BUS 687 Weeks and Journals
For these week assignment we are going to have alot of engagements. Alot is the discussion are attach to a simulation.
C M a M a N a G E M E N T 14 May 2010
b u s i n e s s s t r a t e g i e s
Voluntary disclosures in corporate
annual reports — More than
meets the eye
Companies have increased latitude in what to disclose. It is important
not to overlook voluntary disclosures when preparing, reviewing, or
reading an annual report.
By Merridee Bujaki and Bruce McConomy
As professional accountants, most of us have some
involvement with annual reports issued by publicly-traded
corporations. Accountants in industry may help prepare
annual reports; auditors read annual reports to ensure
consistency with the audited financial statements; and
management accountants read annual reports issued by
companies whose shares they own. While many of the
disclosures included in annual reports are mandatory —
according to provincial securities legislation, including the
management’s discussion and analysis (MD&A) and audited
financial statements — most of the other information
included falls under the definition of voluntary disclosure.
Even within the MD&A, management need to make
decisions about what to disclose and how to disclose it.
For example, the Ontario Securities Commission (OSC)
encourages companies to provide a balanced discussion of
their results as part of the MD&A, including discussion of
items such as liquidity, off balance sheet financing, and trends
and risks that may affect the current (and future) results of
the company. Similarly, MD&A disclosures should help
financial statement users assess the quality of the company’s
earnings and cash flows. Companies need to make choices
about what is required to be disclosed under the MD&A,
versus what is desirable. In a recent “unofficial consolidation”
of amendments to its continuous disclosure requirements,
the OSC suggests companies focus their MD&A on material
information. For example, managers should consider whether
a reasonable investor’s decision to buy, sell or hold your
company’s securities would be influenced if the information
being considered for disclosure was omitted or misstated. If
so, the information is likely material.
If we look beyond the required disclosures in a company’s
financial statements and MD&A, companies have increased
latitude in what to disclose. It is important not to overlook
these voluntary disclosures when preparing, reviewing,
or reading an annual report. In fact, some researchers
have suggested that these disclosures may be particularly
C M a M a N a G E M E N T 15 May 2010
b u s i n e s s s t r a t e g i e s
informative because management has an opportunity to
choose what to include.
Voluntary disclosures in corporate annual reports include
everything from the letter to shareholders to photographs.
There is considerable research that suggests the letter to
shareholders is the most widely read section of annual reports.
Letters to shareholders
Prior research suggests letters to shareholders help reveal
a corporation’s values, priorities, and even expectations for
the future. A number of authors — including accounting
researchers and researchers of business communications —
have looked at the language used in the letter to shareholders
to evaluate whether the author’s choice of language differs
when performance changes, from reporting a net income
to a net loss; whether the level and complexity of language
increases when the corporation has bad news to report;
and whether a CEO’s choice of metaphors reveal his or
her priorities for the corporation or, in some cases, avoid
accountability.
In 2006, Joel Amernic, of the Rotman School of
Management at the University of Toronto and Russell Craig,
professor at the National Graduate School of Management at
the Australian National University published CEO-Speak: The
Language of Corporate Leadership which explores the unspoken
messages in many speeches, letters, and communiqués.
We used their research to examine the use of metaphors
found in letters to shareholders issued by Nortel Networks
Corporation from 1997 to 2006.
Nortel is an interesting corporation to study because it’s
both one of Canada’s greatest corporate successes and one of
its greatest failures. Four very different CEOs headed Nortel:
John Roth (1997-2000), Frank Dunn (2001-2002), Bill Owens
(2003-2004), and Mike Zafirovski (2005-2006).
Top fi nancial talent
is always your best
investment.
© 2009 Robert Half. 0909-1011
1.800.803.8367
accountemps.com
1.800.474.4253
roberthalffi nance.com
1.888.400.7474
roberthalfmr.com
Accountemps, Robert Half
Finance & Accounting and
Robert Half Management
Resources are the leaders in
specialized fi nancial and accounting
staffi ng for temporary, full-time and
project placement, respectively.
Call today for your
FREE 2010 Salary
Guide.
Management accountants needs to
read voluntary disclosures in corporate
annual reports with a critical eye.
C M a M a N a G E M E N T 16 May 2010
After reading Nortel’s letters to shareholders and examining
the metaphors used by each CEO to describe Nortel’s
relationships, successes, challenges, plans, and priorities, we
found common metaphors: business as a journey, business
as movement or change, business as a vision, business as
relationships; and business “under construction.” We also
found some variability year by year and between each
CEO. In 1999, John Roth wrote about the new millennium
and opportunities emerging with the Internet. He used a
number of metaphors dealing with time, science, change, and
revolution. Roth made comparatively few references to health
and the law — they were just not relevant at that time. In
2001 and 2002, just after the tech bubble burst and Nortel’s
share price plummeted, Frank Dunn discussed the need
for Nortel to have a vision and to continue on its journey.
Dunn, however, made few references to relationships — an
area he was reputed to be less comfortable with. Bill Owens,
Dunn’s successor, was faced with numerous shareholder
lawsuits — and his use of a legal metaphor in 2004 reflects
this. Owens’ background as an admiral in the U.S. military
is also revealed by his use of terminology that invokes a war
metaphor. Mike Zafirovski’s letters to shareholders build
upon his own reputation for team building, as reflected in
his use of metaphors addressing relationships and sports.
Zafirovski’s letters to shareholders are also remarkable for
their comparatively limited use of construction metaphors.
Given Zafirovski subsequently presided over Nortel’s break
up; it is perhaps not surprising that he rarely invoked building
metaphors.
Photographs in annual reports
In a separate research project, we examined photographs
included in the 2003 annual reports for all TSX100
corporations. We evaluated the number of photographs in
each annual report and looked in detail at the information
conveyed by each picture. We found 92 per cent of annual
reports included pictures, with an average of 29 pictures in
each, though this varies considerably by industry. Almost 60
per cent of all annual report photographs were of people.
Consistent with prior research, women are significantly
underrepresented in annual report photographs relative to
their workforce participation rates. We also examined whether
the inclusion of women on the board of directors and women
in annual report photographs are associated with corporate
financial performance. Corporations with a higher percentage
of women in their photographs tend to have a higher
percentage of women on their boards of directors and higher
rates of return on equity.
Implications
These disclosures — either the choice of metaphors or the
choice of photographs — say something, sometimes explicitly,
and sometimes implicitly, about the values and priorities of
the corporation. In the case of metaphors, the CEO’s choices
frequently reveal something about his or her personality and
may suggest the future direction for the corporation. The
choice of photographs may telegraph to women and men
expectations about the roles they are expected to play in the
corporation, and indeed, in society more generally. This
may discourage some individuals from seeking employment
or advancement in the corporation, limiting the talent pool
available to the company and restricting its competitiveness.
Management accountants need to read voluntary
disclosures in corporate annual reports with a critical eye. The
voluntary disclosure literature asserts that disclosure choices
are made to ensure the benefits derived from the disclosures
exceed the costs. When we read, review, or advise on the
preparation of corporate annual reports, we should be asking
ourselves why management might choose a particular turn
of phrase or metaphor and why particular photographs were
selected or commissioned for inclusion in the annual report.
Advisors should be on the lookout for unspoken, and possibly
unintended, meanings in the CEO’s use of metaphors or
pictures — they can ensure the annual report conveys a clear
and consistent message.
