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May 21, 2010

U.S. Securities and Exchange Commission

Kristin Lochhead

Accounting Reviewer

100 F Street, N.E.

Mail Stop 3030

Washington, D.C. 20549

 Re:
Comment letter dated May 12, 2010

Form 10-K for the fiscal year Ended December 31, 2009

Filed February 26, 2010

Form 10-Q for the quarterly period ended March 31, 2010

File No. 001-11083

Dear Ms. Lochhead:

This letter is in response to your letter dated May 12, 2010 regarding the above subject matter. For ease of reference, we have reproduced the Staff’s comments below along with our responses and, as appropriate, proposed disclosure for inclusion in future filings.  When used in this response letter, “Form 10-K” refers to our Annual Report on Form 10-K for the year ended December 31, 2009 and “Form 10-Q” refers to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010.

Form 10-K for the fiscal year ended December 31, 2009

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

Executive Summary, page 38

1.

We see that you have described the impact of foreign currency fluctuations on overall net sales from 2008 to 2009 and separately for your CRM group. If material, please revise future filings to also describe the foreign currency impact on net sales for the other five groups that are separately disclosed.

In response to the Staff’s comments, in future filings, we will disclose any material impact of foreign currency fluctuations on each individual business unit. In addition, in future filings, we will also refer the reader to Results of Operations where we provide a reconciliation of net sales growth rates on an as reported and constant currency basis, which presents the impact of foreign currency exchange rates on each division’s net sales as compared to the same period in the prior year.

Business and Market Overview

Cardiac Rhythm Management, page 43

2.

We reference your disclosure about disciplinary actions taken against certain of your US CRM sales personnel and the statement that the actions could result in lost net sales in the short term. We also noted that during the fourth quarter of 2009, CRM sales declined to $607 million, or 6%, from $646 million in the third quarter of 2009. Please tell us the reasons for the fourth quarter 2009 CRM decrease from the prior quarter and the impact, if any, the aforementioned terminations contributed. Future filings should discuss all material factors that contributed to significant changes in revenues.

During 2009, our Cardiac Rhythm Management (CRM) group net sales disclosure included the results of our Electrophysiology business. Accordingly, our worldwide CRM net sales, excluding the Electrophysiology business, in the fourth quarter of 2009 of $607 million were relatively flat with third quarter 2009 CRM net sales of $608 million. To facilitate the Staff’s analysis, we supplementally present below the components of our worldwide CRM group net sales for these periods.

Three Months Ended December 31, 2009

Three Months Ended September 30, 2009

(in millions)

U.S.

Int'l

Total

U.S.

Int'l

Total

ICD systems

$
307

$
142

$
449

$
314

$
131

$
445

Pacemaker systems

82

76

158

90

73

163

389

218

607

404

204

608

Electrophysiology

29

9

38

30

8

38

Total CRM group

$
418

$
227

$
645

$
434

$
212

$
646

We supplementally advise the Staff that the aforementioned terminations of 10 sales personnel represented less than one percent of our U.S. CRM sales force and had an immaterial impact on our net sales during the fourth quarter of 2009. We expect we will experience the impact of these terminations during 2010; however, our intent is to replace these positions throughout 2010 and recapture lost revenue in 2011 and beyond. In future filings, to the extent our businesses experience significant changes in revenues from period to period, we will discuss all material factors contributing to these changes.

Liquidity and Capital Resources, page 65

3.

We see that you have $864 million of cash on hand at December 31, 2009 and that you have other significant contractual obligations of $2.2 billion that you expect to pay during 2010. In this regard, we see that you had a net reduction in cash during the fiscal quarter ended March 31, 2009. Please revise future filings to provide a more enhanced discussion on how you intend to finance your cash obligations. Please refer to the requirements of Item 303(A)(1) of Regulation S-K.

In response to the Staff’s comments, we acknowledge that the requirement of Regulation S-K Item 303(A)(1) is to include in the Management’s Discussion and Analysis of Financial Condition and Results of Operations any known trends or any known demands,

commitments, events or uncertainties that will result in, or that are reasonably likely to result in, the registrant's liquidity increasing or decreasing in any material way and, if applicable, the course of action that the registrant has taken or proposes to take to remedy any deficiency. In future filings, we will provide additional disclosure surrounding our contractual obligations and commitments and the expected impact on our liquidity.

