Medtronic Inc MDT
Q4 2013 Earnings Call Transcript
Transcript Call Date 05/21/2013

Operator: Hello and welcome to today's Medtronic Q4 Earnings Release Conference Call. My name is Lisa and I will be your event specialist. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I would now like to turn today's call over to your host, Mr. Jeff Warren, Vice President, Investor Relations. Please go ahead, sir.

Jeff Warren - VP, IR: Thank you, Lisa. Good morning and welcome to Medtronic's fourth quarter conference call and webcast. During the next hour, Omar Ishrak, Medtronic Chairman and Chief Executive Officer, and Gary Ellis, Medtronic Chief Financial Officer, will provide comments on the results of our fourth quarter and fiscal year 2013, which ended April 26, 2013. After our prepared remarks, we will be happy to take your questions.

First, 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 any forward-looking statement.

Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC; therefore, 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 our website at Medtronic.com.

Finally, unless we say otherwise, references to quarterly or annual results increasing or decreasing are in comparison to the fourth quarter and full fiscal year 2013, respectively, and all year-over-year revenue growth rates are given on a constant currency basis.

With that, I am now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak.

Omar Ishrak - Chairman and CEO: Good morning, and thank you, Jeff, and thank you to everyone for joining us today. This morning we reported fourth quarter revenue of $4.5 billion, which represents growth of 5%, Q4 non-GAAP earnings of $1.124 billion and diluted earnings per share of $1.10 increased 8% and 11% respectively. These results were a strong finish to a solid fiscal year and more importantly, represented another step towards our goal of delivering consistent and dependable growth.

Our performance was broad-based, with many businesses and geographies making significant contributions to our overall growth. In the second half of the fiscal year, we delivered 4.4% revenue growth, which was consistent with the model we shared at the beginning of the calendar year. This quarter, our revenue exceeded our outlook, which contributed to a portion of the earnings upside, the details of which we will discuss later.

We recognize that every quarter may not be a perfect fit on the trend line because of a variety of reasons, but the most important outcome for me is that we are establishing a track record of consistency. We are still in the process of continuously strengthening and geographically diversifying our businesses so that we can reliably deliver balanced and consistent growth.

Looking back at FY '13, I am proud of the work that our approximately 45,000 employees around the world have accomplished. We improved our top line performance for the second consecutive year, delivering 5% growth, which exceeded our original revenue outlook. We maintained or grew our market share in almost all of our businesses while delivering SG&A leverage.

Our FY '13 non-GAAP EPS grew 300 basis points faster than revenue and we generated $4.4 billion in free cash flow and while these financial metrics are important, they come as a result of living our mission, partnering with our physician and administrative customers every day to bring our cost effective and lifesaving innovations to millions of patients around the globe.

Over the last several quarters, I've discussed the importance of stabilizing our U.S. ICD, U.S. Core Spine, and U.S. Pacing businesses, which represent nearly a quarter of our total revenue. Combined, these three businesses were flat in Q4, with two of the three businesses, U.S. ICDs and U.S. Core Spine, not only stabilizing but actually growing 2%. This is especially significant as Q4 was the first quarter in four and a half years where both of these businesses grew concurrently.

Gary will walk you through the details later, but this is noteworthy as pressures in these businesses have been significant impediments to our overall growth profile. In fact, we are optimistic that this stabilization will continue as we rollout our new products. Earlier this month, we received FDA approval for our next-generation high power devices, and I was encouraged by the positive feedback I heard from customers on these products when I recently attended HRS.

U.S. Pacing, however, declined 6%, as the overall market continues to be affected by both lengthening replacement cycles and lower initial implant rates. While our U.S. Pacing business was in-line with the market, it is not recovering at the rates we expected earlier this calendar year. This is in clear contrast to the international pacing market, which is growing and where we gained share.

Looking ahead, we believe our Advisa MRI pacemaker which is doing extremely well in Japan and is now being introduced in the U.S., will lead to improved performance despite the slow market. The remaining three-quarters of our business continued to deliver solid performances, growing a combined 6% in Q4.

In the Cardiac and Vascular Group, we outperformed the market driven by several areas of strength. In CRDM, the ongoing European launch of our new family of high power devices and the second-generation quadripolar lead continues to go well. These products have led to sequential pricing and share improvement in Europe, and our share is now at its highest level in over two years.

In Pacing, our international business grew 13%, led by an outstanding performance in Japan. The Japanese market has clearly embraced our Advisa MRI product family, resulting in over 11 points of pacemaker share gain since launch.

In coronary, we improved our leading global stent share in the quarter, driven by the ongoing success of our Resolute Integrity drug-eluting stent. Structural Heart and Endovascular also had very solid performances in Q4, as we continue to offer differentiated new technology in transcatheter valves, aortic stent grafts, peripheral vascular products, and cardiac surgery oxygenators.

In many ways, our CVG organization strategy to continuously enhance its technology and economic value-oriented service offerings, to streamline its customer presence and to leverage its collective strength for value continues to be validated. This has meaningfully contributed to our ability to outperform the market in recent quarters. We are taking our CVG approach even deeper, combining our CRDM and Coronary U.S. district managers into a single cardiology focused leadership structure that will better align our CVG solutions to the changing customer.

Now, let's switch to the Restorative Therapies Group, where our performance was equally impressive in Q4. In Core Spine, in addition to the growth in the U.S. that I mentioned earlier, we also continued to improve our share. We attribute this share gain to our new, innovative products and therapies across our Spine portfolio. We are also differentiating our Spine business from the competition through enabling technologies from our Surgical Technologies business, including imaging, navigation, and powered surgical instruments.

Hospitals are investing in our capital equipment for spine surgery, as they see clear value from improved surgical precision and more efficient procedures. This shows up not only in increased revenue and share for our spinal implants, but also in the strong capital equipment performance in our Surgical Technologies business. We believe we are still only on the leading edge of this large, differentiated opportunity in Spine.

In BMP, while our Q4 revenue declined 1%, it is encouraging to note that on a sequential basis, this business has been relatively stable throughout FY '13 after adjusting for bulk sales. We are awaiting the publication of the systematic reviews of INFUSE, commissioned by Yale University's Open Data Access Program. According to Yale's public communication, the results are anticipated to be published in June.

In Neuromodulation, both DBS and Interstim had strong performances as our consistent focus on market development and evidence generation is paying off. Surgical Technologies delivered another outstanding quarter with Advanced Energy growing in excess of 20% and Neurosurgery, driven by continued adoption of imaging and navigation capital equipment posting double-digit growth.

In Diabetes, we had solid mid-teens of international growth in Q4, where we have new products approved. In the U.S., however, the Diabetes business continues to face near-term pressure as we await FDA approval of our MiniMed 530G. In fact, U.S. Diabetes, which contributes nearly $1 billion in revenue did not grow in FY '13, but we expect it to quickly return to faster growth once our new system is approved.

Let me now discuss our performance on a regional basis. The U.S. showed some encouraging signs, growing 3% in both the quarter and the year, representing the first full year of growth in the U.S. in three years. In our international regions, revenue was up 7% again this quarter, driven principally by Japan and emerging markets. It is worth noting that our international regions have grown between 6% and 8% for eleven quarters in a row, which is the type of consistent and balanced performance that we are looking for across our geographies.

