Medtronic's CEO Hosts 2013 Annual Shareholder Meeting Conference (Transcript)

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Medtronic, Inc. (NYSE:MDT) 2013 Annual Shareholder Meeting Conference Call August 22, 2013 11:30 AM ET


Omar Ishrak - Chairman and CEO

Gary Ellis - Senior Vice President and Chief Financial Officer

Neil Ayotte - Vice President and Acting General Counsel and Corporate Secretary

Cam Findlay - Senior Vice President, General Counsel and Corporate Secretary

Mike Genau - Independent Director

Chris Lee - Independent Director

Luan Pi - Independent Director

Cathy Szyman - Senior Vice President and Group President. Diabetes

Carol Surface - Senior Vice President and Chief Human Resources Officer

James Dallas - Senior Vice President, Quality and Operations

Richard Anderson - Chief Executive Officer, Delta Air Lines

Scott Donnelly - Chairman, President and CEO, Textron Incorporated

Dr. Victor Dzau - Chancellor, Health Affairs, Duke University

Dr. Shirley Ann Jackson - President, Rensselaer Polytechnic Institute

Governor Michael Leavitt - Founder and Chairman, Leavitt Partners

James Lenehan - Financial Consultant and Retired Vice Chairman and President, Johnson & Johnson

Denise O'Leary - Private Venture Capital Investor

Ken Powell - Chairman and CEO, General Mills

Robert Pozen - Former Chairman, MFS Investment Management

Jack Schuler - Co-Founder, Crabtree Partners

Preetha Reddy - Managing Director, Apollo Hospitals Enterprise Limited, India

Tom Montminy - PricewaterhouseCoopers, Independent Auditing Firm

Bill George - Former Medtronic Executives and Board Members

Tom Holloran - Former Medtronic Executives and Board Members

Jerry Simonson - Former Medtronic Executives and Board Members

Gordon Sprenger - Former Medtronic Executives and Board Members


Unidentified Participant

And now please welcome Medtronic Chairman and CEO, Omar Ishrak.

Omar Ishrak

Thank you. Thank you and good morning. And warm welcome to those of you here in the room with us today and to those listening in by webcast. I hope you all enjoyed hearing how Medtronic impacts patient’s lives in the opening video. It’s an excellent reminder of the important work that that we do and what happens in Medtronic everyday.

Now at this time, I'd like to officially call to order, the 57th Annual Medtronic Shareholders Meeting. This meeting is being webcast in, so all shareholders can have access to the information discussed during the meeting.

And you should note, that actual results might differ materially from those projected in any forward-looking statement made at today's meeting based on the variety of factors, including those mentioned in our Form 10-K for fiscal year 2013. In addition, the reconciliations of any non-GAAP financial measures are available on the Investors portion of our website.

If you are here with us in person, you find copies of both the agenda and the rules of conduct for today's proceedings on your chair, so please refer to these documents. I encourage any shareholder who has not yet voted or who wishes to revoke a proxy submitted prior to today to get a ballot at the shareholder services table and vote now.

After attending to the general business of today's meeting, I’ll spend some time reviewing our performance in the fiscal year 2013, as well as our strategies to improve outcomes for patients, optimized cost and efficiencies, and expand access to healthcare for people around the world.

But before I go further let me make a few brief introductions. First, I'd like to introduce the leaders who are all stage with me today, Gary Ellis, Senior Vice President and Chief Financial Officer; Neil Ayotte, Vice President and Acting General Counsel and Corporate Secretary; Cam Findlay, who served as Senior Vice President, General Counsel and Corporate Secretary for nearly four years, recently accepted a senior leadership position with Archer Daniels Midland in the Chicago area, allowing him and his wife to be closer to their families. We will miss his valuable counsel and dedicated service to Medtronic and wish him the very best.

I would also like to acknowledge the rest of our executive committee who serve as a leadership Board for the company, four members of this group are new and they are Mike Genau, Chris Lee, [Luan Pi] and Cathy Szyman.

As many of you know Mike Genau and Chris Lee are new to Medtronic, while [Luan] and Cathy were promoted to the executive committee from within, reflecting the importance of their roles and quality in diabetes, respectively.

In addition on October 1st, we will welcome Carol Surface as our new Senior Vice President and Chief Human Resources Officer. Carol has a proven track record as a global HR leader with experience leading organizations around the world, including living and working in China, the Middle East and the U.S. Carol will join the executive committee and I’m confident she will be a strong addition to our leadership team.

And finally, I’d like to recognize James Dallas who will retire in September after seven years of leadership in service to Medtronic. Jim has been a tremendous asset to Medtronic and has offered me unique insights and sound advise since I joined the company.

There are many leaders and inspiring leaders across the entire company who credit James as an inspiration to them and he will be missed. I want to thank him for his leadership of Quality Operations and IT and wish him again the very best in his retirement. So let’s give James a round of applause.

