the FDA reinspection suggesting to you it might take a little longer?

It's just so hard to predict what's going to happen with the FDA. The inspection has been underway. No additional concerns have come forth to date, so we've worked really hard to really address a number of issues and really be in a good position to move forward, but we're just hesitant to make any predictions based on the experience we've had with the FDA.

They're still in. The FDA is still in, so they haven't even completed their investigation at this point in time, so until they do we're just trying to be conservative.

Your next question comes from the line of Mike Weinstein of JP Morgan.

Bill, let me just start with the spine market. We've seen this dramatic deceleration in spine market growth over the last several quarters. How do you see a pathway to spine market growth, let alone Medtronic growth, being accelerated from here? How does the market recover if we're now in this new era of pricing pressure and lower utilization?

Well, first, Mike, I think on the demand side, when you look at the prevalence of low back pain, it's the second most common reason people go to see a physician, and as you know the number of people who are actually getting instrumented through fusions or having a surgical operation is still a very small percent. And I think as the technology continues to evolve, as we advance more minimally invasive approaches, whether it's the direct lateral approach or whether using some of the navigation technologies that we have, I believe we're going to be able to continue to grow the overall market. For Medtronic, we've been very transparent about some rebuilding that we've had underway, and the investments that we've been making, and a number of new products beginning with Solera and the TSRH 3Dx and Vertex Select, there's just whole series of products which we believe are targeted right at where the market is going, so we're optimistic over the long run, but we're in a very - a period now that it's a bit uncertain.

Let me just ask, on the CRM side, [do you adjust for] maybe some bulk purchasing that hit you guys harder than the companies that reported in June? It does look like you've given back a lot of the share that you gained as a result of Boston's shutdown. Why do you think that is? Why is it looking like you've given back most of that market share?

It's always hard looking at quarter to quarter to make really any conclusive comments, but one of the things about this business, as we know there is kind of good news bad news. There is a lot of traction, and stickiness in the overall marketplaces and we'll see at the end of the year overall what happens. We know there are many accounts where we have gained share. So we're ourselves trying to really unravel what happened in this quarter. So that's really about as much I know at this point.

I think the other key would be, on that Mike, obviously the introduction of the new products. As you know in this marketplace as Bill said share is very sticky and we expect that we would clearly get back - when Boston was back in the market they would gain back a lot of the share. They gained it back faster than we expected, but the reality is it's all tied to having new products, and that's why important for us to get the Protecta, and some of our left heart leads launched here in the U.S., which where we seem to - the positive results of those products internationally - we expect to have the same thing in the U.S.

Gary, just to clarify on the guidance, the top line 2% to 5%, that includes the contribution from Osteotech, ATS and Invatec, and then the tax guidance, I think you said you're now assuming the R&D tax credit is extended and previously you were not. Correct?

Yes, with respect to revenue it does not include Osteotech. The guidance that we're giving includes obviously the ATS, Invatec. Osteotech we have not put in our numbers yet because obviously we don't know when it's going to close for sure and so we've held that out of the guidance at this point. But it does include Invatec and ATS Medical as you mentioned, and as we have highlighted before, for the full year that pretty much offsets the extra week benefits. The reality is that 2% to 5% for the full year is kind of what we’re expecting and the benefit from the acquisitions are kind of offsetting the negative impact that we had from the extra week in the prior year. But it does include ATS and Invatec. As far as the tax rate goes, yes it includes the R&D tax credit. We're assuming that that will, based on discussions we're hearing from Congress, we think that will get reinstated later this calendar year, so we have put that into our numbers and that's reflected in the tax rate I provided.

Your next question comes from the line of David Lewis of Morgan Stanley.

Bill or Gary, you made a commentary about 200 to 300 basis points of end-market weakness. I wondered if you could talk about, in your mind, what percent of that is volume and what percent is price?

I would say it's about half and half. Our best estimates would suggest that the procedure volumes and even mix in some cases in our spine business, it's the revenue per procedure as hospitals or physicians are doing rather than two-level fusions, maybe one-level fusion and they're looking at the kinds of materials they're using going from maybe PEEK materials to titanium materials, so there's a factor there. But again, it's really difficult to be very precise but our estimate is it's half volume and half price.