In Western Europe and Canada, we returned to growth again this quarter, an improvement from our decline last quarter, driven primarily by CRT-D products in CRDM and while our results in Western Europe were better than last quarter, the market conditions across different businesses and countries remain complex. Our team is navigating through these dynamics to unlock potential growth opportunities, using innovation as well as our breadth and scale to partner with different stakeholders.

Looking ahead, however, we believe it is prudent to remain cautious about European expectations given these somewhat uncertain market conditions. Japan had another strong quarter, up 19% in Q4, where a number of our newly launched products are driving growth. In addition to the Advisa MRI pacemaker I mentioned earlier, our Resolute Integrity DES gained 2 points of market share sequentially and our Endurant AAA and Valiant Captivia thoracic stent grafts also posted strong growth.

In emerging markets, we grew 14%, driven by both Central & Eastern Europe, as well as Middle East & Africa, which both grew above 20%. Our emerging Market results were in line with the expectations that we communicated to you last quarter as we faced difficult comparisons in China due to the timing of their New Year holiday week.

In China, our integration of Kanghui is going well, with the business growing over 20% on a pro forma basis, offsetting our exit from the Weigao joint venture. We are excited about the long-term value segment opportunity that Kanghui represents in the global orthopedics market.

Now, let's turn to our product pipeline, specifically our two largest mid-term opportunities, the CoreValve transcatheter aortic valve, and the Symplicity renal denervation system for treatment-resistant hypertension. Both of these products are market leaders in Europe, and we are planning to launch them in the U.S. in FY15. In the U.S. CoreValve pivotal trial, the last patient follow-up is already complete in our Extreme Risk arm, and we will be complete in our High Risk arm this fall.

Baseline patient demographic data will be presented at TVT in June; Extreme Risk data will be presented in a late-breaker at TCT this fall; and the High Risk data is expected to be presented at ACC next spring. We have already submitted two of our four modules to the FDA, and are preparing for launch in the first half of FY '15.

Turning to RDN, we have made good progress on our U.S. pivotal trial and we expect to complete patient randomization soon. At this point, we are expecting a late FY '15 U.S. approval. It is also important to note that our Symplicity system was recently accepted into the FDA and CMS parallel review pilot program, which allows CMS to begin consideration for national coverage determination while the FDA completes its regulatory review, a process that we expect will meaningfully reduce the time between FDA approval and full reimbursement.

In addition to our focus on the top line growth drivers, we are also executing on both our product and SG&A cost reduction initiatives, which combined with financial leverage from our share buybacks, will help us achieve our goal of growing earnings per share 200 to 400 basis points faster than revenue.

After successfully reducing product costs by $1 billion from FY '07 to FY '12, we are now one year into our new product cost reduction initiative that is focused on taking out an additional $1.2 billion in product cost through FY '17. This program is important not only to maintain our gross margins by offsetting pricing pressure, but also to fuel the development of tiered products, which are essential to creating new value segment opportunities.

Included in our results this quarter is a restructuring charge, of which nearly half of the planned position reductions are related to manufacturing consolidation efforts. We also continue to reduce headcount in slower growing businesses and geographies. These are never easy decisions, but are necessary in order to increase investments in our faster growing opportunities.

We are also making progress in our plans to increase our U.S. cash flow through working capital improvements, and have set a goal of increasing our inventory turns by 50% by FY '17. In FY '13, the first year of our five-year inventory improvement program, we improved our inventory weeks by 7%. Not only do these programs instill good fiscal discipline, but they ultimately strengthen our already robust levels of free cash flow generation.

Over the next five years, we conservatively expect to generate over $25 billion dollars of free cash flow, and we remain committed to returning 50% of this to our shareholders through dividends and share repurchases. We believe this level of commitment is appropriate given our current mix of U.S. and international free cash flow. The remaining 50% gives us the flexibility to make the necessary investments for sustainable growth.

We are and will continue to be very disciplined in how we deploy this capital, with a strong focus on returns. We expect any M&A transaction to surpass our mid-teens risk adjusted hurdle rate, and we do not expect these investments to be dilutive to shareholder EPS growth expectations.

As we look ahead to FY '14, we remain focused on building credibility and a track record of delivering on our baseline expectations. Gary will discuss our revenue outlook and EPS guidance in a moment, but I would like to discuss a few of the more important drivers we see in FY '14.

On the positive side, we should continue to see traction from our new products. We should also see our momentum in emerging markets continue as we remove barriers to access, build therapy awareness, and expand our training programs.

In developed markets, we are expecting continued strength in Japan, especially in the beginning of the year. In the U.S., we are planning for continued stabilization in key markets, while in Western Europe, we remain cautious as we go into FY '14.

Resolution of a number of critical regulatory issues is a priority for us in FY '14. Specifically, the Neuromodulation business is under an FDA warning letter, and we continue to work closely with the FDA to resolve the issues. In addition, the FDA recently identified in an audit of our Diabetes business some deficiencies related to our insulin pump quality systems, and we have already begun instituting changes and actions aimed at resolving these issues.

I take these quality compliance issues very seriously, and we are working hard to make sure we are devoting whatever time and resources are necessary to resolve these issues quickly. Ensuring the highest level of quality and regulatory compliance has and always will be – a personal priority for me and a central focus of everything that we do at Medtronic.

We view FY '14 as a pivotal year, as we not only make progress on delivering our transcatheter valve and renal denervation programs to the U.S. in FY '15, but we also begin to execute on transformational opportunities that we believe will establish durability in our long term performance and create potential upside to our baseline.

Our first long-term transformational opportunity is accelerating globalization, particularly in emerging markets. There is a significant opportunity to deepen the penetration of our existing therapies, where pricing and margins are comparable to the developed markets. To realize this opportunity, we are investing in joint programs with a variety of stakeholders to overcome barriers in the areas of awareness, diagnosis, infrastructure, and training.

Through these activities, we are also creating the necessary infrastructure and solutions to participate in the next wave of growth, the developing value segment. We intend to be a global leader in this segment, and our recent investments in Kanghui and Lifetech are key initial steps towards this goal.

Not only do we believe that a tiered product portfolio will sustain our emerging market growth over the long term, we also believe it can benefit our developed market businesses through reverse innovation, as an increasing number of developed market customers seek value options over time.

Our other transformational opportunity is to systematically address the economic value needs of our customers and other stakeholders. In the changing healthcare environment where payment models and customers are evolving, we believe that successfully addressing the growing importance of economic value considerations, while still delivering clinical value will position us as the premier global medical technology solutions partner, creating value for healthcare systems around the world. In general, our industry has been slow to adapt to this changing landscape, which I believe has led to increased pricing pressure and ultimately slower market growth.

Whereas, in the past, physicians alone were the ones who were purchasing decisions, increasingly other stakeholders are influencing or making those decisions. Thus, medical technology innovation must evolve to meet the needs of a broader set of stakeholders, proven through both clinical as well as compelling economic evidence. Ultimately, we must strive to not only improve individual patients' lives, but also ensure that the overall healthcare ecosystem remains viable. This is an important shift in our focus, one that will enable us to be leaders in the new, emerging global healthcare landscape.