Lastly, readers of annual reports should assess whether
the values depicted in the letter to shareholders and choice
of photographs are consistent with other information
included about the corporation, and carefully consider how
the information collected from voluntary disclosures may be
used to influence their investment, lending, and employment
decisions. n
Merridee L. Bujaki is an associate professor of accounting at the Telfer School of
Management, University of Ottawa. Bruce J. McConomy is a professor of accounting at
the School of Business and Economics at Wilfrid Laurier University, Waterloo, Ont.
In the case of metaphors, the CEO’s
choices frequently reveal something
about his or her personality and may
suggest the future direction for the
corporation.
b u s i n e s s s t r a t e g i e s
Copyright of CMA Management is the property of CMA Canada and its content may not be copied or emailed
to multiple sites or posted to a listserv without the copyright holder’s express written permission. However,
users may print, download, or email articles for individual use.
MEDTRONIC
2016
INTEGRATED
PERFORMANCE
REPORT
7th
CONSECUTIVE YEAR
receiving a perfect score on
the Human Rights Campaign
Corporate Equality Index
7.7%
OF TOTAL SALES
invested in research
and development
60,000
MEDICAL
PROFESSIONALS
received training on
the newest technologies
and treatments
$114.6
MILLION
in philanthropic giving
NON-REGULATED WASTE DOWN
per unit of revenue
from 2013
GHG EMISSIONS DOWN
per unit of revenue
from 2013
64,800
EMPLOYEE HOURS
volunteered through Project 6
BUSINESS
GROWTH
WORKING
RESPONSIBLY
VALUE TO
SOCIETY
$3.5
BILLION
in net earnings
$28.8
BILLION
in revenue
FY2016
HIGHLIGHTS
16%
20%
CEO Letter 4
Leadership in the New Healthcare Era 4
Company Overview 5
About Our Company 5
Organizational Profile 5
Scope of Report 6
Sustainability Risks and Opportunities 7
Our Material Issues 7
Sustainability Management 7
Reducing Sustainability Risk 8
Creating Opportunities 9
Economic Contributions to Society 10
Financial Performance 10
Operating Costs 12
Acquisitions and Investments 13
Divestitures 14
Taxes 14
Financial Assistance 14
Return to Shareholders 14
Philanthropy 14
Non-GAAP Financial Measures 16
VALUE TO SOCIETY: OUR PRIORITIES 19
Access 20
Therapy Innovation 20
Economic Value 21
Globalization 22
Product Quality 25
Responsibility and Quality 25
Maintaining Quality Facilities 26
Product Use and Performance 26
Customer Feedback 28
Clinical Trials 28
Animal Research 29
Product Stewardship 30
Our Approach 30
Responsible Sourcing 32
Supplier Quality Management 32
Responsible Supply Management 33
Supplier Diversity 33
Ethics in Sales and Marketing 35
Ethical Business Conduct 35
Customer and Product Security 37
WORKING RESPONSIBLY: OUR COMPANY 38
Governance and Engagement 39
Corporate Governance 39
Ethical Workplace 39
Public Policy 41
Stakeholder Engagement 41
Operations 42
Our Environmental, Health, Safety, and Sustainability Approach 42
Operational Footprint 43
Energy Use and GHG Emissions 43
Managing Waste 44
Water 45
Employees 46
Global Workforce 46
Investing in Our Workforce 46
Employee Engagement 47
Inclusion and Diversity 47
Employee Compensation 48
Safety and Wellness 48
Data Summary 49
About this Report 52
Medtronic 2016 Integration Index 53
CEO Letter | 4
LEADERSHIP IN THE NEW HEALTHCARE ERA
Healthcare is at a crossroads. Our industry faces intense clinical and
economic challenges that include an aging global population, rising
incidence of chronic disease, inefficient healthcare delivery, complex
regulatory systems, and fragmented fee-for-service payment models.
These challenges require new approaches and creative collaboration as
we pursue better healthcare delivery and improved patient outcomes
for more people.
Medtronic is leading this evolution with a transformative business strategy
to advance global healthcare. Our approach combines meaningful
innovation in therapies, products, and systems; with value-based, cost-
efficient healthcare models; and technologies and partnerships that open
the door to quality care for more people around the world.
I am excited to report that in FY2016 this strategy has produced
significant results. More than 65 million people benefited from Medtronic
technologies — two every second — as we helped our customers deliver
more seamless, integrated care for patients across the healthcare
continuum. In particular, the full integration of Covidien — acquired in late
FY2015 — has greatly expanded our global reach and impact. Further, we
expanded our leadership in Value-based Healthcare, with a goal of sharing
accountability for costs and improved patient outcomes. Additionally, in
FY2016 Medtronic:
§ Delivered strong financial results, with $28.8 billion in revenue and
$3.5 billion in net earnings.
§ Invested $2.2 billion in research and development (R&D), representing
7.7 percent of net sales.
§ Donated more than 2 percent of pre-tax profits — $114.6 million —
to charitable causes.
§ Supported Hub & Spoke healthcare delivery models with an investment
in Abraaj Group’s Growth Markets Health Fund (GMHF). GMHF will
purchase and build hub hospitals in several emerging markets, including
Bangladesh, Ethiopia, Ghana, India, Kenya, Nigeria, and Pakistan,
expanding access to specialists for millions of patients.
CEO LETTER
§ Extended our lifesaving HeartRescue Project into China and India, and
expanded the U.S. program nationally as the HeartRescue Consortium.
§ Increased healthcare capacity and access by investing more than
$152 million in training for approximately 60,000 medical professionals.
§ Progressed to meet our goal to reduce operational energy use
and greenhouse gas emissions by 15 percent by 2020 from a
FY2013 baseline.
§ Launched a Responsible Supply Management function to support
socially and environmentally responsible business practices from
our suppliers.
Reflecting our focus on reshaping Medtronic for a new healthcare era,
this annual integrated report is organized primarily around our most
material sustainability issues. These are global access to healthcare,
product quality, product stewardship, responsible sourcing, and ethics
in sales and marketing.
For more than half a century, Medtronic has operated with a clear,
compelling Mission: to alleviate pain, restore health, and extend life.
We believe that access to quality healthcare is a fundamental right of all
people around the world. We believe that continuously improving clinical
outcomes through innovation will present virtually limitless opportunities
to extend our Mission. Each day we challenge ourselves to make this a
reality for more people.
I’m incredibly proud of our performance in FY2016 and even more excited
about our future as we continue to challenge the status quo. In my five
years with Medtronic, I see our value as a company, and our business
performance, tied more closely than ever to our citizenship impact.
Omar Ishrak
Chairman and Chief Executive Officer
Company Overview | 5
ABOUT OUR COMPANY
Medtronic is among the world’s largest medical technology, services,
and solutions companies — alleviating pain, restoring health, and
extending life for millions of people around the world. Founded more
than 60 years ago, today we serve hospitals, physicians, clinicians, and
patients in approximately 160 countries. Our therapies improve the
lives of two people every second.
Our purpose is to transform healthcare by creating meaningful
innovation, expanding global access to therapies, aligning value, and
being a trusted partner. Our three strategic priorities are:
§ Therapy innovation (see Access for more information)
§
Globalization
§ Economic value (see Economic Contributions to Society
for more information)
MEDTRONIC, FY2016 SNAPSHOT
Number of Employees 88,000+
Number of Countries in Which We Operate Approximately 160
Number of Locations 480
Research and Development Spend $2.2 billion
Number of Patents 45,000+
Patients Served 65 million+
ORGANIZATIONAL PROFILE
Medtronic is a global healthcare player with four operating segments —
the Cardiac and Vascular Group, Minimally Invasive Therapies Group,
Restorative Therapies Group, and Diabetes Group. Each segment is
divided into business divisions that deliver a wide range of medical
technologies, therapies, services, and solutions.