Included in our 2010 contractual obligations of $2.2 billion, as disclosed in the table on page 65 of the Form 10-K, was a $1.0 billion litigation-related obligation to Johnson & Johnson, which was satisfied in February 2010. The payment of this obligation was one of the factors leading to the decrease in our cash balance from December 31, 2009 to March 31, 2010. Our discussion on page 65 indicates that, in addition to cash on hand as of December 31, 2009, we have access to approximately $1.0 billion under our revolving credit facility, and up to $350 million under our credit and security facility secured by our U.S. trade receivables. We believe that these sources of liquidity, coupled with cash generated from operations, will be sufficient to meet the remainder of our 2010 obligations.

Further, in the Form 10-K and Form 10-Q, we indicated our intent to refinance the majority of our 2011 debt maturities and renew our revolving credit facility by mid-2010. We will continue to provide updated disclosures on our refinancing activities in our subsequent SEC filings.

As appropriate, we propose including disclosure similar to the following in our future filings:

During the first quarter of 2010, we made a $1.0 billion litigation-related payment to Johnson & Johnson.  The settlement of this contractual obligation was one of the primary factors leading to the decrease in our cash balance from December 31, 2009.  We expect to pay the remainder of our 2010 contractual obligations using cash generated from operating activities.  In addition, during mid-2010, we expect to re-finance the majority of our 2011 debt maturities and renew our revolving credit facility.

Item 8. Financial Statements and Supplementary Data

Note A – Significant Accounting Policies

Warranty Obligations, page 89

4.

We note that you offer warranties on your products and that a substantial portion of your sales is generated from the sale of new products. Please revise future filings to disclose the nature and term of your product warranties. Additionally, in your response, please tell us how you estimate warranty obligations for new products. Please refer to FASB ASC 460-10-50-8.

In response to the Staff’s comments, we advise the Staff that we offer warranties on certain of our product offerings.  Approximately 90 percent of our warranty liability as of December 31, 2009 related to implantable devices offered by our Cardiac Rhythm Management (CRM) business, which include implantable cardioverter defibrillator (ICD)

and pacemaker systems. Our CRM products come with a standard limited warranty covering the replacement of these devices. We offer a full warranty for a portion of the period post-implant, and a partial warranty over the remainder of the warranty period, which varies depending on the device and is based on the average battery life of the product.

We estimate the costs that we may incur under our warranty programs based on the number of units sold, historical and anticipated rates of warranty claims and cost per claim, and record a liability equal to these estimated costs as cost of products sold at the time the product sale occurs. We reassess the key assumptions underlying our warranty liability calculation and evaluate the adequacy of our recorded warranty liabilities on a quarterly basis and adjust the amounts as necessary.

We note the Staff’s observation that a substantial portion of our sales is generated from the sale of new products. We include in our definition of “new” products any iteration of a currently marketed product, which includes enhancements and upgrades to existing product offerings, as well as new sizes and expanded indications for use. For each new product introduction, we evaluate the nature of the product to assess whether changes in the functionality, life, or use of the new product would impact the underlying assumptions surrounding our estimates for our warranty obligations. However, to date, our new product introductions have leveraged the core technology of prior product offerings.  We believe that when these next-generation products are introduced, the use of historical trends in warranty claims continues to be an appropriate benchmark for assessing potential future claims.

As appropriate, we propose including disclosure similar to the following in our future filings, which we believe satisfies all applicable requirements pursuant to FASB ASC 460-10-50-8:

We offer warranties on certain of our product offerings.  Approximately 90 percent of our warranty liability as of March 31, 2010 related to implantable devices offered by our Cardiac Rhythm Management (CRM) business, which include implantable cardioverter defibrillator (ICD) and pacemaker systems. Our CRM products come with a standard limited warranty covering the replacement of these devices. We offer a full warranty for a portion of the period post-implant, and a partial warranty over the remainder of the useful life of the product.  We estimate the costs that we may incur under our warranty programs based on the number of units sold, historical and anticipated rates of warranty claims and cost per claim and record a liability equal to these estimated costs as cost of products sold at the time the product sale occurs. We reassess the key assumptions underlying our warranty liability calculation and evaluate the adequacy of our recorded warranty liabilities on a quarterly basis and adjust the amounts as necessary. Changes in our product warranty obligations during the first quarter of 2010 and 2009 consisted of the following (in millions):

2010

2009

Balance as of December 31 - prior year

$
55

$
62

Provision

3

5

Settlements/ reversals

(8
)

(10
)

Balance as of March 31 - current year

$
50

$
57

Goodwill Impairment, page 92

5.