Now in addition to the executive committee the following members of Medtronic’s Board of Directors are here today, Richard Anderson, Chief Executive Officer of Delta Air Lines who will become our new lead director as of today. Scott Donnelly, Chairman, President and Chief Executive Officer of Textron Incorporated. Scott joined our Board in July and we are delighted to welcome him our newest director. Dr. Victor Dzau, Chancellor of Health Affairs at Duke University; Dr. Shirley Ann Jackson, President of Rensselaer Polytechnic Institute; Governor Michael Leavitt, Founder and Chairman of Leavitt Partners; James Lenehan, Financial Consultant and Retired Vice Chairman and President of Johnson & Johnson; Denise O'Leary, Private Venture Capital Investor; Ken Powell, Chairman and Chief Executive Officer of General Mills, and Ken has been our lead director for the last five years and I want to thank him for serving in his capacity; Robert Pozen, Former Chairman of MFS Investment Management; and Jack Schuler, Co-Founder of Crabtree Partners and our longest serving Director of our Board as of today.

Now at the same time, Jack is retiring from our Board today after 23 years of distinguish service and during that time Jack has provided guidance on our Board for five Medtronic CEO’s and our company has witness tremendous growth during that period. When Jack joined our Board, there were only 7,000 Medtronic employees around the world and today that number surpasses 46,000.

Also during the time Jack has been a Board member we achieved our first $1 billion revenue milestone, which today seems very light given that we are at $16.6 billion as of last year. Jack on behalf of Medtronic and our shareholders thank you very much for your dedicated service to our Board. So thank you again, Jack.

I also mentioned Preetha Reddy who joined our Board earlier this year and serves as Managing Director of Apollo Hospitals Enterprise Limited in India. We are very sorry she's unable to join us in person today but we are thrilled to have her joining our Board.

Next, it’s always a pleasure for me to acknowledge our Co-Founder, Earl Bakken. This is Earl’s 19th year as Director Emeritus and until this year he has attended every Medtronic Annual Shareholder Meeting in the company's history in person.

Earl is listening to our broadcast today from his beautiful home in Hawaii and actually my wife, Helen and myself had the pleasure of visiting Earl and wife and his wife, Doris in Hawaii in May of this year. It was a wonderful opportunity to spend some time with him and we greatly enjoyed their hospitality.

I'm always inspired by Earl as we share the same passion for the Medtronic mission and our customers and patients and employees. Let’s give Earl a round of applause that makes him feel like he is in the room with us today.

And also with us today is Tom Montminy, he is representing PricewaterhouseCoopers, our outside Independent Auditing Firm. Tom will be available to answer questions regarding PWC’s audit services following today's proceedings.

Other special guests with us in the audience today our former Medtronic executives and Board members, and a lot of retirees, so all of you are special, a warm welcome to those who are here including Bill George, Tom Holloran, Jerry Simonson, Gordon Sprenger and at this moment actually I’d like to pause for a few minutes and recognize all the leaders who have come before us and because of them and their contributions, we have the company that we have today and we thank them for the strong foundation that they have built for this company. So thank you all very much, a round of applause for all of you.

Now let’s turn to the formal business of the meeting. The company’s Corporate Secretary dually calls notice of this meeting to be sent on July 12, 2013 to shareholders of record as of the close of business July 1, 2013, and that’s the record date.

Wells Fargo Bank our stock registrar and transfer agent has prepared and certified the shareholder list as of the record date. The Secretary has confirmed that the quorum of shares is represented on this meeting and therefore we may transact business.

To discuss the business items on the agenda today, I will now turn it over to Neil Ayotte. So Neil, go ahead.

Neil Ayotte

Thank you, Omar. We have nine business items on the meeting agenda today. These nine items were discussed in the proxy materials made available to you. First, we’ll vote to elect 11 directors for one-year terms, expiring at the Annual Meeting in 2014 or until their successors are qualified and elected.

These Directors are Richard Anderson; Scott Donnelly; Dr. Victor Dzau; Dr. Shirley Ann Jackson; Governor Michael Leavitt; James Lenehan; Denise O'Leary; Kendall Powell; Robert Pozen; Preetha Reddy; and Omar Ishrak. Medtronic Board recommends that you vote for each of the nominees.

Second, we will vote to ratify the appointment of PricewaterhouseCoopers as Medtronic's independent registered public accounting firm for the fiscal year 2014. The Board recommends that you vote for ratification of PricewaterhouseCoopers.

Third, we’ll hold a non-binding advisory vote, named executive officer compensation also known as a Say-on-Pay vote. The Board recommends that you vote for the non-binding advisory vote on Say-on-Pay.

Fourth, we’ll vote to approve the Medtronic, Inc. 2013 Stock Award and Incentive Plan. The Board recommends that you vote for approval of the Medtronic, Inc. 2013 Stock Award and Incentive Plan.

Fifth, we’ll vote to amend and restate the Company's Articles of Incorporation to provide that directors will be elected by a majority vote in uncontested elections. The Board recommends that you vote for the amendment and restatement of the Company's Articles of Incorporation to provide that directors will be elected by a majority vote in uncontested elections.

Sixth, we’ll vote to amend and restate the company's articles of incorporation to allow changes to the size of the Board of Directors upon the affirmative vote of a simple majority of shares. The Board recommends that you vote for the amendment and restatement of the Company's Articles of Incorporation to allow changes to the size of the Board of Directors upon the affirmative vote of a simple majority of shares.

Seventh, we’ll vote to amend and restate the Company's Articles of Incorporation to allow removal of a Director upon the affirmative vote of a simple majority of shares. The Board recommends that you vote for the amendment and restatement of the Company's Articles of Incorporation to allow removal of a Director upon the affirmative vote of a simple majority of shares.