COMPANY
OVERVIEW
MEDTRONIC OPERATING SEGMENTS:
FY2016 TOTAL SALES AND BUSINESS DIVISIONS
Total net sales $28.8 billion
CARDIAC AND
VASCULAR GROUP
FY2016 net sales of $10.2 billion
§ Cardiac Rhythm
and Heart Failure
§ Coronary and
Structural Heart
§ Aortic and
Peripheral Vascular
MINIMALLY INVASIVE
THERAPIES GROUP
FY2016 net sales of $9.6 billion
§
Surgical Solutions
§ Patient Monitoring
and Recovery
RESTORATIVE
THERAPIES GROUP
FY2016 net sales of $7.2 billion
§
Spine
§
Neuromodulation
§
Surgical Technologies
§
Neurovascular
DIABETES
GROUP
FY2016 net sales of $1.8 billion
§ Intensive Insulin
Management
§ Non-Intensive
Diabetes Therapies
§ Diabetes Service
and Solutions
SCOPE OF REPORT
This is our third annual integrated report. It covers our global
operations for the fiscal year ended Apr. 29, 2016 (FY2016), and,
for the first time, incorporates annual data from Covidien, acquired
in FY2015. The FY2016 report is organized around our most material
issues, summarized in Sustainability Risks and Opportunities
and covered extensively throughout the report, GRI Supplement,
and website.
FY2016 NET PROPERTY, PLANT, AND EQUIPMENT (PPE) BY REGION
($ MILLIONS)
Total net PPE: $4,841
Americas
$17,578 (61%)
Europe,
Middle East,
and Africa
$6,700 (23%)
Greater China
$1,495 (5%)
Company Overview | 6
Americas
$17,578 (61%)
Europe,
Middle East,
and Africa
$6,700 (23%)
Asia Pacific
$3,060 (11%)
Greater China
$1,495 (5%)
Americas
$3,728 (77%)
Europe,
Middle East,
and Africa
$708 (14%)
Asia Pacific
$220 (5%)
Greater China
$185 (4%)
Americas
$17,578 (61%)
Europe,
Middle East,
and Africa
$6,700 (23%)
Asia Pacific
$3,060 (11%)
Greater China
$1,495 (5%)
Americas
$3,728 (77%)
Europe,
Middle East,
and Africa
$708 (14%)
Asia Pacific
$220 (5%)
Greater China
$185 (4%)
FY2016 NET SALES TO EXTERNAL CUSTOMERS BY REGION
($ MILLIONS)
Total net sales: $28,833
http://www.medtronic.com
Sustainability Risks and Opportunities | 7
SUSTAINABILITY
RISKS AND OPPORTUNITIES
As a global leader in medical technology, our business generates
significant benefits for society. In addition to pursuing our Mission to
alleviate pain, restore health, and extend life, we embrace and act on
our social and environmental responsibilities. We proactively manage
risks to our operations and reputation, and capitalize on opportunities
through the integration of sustainability into our business strategy.
OUR MATERIAL ISSUES
We aim to understand, and act on, the issues most important to
our stakeholders and our business. In FY2014, we consulted internal
and external stakeholders including healthcare providers, policy
makers, and investors to identify our material issues. In May 2016,
our Sustainability Steering Committee reviewed the proposed strategy
for continuous improvement of our five priority sustainability issues.
Our most material sustainability issues are:
§ Access to Care: working with health systems around the world,
sharing technologies, services, resources, and expertise to help
remove barriers to affordable treatment of chronic diseases.
§ Product Quality: ensuring that our products and services clearly
comply with the highest standards of safety and reliability.
§ Product Stewardship: minimizing the lifecycle footprint of our
products and packaging through design innovation.
§ Responsible Sourcing: collaborating with our supply chain to
develop long-term relationships that enhance product quality,
worker rights, and environmental protection.
§ Ethics in Sales and Marketing: leading our industry as a trusted
partner with a commitment to ensure responsible business
practices in relation to the marketing, communication, and
promotion of our products and services.
We have identified the following as additional material sustainability
issues: corporate governance, device security, financial strength,
philanthropy, post-market surveillance, stakeholder engagement,
talent, and trial data. Our efforts in all material areas are addressed
within this report, in our GRI Supplement, or on our website.
SUSTAINABILITY MANAGEMENT
Sustainability is integrated into our daily operations. Individual functional
groups are responsible for managing critical sustainability topics,
monitoring external trends for opportunities to improve sustainability
performance, and establishing stronger metrics, goals, and targets. These
groups include: Environmental, Health, Safety, and Sustainability (EHS&S);
Ethics and Compliance; Global Communications; Global Quality; Global
Strategy; Human Resources; Investor Relations; Legal and Regulatory;
Philanthropy; and Procurement.
In late FY2016, we committed to a plan to form the Medtronic Sustainability
Steering Committee (SSC) comprising an Executive Champion and 10
members from business functions across our company. The committee
launched in fiscal year 2017 and will continue to meet at least three
times per year. The committee is responsible for sustainability oversight
at Medtronic and develops strategic plans related to sustainability
performance, risk, engagement and disclosure, and recognition.
http://www.medtronic.com
REDUCING SUSTAINABILITY RISK
Our management of sustainability issues supports our overall risk
management strategy.
The table below outlines our main sustainability risks and how we
manage them. These risks are subsets of the risk factors included
in our periodic reports filed with the U.S. Securities and Exchange
Commission (including forms 10-K and 10-Q). We encourage readers
to review these reports for more information on risks to our business
and operations. We cannot guarantee that even the most exhaustive
efforts will fully mitigate or prevent impact on our business success.
SUSTAINABILITY
RISK AREA
HOW WE MANAGE RISK
Reputational
damage from
unethical behavior
The Medtronic Office of Ethics and Compliance trains
employees to comply with our Code of Conduct. With
this and additional job-specific compliance training,
employees are made aware of our expectations for ethical
and compliant behavior, which mitigates corruption and
intentional misconduct.
Failure to meet
customer
sustainability
requirements
We work to design our quality, access, environmental,
labor practices, and responsible supply management
programs to meet or exceed all customer product and
service requirements.
Changing ethical,
social, and
environmental
regulations
Our Government Affairs and EHS&S groups monitor
relevant regulations in global markets. We often engage
industry organizations and regulators to educate them
about our industry and prepare them for potential and
pending regulation. We partner with our corporate legal
attorneys and paralegals to ensure compliance with
applicable laws and regulations.
Medtronic is also putting in place a monitoring program
for human rights and labor standards regulations across
global markets.
Increasing
costs from end
of product life
obligations
We have seen increasing expectations for stewardship
over the full lifecycle of our products and packaging,
including product end-of-life solutions. To address these
issues, Medtronic has incorporated environmental criteria
into the early stages of its product development protocol
and into changes made to the product throughout its
lifecycle. We are implementing training for engineers on
how to perform materials of concern assessments, and are
building a Sustainable Technologies business to increase
product reprocessing where appropriate.