Let me also share with you why we believe we are uniquely positioned to increase our competitive advantage in this new environment. We have a number of key strengths; our market-leading products, our in-hospital footprint around the world, our healthcare economics expertise and lean sigma resources, and our strong financial position. Together, this gives us unprecedented breadth, global reach, and scale, and collectively these strengths will further differentiate Medtronic.

Finally, over the past year, we have been testing, piloting, and implementing a variety of programs to demonstrate economic value in new and interesting ways around the globe, and in the coming quarters, you will see an increasing number of examples of these new approaches at work. Ultimately, our goal is to be more than just a device provider, but rather the premier global medical technology solutions partner.

Let me now ask Gary to take you through a more detailed look at our results before we take your questions. Gary?

Gary Ellis - SVP and CFO: Thanks Omar. Fourth quarter revenue of $4.459 billion, increased 4% as reported and 5% on a constant currency basis after adjusting for a $48 million unfavorable impact of foreign currency. Q4 revenue results by region were as follows. Growth in Central and Eastern Europe was 24%; the Middle East and Africa grew 21%; growth in Latin America was 18 percent; Asia Pacific grew 13%, including 19% growth in Japan. Growth in Greater China was 10%; South Asia grew 6%; and the growth in the U.S. was 3%, while Western Europe and Canada grew 1%.

Emerging markets grew a combined 14% in Q4 and represented 12% of our total sales mix. Our Q4 emerging market and Greater China growth was negatively affected by difficult comparisons due to the timing of the Chinese New Year. Excluding this impact, we estimate that our emerging market and Greater China business grew in the mid to high teens. Looking ahead, we would expect emerging markets to consistently grow in the high teens. As we address the barriers and work with stakeholders, our goal is to ultimately drive 20% growth in emerging markets.

Q4 earnings and diluted earnings per share on a non-GAAP basis were $1.124 billion and $1.10, an increase of 8% and 11% respectively. Q4 GAAP earnings and diluted earnings per share were $969 million and $0.95, a decrease of 2% and an increase of 1% respectively as the prior year's GAAP numbers included the gain on the sale of our Physio-Control business unit. This quarter's non-GAAP pre-tax adjustments included, a $5 million gain associated with the acquisition-related items, and a $182 million net restructuring charge that is largely driven by the planned reduction of approximately 2,000 positions, which predominantly took place in CVG and Spine.

From a geographic perspective, about half of these reductions were located outside the United States. In addition, nearly half of the reductions are related to manufacturing consolidation efforts as we continue to focus on reducing product costs. This restructuring is expected to result in approximately $200 million to $225 million in annual savings.

In our Cardiac and Vascular Group, revenue of $2.342 billion grew 5%. Growth was broad-based, with all of CVG businesses making significant contributions. CRDM revenue of $1.332 billion grew 4%. Worldwide ICD revenue of $755 million grew 2%, which was significantly better than the market, which we estimate declined 1%. Our shock reduction and lead integrity alert technologies, combined with proven, long-term lead performance continue to receive strong market acceptance.

In the U.S., our ICD revenue grew 2%, and we continue to see market stabilization. We estimate we gained over 100 basis points of share over the past year. Our lead-to-port ratio continued to increase sequentially and is at the highest point in several years. Our ICD implant volumes were sequentially stable for the fourth quarter in a row. At the same time, our U.S. ICD pricing improved modestly on a sequential basis, declining 3% year-over-year. This was the first quarter in several years where we have seen a sequential improvement in our pricing.

As we look ahead, we are launching our next-generation of high power devices in the U.S. this month. Our Viva/Brava CRT-D family, with our proprietary AdaptivCRT algorithm significantly reduces RV pacing and improves response rates to CRT therapy, resulting in improved device longevity and a reduction in heart failure hospitalization.

In addition, both the Viva/Brava CRT-D and Evera ICD contain enhanced shock reduction algorithms, battery and circuit design improvements to extend device longevity, and an improved PhysioCurve design which meaningfully reduces device size and enhances patient comfort.

Pacing revenue of $505 million grew 5%, outperforming the global market by over 500 basis points, as we gained share on both a year-over-year basis and sequentially. Our international Pacing business grew 13%, driven by strong customer demand for our Advisa MRI pacemaker in Japan.

AF grew over 20%, driven by over 30% growth of our Arctic Front Advance cryoballoon system with EvenCool Cryo Technology, as customers continued to adopt this second generation system because it offers a more efficient, safe, and effective treatment for paroxysmal AF.

Coronary revenue of $465 million grew 5%. Worldwide DES revenue in the quarter was $290 million, including $107 million in the U.S. and $29 million in Japan. Resolute Integrity’s deliverability, recent positive data regarding early dual anti-platelet therapy interruption, unique FDA labeling for diabetes, and long-term clinical performance is receiving strong customer acceptance globally despite competitive product launches of next-generation platform iterations.

While we have now anniversarried the initial launch of Resolute Integrity in the U.S., this quarter we received FDA approval for longer lengths of this product, and we continue to benefit from the launch in Japan. In fact, Resolute Integrity continues to gain share in markets around the world. We gained nearly 2 points of share sequentially in the U.S., 2 points of share sequentially in Japan, and 3 points of share in Europe.

In renal denervation, while Q4 revenue was modest, physician interest and acceptance of this therapy continues to grow and the long-term outlook for this opportunity in hypertension remains robust. We are investing in developing referral networks, reimbursement, clinical and economic evidence, and technology development to further strengthen our leadership position.

This summer, we anticipate CE Mark for our Symplicity Spyral multi-electrode catheter, which will reduce ablation time from the current 16 to 24 minutes down to only 2 minutes, and all through a very small 6 french catheter. Results from our first-in-human trial for Spyral, as well as the first data set from our global Symplicity registry will be presented at EuroPCR later this week.

Also on the clinical front, we submitted our IDE to the FDA for Symplicity HTN-4, which is focused on expanding the indication to include uncontrolled hypertension patients, with systolic pressure between 100 and 160 millimeters of mercury. We believe our technology, strong clinical data, market development efforts and pioneering IP position represent a large, multi-billion dollar opportunity in renal denervation.

In Structural Heart, revenue of $310 million increased 8%, including mid-teens growth in transcatheter valves. We estimate the international transcatheter valve market grew approximately 10%. Our CoreValve and CoreValve Evolut devices continue to have leading share in the international transfemoral market. In Q4, we successfully launched our Engager valve in Europe, our first entry into the transapical segment which represents approximately 20% of the European TAVI market.

One year data from our CoreValve ADVANCE study was just presented at EuroPCR this morning. In this rigorous real-world study, CoreValve survival rates are among the highest ever reported, stroke rate is low and stable and CoreValve demonstrates exceptional, stable hemodynamic performance.

Thirty day results from our Engager European pivotal trial were also just presented at EuroPCR, demonstrating high procedural success and exceptional PVL performance. Our U.S. CoreValve pivotal trial enrollment is complete, but we continue to enroll patients through both the continued access program and our Expanded Use registry. We also continue to invest in next-generation technologies. We have submitted for CE Mark for a valve-in-valve indication, as well as for our EnVeo delivery system. We also expect to do the first-in-human implant of our Evolut R recapturable TAVI system this summer.