Eight, we’ll vote to amend and restate the Company's Articles of Incorporation to allow amendments to Section 5.3 of Article 5 of the affirmative vote of a simple majority of shares. The Board recommends that you vote for the amendment and restatement of the Company's Articles of Incorporation to allow amendments to Section 5.3 of Article 5 upon the affirmative vote of the simple majority of shares.

Excuse me, ninth, we’ll vote to amend and restate the Company's Articles of Incorporation to eliminate the fair price provision. The Board recommends that you vote for the amendment and restatement of the Company's Articles of Incorporation to eliminate the fair price provision.

At this time, we’ll be happy to answer any questions on the nine business items on the agenda. If you have a question related to the specific proposals to be voted upon, please stand and be recognized. We have several people in the audience with microphones, so I encourage you to address the group so that everyone can hear your question.

At this time, we will only address questions that are related to the nine specific business items, if you have questions related to other matters, please save them for our general question-and-answer period, which will come later in the meeting.

Are there any questions specific to the nine proposed resolutions? Hearing none, I hereby declare that the polls are now closed. Results of the voting will be tabulated and will have a preliminary result before we conclude the meeting today.

Now, I’ll turn back to you Omar for additional perspectives of Medtronic's business.

Omar Ishrak

Thank you, Neil. And now I’d like to spend some time reviewing some of the changes taking place in healthcare systems around the world and how these changes are providing Medtronic an opportunity to lead in many ways.

Over the past two years, I’ve been describing to our employers -- to our employees, investors and customers the transformation we're undertaking at Medtronic. The necessity for changes unmistakable, and as I travel around the world and meet with healthcare leaders and government officials, I hear a certain consistency in the challenges and opportunities that they are facing. Virtually all the economies are straight and healthcare costs are consuming an ever-increasing portion of their overall budgets. At the same time, huge populations around the world at all income levels lack access to the basic standards of healthcare.

All of these countries are working to balance the fundamental conundrum of access and cost, at the same time, maintaining quality. On the one hand, governments in often the private sector are working to remove barriers that limit access through new medical facilities, physician education and training programs, disease prevention and awareness efforts and stimulating commercial investment.

On the other hand, as they seek to expand access, they do so with full knowledge that they cannot allow escalating costs to consume their economies or compromise the quality of care. In the end, the relative emphasis on cost, quality and access in any one country, maybe different but they are all confronting the fundamental question of how to balance better healthcare for patients while controlling costs.

The situation is particularly acute in the United States, where we have in large part resolved the access barriers but not rising costs. A significant reason for this cost escalation in the U.S. has to do with the ways in which we have historically financed and incentivized healthcare delivery. For decades and even today, the U.S. healthcare system has largely operated on a fee-for-service model that rewards volume over value.

It can incentivize more treatment versus better health and it rewards inputs versus outcomes. This system isn’t without benefits. It has fostered years of innovation and we have seen significant clinical advancements in patient care. In cardiovascular disease, for example, the rate of death declined by more than 30% in the last 10 years and this was driven in large part by innovations in diagnostics, in therapy and patient care management.

But the path that U.S. healthcare system has traveled for many years is based on one flawed assumption. It assumes that unlimited funding either from the government, employers or the private sector will always be available. However, healthcare costs are now consuming 18% of U.S. GDP and growing to an estimated 25% by 2025. We must face a harsh economic reality.

If we cling to this unsustainable model, healthcare costs will ultimately drive the entire U.S. economy over the brink and into insolvency. Yet, I believe there are ways to prevent this from happening. First, the U.S. is wisely moving to a fee-per-value approach which incentivizes value over volume and outcomes over inputs. Second, it won't happen because innovators both in the U.S. and abroad are finding new ways to address access, cost and quality challenges.

We will find new ways to bring healthcare cost down while improving quality and delivering better patient care. Our entrepreneurial spirit and ingenuity will not allow us to fail.

Due to the reality of these economic forces, we’re seeing an increased momentum, energy and innovation from a variety of stakeholders, aimed at changing and improving the sustainability of healthcare systems. This is not easy and it requires a lot of hard work but as our board member, governor, Michael -- Mike Leavitt says, you’ve got three options, cling to the current system and die, hang on and hope for the best, or transform and lead. But we have chosen to transform and lead.

The good news for Medtronic is that in this time of uncertainty, there will be a premium placed on those who can innovate. And no one is positioned better to innovate and find solutions to tough healthcare problems around the world than Medtronic. But this type of innovation would be different from what has been successful in the past.

Increasingly, most thought leaders are acknowledging that innovation will need to go well beyond what is necessary for an FDA product approval. To succeed in the system that rewards value over volume, we have to broaden our presence from devices alone to technology, services and solutions that encompass the entire patient care continuum.

Therefore innovation also must now include board new business models that deliver clear, clinical and economic value to the overall healthcare system. To address these new realities, we are transforming Medtronic around three key strategies.

The first is economic value. And that's in place to ensure that we provide products, services and solutions that address the dynamics that I just mentioned. The second is new therapies which is a Medtronic core competency and which we will continue to develop to improve both clinical and economic outcomes. And finally, we will continue our globalization journey to increase access to quality healthcare for people around the world. In fiscal year 2013, we made notable progress against all three of these imperatives.