Ensuring business continuity
Unexpected events can have an impact on our business. Our Business
Continuity Management program proactively addresses potential
disruptions to our operations or supply chain. Key areas of focus are:
§ Business continuity planning: strategies to ensure that we can
continue to operate and meet demand in adverse circumstances.
§ IT response and recovery: plans designed to respond to failures
in technology and recover the infrastructure that supports
business continuity.
§ Emergency response: actions to ensure health and safety,
safeguard physical structures, and minimize environmental impact.
§ Crisis management and mobilization: coordination of our
responses to crises.
Our crisis management teams follow a protocol to effectively
manage issues and synchronize responses across the business.
The Corporate Crisis team provides regular updates to the Executive
Committee, ensuring that crisis strategies and protocols are executed
appropriately. For issues with potentially significant business impacts,
the Medtronic Global Command Center is notified, and our Corporate
Crisis Filter team determines the appropriate level of response.
Risk profile of Value-based Healthcare
We believe that the current healthcare system is not sustainable,
and needs to be transformed to improve patient outcomes and
control rising healthcare costs. Medtronic accepts and supports that
healthcare system leaders around the world will, in fact, implement
Value-based Healthcare (VBHC) delivery and payment systems,
whereby they make payment for our products and services contingent
upon their ability to improve patient outcomes relative to their cost.
As the largest medical device company in the world, Medtronic has
a unique role to play in ensuring that technology and innovation are
leveraged to their fullest as we evolve in the shift to VBHC. To achieve
that goal and fulfill our Mission, we are actively partnering to help lead
this transformation. For more information about our VBHC strategy
and approach, see Economic Value.
Sustainability Risks and Opportunities | 8
http://phx.corporate-ir.net/phoenix.zhtml%3Fc%3D76126%26p%3Dirol-sec
http://www.medtronic.com/us-en/about/corporate-governance/code-conduct.html
CREATING OPPORTUNITIES
Our sustainability programs complement our business objectives,
improving operational efficiency, deepening relationships with
customers, supporting new business, and enhancing investor relations.
Driving business efficiency
Our 2020 sustainability targets reduce our operating costs for energy,
water, and waste disposal while generating clear environmental
benefits. In FY2016, we met or surpassed four of our five goals.
Progress in FY2016 is shown below and in Operations.
2020 ENVIRONMENTAL PERFORMANCE GOALS*
2020 TARGET (VS. A 2013 BASELINE) PROGRESS (% CHANGE
FY2013 TO FY2016)
Reduce Non-Regulated Waste per Unit of
Revenue by 15%.
-16%
Reduce Regulated Waste per Unit of
Revenue by 10%.
+12%**
Reduce Energy Use per Unit of Revenue by 15%. -17%
Reduce Greenhouse Gas Emissions per Unit of
Revenue by 15%.
-20%
Reduce Water Use per Unit of Revenue by 10%. -15%
*All percentage reduction goals are based on a FY2013 baseline year recalculated to account
for Covidien acquisition in FY2015.
**Medtronic will identify and target specific processes and waste streams in a concerted
effort to reduce regulated waste in line with our 2020 goal. See Operations.
We are working to achieve $3.0 billion in cost savings across our
global portfolio by FY2021. In FY2016, we achieved approximately
$400 million in cost savings through streamlined sourcing and
manufacturing processes and developments in product design that
reduce costs and improve performance. In addition, we renegotiated
supplier contracts, identified alternate vendors, consolidated and
optimized our manufacturing plants, and upgraded product design
to increase manufacturing efficiency.
Meeting customer expectations
Our healthcare customers seek business partners that align with their
values and support their own sustainability and citizenship programs.
Often, new business proposals include scrutiny of our sustainability
credentials. To remain a partner of choice, we aim to excel in
environmental and ethical performance.
Responding to investors
Strong sustainability performance signals forward-looking management
and proactive risk mitigation to investors. Medtronic is listed in the
Dow Jones Sustainability Index (DJSI) investor ranking and satisfies
criteria for inclusion in the FTSE4Good Index. We also submit
environmental sustainability data to the CDP.
In response to shareholder requests, the Company is developing a Global
Human Rights and Labor Standards Policy and will also begin to report on
the percentage of significant suppliers that issue sustainability reports.
For more information, please see Responsible Sourcing.
Sustainability Risks and Opportunities | 9
http://www.sustainability-indices.com/
http://www.ftse.com/products/indices/FTSE4Good
https://www.cdp.net/en-US/Pages/HomePage.aspx
Economic Contributions to Society | 10
All non-GAAP financial
measures referenced
throughout this report are
identified as “non-GAAP”
measures. For reconciliation
of each non-GAAP measure to
the most directly comparable
measure determined using U.S.
GAAP, please see the section
titled “Non-GAAP Financial
Measures” starting on page 16.
ECONOMIC CONTRIBUTIONS
TO SOCIETY
As we pursue our growth strategies of therapy innovation, globalization, and economic value, we ensure that our
actions and decisions are financially sound. A financially strong Medtronic benefits the public and private sectors by
providing new jobs, infrastructure investments, shareholder returns, and taxes. We also make strategic community
investments that strengthen the capabilities of healthcare providers, advocate for policy reform, support patient
empowerment, and expand access to products and therapies. We focus our philanthropy on underserved
communities and those affected by natural disasters as we seek to make the world a healthier place for everyone.
FINANCIAL PERFORMANCE
Our financial planning and decision making is driven by three baseline goals:
1. Revenue growth: Deliver consistent mid-single digit non-GAAP constant currency revenue growth.
2. Earnings per share: Achieve double-digit non-GAAP constant currency earnings per share (EPS) growth.
3. Free cash flow: Return a minimum of 50 percent of free cash flow, a non-GAAP measure, to shareholders.
FINANCIAL PERFORMANCE SUMMARY ($ MILLIONS EXCEPT PERCENT AND PER SHARE DATA)
FY2012 FY2013 FY2014
FY2015*
FY2016
Net Sales (Total) $16,184 $16,590 $17,005 $20,261 $28,833
Net Sales (U.S.) $8,828 $9,095 $9,247 $11,305 $16,422
Net Sales (Non-U.S. Developed) $5,690 $5,634 $5,652 $6,372 $8,708
Net Sales (Emerging Markets) $1,666 $1,861 $2,106 $2,584 $3,703
Net Earnings $3,617 $3,467 $3,065 $2,675 $3,538
Net Sales (Total) Growth 4.4% 2.5% 2.5% 19.2% 42.
3%
Additions to Property, Plant, and Equipment $484 $457 $396 $571 $1,046
Free Cash Flow (non-GAAP)** $3,986 $4,485 $4,563 $4,331 $4,172
Net Repurchase of Common Stock (net of issuances) $1,126*** $980 $1,246 $1,271 $2,339
Dividends to Shareholders $1,021 $1,055 $1,116 $1,337 $2,139
Dividends per Share $0.97 $1.04 $1.12 $1.22 $1.52
Research and Development Expense $1,490 $1,557 $1,477 $1,640 $2,224
*FY2015 based on Medtronic fiscal year as reported and reflects the one-quarter contribution of the Covidien transaction which closed on Jan. 26, 2015.
**Represents a non-GAAP financial measure. For reconciliation to the most comparable U.S. GAAP measure, see Non-GAAP Financial Measures starting on page 16.