In Endovascular, revenue of $235 million grew 10%, with solid growth in both our Aortic and Peripheral businesses. In Aortic, we continued to see strong growth from Endurant in Japan, and we expect to launch Endurant II in Japan in Q1. In the U.S., we increased our share sequentially this quarter with Endurant II. Our Thoracic business grew over 25% on the strength of Valiant Captivia in the U.S. and International markets.

In Peripheral, our market-leading drug-eluting balloon business posted strong double-digit growth. We continue to make rapid progress on our U.S. drug-eluting balloon pivotal trial for an SFA indication, and we expect a U.S. market launch of this important new therapy in the first half of FY '16.

Now, turning to our Restorative Therapies Group, revenue of $2 billion, 117 million grew 4%. Results were driven by growth in Surgical Technologies, Neuromodulation, and Diabetes. Spine revenue of $811 million was flat, both globally and in the U.S. Core Spine revenue of $671 million was flat globally and grew 1% in the U.S. Excluding BKP, our Core Spine business grew 2% globally and grew 3% in the U.S., outperforming the U.S. market as we gained share on both a sequential and year-over-year basis. In fact, we estimate our U.S. Core Spine share increased 2 percentage points in FY '13.

Our Solera posterior fixation system, Bryan artificial cervical disc, Atlantis Vision Elite Cervical Plate, and AMT interbody devices all drove incremental revenue in Q4. U.S. market fundamentals remain relatively stable with a low-single-digit price mix decline and flat procedure volumes. Surgical Technologies' revenue of $407 million grew 11%, driven by double-digit growth in Neurosurgery and Advanced Energy. Neurosurgery performance was driven by sales of large capital equipment, including O-arm imaging and StealthStation surgical navigation systems.

In addition, sales of Midas Rex powered surgical equipment and service revenue drove growth. In Advanced Energy, strong double-digit growth of both Aquamantys bipolar sealers and PEAK PlasmaBlade electrosurgical products drove results. We also added additional Advanced Energy sales reps to capitalize on the strong growth in this business. In ENT, our business continues to contribute solid and consistent mid-single-digit growth.

Turning to Neuromodulation, revenue of $492 million increased 7%. These results were driven by strong global growth in DBS and Gastro/Uro. In DBS, we had another strong quarter of double-digit growth in both the U.S. and international markets as we continue to focus on building neurologist referral networks. This targeted training and education is raising awareness of the therapy and resulting in double-digit new implant growth, which is encouraging for the long-term health of this business.

Gastro/Uro also grew double-digits in Q4, driven by sales of InterStim Therapy. In Western Europe, InterStim grew over 20%, and in the U.S., we are seeing solid adoption of InterStim Therapy for bowel control. In Pain Stim, RestoreSensor continues to drive growth and share gains in the U.S. In Western Europe, growth continues to be driven by the acceptance of our SureScan MRI spinal cord stimulation systems, the only system with CE Mark approval for full-body MRI scans.

Diabetes revenue of $407 million grew 4%. In the international markets, growth was 14% as we continue to see strong adoption of the Veo pump with low-glucose suspend and Enlite CGM sensor. In the U.S., revenue declined 2% as customers anticipate FDA approval of U.S. version of this pump and sensor, branded the MiniMed 530G. We have now deferred $23 million of revenue, including $14 million in Q4, as we plan to convert some of the recently sold pumps to the new technology when approved.

We look forward to the presentation of the results of the In-Home portion of ASPIRE, our randomized trial evaluating the safety and efficacy of the threshold suspend automation feature in our sensor-augmented pumps. Looking at our pipeline, we started the first user evaluations of our next-generation pump platform, the MiniMed 640G and expect to launch it in international markets in the first half of FY '14. We have also submitted our next-generation sensor, the Enlite 2 for CE Mark approval.

Turning to the rest of the income statement, the Q4 gross margin was 74.6%. After adjusting for the $10 million non-GAAP adjustment from the restructuring charge, as well as a 30 basis point negative impact from foreign exchange, the Q4 gross margin on a non-GAAP operational basis was 75.1%, which was below our expectations. However, it is important to note that this was not due to pricing pressure, as our standard gross margin was flat year-over-year as we continue to successfully offset pricing pressures through our cost of goods sold reduction program.

Rather, the variance in our expectations was driven by other product costs, where our higher than expected financial results triggered a catch-up in incentive expenses that negatively affected the gross margin by 30 basis points. Excluding these items, our Q4 gross margin was 75.4%.

It is also worth noting that our gross margin includes additional spending related to resources diverted to address quality issues in Neuromodulation and Diabetes, which negatively affected the gross margin by approximately 20 basis points. Looking ahead, we would expect the gross margin for fiscal year 2014 to be in the range of 75% to 75.5% percent on an operational basis.

Third quarter R&D spending of $409 million was 9.2% of revenue. We continue to invest in new technologies and evidence creation to drive future growth. For FY '13, R&D expense was 9.4% of revenue. We would expect R&D expense in fiscal year 2014 to be somewhat less around 9% due to the tradeoffs we're making to partially offset the device tax, as well as shifting of R&D resources to resolve pending quality issues, which gets recognized in cost of goods sold.

Third quarter SG&A expenditures of $1.475 billion, represented 33.1% of sales. After adjusting for the 10 basis point negative impact from foreign exchange, Q4 SG&A was 33%. In FY '13, we delivered 40 basis points of SG&A leverage, achieving the goal we set at the beginning of the year. We're continuing to focus on several initiatives to leverage our expenses. In FY '14, we would expect to drive an additional 30 to 50 basis points of improvement, which would result in SG&A in the range of 33.8% to 34% on an operational basis and it is worth mentioning that we typically see most of our leverage in the fourth quarter.

Amortization expense for the quarter was $84 million. This came in slightly less than outlook given on our Q3 call due to the write-off of certain intangibles. For FY '14, we would expect amortization expense to be approximately $85 million per quarter. Net other expense for the quarter was $12 million of income, which was more favorable than our original forecast primarily due to three factors.

First, the Puerto Rico excise tax was less than expected due to a lowering of the rate during the quarter. Second, we received income from a litigation settlement with NuVasive, although it is important to note that the majority of our litigation against NuVasive is still unresolved. And third, fluctuations in foreign currency resulted in greater gains from our hedging program. As you know, we hedge our operating results to reduce volatility in our earnings from foreign exchange.

In Q4, net gains from our hedging program were $21 million. Based on current exchange rates, we expect FY '14 net other expense to be in the range of $150 million to $190 million, which includes an expected $120 million impact from the U.S. Medical Device tax. For Q1 FY '14, we expect net other expense to $55 to $65 million based on current exchange rates.

Net Interest Expense for the quarter was $48 million. Excluding the $21 million non-cash charge for convertible debt interest expense, non-GAAP net interest expense was $27 million. At the end of Q4, we had approximately $11.1 billion in cash and cash investments and $10.7 billion in debt after issuing $3 billion of senior notes in March and repaying $2.2 billion of convertible debt in April. It is worth noting that we no longer have convertible debt outstanding and going forward the non-GAAP adjustment will not be applicable, which results in a difficult comparison for the next four quarters.