Demonstrated economic value can be difficult because it requires a new level of understanding of health systems, a new way of researching and developing products and services and new ways of marketing and commercializing our offerings. In essence, we must develop a new organizational competency that will flow through all our processes and strategies.

We’re attacking each of these areas with vigor. We’re driving new discipline into all aspects of our business, with the goal of ensuring that from product to service inception, to pre-market study and research, to eventual commercialization that we have generated the evidence and proof of economic value.

In support of the strategy, we’re exploring two specific areas where we can offer important solutions for healthcare systems around the world, disease management and hospital efficiency. In disease management, we recently announced the acquisition of Cardiocom, a leading developer and provider of integrated solutions for chronic disease management.

Cardiocom is an example of how we can pair our existing market-leading therapies with a set of complementary services and technology solutions that treat broader patient populations across the care continuum. In the case of heart failure, we will now be able to extend our presence and management of patients from the 13% of patients we touched today with our own devices to the remaining 87% of heart failure patients.

Our combined offerings have the potentially to concurrently improve outcomes and lower costs by reducing hospitalizations, improving remote clinical management and increasing patient engagement. These benefits are particularly compelling to a wide state of -- set of stakeholders, including governments, payers and hospital system, because they provide enhanced clinical and economic value over the long term.

The second area where we expect to generate significant economic value for our customers is hospital efficiency. As we continue to work closely with hospital administrators around the world, we understand that they are deeply concerned with the driving efficiency and optimizing overall cost of operations.

We’re working together to develop innovative solutions for these problems, including implementing process improvements, adopting new financing models and deploying new purchasing and inventory management strategies. In the coming weeks, we will announce additional detail on this initiative.

Next, let me touch on our progress in advancing new therapies to increase the standard of care and attack the patient burden as well as costs of chronic disease. Developing innovative new therapies to improve clinical and economic outcomes and driving them to standard of care will always be a central value proposition in the marketplace.

The basic human desire for better care is limitless because people will always strive for better help and improve quality of life. For Medtronic, we will continue to direct our new therapy efforts at chronic diseases such as diabetes, heart disease and chronic pain.

Chronic diseases render a terrible burden on patients and in our healthcare system, accounting for $3 out of every $4 that are spent on healthcare or nearly $8,000 for every American. In fact, the prevalence of chronic diseases around the world is effectively resulting in a global health crisis.

The World Health Organization estimates that there are 347 million diabetics worldwide. Diabetes accounted for at least $465 billion in healthcare expenditures in 2011. And that number continues to climb with costs increasing some 40% over a five-year period. A significant portion of this expense is incurred by patients whose disease is poorly managed, resulting in clinical complications, compromised quality of life and costly hospital visits.

At Medtronic, we're working to fulfill the wish of every diabetic, especially those with type I or advanced type II conditions, to be able to manage the disease with little or no intervention, allowing them to live their lives without the constraints of constant self management.

Our ultimate goal is to develop an artificial pancreas system that will automatically maintain optimum glucose levels. That would be making steady progress towards this goal. We were the first company to introduce an integrated pump and sensor several years ago. Later this fiscal year, we expect to launch the MiniMed 530G insulin pump and glucose monitoring system in the U.S.

This innovative -- this innovative system automatically suspends the delivery of insulin when glucose levels go to low. Over the coming years, we intend to introduce additional therapies, including treat-to-target and overnight closed loop, eventually reaching our ultimate goal of the artificial pancreas.

We’re also targeting heart disease, including its underlying condition, hypertension. The problem is it’s particularly difficult for patients who are unsuccessful in treating this disease with drugs. These patients which account for 30% to 50% of all those who were treated for hypertension are identified as having uncontrolled hypertension. In short, traditional therapy is just not working for them.

This again is no trivial matter. Hypertension is directly linked with a high risk of heart attacks, stroke, heart failure and kidney disease and often death. Throughout the world, we've been introducing our simplicity of Renal Denervation System for treatment-resistant hypertension, which has been launched in more than 80 countries and we anticipate launching this product in the U.S. in fiscal year ‘15.

This technology has the potential to revolutionize the treatment of hypertension and can have a significant impact on one of the most burdensome conditions for patients in healthcare systems worldwide. We’ve talked about the incredible strain that hypertension and diabetes put on both the quality of life of patients and the cost of healthcare, unless considered with equally impact for this chronic pain.

In fact, in the U.S., chronic pain affects over 40% of all adults, that's 100 million people or more than the number of people affected by heart disease, diabetes and cancer combined. Around the world that number grows to between 1.5 billion to 2 billion people who suffer from moderate to severe chronic pain.

Let’s consider the economic impact of chronic pain as well. The cost of pain, including both direct healthcare costs and the cost of lost productivity and other economic impacts is estimated at around $600 billion annually in the U.S. If we are going to be serious about addressing escalating healthcare costs we must get serious by treating chronic pain and here again Medtronic has a leadership position.

With our spinal, orthopedic and neuro-stimulation portfolio, we can offer an array of products and technologies that span the care continuum. This year we launched our MRI-compatible SureScan spinal cord stimulation systems for the treatment of chronic back and limb pain around the world.

Spinal cord stimulation therapy for chronic pain uses an implanted medical device to deliver mild electrical impulses to the spinal cord, which then acts to block pain signals from going to the brain. For the patient, this device can relieve their pain and help them live fuller lives. Now, we first developed this unique MRI compatibility feature for our cardiac pacemaker products.