***Excluding $218M of proceeds from Physio-Control used for repurchases.
Revenue growth
Our revenue growth strategy relies on an unmatched pipeline of
products and attractive, diversified markets. We believe emerging
markets represent a long-term source of revenue growth for the
company. To accelerate emerging market growth, we are focusing on
public and private partnerships and on optimization of distribution
channels. In FY2016, revenue in emerging markets grew 43 percent
as reported, or 13 percent on a non-GAAP comparable, constant
currency basis.
In FY2016, our annual revenue (net sales) increased 42 percent as
reported, or 7 percent on a non-GAAP comparable, constant currency
basis, in line with our baseline goal.
Earnings per share
Our FY2016 net earnings as reported were approximately $3.5 billion,
or $6.2 billion on a non-GAAP basis. Our diluted earnings per share
(EPS) were $2.48 as reported, or $4.37 on a non-GAAP basis.
In FY2016, Medtronic achieved our EPS goal, which grew 780 basis
points faster than revenue on a non-GAAP, constant currency basis.
Free cash flow, a non-GAAP measure
Our strong cash position enables us to make investments in
capabilities and capital investments while continuing to return value to
shareholders via dividends and stock repurchases. Changes in foreign
currency rates during FY2016 affected the reported value of our foreign
currency revenues and cash flows.
Medtronic had $4.2 billion in free cash flow (non-GAAP) in FY2016,
and returned $4.5 billion to shareholders, for a return of free cash flow
(non-GAAP) percentage of 107 percent. See Return to Shareholders
for more information.
NET SALES BY
OPERATING SEGMENT
AND BUSINESS
($ MILLIONS)
Economic Contributions to Society | 11
*In the first quarter of fiscal year 2014, the Company amended the way in which management
evaluates performance and allocates resources for the Diabetes business, including separating the
Diabetes business from the Restorative Therapies Group. Accordingly, the segment information for
FY2012 and FY2013 has been realigned to present comparable segment information.
**FY2015 based on Medtronic fiscal year as reported and reflects the one-quarter contribution of
the Covidien transaction that closed on Jan. 26, 2015.
Revenue Growth
Diabetes
Neurovascular
Surgical Technologies
Neuromodulation
Spine
Patient Monitoring
and Recovery
Surgical Solutions
Aortic and Peripheral Vascular
Coronary and Structural Heart
Cardiac Rhythm and Heart Failure
0 5000 10000 15000 20000 25000 30000
FY
2016
FY
2015**
FY
2014
FY
2013*
FY
2012*
Revenue Growth
(as reported)
4%
3%
3%
19%
42%
Cardiac and Vascular
Minimally Invasive Therapies
Restorative Therapies
Diabetes
($ millions)
Revenue Growth
Diabetes
Neurovascular
Surgical Technologies
Neuromodulation
Spine
Patient Monitoring
and Recovery
Surgical Solutions
Aortic and Peripheral Vascular
Coronary and Structural Heart
Cardiac Rhythm and Heart Failure
0 5000 10000 15000 20000 25000 30000
FY
2016
FY
2015**
FY
2014
FY
2013*
FY
2012*
Revenue Growth
(as reported)
4%
3%
3%
19%
42%
Cardiac and Vascular
Minimally Invasive Therapies
Restorative Therapies
Diabetes
($ millions)
OPERATING COSTS
Around the world, communities benefit from our operating expenses,
including salaries and wages; research and development (R&D) outlays;
selling, general, and administrative expenses; and income taxes.
Compensation and wages
We contribute to local communities through wages and benefits paid to
more than 88,000 employees in approximately 160 countries. In both
developed and emerging markets, we are growing our manufacturing,
commercial, and R&D operations. We also invest in hiring and developing
local talent, creating jobs that benefit local economies.
We spent $8.1 billion on total compensation last year, including
$4.6 billion in direct salary and wages, and an additional $584 million in
retirement benefits.
EMPLOYEE COMPENSATION ($ MILLIONS)*
FY2012 FY2013 FY2014 FY2015*** FY2016****
Total
Compensation**
$5,045 $5,322 $5,376 $5,614 $8,057
Salary and Wages $2,864 $2,948 $3,051 $3,169 $4,634
Retirement
Benefit Plans
$319 $419 $419 $433 $584
*All amounts are based on actual exchange rate.
**Total Compensation includes salary and wages, incentives, overtime, severance pay, payroll
taxes, retirement benefits, auto allowance, and other benefits.
***The compensation data contained in this table represents Medtronic operations for FY2015,
excluding Covidien.
****FY2016 contained 53 weeks, while other years only contain 52 weeks.
MEDTRONIC EXPENSES ($ MILLIONS)
Economic Contributions to Society | 12
*FY2015 based on Medtronic fiscal year as reported and reflects the partial year contribution of
the Covidien transaction that closed on Jan. 26, 2015.
Income Tax Expense
Interest Expense, Net
Other Expense, Net
Amortization of Intangible Assets
Acquisition-Related Items
Certain Litigation Charges, Net
Restructuring Charges, Net
Special Charges (Gains)
Selling, General, and Administrative Expense
Research and Development Expense
Cost of Products Sold
operating costs
0 5000 10000 15000 20000 25000 30000
FY
2016
FY
2015*
FY
2014
FY
2013
FY
2012
($ millions)
ACQUISITIONS AND INVESTMENTS
Beyond investing in market and product development, we seek
opportunities to strategically grow our business and cultivate our
role as a healthcare leader through acquisitions and investments.
Acquisitions
We make acquisitions that bring new technology, strategic skills,
capabilities, and expertise to Medtronic and align with our strategy to
provide a broad range of therapies to restore patients’ health and extend
lives through positive clinical outcomes. We target firms that support
our core growth strategies — therapy innovation, economic value, and
globalization — and will produce strong financial returns. Specifically, we
look for acquisitions that will deliver mid-teens risk-adjusted returns, result
in minimal to no “net” EPS dilution for shareholders, and demonstrate clear
economic value to our business. Select acquisitions in FY2016 included:
§ Twelve, Inc.: On Oct. 2, 2015, the Company’s Coronary & Structural
Heart division acquired Twelve, Inc., a privately held medical device
company focused on the development of a transcatheter mitral valve
replacement device. Total consideration for the transaction was
approximately $472 million, which included an upfront payment of $428
million and the estimated fair value of product development-based
contingent consideration of $44 million. Based upon the acquisition
valuation, the company acquired $192 million of in-process research
and development (IPR&D) and $291 million of goodwill.
§ RF Surgical Systems, Inc.: On Aug. 11, 2015, the company’s Surgical
Solutions division acquired RF Surgical Systems, Inc., a medical device
company focused on the detection and prevention of retained surgical
sponges. Total consideration for the transaction was approximately
$240 million. Based upon the acquisition valuation, the company
acquired $68 million of technology-based intangible assets, $47 million
of customer-related intangible assets, with estimated useful lives of 18
and 16 years, respectively, and $135 million of goodwill.
§ Medina Medical: On Aug. 31, 2015, the company’s Neurovascular
division acquired Medina Medical, a privately held medical device
company focused on commercializing treatments for vascular
abnormalities of the brain, including cerebral aneurysms. Total
consideration for the transaction was approximately $219 million, which
includes an upfront payment of $155 million and the estimated fair
value of revenue-based and product development-based contingent
consideration of $64 million. Medtronic had previously invested
in Medina and held an 11 percent ownership position. Net of this
ownership position, the transaction value was approximately
$195 million. Based upon the acquisition valuation, the company
acquired $122 million of IPR&D and $126 million of goodwill.