Okay Bill, and then I was going to talk about mix here and I think you covered spine and what's going on there, so just as it relates to the ICD mix, would you say in this environment until you get new products on the market you're more willing to use price to hold share and accounts as other providers have a more significant mix tailwind currently?

No. We've never been a company to lead with price. Even today, our product portfolio, we believe stands very strong against anybody's technologies out there and we're clearly excited about Protecta even on the next level with the unique features around SmartShock technology. But today we have a very competitive product line.

And then just last one, Gary, and I'll jump back in queue. Just on margin strength I can appreciate on the SG&A there's some changes you can make in spending allocation throughout the back half of the year to manage the earnings line, but specifically the gross margin in the quarter was very strong. What are the factors underlying that? Were they manufacturing and currency driven? And what gives you the confidence if you have some of these negative mix pressures throughout the back half of the year that you can maintain those GMs?

Well basically, with respect to the cost of goods sold, we were pleased by what we saw there and there's a slight FX benefit as I mentioned in my comments, of about 20 basis points. But that's a relatively minor benefit from the currency side. So overall we do believe we can maintain at 75.5% to 76% ranges as we said for the full year, which is a little bit down from Q1, but basically kind of right in line with that. The reality is the cost initiatives - and we were just trying now to react to the marketplace. You're absolutely right. We would not be able to maintain our margins, and we would see our margins falling, with the pricing pressures we are seeing more in some of the marketplaces we're in. But obviously as you know there are initiatives we started almost three years ago to take product cost out, so that is occurring. That's happening. It's already in place and the product cost is coming out and is already baked into our numbers. It's not an initiative we have to start to try to figure out how to reduce cost. And so I feel pretty confident, even with the mix. If you think about it, with the mix that we've talked about here in this quarter with two of our larger businesses, and maybe even higher margin businesses, CRDM and spinal are having a difficult quarter, the reality is we still were able to maintain margin. So I'm pretty confident we get these new products launched, get some of the price uplifts we would expect from that, that yes, we'll be able to maintain the margins kind of in that 76% range.

Your next question comes from the line of Bob Hopkins of Bank of America Merrill Lynch. Robert Hopkins - Bank of America Merrill Lynch So just to start, I was wondering if you could drill down a little bit more on ICDs and pacemakers. You made some comments and I'm sorry if I missed some of the specifics, but what would you say that today, given all of the moving parts and the extra week, and on a normalized basis, you think today the ICD market is growing globally on a constant currency basis and the pacemaker market is growing today on a constant currency basis?

The ICD market - in the U.S. we actually see the initial implants being flat to negative, and outside the U.S. it's to the mid-single digits. So the overall market is in that sort of 0% to 3% range. And then on the -

And that's obviously with volume being higher than that with some price decline both in a few - low-single digits in ICDs and mid-single digits we've talked about in pacing. So volume's a little bit higher than that.

Worldwide the pacing is - the market was a bit softer. It's down to the low-, mid-single digits in that roughly 5% constant currency range.

Okay, and then back to David's question on gross margins. Obviously you guys have done a very good job taking costs out and maintaining margins in a tough environment, but if we think about a little bit longer term, are there you could point to directly that would give you confidence that the environment, from a pricing or utilization perspective might change? And if they don't, shouldn’t we expect some gross margin pressure, just given the realities of the world today?

Let me kind of take that first Bob, and then Bill can add onto it. Overall, as we've talked about many times, and we've even seen in our results this quarter, innovation is the key to making sure we can maintain our pricing levels, and so, as we've even seen with some of the new products launched, obviously even outside the U.S., whether it's Protecta, Solera, as we launch that product, etc. even in the U.S., we are seeing the price uplift. That's the key for us, is providing value in the products, and if we can provide value, new value, in the products, we think we can - will be able to maintain our pricing relatively consistently. Doesn't mean it's not going to be coming down. We will continue to see prices decline, but we don't think they're necessarily going to accelerate. In fact we would assume that if we can get these new products launched that we'll be able to maybe even mitigate a little bit what we've seen here recently in the marketplace. That being said, we have planned, and will continue to plan, on the fact that there will continue to be pricing pressure in our markets and we're going to continue to take product costs down. We've talked about the initiative to reduce the billion dollars in product costs by FY12. We're well on our way on that, so we still have two more years under that program, to get that down, and we will continue those efforts. We still think there's opportunities to continue to reduce our product costs, to make sure that we can, to the extent possible, maintain our overall gross margins in that 75% to 76% range. So the key is innovation and value provided in the products, and then making sure that we take the product cost out to the extent we can to maybe maintain those margins.