Based on current rates, we would expect FY '14 net interest expense to be in the range of $150 to $160 million, a level that is more comparable to our FY '13 GAAP net interest expense. It is also worth noting that at the end of Q4, we changed our accounting principle for classifying our investments on the balance sheet. Our preferred method is now based upon the nature of our investments' liquidity instead of their stated maturity date. To conform the prior period balances to this new methodology, approximately $6.8 billion of investments have been reclassified from long-term investments to current assets as of April 27, 2012.

In Q4, we generated over a $1 billion in free cash flow, bringing our FY '13 free cash flow to $4.4 billion. We are committed to returning 50% of our free cash flow to shareholders. In FY '13, we have paid over $1 billion in dividends and repurchased over $1.2 billion of our common stock.

As of the end of Q4, we had remaining authorization to repurchase approximately $27 million shares. Fourth quarter average shares outstanding, on a diluted basis, were $1.23 billion shares. For Q1, we would expect diluted weighted shares outstanding to decline by approximately 8 million shares, and for the full fiscal year 2014, we would expect diluted weighted shares outstanding to be approximately 1.8 billion shares.

Now, let's turn to our tax rate. Our effective tax rate in the fourth quarter was 16%. Excluding the impact of one-time items, our adjusted non-GAAP nominal tax rate in the fourth quarter was 16.9%. Included in this rate is a $43 million net tax benefit associated with the finalization of certain foreign tax returns, reversal of a valuation allowance, and the tax impact of certain foreign dividend distributions. Excluding the impact on one-time items, our FY '13 adjusted non-GAAP nominal tax rate was 18.3%. For FY '14, we expect an adjusted non-GAAP nominal tax rate in the range of 19% to 20%.

Let me conclude by providing our initial fiscal year 2014 revenue outlook and earnings per share guidance. We were pleased by our improved performance in FY '13, and growth in our end markets has been relatively stable. Based on this, we believe that constant currency revenue growth of 3% to 4%, which is consistent with the revenue outlook we had in fiscal year 2013, remains reasonable for fiscal year 2014.

While we cannot predict the impact of currency movements, to give you a sense of the FX impact if exchange rates were to remain similar to yesterday for the remainder of the fiscal year, then our FY '14 revenue would be negatively affected by approximately $240 to $280 million, including a negative $45 to $65 million impact in Q1.

Turning to guidance on the bottom line, based on expected constant currency revenue growth of 3% to 4%, we believe it is reasonable to model earnings per share in the range of $3.80 to $3.85. When evaluating this range on an operational basis, it is important to keep in mind the one-time tax benefits that we received in FY '13, as well as the headwinds from the medical device tax and incremental interest expense in FY '14. Taking these adjustments into account, earnings per share of $3.80 to $3.85 would imply growth of 6% to 8% on an operational basis. As in the past, my comments on guidance do not include any unusual charges or gains that might occur during the fiscal year.

I will now turn it back over to Omar who will conclude our prepared remarks. Omar?

Omar Ishrak - Chairman and CEO: Thanks, Gary. Before opening the lines for Q&A, let me conclude by reiterating that our broad-based Q4 growth was a strong finish to a solid fiscal year, and represented another quarter in building towards our goal of delivering consistent and dependable growth. But we are still early in the process of strengthening and geographically diversifying our business in order to deliver this performance reliably. There are still areas of uncertainty that are reflected in the guidance we are giving for FY '14.

However we intend to execute in areas we can control, including growing our markets, and build our business so that it is strong enough to offset the variables that are beyond our control. And over time, we aim to reliably deliver on our baseline expectations, which are consistent (mixing) with the revenue growth, consistent EPS growth of 200 to 400 basis points, faster than revenue; and returning 50% of our free cash flow to shareholders.

At the same time, we are positioning Medtronic to play a leading role in transforming global healthcare by addressing the long-term imperatives of economic value and globalization. We are only at the beginning of establishing our track record, but we believe that crisp execution of both our baseline and long-term growth strategies, combined with strong and disciplined capital allocation, will enable us to create long-term dependable value in healthcare.

With that, we would now like to open the phone for Q&A. In addition to Gary, I’ve asked Mike Coyle, President of our Cardiac and Vascular Group, and Chris O'Connell, President of our Restorative Therapies Group, to join us again for the Q&A session. We are rarely able to get to everyone's questions, so we respectfully request that you limit yourself to only one question, and if necessary, one follow-up so that we can get to as many people as possible. If you have additional questions, please contact our Investor Relations team after the call.

Operator, first question please.

Transcript Call Date 05/21/2013

Operator: Matthew Dodds, Citigroup.

Matthew Dodds - Citigroup: Omar, first for you. Emerging markets was up 14%. Sounds like if you make a few a minor adjustments, maybe 15% to 17%, but it's below I think your plan of 20% plus. And when we look at fiscal '14, do you think 20% plus is still reasonable for emerging markets or is 15% to 20% more reasonable just based on what you think the markets are growing?

Omar Ishrak - Chairman and CEO: I think, look, 20% certainly is a number to be stated, but it's something that as we've been through this is a number that we've got to work towards and that's certainly going to be our goal. But I think 15% to 20% if you're going to pick between the two, I think 15% to 20% is probably a more realistic outlook, but look, I'm holding all the regions accountable to try to get to 20%, but there are barriers here that we have to overcome which is taking perhaps a little longer than we originally anticipated, so that's why I was saying that.

Matthew Dodds - Citigroup: Then Gary a quick one for you. I know you don't like giving quarterly guidance, but if you look at the first call progression, is the $0.90 for Q1 reasonable or should we think about more of a ramp as we go through the year?

Gary Ellis - SVP and CFO: Well, as you said, we don't like to involve quarterly guidance out, but I mean as we highlighting on our expectations the $3.80 to $3.85 obviously include some operational things we have to – the headwinds we are dealing with the interest expense, the medical device tax for example, and if you take those into account I think the $0.90 right now is indicating like a 6% to 7% growth in earnings per share, which would be basically not including the medical device tax and interest expense come from the modeling. So, right now my guess is if you looked at it, yes, I would – I probably would see a shift. I think if you update your models, you'll probably be shifting a couple of cents from Q1 to Q4. But in general that guidance we gave should really kind of play across all the quarters, as we go forward here. So I think the number currently in Q1 is probably a little bit high as people (indiscernible) their models.

Operator: Mike Weinstein, JP Morgan.

Michael Weinstein - JP Morgan: So, if I look at the U.S. business, it's your best quarter in I think in three years maybe even a little bit more than that or if one way we've been look at it everybody is trying to wait for you to anniversary the U.S. resolute launch is that if we looked at ex-resolute, it's also your best quarter in a few years. So, then one question probably everybody has is repeatability and if you could just talk about in particularly the performance in the CRM business this quarter in the U.S. and whether you feel like that's a sustainable number or there was anything that really pushed it at the end of quarter?