Prior to this new technology, patients with spinal cord stimulators or pacemakers were denied MRI scans for fear of interference with their medical device. Now, those same people can receive the device therapy they need and still have access to MRIs.

This translates into a meaningful advantage for patients and it was made real for me recently when I received an e-mail from half way around the world. It was from a professor, Muhammad Yunus, a Nobel peace prize winner and a pioneer of microfinancing in Bangladesh who was connecting me to his relatives right here in Minnesota.

What I learned is that the father of the family who lives in Minnesota recently had brain surgery to treat a tumor. Because of his surgery, he would need to have regular MRI scans. Within a week of the brain surgery, he started experiencing shortness of breath and was ultimately diagnosed as needing a pacemaker.

The family was told however that he could not receive a pacemaker due to his ongoing need for MRIs. His family contacted doctors reached out to friends, and researched the Internet to find out if that was the only answer. We were pleased to confirm that his family -- and with his family that the MRI compatible pacemakers were indeed available.

And I am happy to report that he was implanted with our MRI -- MRI compatible pacemaker a few weeks ago and he is gaining strength everyday. As he continues to recover, he does so knowing that he will be able to have the peace of mind as his brain tumor and heart conditions can be treated effectively and simultaneously.

Globalization is our third imperative where we seek to develop tailored approaches and therapies to expand patient access, improve clinical outcomes and reduce costs in the healthcare systems around the world and at all levels of the economic pyramid. The economic pyramid is essentially built around affordability, what can the patient-government pair or combination of each afford.

People in the premium segment have the means to purchase our products today. Despite being only 10% of the population of emerging markets, it still represents a large number of people, the premium segment in China and India alone includes more than 380 million. If we are able to penetrate the premium segment across all emerging markets at the same level as developed markets, this would result in a $5 billion a year annual opportunity for Medtronic.

We’ve found that addressing the barriers of awareness, training and infrastructure is the key to unlocking this opportunity. One such example is in India where our efforts are providing increased access to cardiac therapy.

Last year, we introduced a healthy heart for all program, which is focused on driving awareness amongst patients, educating physicians and diagnostic and treatment options, and strengthening the patient for a pathway around hospitals which have the infrastructure to provide quality cardiac care.

The program’s early results are quite impressive. In the last year, we’ve touched 40,000 patients, 10% of whom have received device therapy. But the other 90% have also had their condition managed. In essence, streamlining the care pathway has reduced the patient's out-of-pocket expense by 50% while at the same time procedure volumes from -- for participating physicians and hospitals have increased by 10%.

You can see how this program is beneficial not only for Medtronic, but for the entire healthcare ecosystem. We are in the process of scaling healthy heart for all to address 300,000 patients by 2016.

In addition to the premium segment, we also took meaningful steps in FY ‘13 to increase our presence and capabilities in the growing value segment particularly in China. During the year, we purchased China Kanghui Holdings, a leading orthopedics developer.

We made a strategic investment in LifeTech Scientific Corporation, a developer of structural heart products. And we also opened our Shanghai Innovation Center and as a result we are approaching over 250 engineers in China who are focused in tailoring therapies for the local market and value segments worldwide.

These are just a few of the steps we’ve taken to increase our presence in the value segment, particularly in China. And China is clearly a unique opportunity and one of the four regions around the world we are targeting for expansion. This video that our Medtronic China team created offers a nice overview of the enormous opportunity in this marketplace.


You know this video just scratches the surface of the opportunities that we have in China and in addition the other emerging markets. Now, finally beyond the premium and value segments lies the majority of the rest of the world's population, the truly under served, those who have no access to healthcare today.

When I first started at Medtronic two years ago, I challenged our team to come up with destructive solutions for this vast group of people. I’m thrilled to share that our surgical technology’s team quickly rose to the challenge and has recently launched an ENT program called I Hear named Shruti in India.

This program is to address chronic ear infections that often go untreated and cause constant pain and may lead to permanent hearing loss. The development of this program required a new way of thinking and broader forms of innovation.

Patients are screened by community healthcare workers using a diagnostic kit and mobile endoscope which wirelessly transmits the data to a partner hospital. This information determines the best treatment path for each patient. And in the past month we have piloted five public screenings in Delhi and plan to scale up to three screenings a week in targeted areas.

In a short period of time we have screened a hundred and hundreds of people with as many as 10% referred for surgery. This is a groundbreaking program for Medtronic, when fully scaled it has the potential to provide a level of access to comprehensive care for the undeserved which is unprecedented in our history.

When Earl Bakken wrote our missions some 50 years ago, he not only gave us a tremendous gift of defining our values and direction as an organization, but he also gave us the freedom to grow and expand our capabilities. Our mission allows us to go to every corner of the world, so that every man, woman and child who could benefit from our therapies will get them.

Now let me turn a summary of our financial performance. While delivering in our three key imperatives, is critical to our long-term success like we just discussed. We must also execute in the near-term to build a track record of reliable growth.

Our fiscal year ’13 performance was an important step in this direction. We maintained or grew our market share in almost all our businesses, while delivering improvement in each of our major financial performance metrics.