And then just one quick last one on the upcoming next three quarters of the year. You started out the year with minus four percent growth. Obviously you're going to have a little bit more. You're going to have some acquisitions that help you over the next three quarters. But it looks like you're assuming an uptick either in market share or market growth rates in the back half of the year given that you guided at 2% to 5% and you started out minus four. So could you just talk about how much of that acceleration that you're expecting in growth over the next three quarters is kind of an assumption that the market will get better, or that you'll have share gains?

Overall, we're assuming the market continues to be in that 3% to 4% range, and if you do the math on the numbers that we would say for the next three quarters, it would basically kind of have you in that 3.5% to 6% growth for overall. So that would assume at the lower end of that we're basically just growing where the market is, at the higher end of the range you would assume some share uplifts. The biggest thing you have to remember is in Q1 we had some of the toughest comparisons, for example on Kyphon, that negative drag will go away. But no, we do expect that we're going to see some uplift from some of the new products being launched but the majority of what we're saying is - we're not assuming our markets improve. We're assuming the markets are in that 3% to 4% range. We'll be at that level and [unintelligible] slight uplift depending on when some of these new products get launched.

Your next question comes from the line of David Roman of Goldman Sachs.

Just a quick follow up here on the end-user markets. Gary, it hasn't been long since the analyst meeting in June and it's a pretty dramatic cut to the estimates on end-user market growth and it sounds like some of the factors you're citing are soon to be transient. Can you maybe walk us how we think about end-user market growth beyond 2011? Is 2% to 5% the new norm we should think of compared to the 4% to 7% you had provided in June? Or is there something that you're seeing that gives you confidence to get back toward the 4% to 7% level over time?

It's really hard to forecast in this kind of a turbulent time what the long term sustainable market growth rate is, but our view is particularly in the segments we're in, and with the prevalence of chronic disease and the aging of the population, just the demographic itself would suggest that the growth is higher than what we're seeing in the near term. But there's just a lot of factors here at play, and as Gary said, for us it's really all about innovation. It's our ability to bring forth technologies that clearly demonstrate both clinical and economic value, and then you multiply that times the demographics. We think there is upside to what we have put out there as near term market growth, but until we see things sort of change a bit, it's prudent for us to be conservative.

And then on mix, Bill, in response to one of the other questions you referenced a move from PEEK to titanium. As you look across your businesses, how hard is it to get mix right now? Clearly you're highlighting new products as an important driver, but it looks as though, if you go across all the companies who have reported earnings so far, the demand from hospitals to pay premiums for new products is getting harder. Can you just talk about how you're confronting that, what type of data you're generating and what the cost of that would be on a go-forward basis?

One thing that we did mention, but there is a trend, kind of a mega trend, with hospitals purchasing more and more physician practices and working to get physicians to recognize the cost of the procedures and I think that's playing a bit into what we're saying, say even in the spine business, as they're looking at the cost per procedure and looking at how they can reduce the overall cost per procedure without compromising patient care. And so there is, I believe, effort along those lines to try to look at the total cost. And so that's in play, and again, that puts the onus back on us to be able to clearly demonstrate that when we bring out PEEK materials that there is very clear evidence to support the clinical benefit of using a different material versus, say, a titanium.

There's no question, as Bill said, that it's going to be an increased focus on economic evidence and clinical evidence to support these new technologies. We've seen that over the last year or two and I think that's going to continue to be of increasing importance as far as getting new technologies really accepted in the marketplace and adopted in the marketplace.