Investments
Within our existing business, we invest in infrastructure, capabilities, and
initiatives that accelerate our pace and breadth of innovation, creating
competitive advantage and greater benefit for patients. Examples of these
investments in FY2016 included:
§ Panama Technical Service Training Center: At this training center,
hospital biomedical technicians and engineers from across the region
will learn how to correctly repair and maintain Medtronic technologies.
Training will be more cost-effective and impactful for customers, with
instruction provided in their native language.
§ Pointe-Claire facility: Investment underway will consolidate production
operations of the Medtronic CryoCath facility in Montreal, Canada,
and make it a global center of excellence. The site will house the
company’s production and R&D operations along with catheter
treatment teaching activities.
§ IN.PACT® Admiral® drug-coated balloon manufacturing facility: A
new manufacturing facility in Galway, Ireland, that will manufacture this
market-leading product for the treatment of peripheral artery disease.
The investment typifies the kind of manufacturing project Medtronic
is looking to develop in Ireland — providing highly skilled jobs to
manufacture innovative products for sale in global markets.
We also invest in early-stage startups whose innovative solutions have
groundbreaking potential to improve lives. For example:
§ In partnership with Sequoia Capital, Medtronic is setting up a China-
based fund dedicated to medical sector early-stage investments.
The initial fund is worth $60 million, which is likely to be invested in
local technology and services that have export potential. The fund will
also provide financing to commercialize suitable overseas technology
within China.
§ FIRE1, a Dublin-based startup originating from The Foundry, a medical
device incubator, secured Series B financing, including from existing
investors Lightstone Ventures and New Enterprise Associates, as well
as Medtronic.
Economic Contributions to Society | 13
DIVESTITURES
When appropriate, divestitures provide the opportunity to refocus
our business activities and product and therapy portfolio on our
strategic priorities.
TAXES
In part, we generate value for the communities and countries where we
operate through the taxes we pay. This includes income, real estate sales
and use, payroll, excise, and value-added taxes. In FY2016, we had
$798 million in income tax provisions, resulting in a 15.8 percent non-
GAAP nominal tax rate, including a global effective rate of 18.4 percent.
FINANCIAL ASSISTANCE
Stakeholder groups, including government agencies, occasionally provide
Medtronic with financial incentives in order to attract and support long-
term investments in their geographies or for disease states that align with
our business strategy. Incentives include tax relief and tax credits, grants,
and other direct incentives including subsidies, benefits, and awards.
RETURN TO SHAREHOLDERS
One of our financial goals is to return 50 percent of our free cash flow
(non-GAAP) to shareholders through dividends and share buybacks. In
FY2016, we had $4.2 billion in free cash flow (non-GAAP) and returned
$4.5 billion to shareholders, net of share issuances. We paid a total of
$2.1 billion in cash dividends at a rate of $1.52 per share. FY2016 marked
the 38th consecutive year of dividend increases and we continued to be
included in the S&P 500 Dividend Aristocrats Index.
PHILANTHROPY
Our charitable giving aims to build healthy communities and expand access
to healthcare to underserved communities around the world.
Philanthropic contributions are managed by our business units and by the
Medtronic Foundation. Every year we commit to donating at least
1.5 percent of pre-tax profits to charitable causes. In FY2016, we donated
approximately 2.3 percent of our pre-tax profits, totaling $114.6 million.
For the guidelines governing our philanthropic contributions by the
businesses, see Charitable Donations Guidelines. The businesses disclose
all donations made to U.S. customers, or organizations affiliated with them,
annually on our Charitable Donations Registry. More information about the
Medtronic Foundation is available at medtronic.com/foundation.
PHILANTHROPY ($ MILLIONS)
FY2012 FY2013 FY2014 FY2015* FY2016
Medtronic
Foundation Giving
$32.9 $33.7 $28.2 $47.0 $48.2
Corporate Cash
Contributions**
$22.3 $21.7 $27.7 $31.3 $49.6
Product Donations** $7.8 $9.0 $11.1 $11.5 $16.8
Philanthropic Contributions
as a percentage of Global
Pre-Tax Profits (%)
1.5% 1.5% 1.5% 1.9% 2.3%
*FY2015 does not include legacy Covidien data.
**The significant increase in corporate cash contributions and product donations from FY2015
to FY2016 is the result of the Covidien integration.
Medtronic Foundation — Global health programs
The Medtronic Foundation devotes a large portion of its philanthropic
support to address the lack of access to adequate healthcare for
underserved populations. These global health programs go beyond financial
support to establish sustainable healthcare solutions in communities around
the world. They collaborate with local and global partners to overcome
systemic obstacles in healthcare systems and address gaps in the patient
continuum of care. FY2016 progress by our three flagship programs
HeartRescue, HealthRise, and RHD Action is shown below.
§ HeartRescue aims to reduce premature mortality of acute cardiovascular
disease for the underserved by empowering patients, leveraging
frontline health workers, and advancing policy. The program has been
implemented in Brazil, China, and India. We expanded the U.S. program,
the HeartRescue Consortium, now in its fifth year, to reach 11 states and
75 million people.
§ HealthRise provides long-term care for underserved populations by
enabling frontline health workers and referral systems to deliver efficient
and effective healthcare. Our primary objective is to increase accurate
diagnosis and successful management of diabetes and cardiovascular
disease. In FY2016, HealthRise convened government officials and
experts to prioritize top barriers to care in communities in Brazil, India,
South Africa, and the United States. Solution-oriented projects have
already begun in India, while South Africa and Brazil plan to implement
projects in FY2017.
Economic Contributions to Society | 14
http://www.medtronic.com/corporate-governance/principles-and-ethics/medtronic-charitable-donations-registry/guidelines/index.htm
http://www.medtronic.com/corporate-governance/principles-and-ethics/medtronic-charitable-donations-registry/donations-registry/index.htm
http://www.medtronic.com/foundation
§ RHD Action was launched in FY2016 as a global movement to end
Rheumatic Heart Disease (RHD) in vulnerable populations. This
five-year, $6 million initiative supports programs that advance
the Every Woman Every Child commitment to reduce premature
deaths from this prevalent disease. Our RHD Action partners are
collaborating with local stakeholders on programs in Uganda and
Tanzania to improve early detection and increase access to RHD care,
and improve patient outcomes for RHD.
To learn more about how we increase access across the continuum of care
through our business activities, see Access.
Community grantmaking
We have a responsibility to support the health of our neighbors. Medtronic
Foundation community grants, administered over two years, provide
care for underserved populations in the 72 communities where we have a
significant employee presence. In FY2016, 38 communities benefited. In
FY2016, Medtronic Foundation donated a total of $5.3 million to more than
50 grant recipients. Recipient organizations are those that expand access
to chronic disease healthcare, address persistent or emerging health
challenges, and build partnerships to encourage collaboration.
Natural disasters create a need for healthcare supplies on the ground as
well as long-term support to rebuild damaged healthcare infrastructure.
In the wake of a crisis, Medtronic provides product donations and the
Medtronic Foundation provides disaster relief grant funding. We encourage
employees to contribute through financial donations and volunteer time.
DISASTER RELIEF ($ MILLIONS)
FY2012 FY2013 FY2014 FY2015** FY2016
Disaster
Relief
$1.3 $0.6 $1.6* $0.6 $0.8
*Total includes $0.9 million donated toward the Ebola crisis.