We outperformed the MedTech sector delivering 5% constant currency growth. We grew our non-GAAP diluted earnings per share 8%, which is 3 percentage points faster than revenue. We also generated $4.4 billion of free cash flow and use that cash to distribute more than a $1 billion in dividends and repurchase more than $1.2 billion of our common stock. In June, our Board of Directors increased our dividend again for the 36th consecutive year and we remain committed to returning 50% of our free cash flow to shareholders.

Earlier this week we released our first quarter results for fiscal year 2014. We grew revenue 3% on a constant currency basis and delivered non-GAAP diluted earnings per share of $0.88.

While our results were at the low-end of our annual revenue outlook, they reflect that we continue to outperform the MedTech sector and in addition, we delivered on the bottom line, overcoming a number of challenges through strong operating discipline.

Looking ahead, our assumptions for the full fiscal year remained intact and we are confident in both our outlook for the remainder of the year and our long-term competitive positioning in the changing healthcare environment. We continue to strengthen and geographically diversify our business in order to deliver consistent and dependable growth.

Our execution over the last several quarters is being rewarded by the market, as our stock has appreciated by nearly 70% over the past two years outperforming the market. These are impressive returns and I’m thankful to our more than 46,000 employees around the world who are transforming the company to realize the opportunities in health. We know that continued crisp execution combined with strong disciplined capital allocation, will enable us to create long-term dependable value for our shareholders.

Now I’d like to close in the metric that makes us very proud and reflects the impact that we have on patient’s everyday. For years we’ve tracked how frequently people benefit from our medical technology.

Many years ago our founder Earl Bakken announced to employees that we were making an impact in another patient every 52 minutes, which is an impressive feat at that time. From our continued efforts to reach more patients over the years, we've consistently improved in this metric.

And I'm pleased to announce that in the last year, we further advanced to every 3 seconds, someone, somewhere in the world benefits from a Medtronic product or therapy. And at this moment, I'd like to give our employees and leadership team a round of applause for their role in making this important milestone a reality.

Now although we are pleased with how far we’ve come, the opportunities are still many. There are still millions of additional people around the world who could further benefit from our products and therapies.

Our efforts to transform our business to a broader focus and continue of care, as well as increasing global access will allow us to exponentially increase the number of patients we touch. I want to thank you for your continued investment in our company and the trust that you place in us.

The days ahead are promising. Our existing therapies for both developed and emerging markets are often underutilized. Our pipeline of new technologies is unique and compelling. We are solidifying new partnerships and business models that will redefine our company and we continue to invest and to extend our global presence.

We are determined to transform Medtronic from being primarily a device provider today into the premier global medical technology solutions partner of tomorrow. Our journey will require us to innovate differently, but our mission remains steadfast, to elevate pain, restore health and extend life for all patients around the world. Thank you.

And at this time, I would like to ask Neil Ayotte to review the outcomes of the shareholder balloting. Neil?

Neil Ayotte

Certainly. The preliminary voting results for the business items before the shareholders are as follows. Proposal one to elect 11 directors for one-year term, approved with each nominee being elected by a majority of the shares voted.

Proposal two, to ratify the appointment of PricewaterhouseCoopers LLP as Medtronic's independent registered public accounting firm for fiscal year 2014, approved by a majority of the shares voted.

Proposal three to approve in a non-binding advisory vote, named executive officer compensation a Say-on-Pay vote, approved by majority of the shares voted.

Proposal four, to approve the Medtronic, Inc. 2013 Stock Award and Incentive Plan, approved by a majority of the shares voted.

Proposal five, to amend and restate the company's articles of incorporation to provide that directors will be elected by majority vote in uncontested elections, not approved, because it failed to receive the required vote of not less than 75% of the votes entitled to be cast.

Proposal six, to amend and restate the company's articles of incorporation to allow changes to the size of Board of Directors upon the affirmative vote of a simple majority of shares; not approved because they failed to receive the required vote of not less than 75% of the votes entitled to be cast.

Proposal seven, to amend and restate the company's articles of incorporation to allow removal of a director upon the affirmative vote of a simple majority of shares; not approved because they failed to receive the required vote of not less than 75% of the shares votes entitled to be cast.

Proposal eight, to amend and restate the company's articles of incorporation to allow amendments to Section 5.3 of Article 5 upon the affirmative vote of a simple majority of shares; not approved because it failed to receive the required vote of not less than 75% of the votes entitled to be cast.

Proposal nine, to amend and restate the company's articles of incorporation to allow amendments to eliminate the fair price provision; approved by more than two-thirds of the votes entitled to be cast.

The final vote results will be filed on our form 8-K with the Securities and Exchange Commission on Tuesday, August 27, 2013. Omar?

Question-and-Answer Session

Omar Ishrak

Thank you, Neil. And with that, I would now like to open the question-and-answer session. If you would like to ask a question, please raise your hand and someone will bring a microphone to you so that our audiences can all hear you very clearly. Over there.

Unidentified Analyst

Mr. Ishrak, thank you. Board members, my name is Tim Mackey. I’m here representing thousands of construction workers who live and work in the Twin City metro area. Members of my union along with our fellow building trades are invested in this company and its success.

Our pension funds own hundreds of thousands of Medtronic shares, our health and welfare spend millions of dollars each year on the kind of life saving and life enhancing medical technologies that Medtronic produces. Our members even helped to build this room that we’re in here today.