We see from page 23 that you identified two reporting units with a material amount of goodwill that are at higher risk of potential failure of the first step of the impairment test in future reporting periods. However, you did not believe there were indicators of impairment as of December 31, 2009 to necessitate the performance of an interim impairment test. Please clarify which reporting units had a heightened risk of goodwill impairment and tell us why you did not believe that there were any indicators of impairment that would require an interim impairment test to be performed at December 31, 2009. In this regard, we see that CRM sales decreased in the fourth quarter, you terminated a large number of sales personnel, your stock price significantly declined in the fourth quarter of 2009 and you announced a $1.8 billion impairment charge in the first quarter of 2010. Refer to FASB ASC 350-20-35-30.

In response to the Staff’s comment, our U.S. CRM and Europe/Middle East/Africa (EMEA) units are the two units that we indicated had a heightened risk of goodwill impairment at December 31, 2009.

With respect to U.S. CRM, and in accordance with FASB ASC 350-20-35 and our Critical Accounting Policies and Estimates as described within the Form 10-K, we regularly review whether indicators are present or circumstances have changed suggesting that impairment of our goodwill balance may exist.  As part of our assessment during the fourth quarter of 2009, we noted an increase in our U.S. CRM net sales of two percent from the same period in the prior year, and an increase of eight percent for the full year of 2009 as compared to 2008. We also considered the fact that the termination of 10 sales personnel (which represented less than one percent of our U.S. CRM sales force) during the fourth quarter would impact our 2010 sales results for the U.S. CRM reporting unit; however, these actions would not have a significant negative impact on the fair value of the U.S. CRM reporting unit because of our intent to replace these positions throughout 2010 and recapture lost revenue in 2011 and beyond.  Therefore, we concluded that the personnel terminations were not significant enough to represent an indicator of impairment. Accordingly, as noted in the Form 10-K, we concluded that the goodwill for the U.S. CRM reporting unit was not impaired.

Our first quarter 2010 impairment charge was triggered by events that occurred in the first quarter of 2010.  Specifically, on March 15, 2010, we announced a ship-hold and product removal of our U.S. implantable cardioverter defibrillator (ICD) and cardiac resynchronization therapy defibrillator (CRT-D) systems. This led us to reduce our 2010 estimates for U.S. CRM revenues by $300 million. As we disclosed in Note B – Goodwill and Other Intangible Assets within the Form 10-Q, the ship-hold and product removal actions and the potential corresponding financial impact on our operations was the primary indicator of impairment that resulted in the $1.8 billion impairment loss recognized as of

March 31, 2010. As a result of these actions, our U.S. CRM sales decreased approximately 18 percent from the first quarter of 2009.  We further disclosed that the ship-hold and product removal actions are expected to result in a decline in our U.S. defibrillator market share by approximately 400 basis points exiting 2010 and, therefore, will have an on-going long-term adverse impact on our net sales.

With respect to our EMEA reporting unit, similar to the U.S. CRM reporting unit, this impairment risk stems from the $4.1 billion of goodwill allocated to EMEA as a result of our 2006 acquisition of Guidant Corporation, which makes it more susceptible to future impairment.  During the fourth quarter of 2009, we noted no events or changes in circumstances that would more-likely-than-not reduce the fair value of our EMEA reporting unit below its carrying value, which would have required an interim impairment test of that reporting unit as of December 31, 2009.  Following the ship-hold and product removal actions associated with our U.S. CRM business announced during the first quarter of 2010, we also reviewed our EMEA reporting unit for similar indicators of impairment given its heightened risk.  Based on our review, we determined that the ship-hold and product removal actions were specific to our domestic CRM business and we noted no other significant adverse changes in expectations in sales growth or profitability for EMEA, or any other impairment indicators, to necessitate an interim test as of March 31, 2010.

Note K – Income Taxes, page 122

6.

We reference your disclosure that during 2009, you received the Revenue Agent’s Report for your federal tax examination covering years 2004 and 2005. You indicate that you continue to disagree with and contest the “significant proposed adjustment” related primarily to the allocation of income between