And that's where we're investing. We're investing a lot in clinical evidence. The number of clinical studies we have across the enterprise, I think, is unparalleled in the industry.

And Bill, lastly, in your estimation is that reference of the beginning of a megatrend on hospitals purchasing more practices, are we - early stages, middle stages, late stages of that progression?

I think we're in the early to mid phases. I was with a very large hospital chain recently for my annual visit and the comment was made that this year versus last year they've purchased three times as many as they had before, in terms of clinical practices. So I think it's a trend that's happening.

Your next question comes from the line of Rick Wise of Leerink Swann.

Good morning guys, it's Danielle in for Rick. Just to follow up quickly on Bob's question as for the quarterly flow for the rest of the year and how it plays out, specifically for the second quarter. How do we think about second quarter top and bottom line growth specifically given the accelerated slowdown that you saw in the last half of the first quarter? It seems like there's even more market procedure slowdown and incremental pricing pressures. And following up on that, is fiscal '10 likely to be more back end loaded than you had expected previously? And then I have one follow up after that.

I would say for Q2 that we would want you to be a little bit lower and towards the bottom lower end of that range. Again, the 2% to 5% that we've talked about, we would want you to be kind of going towards the lower end of that range until some of the new products launch, because obviously as we've talked about until we see actually where the markets are at. So if anything I would say Q2 a little bit slower and then Q3 and Q4 would be a little bit more than that. But there's not a dramatic change. I'd be a little softer in Q2.

Okay, great. That's really helpful. And then my one follow up. You talked about investing in emerging therapies and emerging markets to position the company for longer term growth. How quickly can these investments, some of which you've already made, occur and start to have a positive impact on sales growth? And in general, specifically as it relates to emerging markets, should we think of that as carrying lower growth margins, and then how does that play into the longer term gross margin outlook?

In both cases, both emerging therapies and emerging markets, we've been making investments for some time and we're beginning to see the fruits of those investments come to bear. When you look at CoreValve and you look at what's happening with the endo business, the interstim business, the peripheral business, even the continuous glucose monitoring, it's meaningful revenues for us at double digit kind of growth rates. Same thing in terms of the emerging markets. We talked about many years ago, four or five years ago, we invested in China as an example, set it up as a separate business, and I was over there two weeks ago and I couldn't be more enthusiastic about the long term prospects for where China is. I mean, it's close to a half a billion dollars run rate right now and it's growing at 20% plus a quarter. So we're making those investments and we have been in the other markets like India and Brazil and so we're confident that these are going to be strong markets over the long run, and as it relates to the impact on the gross margin, if you look today at our sales outside the U.S. basically the margins are very similar to what we see here in the U.S. So we're not really building in too much dilution, if you will, for the mix shift more to emerging markets or markets outside the U.S.

Your next question comes from the line of Kristen Stewart of Deutsche Bank.

I was just wondering in light of what we're seeing in the market, and the uncertainty, just how some of this might be playing into more of your big picture strategy with respect to acquisitions, your sales model, and is there any ability to maybe do a little bit more aggressive actions on the restructuring front?

I think it reinforces very much what we have been doing in terms of both on the strategic side, reallocating resources, to really invest in very differentiated technologies that not only help us to gain share but also help us to grow new markets. And secondly, what we're doing from a strategic tuck in. The series of acquisitions that we've done the last couple of years, from the CoreValve to the atrial fibrillation, to the ATS, which kind of leverages our global footprint, even the Osteotech which again as well takes advantage of our extensive footprint in the overall spine and biologic space. So I feel sort of reassured that the strategies in this particular turbulent market are the right ones, and similarly the things that we've been doing with our One Medtronic and really taking advantage of our size and scale and doing more to be able to take cost out, which we've been able to show that they're working, as we just did this quarter with the kind of results we had on the bottom line given the softness on the top line. And this is an ongoing process of looking across the whole enterprise. The results that we've had the last two years I think reassure me that we're doing the right things and we're going to continue to work hard at it.

To the extent you can't get mix or pricing continues to be very challenging, are you willing to reconsider your sales model? To the extent that you can't get the same level of margin contribution, what are some of the offsets beyond just the cost initiative strategies from more of a product standpoint?