My question concerns Cretex, a company that manufactures concrete pipe and components for medical devices, and counts Medtronic as among its medical customers. 40 members of my union, who work for Cretex Concrete Plant in Shakopee, have been on strike for nine weeks over the company's demand that they give up their pension benefits.

The fate of these 40 workers may seem small -- a small thing to a large company like Medtronic but it's a big deal to us. We have a responsibility to do right by workers like Rodrigo Zamorano who is here today -- who is with us today. Rodrigo’s wife is fighting breast cancer. His savings are gone. He is losing his pension benefits and if he does, it will devastate his family.

Two months ago, I wrote you a letter asking for a meeting to discuss our issue. Since then we have reached out to Medtronic through individuals who have a good relationship with our union and with the company. After waiting two months with no response, we are forced to make our own appeal to Medtronic in public with billboards, online advertising, individuals at Medtronic facilities.

Here is my question, is the lack of response from Medtronic part of a corporate strategy to ignore the problem and hope it goes away or is it an oversight? I can understand on something like this, my fall through the cracks at a big company. If that's the case, hopefully we can fix that problem today by getting a commitment from you that you will hear us out.

If ignoring our request as a strategy, I would urge you to reconsider. It won't cost Medtronic a penny to listen to our concerns, and we think that it is the the least you can do for investors and potential customers whose future are at stake. Can I get a commitment that you or one of your designated representatives will meet with us today or in the very near future?

Omar Ishrak

Well, first, thank you for being shareholders. I appreciate that and I appreciate the fact that you reached out to us. We don’t want to comment on other companies’ internal policies. We’ll consider your request and we’ll get back to you quickly, okay? Thank you.

Unidentified Analyst

My name is [Bill Johnson], shareholder and retiree. With the recent acquisition of Cardiocom, what are your plans to operate this business? Is it going to be operated as a separate unit or will it be eventually combined with Medtronic and maybe people move to those campus, or any ideas on that at this point?

Omar Ishrak

Well, at this stage, we’re really operating it as a separate unit. Remember this is an additional business, an area where we have relatively little core competency. However, there are strong synergies in the delivery to the customer and overtime we’ll look at different options.

But really for the immediate future and any plans that we have it really is to keep it running separately. I think is important because they do operate under a slightly different business model and we need to understand that well and then explore where are the positive synergies, and I do want to emphasize that the whole initiative is around growth. This is to really grow our business to access more patients and learn new things. So we want to protect that first. And then if the efficiencies to be had down the road by all means we’ll take a look at it then. Okay. Thank you.

I think back there first. I saw that hand or or this one. Let’s number one go first and then I’ll come to you.

Unidentified Analyst

My name is [Arthur Bing] and I have been a shareholder for many years. I would like to know during these days of hot discussion, what is the Medtronic, for the year just ended, what is the effective corporate tax rate for Medtronic and that would be the effective tax rate not the stated tax rate before credits?

Omar Ishrak

Yeah. I’ll let Gary. As far as I know, it’s 19%. But Gary knows it to a decimal point. So Gary, go ahead.

Gary Ellis

Overall, the Medtronic effective tax rate -- global effective tax rate, I mean, this is obviously worldwide, is better right around 19.5%, and it is all very depending on obviously what is happening in a given year in the various countries, but it’s been right around that 19.5% to 20% range last few years.

And as I said, that’s a global rate, so what that means is basically, for example, on the United States where the effective tax rate, the corporate tax rate is about 35%, that’s our profits in the United States are being taxed at that rate, in other countries where the tax rate is lower you’ll obviously be taxed with those countries tax rate. So the effective tax rate that we end up paying as a company globally is right around that 19.5% to 20%.

Omar Ishrak

I think there is a question right here. Yeah, number four.

Unidentified Analyst

My name is Ramesh Gupta. I’m a shareholder also and retiree also. With the 500 million people having diabetic problem worldwide, which you mentioned earlier and when is Medtronic is going to have a perfected artificial pancreas which I have been listening for about seven, eight years, since we acquired this company.

Omar Ishrak


Unidentified Analyst

But every year it’s we keep on saying next year, next year, next year. So why can’t we have a challenge to R&D to have a certain date like Apple or Samsung have certain dates…

Omar Ishrak


Unidentified Analyst

… for their new product. So I’d like to know that if you have any challenge to that.

Omar Ishrak

Yeah. I’d like to ask that to R&D as well. But listen in all seriousness. I realize that. The thing that I got to point out is that this is not like a single product that you release. This is a tough problem, very tough problem, because there’re all kinds of dangers associated with it not being right. If you overdose, for example, you can have serious consequences.

So we have to take this step by step. And really believe it or not we’ve already taken steps and introduced technologies, some are outside the U.S., some very soon will be in the U.S. where this close loop concept is actually working and it’s in the market today and patients are benefiting.

We are in fact we’ve got a roadmap where we’ve a very frequent basis to increase the capability overtime. So the one thing that I do want to kind of reset your thinking around is that this is not going to be one big thing that will land out there.

As we’ve learned over the years, it’s a fairly complex concept, so you’ll see us improving functionality towards close loop on a much more regular basis. And I think that’s the right way to think about it and then you’ll really see some progress. And I think it’s something that the R&D team can actually manage.