Gary Ellis - SVP and CFO: Look, I think we've certainly seeing signs end markets stabilizing to some degree. But there are many dynamics here including ability to launch new products and some level of share gain in this. And I'm going to ask Mike Coyle to really take this on because the share and thing obviously driving it. So, Mike why don't you provide some color to this?

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: We're obviously on the frontend of pretty robust new product introduction cycle here in the U.S. with Advisa MRI in early part of the quarter, but really sort of have impact in the back end to the quarter. And we will be just heading into our high tower product introductions with both the Viva/Brava system here in the CRT-D segment and then Evera device system as well. So, that's really the thing that's giving us a catalyst not only in terms of market share, but also giving us some cover for the pricing pressures not just because of these high-end technologies, but now we have multiple tiers to deal with competitive price dynamics. So, those are the primary drivers and as you saw we are also continuing take market share in the DES segment with Resolute Integrity and we are seeing general strength across the businesses, across CVG. So, I think we are really getting some benefit principally as we talked about before from the ship over to CRDM picking up the ball here from what Resolute Integrity has been providing us in last fiscal year.

Michael Weinstein - JP Morgan: Let me try and cover few items you covered on a call real quick here. One, you said you expect CoreValve approval in the U.S. in the first half of FY '15, the question there is have you gotten signoff from the FDA to separate two cohorts and submit the extreme risk cohort early? Then second question I'll sneak in is on the commentary around the FDA and the insulin pump quality systems, it's sound like that's going impact the timing of 530G approval. Can you just give us some insights there?

Omar Ishrak - Chairman and CEO: Let me quickly take on the diabetes question and then I'll ask Mike to provide the answer for the CoreValve, and given the diabetes clearly until we get approval it's not going to get launched and so that doesn't affect the timing to some degree. We are planning for it within the calendar year. I think that's the best I can tell you right now. We are working closely with the FDA and doing everything we can to ensure that the quality systems are compliant and further requirements and in additional, we are looking at them on any other need they have -- that they for the approval itself. So, the best I can tell you is that we're still looking at it for the calendar year. When exactly, it's impossible for me to estimate.

Gary Ellis - SVP and CFO: On the CoreValve IDE nothing really has changed. We've completed the enrollment phase in the extreme risk side. I mean, we completed the follow-up phase in the extreme risk side, high risk, we will be finishing up here in the coming quarters. At this stage, we are viewing those as being submitted modularly, but planning for them to be reviewed to together and if that changes based on what the data looks like then we will communicate that.

Michael Weinstein - JP Morgan: Mike, so just I'm clear on that. So, if the FDA waits for the high risk arms in order to review then it's unlikely you would have approval in the first half of FY '15?

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: We see a path to getting there that way, but it would certainly be much more difficult.

Operator: Bob Hopkins, Bank of America.

Robert Hopkins - Bank of America/Merrill Lynch: I just wanted to follow up on some of the things that have been asked about here with the theme of the pipeline. Can you give us the sense as to when we'll see the results of your U.S. trial for renal denervation in the United States, should I assume maybe ACC or PCR of 2014?

Omar Ishrak - Chairman and CEO: Yeah. Again, Mike please…

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: So for renal denervation, we are obviously in the process of quitting the enrolment in the randomization phase. We would think we would be looking late in the fiscal year before we would see those data being reported with complete follow-up.

Robert Hopkins - Bank of America/Merrill Lynch: So, again that -- but that would push you at about ACC or PCR correct?

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: At this stage, it's a little early itself. I mean it would be late in the fiscal year.

Robert Hopkins - Bank of America/Merrill Lynch: Then on just a follow-up on CRM and the drivers of your share gain here and what you're assuming in fiscal year '14. Just to be specific, as you put together your fiscal year 2014 guidance, do you assume that you're going to be able to continue to take share at the pace that you're taking it currently?

Omar Ishrak - Chairman and CEO: Yeah. Well, I think share gain is an important factor because our end markets are clearly not going in the way they were going. So, again, I'll let Mike give some color to that, but that's certainly in our consideration.

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: Yeah. There are multiple factors that I think are going to help us drive market share capture. Obviously, the Advisa MRI in Japan we're going to continue to get benefit of that until we anniversary that launch -- the Advisa MRI launch here in the U.S. just took place really I mean in the second half of Q4. So, we will have the benefits of both the price premium we have gotten there, as well as the ability to take share in initials and to use the broader product range we have to deal with pricing pressure which we think will help us in our share position overall. In Europe, the Viva/Brava launch has really been very well received. It's not just the fact that our AdaptivCRT technology is really the first feature that has actually been able to show increasing CRT response, but it's also addressing reductions in heart failure hospitalization, which is a hot button, both in Europe and in the U.S. In addition, the Attain Performa lead obviously gives us our first quadripolar lead in the marketplace and we think is offering, from physician feedback we've received, significant advantage over competitive product in terms of the narrow dipole giving us an opportunity to have lower phrenic nerve stimulation, as well as the use of the (Vector) express algorithm which automatically adjust for what the physician adjust for the pacing – the LV capture thresholds in the lead impedance. So, these are giving us ASP increases, as well as the opportunity to take share in Europe, and we will have the Viva/Brava system without the Attain Peforma lead in the U.S. for most of the year. Then obviously we have not even begun the launch of the Evera product line, which gives us size and longevity advantages which we think will help us in the standard CRT segment, which is not to mention that we've also been growing north of 20% in the AF segment because of the cryo advanced technology or our Arctic Front Advance technology. So, we think we have a number of ways to continue to take share in that segment, and we think that will be an important part of getting to the guidance we've given you.

Gary Ellis - SVP and CFO: Bob this is Gary, just quickly, I mean if you think about it our end markets are kind of growing in that 2% to 3% range overall. Our guidance of 3% to 4% says that we will continue to outperform the market in FY '14. Probably not -- that doesn't assume basically at the level we did here in FY '13. I mean if we performed at the levels we did in FY '13 we probably even exceed our guidance. So, there is some assumptions in our guidance uplift for our guidance that we gave for the revenue that assumes that we basically continue to gain share and outperform the market, across all of our businesses, and not just CRDM.

Operator: David Lewis, Morgan Stanley.

David Lewis - Morgan Stanley: Maybe a couple of quick questions here. Omar, obviously, a lot of focus in the call today and in the pipeline and FY '15 is looking like one of the most interesting pipeline years for the company in terms of catalyst, but a lot of that traction with the pipeline may occur late FY '15 into FY '16. I just wonder, if you think about the timing of that pipeline over the next 18 months do you feel comfortable with your organic growth or it this a period where Medtronic looks to maybe supplement this sort of gap period 12, 15, 18 months externally or M&A?

Omar Ishrak - Chairman and CEO: Look, M&A is always a possibility. But in our guidance, in our planning right now, we haven't achieved anything concrete, although things may happen. We really are (indiscernible) is to attempt to repeat what we had over the last 12 months, and therefore we cannot kept guidance where it was early this year. And agreed that some of the product have anniversarried, but we're seeing enough new product activity that we feel, that there is enough reason there for us to expect to repeat at least leaving the guidance that we have just stated. There are many issues here that we've got overcome I mean, the markets are still uncertain. Europe as you've seen was down last quarter, up this quarter, and it's somewhat volatile. We've got, these approvals on some of these products where the timing in U.S. certain, so there's pressures. We just assuming that demand of new product activity that you have seen across the board and there is a lot of that is enough to offset those. So, that's really all I can say and we're going to work through the next, like to say in next 18 months and keep executing. This is a balanced look and we've going to work achieving them. But it's a level of execution that I want still to be able to deliver on.