Well, we actually have some fairly innovative business model, if you will, changes going on in different markets around the world and we'll see how these pan out. We've been I think very innovative in looking at certain markets and exploring, experimenting with different ways of distributing our products. And so absolutely, we're looking at everything, recognizing that we're in a very dynamic era right now.

Just to add to what Bill said, we are trying different pilots and doing different things in different markets to see what value the customer has, not only in our products but our services that we've always provided, because as you know our business has been very not only product intensive but very service intensive in the past, and the question is not only on the product side how much value do they place in the product but how much value do they place in the service component itself? And so we're trying to - different ideas in different geographies to try different business models, to increase that value that we provide in the service, or at least change it such to what is it the customer and the physician community and the hospitals really want? And so provide not only value in the product itself but in the service that we are providing to them and how we interact and partner with them. So we're trying that and as Bill said we've been very innovative in that in the past and if it calls for it in a broader execution we'll do that.

Your next question comes from the line of Ben Andrew of William Company.

Just a similar question to that in terms of the opportunity on the SG&A level. When do you think you might need to be pulling that lever? Is it even this year given the slowdown in the markets that you described through June and into July?

I don't know whether it's going to require us to do that here in the U.S. yet. Obviously we'll continue to take a look at this. The service component is still very important here in the U.S. market for several of our businesses, but we'll continue to evaluate that. As we've given examples in the past, Germany is a perfect example that I highlight to many investors as where we did change the business model there and changed the SG&A component dramatically because of what that country really expected from the service levels, and we dropped that. And as a result we've maintained our profit margins in Germany. They're pretty consistent with the rest of our European and in fact our worldwide results. So we'll continue to look at that. I don't know whether we'll necessarily be seeing a dramatic shift here in the current year, although if the markets continue to be soft, and things like that, we'll have to really evaluate that.

Okay, and this is a follow up I guess. Bill, in your conversations with hospitals how are they addressing this more extensive payer preoperative review? Because at one level you would think that those patients don't go away, they get deferred if they get rejected or go to another procedure that ultimately would end up in, say, a fusion. But it sounds like you're seeing it across the board, not just in spine, but in also other indications. And so the executives, how are they planning for their volumes through this year and into next year in terms of their investment levels? What are they assuming the trajectory is on that overall dynamic?

Well, physicians are still really the primary decision makers in terms of what the appropriate therapy for a patient and if they believe that a patient should get a single level fusion or a multiple level infusion and they have the evidence to support that they will push hard for it in any circumstance, even if they get payer pushback. And so again, I think it comes back down to the basic demand, and as I said I really believe that the demand over time will be there as the population ages and we see the changing of the demographics. But right now there's again a number of dynamics given the economy, with the unemployment levels, with the raising of deductibles, with the COBRA benefits expiring. I think that we're in this just kind of a transition phase as we're trying to figure out what's going to happen long term with the economy, and I'm confident we'll get through this and that people will return to going to see the doctors and the doctors will then basically prescribe what's the right therapy.

Your next question comes from the line of Bruce Nudell of UBS.

Bill, one of the fears that a lot of people have about the U.S. ICD market is first-time implants will last until well below the peak. Replacement cycle is slow. You have building price pressures. What's the chance that we're going to see a period of year over year declines in the mid-single digit range for a while?

Well, it's a hard question to answer. We have been seeing, actually for a period here, the CRDM market - the ICD market I should say, in that sort of flat to modestly down range and buoyed a bit by the replacement cycle. But there are a number of catalysts that we thing are going to ultimately sort of reinforce the importance of this therapy. One, the [unintelligible] CRT, I don't think has really kicked in yet. The work that we've talked about on this joint commission, getting into the guidelines, the whole notion that you have to basically have a patient go through a consult. And then it comes back to innovation. It's our ability to bring forth the kind of products like Protecta that really address the concerns that some physicians have around inappropriate shocks. So there are a number of catalysts which I believe will offset some of the things that we're seeing today and that this market will be like the pacemaker market and it will be a market that grows commensurate with the overall demographic growth.