And also, from a regulatory perspective, the regulatory authorities are also much more comfortable looking at it that way, simply so that they can manage this whole program. I appreciate your sense of urgency around that. We all share that and we’ve got our focus around this.

But look R&D milestones can slip, things can go wrong but our mission and our focus around delivering this at some point in the future that is not going to go away. We’ll going to continue to invest. We’ll continue to learn about it and one day we’ll get there. Okay. Thank you. Thanks. Thanks for your interest in this. Other questions? Yeah. One right there.

Unidentified Analyst

As we continue, I’m [Gene Prosek] and I’m a retiree. As we continue to gain business internationally.

Omar Ishrak


Unidentified Analyst

How we’re going to manage global competition where you may be working against companies that don’t have the high quality standards that we have and who don’t have the ethics that we do and I think particularly there are patents may not be valid in their areas?

Omar Ishrak

You face all kinds of different hurdles. The one thing that is clear to us is that our own values and our own mission is not going to change. So you don’t have to worry about that part. The part of our mission is that we always deliver products with highest levels of safety and the highest levels of quality, at all times no matter what price point you’re addressing, that’s one.

The other piece is that we conduct business with highest levels of integrity and that is completely uncompromised and that will never go away. So from our perspective that’s the way we do business.

Sure, there will be countries where or places where things are different, people operate differently. We believe that these values that we have are so fundamental and so true that everyone will eventually come around to it because that’s the right thing to do.

And we’re convinced that that’s the case and we’ve had experience that if we stick to our guns eventually the customers trust us as oppose to others, because end of the day our customers are trying to help people and the best way to help people is to follow those values distinctly.

And so we won’t compromise on those. We’ve got every belief and complete faith that if we stick to our values, things will be just fine. Okay. Yeah. Out there. Okay. We go one there and then I’ll come to you. Okay. Go ahead.

Unidentified Analyst

Thank you.

Omar Ishrak


Unidentified Analyst

My name is [Jim Y. Cory], a resident of (inaudible) and a Medtronic shareholder.

Omar Ishrak


Unidentified Analyst

On December 8, 2009, I received a Medtronic aortic-abdominal stent. Later that month on Christmas eve, a very talented cardiac surgeon, Dr. Hani Salib, saved my life with a Medtronic’s porcine valve and I just want to thank Earl Bakken of Medtronic and tell you I’m still alive and my three sons and I will, we’ll are, and always will remain Medtronic’s shareholders.

Omar Ishrak

Thank you. Let me ask you a question. I’m going to give you a challenge. Earl has told me often that to patients who received our therapies and extended their life, a question to ask them is what are you going to do and what have you done with the extended life and that is something that’s a very serious question and I urge you to take that on. We actually have a challenge that if you have good ideas, enter that challenge, there is a competition. There is a trip to Hawaii for that. But it’s something that I urge you to think about and it’s a real serious question. Any response real quick?

Unidentified Analyst

I just plan to live my life to the fullest for the next 14 years.

Omar Ishrak

That’s great. Make it 15. Okay. Nice. Okay. There was a question right here.

Unidentified Analyst

My name is [Boitoi] and I’m a resident of Mount View, and I have been the stockholder of Medtronic for over 16 years. I have been very well rewarded, but I hear all of this expansion into the foreign countries and I’m just wondering if you have a plan to keep the American workers in America instead of assigning them all over the world. I see the layoffs in the newspaper by Medtronic around here. What is your plan for our American workers?

Omar Ishrak

I think first of all we’re competed to Minnesota to Minneapolis this is our headquarters. This is where we’ve got core competencies and it’s very important for us. Second, in American in the U.S., we’ve got key skills that will never go away. We’ve got key skills in science and technology, and core manufacturing expertise, and these are things that we will maintain that we’re committed to investing in for the future, now they have to be competitive.

But I do believe that certainly in the areas of science and technology and clinical areas, we have an enormous lead and it’s something that we will maintain and leverage to drive growth in other regions around the world.

So this is not if we grow there is something in it for everybody and everybody will grow. And certainly there are key aspects of the United States which have got differentiated value and which we are part of, which we’ll maintain and invest in.

Your point about layoffs, so businesses go through different conditions and different business units invest in different areas. I can tell you that overall in the U.S., overall, I’m not sure we’ve reduced our headcount by that much if there anything we might even have increased within last couple of years there is pretty much flat.

Now that’s not true in every single business, in every single locality, that’s not how business operates, we have to make tradeoffs, depending on dynamics and how the world is changing. But even within the U.S. there is, it’s not that that we’re sort of running of somewhere else.

Helping other countries grow in fact helps the U.S. Helps our engineers here because we come up with newer products which we actually export from here and even if it’s not products that we export, we have scientists and engineers from here who develop products for other places which in the end helps our overall company.

So we see this in a total global package that U.S. is a key part of and in fact a very important part of and that’s how it always be. So there is no big plan to leave here or anything like that. We’ve got no intention of that, in fact it’s the opposite. We’re excited about what can happen in United States. We think we’ve got to leverage the technology and expertise available here and that’s a differentiator for us. Okay. Thank you.

I think we’ve had a lot of questions and some great dialogue. I -- at this point want to thank all of you and with that formally conclude the 2013 Annual Shareholders Meeting. Again, I’d like to thank you for your participation and declare this meeting officially adjourned. Thank you.

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