David Lewis - Morgan Stanley: Then Gary maybe just a quantification that we talked a lot about what's embedded in broader guidance specifically CRM. If you looked at spine obviously another encouraging quarter, can you just talk about what you think you saw across the balance of the year in terms of spine market share, what's the expectation for fiscal '14 and is there any embedded expectations of acceleration if the June results would be in PR positive? Thank you.

Gary Ellis - SVP and CFO: Yeah. I'll give some real quick question -- in response to your question and then maybe Chris maybe can add to a little bit. Overall, I mean, the answer is no. We are not expecting from the June results necessarily any uplift from for example INFUSE results there, but as we did highlight in the call, INFUSE has been stabilize a little bit, which is obviously have a minimizing the drag that we had on an overall spinal business, starting to become a little bit less as we go forward and as we've anniversarried that product falling off. But the reality is the other core spine market, core spine business with all the new products we've been launching continues to gain share and as we indicated earlier in the call, we picked up a couple of points a share here in FY '13 on the core spinal business with AMT with the (Solaris), I mean the new product and we expect that to continue as we go forward that we will continue to gain share. But I'll let Chris kind of expand on that.

Christopher J. O'Connell - EVP and Group President, Restorative Therapies Group: Yeah, that's right, Gary. David, I think the spine story is very consistent with what we've talked about in the past that our relative performance of the market is steadily increasing and we are clearly in share capture mode at this point in time. We have the bulk of our (Solaris) systems in the market and that's really driving our overall growth. But as Gary pointed out we've added new technologies into the mix like the Bryan cervical disk in the U.S. where we've now doubled our modest market share from 5% to 10% in that category just six months after launch, where we have the new AMT interbody devices into the market, but also what's really driving our spine business is the use of enabling technologies like imaging and navigation. Our O-arm imaging business is up in the 30% range this year, and where we have O-arms placed in key accounts we're seeing up to 10 points higher growth in our core spine business. So, we're getting more and more traction in terms of combining some of our unique surgical capabilities on imaging navigation, power monitoring, etcetera to drive our overall spine implant business which is really helping customers achieve their goals.

Operator: Bruce Nudell, Credit Suisse.

Matt - Credit Suisse: Hey, this is (Matt) in for Bruce. You mentioned cost uncertainties in Europe, and I wondered if you could talk about, relative to the weakness that you highlighted in January in Europe, has Europe kind of stayed the same or do you think it’s gotten a little better and what factors are different now versus what you saw then?

Omar Ishrak - Chairman and CEO: You know, what we talked about in January essentially was a reflection of the New Year cycle. I mean there was a difference in the holiday period which really put pressure on sales for that quarter. Since then, the market has stabilized back to the normal levels that we've seen prior to January, early in Q3 which we've talked about at that time. So to that degree, the markets have returned to some degree of stabilization. But I can tell you that in Europe you've got a variety of countries, they're all dealing with different types of economic pressures, and healthcare is certainly central in their mind as a cost item. So while we're working with governments to make sure that we provide the right value with what we have, at the same time there could be austerity measures in a variety of countries. There could be a relook at some of the regulations like-for-like, they are doing in the U.S., where the NHS is recently in the last couple weeks being completely retool in the way they're organizing things. So, there is a variety of activity going on in Europe, and that's why we say that it's somewhat uncertain because just remember governments out there driving policy, all the way from austerity to changing healthcare policy. That's the best I can give you. But in general, I'd say that weekly run rates, for example, are comfortable to what we had in November, December of last year.

Gary Ellis - SVP and CFO: Obviously, in our third quarter earnings call, we were very nervous. What happened in January and we are much more cautious. I mean, as we saw in the results, I mean Europe – Western Europe and Canada grew 1% this quarter. Last quarter I think they were down 1% and 1.5%. So, the fact of the matter is, yes, we saw an improvement in the January, significant shortfall, certainly has improved over this quarter. But as Omar said, that being said the marketplace is still very volatile, just 1% or 2% growth in the market and that's with us outperforming the market. The reality is probably the market in Europe is flat to even slightly down. And the fact that we are kind of growing 1% to 2% is again us outperforming the market. So, in general, some of our fears on the third quarter earnings call may be were a little bit overstated, but the fact is, Europe is still very volatile.

Matt - Credit Suisse: Then you mentioned kind of easement in U.S. ICD pricing pressure in the quarter, and I want to see if you had sense as, are you getting a mixed benefit or do you think the like-for-like environment is actually getting a little better?

Omar Ishrak - Chairman and CEO: I'll let Mike take that. Go ahead, Mike.

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: Well, I think, we're getting a bit of a mix benefit, but we're also doing more of our provisions of discounting on multiline deals across Cardiac and Vascular group and this gives us an opportunity to spread the discounting that the customers expect or are asking for from targeted reductions from competitors across the much larger revenue base, which is given us an opportunity to push off some of that discounting. So, those items I think in addition to – probably most importantly the new product flow are what give us the opportunity to manage this pricing a little more effectively than we were doing have a six months ago.

Omar Ishrak - Chairman and CEO: One comment that I would like to make probably in response to a number of questions earlier is that in our outlook for FY '14, we've talked a lot about new products and their success, but I also want to point out that let's not underestimate the impact our CVG sales force, are approaching the cardiac line administrator. Now we've had like two years this. We are learning how to optimize our presence front of the line industry doing the international physicians more effectively, and I think that's probably a factor as well in our success. Mike, I don't know you've been leading this – maybe a few comments.

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: Absolutely, there is no doubt that the nature of the decision-making process for the both therapy selection and brand selection has changed and it is now much more a group decision-making process among international physicians and the cardiovascular line administrators and by organizing the way we have, we are just more efficient that being able to identify their needs and then deliver them across the multiline offering and so that is becoming a bigger and bigger part of how we approach the customer, and the customers are responding to it.

Operator: Joanne Wuench, BMO Capital Markets.

Joanne Wuench - BMO Capital Markets: Two actually. One is, can you set expectations for the INFUSE results, what would you consider to be a best case and what would you consider to be worrisome outcome?

Omar Ishrak - Chairman and CEO: Look, let's I don't want conjuncture or pass any opinion on that. The results are due in June. Let's see what comes out and then we'll kind of go from there, but it's inappropriate for me to speculate on either what they’ll be or what we think would be good or bad.

Joanne Wuench - BMO Capital Markets: The second follow up is you've talked about – what I'm paraphrasing here a more healthy economic approach to selling over time into the hospital purchasing process. You mentioned that a little bit in how it's helping your pricing in your part equipment business. But is there another way that we can think about measuring that over time? And thank you.