And just to add to Bill's comment, the initials and the replacements we're talking about is more of a phenomenon here in the U.S. The OUS market still has potential clearly to have growth going on outside that, so there is clearly an area that we're impacting here in the U.S., and Bill's comments are kind of what it's going to take to get that turned around, but the reality is that I think we still also see relatively strong growth and as we talked about in Europe we actually saw an increase in their overall growth this quarter, and that's really again with that new technology, Protecta. To tell the patients that you can reduce the number of inappropriate shocks, that's the biggest fear that they have is the inappropriate shock, and to be able to eliminate that it takes away one of the barriers that clearly has been out there in the past. So we're cautious right now, with what's going on in the marketplace, but as Bill said, long term we still think there's growth in this market also.

And just one follow up on spine. When we try to calculate mid-2000s case growth it came out to about 5.5%, and when we talk to purchasing people we do hear what we say. The insurance companies are moving, commercial insurers are moving to more like DRG case reimbursement, physicians are more realigned with hospitals. Should we be thinking about a 5% unit market with a deflationary CAGR and ASPs layered on so spine essentially becomes a low- to mid-single digit market sustainably for the next several years at least?

Bruce, it's hard to argue with that, although I think the demand side could be greater than the 5% as I indicated. When you think about just the very small percentage of people who are ultimately getting some intervention today versus the number of people who suffer from chronic back pain, and as we bring out more minimally invasive technologies that will overcome some of the concerns that many physicians have. I think we could see that unit case volume increase, but I think that the mid-single digits is a fair assumption right now.

That's kind of what we've assumed for the rest of this fiscal year, Bruce, and back to your point, we would agree with everything you just said as far as that's what our assumptions are based on. What happens after FY11, we're still trying to determine, and as Bill said we still think there's growth opportunities that are greater than what's going on in spine right now, but clearly for the next few quarters we're going to be cautious and assume that the markets kind of reflect what we saw here in Q1.

I think we're running a bit late, but we have time for one more question.

Your final question comes from the line of Joanne Wuensch of BMO Capital Markets.

This question is going to sound similar to what I think a lot of people have been trying to get at on this call, which is twofold. If things have accelerated so much from June to July, and now into the guidance given in August, what is your comfort level that it doesn't go September, October, and so forth? And then with that is the second question of how do we change this trajectory?

Well, I tried to be very clear as I can and candid as I can about the challenge that we have as everyone else is, and trying to really predict what's going to happen in the next nine months, notwithstanding the next couple of years. But again, I think our view is that there is still - the demand for the things that we're doing is still there. The people on the diabetes side, on the whole cardiac side, the whole neuromodulation side, so there's underlying fundamentally strong demand and right now I think the people - there's just a - we're in this kind of inflection with just the turbulence in the economy and it's just making it very difficult for all of us to try to forecast going forward. But the solution, for us is just to continue to be focused on bringing forth technologies that can clearly be supported by strong evidence, both from a clinical point of view as well as from an economic point of view. And then maybe just one kind of closing comment to that point. As I said earlier I really believe that the things that we're doing are the right things in terms of tuning our business model and the investments that we've been making to diversify our portfolio away from just being a spine business, and a CRDM business, and we're encouraged to see good growth in diabetes. We still believe there's strong growth opportunities in the neuromodulation, the surgical technologies, and even in many of the new technologies, the transcatheter valves, the endovascular. So we're in that kind of transition phase of investing a lot in the emerging therapies, in the emerging markets, to enable us to be able to continue to deliver market leading performance.

Thank you.

Okay. Before closing the call, I just would like to reiterate that Q1 was a difficult quarter and a challenging environment, and we were surprised by how the market slowdown, as we discussed, how it escalated in late June and July. At the same time, I was disappointed by our performance in a couple of businesses. But despite the turbulent markets, we remained focused on our core strategies of growth and innovation, and we're going to leverage our financial strength, including our strong free cash flow generation, to fuel disciplined investment and return to our shareholders. Our diversified portfolio, our rich pipeline, our strong global footprint, and world class capabilities and talent position us well to deliver market-leading performance over the long run. So on behalf of the management team here, we thank you for your interest in Medtronic and your continued support. Thank you.