**FY2015 does not include legacy Covidien data.
Patient empowerment programs
Patients who overcome a medical challenge often go on to lead
extraordinary lives. The Medtronic Foundation celebrates their service
and inspiration through two patient empowerment programs: the Bakken
Invitation Award and the Global Heroes program.
The Medtronic Foundation Bakken Invitation Award honors individuals
who have overcome health challenges with the help of medical technology
and now give back to communities in need. In FY2016, the Medtronic
Foundation recognized 12 honorees from 11 countries. Their inspiring
stories can be read online.
FY2016 marked the 10th year of the Medtronic Foundation Global Heroes
program. Twenty-five runners from 16 countries joined in Minnesota to
run as a team in the Medtronic Twin Cities Marathon and Medtronic Twin
Cities 10 Mile races. Each Global Hero has in some way benefited from
medical technology, highlighting how “Life runs on” after a diagnosis. They
demonstrate that when people have access to quality healthcare, they
often can return to their passions. Read more information on the Global
Heroes team online.
Community engagement
The greatest impact we have on establishing healthcare equality comes
from our global workforce. The integration of Covidien has nearly doubled
our reach, helping us build a global workplace culture. Medtronic and
the Medtronic Foundation support employee community engagement
through three signature programs:
§ Global Innovation Fellows
§ Project 6 Employee Volunteerism
§ Global Matching Grants and Volunteer Grants
In FY2016, the Global Innovation Fellows program paired 30 Medtronic
employees with nonprofits in Fiji, Ghana, India, Mexico, Tanzania, and
the United States. The program harnesses employee passion to help
transform communities, tapping into their experiences and expertise to
improve people’s access to care around the world.
Every June, Medtronic employees participate in Project 6, our month-
long global kickoff to a new year of volunteering. In FY2016, they donated
64,800 hours across 44 countries to charitable activities. The five Project 6
teams with the highest participation, impact, and unique attributes each
received a $10,000 grant from the Medtronic Foundation for a charitable
organization of their choice.
In addition, the Medtronic Foundation matches dollar-for-dollar employee
contributions to approved charities, ranging from $25 to $100,000 in
FY2016, and made 2:1 contributions during June 2015. Employees
donated nearly $15 million to this program in FY2016, leading to an overall
contribution of $32 million when matched. The Medtronic Foundation
also provides $500 grants to nonprofits for every 25 hours of service an
individual employee volunteers. In FY2016, more than 900 employees
participated in this program, raising $484,000.
Economic Contributions to Society | 15
http://www.everywomaneverychild.org/
http://bakkeninvitation.medtronic.com/honorees-winners/
http://www.medtronic.com/us-en/about/foundation/global-heroes.html
EMPLOYEE COMMUNITY ENGAGEMENT
FY2012 FY2013 FY2014 FY2015* FY2016
Project 6
Volunteers 4,200 5,878 6,365 8,880 19,800
Total Volunteer
Hours
18,813 19,695 18,570 29,000 64,800
Countries 28 33 30 35 44
Employee-Led
Projects
221 193 215 274 512
Global Innovation
Fellows – 5 24 28 30
Global Matching Grants
Employee
Contributions
($ Millions)**
$1.5 $1.5 $7.9 $24.3 $14.9
Medtronic Match
($ Millions)***
$1.5 $1.5 $5.8 $20 $17.4
Volunteer Grants – – – 786 968
Volunteer Grants
($ raised)
$581,229 $457,268 $461,667 $515,000 $484,000
*FY2015 does not include legacy Covidien data.
**Covidien data for the period January–March 2016 is included in the FY2016 employee
contributions. Full FY2016 Covidien data was not included due to the timing of Covidien’s
integration into the Medtronic Workday system.
***The significant increase in employee contributions from FY2014 to FY2015 was a result of
greater employee awareness, increasing the maximum donation threshold from $50,000 in FY2014
to $100,000 in FY2015, and program changes including offline acceptance of donations that were
made to encourage participation.
NON-GAAP FINANCIAL MEASURES
Non-GAAP financial measures should be considered supplemental
to, and not a substitute for, reported financial results prepared in
accordance with U.S. GAAP, as set forth in the consolidated financial
statements included with our periodic reports filed with the U.S.
Securities and Exchange Commission. Medtronic uses non-GAAP
financial measures to facilitate management’s review of the operational
performance of the company and as a basis for strategic planning.
Medtronic believes that the resulting non-GAAP financial measures
provide useful information to investors regarding the underlying
business trends and performance of the company’s ongoing operations
and are useful for period-over-period comparisons of such operations.
The non-GAAP financial measures reflect an additional way of viewing
aspects of the Company’s operations. Medtronic calculates forward-
looking non-GAAP financial measures based on internal forecasts
that omit certain amounts that would be included in GAAP financial
measures. The determinations of the amounts that are omitted are
a matter of management judgment and depend upon, among other
factors, the nature of the charges or gains. Medtronic is unable to
present quantitative reconciliations for forward-looking non-GAAP
measures because management cannot reasonably predict with
sufficient reliability all of the necessary components of the comparable
GAAP financial measures. Medtronic has excluded from these forward-
looking non-GAAP financial measures the impact of foreign exchange
fluctuations, as well as certain charges or gains that contribute
to or reduce earnings but that result from transactions or events
management believes may or may not recur with similar materiality
or impact to operations in future periods, such as amortization of
intangible assets and acquisition-related items, certain tax and
litigation, and restructuring charges or gains. Such items could have
a substantial impact on GAAP measures of financial performance.
Reconciliations between historical non-GAAP financial measures
referenced in this report and the most directly comparable U.S. GAAP
measures follow.
Economic Contributions to Society | 16
MEDTRONIC PLC
FY2016 NET INCOME AND DILUTED EPS GAAP TO NON-GAAP RECONCILIATIONS
(Unaudited) (In Millions, Except Per Share Data)
FISCAL YEAR ENDED APR. 29, 2016
Income from
Operations
Before Taxes
Net
Income
Diluted
EPS
Effective
Tax Rate
GAAP $4,336 $3,538 $2.48 18.4%
Non-GAAP Adjustments: (1)
Impact of Inventory Step-Upa 226 165 0.12 27.0
Special Chargesb 70 44 0.03 37.1
Restructuring Charges, Netc 299 221 0.15 26.1
Certain Litigation Charges, Netd 26 17 0.01 34.6
Acquisition-Related Itemse 283 212 0.15 25.1
Amortization of Intangible Assetsf 1,931 1,467 1.03 24.0
Loss on previously held forward-starting interest rate swapsg 45 29 0.02 35.6
Debt Tender Premiumh 183 118 0.08 35.5
Certain Tax Adjustmentsi – 417 0.29 –
Non-GAAP $7,399 $6,228 $4.37 15.8%
(1) Non-GAAP adjustments relate to charges or gains that management believes may or may not recur with similar materiality or impact on results in future periods.
aRepresents amortization of step-up in fair value of inventory acquired in connection with the Covidien acquisition, which was recorded in costs of products sold in our condensed consolidated statements of income.
bThe $44 million after-tax ($70 million pre-tax) special charge was recorded in connection with the impairment of a debt investment.
cIncludes a $274 million after-tax charge ($364 million pre-tax) related to a continuation of our cost synergies initiative, partially offset by a $53 million ($65 million pre-tax) reversal of excess restructuring reserves related to
certain restructuring initiatives. The FY2016 restructuring charge for the cost synergies initiative primarily consisted of employee termination costs (including accelerated stock compensation due to terminations
resulting from the Covidien acquisition), fixed asset impairments, and contract termination costs. The restructuring charge includes expense within cost of products sold related to inventory write-offs of discontinued
product lines.
dRelates to probable and reasonably estimable product liability litigation.
ePrimarily includes integration-related costs incurred in connection with the Covidien acquisition, partially offset by net income related to the change in fair value of contingent consideration associated with acquisitions
subsequent to Apr. 29, 2009.
fTo exclude amortization of intangible assets.
gRelates to losses incurred from the unwinding of forward-starting interest rate swaps, which were previously entered into in advance of a planned debt issuance that is no longer expected following the internal reorganization
described in footnote (i). The losses were recorded in interest expense, net in our condensed consolidated statements of income.
hThe $118 million after-tax charge ($183 million pre-tax) was recorded in connection with the cash tender offer of certain outstanding debt securities issued by Medtronic, Inc. and Covidien International Finance S.A.