Omar Ishrak - Chairman and CEO: Well, you know, we're going to work on that to try to highlight some of the key factors there. In the end where we want to deliver overall growth and performance and the exact reason for that can be -- either it's not that important to be too specific about that, but we do know that hospitals and physicians are sensitive to the economics of their purchase. And we're trying to line ourselves up in a way that we can demonstrate the value of what we have in that language. Now having said that, the other thing to look at are perhaps and Chris made a comment on it, deals that we make where we have combined imaging, navigation, as well as final implants, that clearly is a deal that we can make, only because we have that selection of products and the users see some value in that collection. So, going forward looking at the number of accounts where we have all of that, and how our spine implants are doing, may be a measure. And then as you further refine the CBG look, we might be able to do more sophisticated programs that you can highlight. I think Mike you have some comments on this?

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: Just one other thing to keep in mind, in addition to simply being broader offerings and targeted call points for the line administrators as well as the interventional physicians we're also offering a large number of value-added programs leading outpatient clinics and patient flow through the cath labs, use of technology like CareLink Express to have ERs be able to identify a patient with a device immediately when they come in the door without having to wait for a rep. We think blood conservation is a program that minimizes the use of blood products. We're also helping it with market development with things like HEARTmark which basically allows them to look in the attachment area and see what the level of therapy is that's being provided to various untreated needs and see if their national average is above or below. So, these are all things that actually get translated from the viewpoint of (indiscernible) line administrator into value that we can claim credit for in lieu of pricing. So, it's share, it's pricing, it's basically our ability to partner and be viewed as a strategic partner in addressing the healthcare needs that these administrators are struggling with.

Omar Ishrak - Chairman and CEO: I think the only other comment I'll make is that as we formulate the strategy as we go forward, we'll help you understand some of the specific drivers, but we're still in the process ourselves of organizing this or figuring out how to communicate this in organized structure. So, we're still early in the process of developing a framework for economic value and when we're ready we'll share it with you.

Gary Ellis - SVP and CFO: And the only thing I would add to what everyone said is basically in the end this economic value and our ability to work for line inventories is a way for us to differentiate us ourselves from the competition and I think you've seen that in the share gains and the results we've had so far and we expect that to continue.

Operator: Derrick Sung, Sanford Bernstein.

Derrick Sung - Sanford Bernstein: So, I wanted to follow up with you on some of the comments you made around (indiscernible) combining the CVG group down to the district manager level. Does that combination in relation to kind of the economic value synergies that you just talked about, does that result in any sort of selling line synergies and/or more broadly speaking when we think about kind of the 30 to 50 bps of SG&A leverage that we'll be seeing next year, how much of that, if any comes from selling line synergies and where might you'd be with some of the selling line pilot programs that might lead to some cost savings there?

Omar Ishrak - Chairman and CEO: Let me just give you a little perspective and then I'll let Mike also add to that. First, the primary goal of this is to align with the customers. That's the primary goal. Second, to the degree that our people are required to deliver care, deliver therapy, which a large number of our clinical representatives do, that will never go way. So, our relationship with physicians at that level will always stay. We view that with great importance and that will never go away. This means it's primarily around aligning with the way our customers themselves are looking at their own business. Now, having said that, in the organization, there will be some efficiencies that I'll let Mike comment on that.

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: Yeah. I would just echo Omar's comments. First of all, first line sales representatives are physician-focused as they have always been and aligned with our individual businesses because that's where you have to win first is with the physicians, but this move toward consolidation at the next level up for sales management is really to make us much more nimble and efficient in dealing with the hospital and viewing it more holistically as a cardiovascular line because frankly where we're seeing our hospital customers winning is where they are aligning their various cardiovascular lines under a single administrative leader. So, this makes us more efficient, both at the physician level and then at the first line sales management level. But there are efficiencies and I would just remind you from our discussion of the Resolute Integrity launch, we basically went from a 10% market share to a 30% market share with no extension of our sales force in terms of adding new people and the way we did that was marry up the existing coronary-focused sales reps with mostly CRDM clinical specialists who had excellent cardiology relationships to be able to basically move much more quickly in terms of putting those products into the market. And the other thing that it allows us to do, for example, with IDNs since because Medtronic approaches those IDNs as a single CVG supplier, we were able to hold off what competitors were trying to do in terms of basically pushing out contracts when we bought Resolute Integrity into the marketplace, so that we would be blocked from coming in. When we approached those IDNs and basically talked about the broader CVG system, they were basically not willing to extent contracts for competitors that really helped us ramp Resolute Integrity very quickly. So, there are synergies that we are realizing from the strategy beyond simply the first line sales management consolidation.

Gary Ellis - SVP and CFO: Derrick, this is Gary. I mean there is no question that what's going on with CVG, we are doing also across Restorative Therapy group and in that regions, that is where we are getting some of the leverage that we are talking about in the SG&A is making our own sales organization much more effective and more efficient. We are obviously getting the benefits that both Mike and Omar talked about. But there is no question that part of the 30 to 50 bps of improvement in SG&A are coming from some of these as a result of being more efficient on leveraging these resources.

Derrick Sung - Sanford Bernstein: Then just my last follow-up. So, we have been hearing some anecdotal evidence that Biotronik is getting a little bit more aggressive on the pricing front there in the market and our survey shows that maybe they are picking up a little bit of share. Just wanted to see how – get your thoughts on how you would respond to that threat of kind of low price strategy from a competitor in the near term? I understand that you're talking about the peered pricing strategy. So, you clearly have a long-term strategy that you're putting in place to address that. In the near term, how do you respond to kind of that low-price threat from a competitor?

Omar Ishrak - Chairman and CEO: I think in all of this our ability to provide evidence for value is pretty critical and the more we tie it to clinical as well as economic, the better off we'll be. And that's a threat across all our businesses and then that will helps us deal with any low-cost competitor in that we differentiate ourselves by demonstrating the value that we have. But I think Mike, you can comment a little more on Biotronik's business.

Michael J. Coyle - EVP and Group President, Cardiac and Vascular Group: Specific to that segment, Biotronik is not the only one who has been using aggressive pricing tactics to try to take market share. In fact, some players who have not historically done that have become more aggressive that particular area. But if you look at, for example, and now available to us on the pacing side, we have six tiers of technology that we can be able to bring to deal with giving pricing where it has to be given, but protecting our higher end technologies from that kind of pricing pressure. So, I think we are in a good position to use the broad CVG strategy, the services that we talked about and frankly the fact that we are the ones who are bringing that next generation of technologies, the key therapies, things like we know renovation like transcatheter valves like drug-eluting balloons like the cryoablation technologies that also give us an opportunity to establish a relationship on the basis of what we bring totally in our program and those things together are giving us an opportunity to basically protect pricing and take market share.

Omar Ishrak - Chairman and CEO: Well, thanks for all your questions. Before I end today's call, as you think about your summer calendars, I'd like to note that we think and every other (occasions) for analyst meeting is more appropriate and we do not plan to host an analyst meeting this year. I would also note that we anticipate holding our Q1 call on August 20. With that and on behalf of our entire management team, I would like to thank you again for your continued support and interest in the Medtronic. Thank you.

Operator: This concludes today's conference. You may now disconnect.