The charge was recorded in interest expense, net in our condensed consolidated statements of income.
iPrimarily relates to U.S. income tax expense resulting from the Company’s completion of an internal reorganization of the ownership of certain legacy Covidien businesses that reduced the cash and investments held by our
U.S.-controlled non-U.S. subsidiaries. Also includes a benefit related to the establishment of a deferred tax asset on the tax basis in excess of book basis of a wholly owned U.S. subsidiary the Company expects to dispose of
during the foreseeable future.
Economic Contributions to Society | 17
MEDTRONIC PLC
RECONCILIATION OF OPERATING CASH FLOW TO FREE CASH FLOW
(Unaudited) (In Millions)
FY2012 FY2013 FY2014 FY2015* FY2016
Net cash provided by
operating activities
$4,470 $4,942 $4,959 $4,902 $5,218
Additions to property,
plant, and equipment
(484) (457) (396) (571) (1,046)
Free cash flow $3,986 $4,485 $4,563 $4,331 $4,172
*Investors should consider these non-GAAP measures in addition to, and not as a
substitute for, financial performance measures prepared in accordance with U.S. GAAP.
MEDTRONIC PLC
FY2016 RECONCILIATION OF WORLDWIDE GEOGRAPHIC REPORTED REVENUE GROWTH
TO WORLDWIDE GEOGRAPHIC COMPARABLE CONSTANT CURRENCY REVENUE GROWTH
(Unaudited) (In Millions)
A B C D=B+C E F=D+E G=(A-B)/B H I=(A-F-H)/F
Medtronic as
Reported 12
Months Ended
Apr. 29, 2016
Medtronic as
Reported 12
Months Ended
Apr. 24, 2015
Covidien as
Reported 9
Months Ended
Dec. 26, 2014
FY2015
Pro Forma
Historical
Revenue
Adjustment
(3)
FY2015
Comparable
Historical
Revenue
FY2016
Reported
Growth
Currency
Impact on
Growth
Comparable
Constant
Currency
Growth (1)(2)
U.S. 16,422 11,305 4,123 15,428 (35) 15,393 45 – 7
Non-U.S.
Developed
8,708 6,372 2,896 9,268 (66) 9,202 37 (1,069) 6
Emerging
Markets
3,703 2,584 1,089 3,673 (26) 3,647 43 (433) 13
TOTAL $28,833 $20,261 $8,108 $28,369 $(127) $28,242 42% (1,502) 7%
(1) FY2016 was a 53-week year, with the extra week included in the first-quarter results. While it is difficult to calculate the exact impact of the extra week, the Company estimates that it
benefited FY2016 comparable, constant currency growth by approximately 1.5 percentage points.
(2) Management believes that referring to comparable, constant currency growth rates is a useful way to evaluate the underlying performance of Medtronic sales. Constant currency growth, a
non-GAAP financial measure, measures the change in revenue between current and prior year periods using average exchange rates in effect during the applicable prior year period.
(3) Represents the decrease in Covidien revenue for the nine months ended Jan. 23, 2015, as compared to Covidien revenue for the nine months ended Dec. 26, 2014.
Economic Contributions to Society | 18
VALUE TO
SOCIETY:
OUR
PRIORITIES
Access | 20
Noncommunicable diseases are among the greatest threats to human
health and economic prosperity. Medical technology and therapy
innovations can treat unserved medical conditions and help patients
everywhere lead better, more productive lives. But for millions of
people who lack access to financial resources or quality healthcare
infrastructure, lifesaving care may be out of reach. Our approach to
expanding access is aligned with our revenue growth strategy. By
connecting more patients around the world to new medical products
and therapies, we continue to grow our business.
THERAPY INNOVATION
Medtronic expands access to healthcare by developing products
and therapies that meet unserved medical needs and treat conditions
more effectively. In FY2016, we continued to conduct clinical trials
and introduce innovative new products and therapies that support
our Mission.
Research and clinical trials
In FY2016, we invested $2.2 billion in research and development (R&D),
representing 7.7 percent of net sales.
ANNUAL R&D SPENDING
FY2012 FY2013 FY2014 FY2015* FY2016
R&D Spend ($ millions) $1,490 $1,557 $1,477 $1,640 $2,224
R&D Spend (% net sales) 9.2 9.4 8.7 8.1 7.7
*FY2015 based on Medtronic fiscal year as reported and reflects the partial year contribution of the
Covidien transaction that closed on Jan. 26, 2015.
Our R&D efforts take place globally. In emerging markets, our
expert teams focus on conditions that disproportionately affect
local populations. For example, nearly 300 researchers in China are
developing tailored solutions for the Chinese market, where conditions
such as type 2 diabetes and chronic kidney disease are prevalent.
ACCESS
In addition to R&D, clinical trials help establish the effectiveness and safety
of our innovations. We are committed to conducting our clinical trials in
accordance with our Clinical Trial Principles and all applicable laws and
regulations. See page 28 for more information about clinical trial oversight.
In FY2016, our groundbreaking R&D pipeline and discoveries include:
§ Genetic risks for sudden cardiac death: We identified a gene associated
with life-threatening abnormal heart rhythms and sudden cardiac death
in two studies presented to the 2015 European Society of Cardiology
Congress in London. The gene is associated with a 50 percent relative
risk increase in these life-threatening heart rhythms.
§ Progress toward an artificial pancreas: Outside the United States,
we offer our MiniMed 640G® System, an integrated system with the
Enhanced Enlite CGM sensor that features SmartGuard technology,
which automatically suspends insulin delivery when sensor glucose
levels are predicted to approach a low limit and then resumes insulin
delivery once sensor glucose levels recover. Our MiniMed® 640G User
Evaluation Study demonstrated reduced hypoglycemia and further
advancements in automation for Medtronic insulin pump systems. We
presented the results at the American Diabetes Association’s 75th
Scientific Sessions. In addition, patient enrollment was completed for a
pivotal study of a Hybrid Closed Loop system, designed to personalize
and automate the delivery of basal insulin 24 hours a day to maximize
the time glucose levels are in a predefined target range.
§ Early detection of lung cancer: Minimally Invasive Therapies Group
(MITG) launched a 2,500-patient study to assess the benefits of the
superDimension™ navigation system on early detection of lung cancer.
Lung cancer is the No. 1 cancer-related cause of death, accounting for
more cancer deaths than breast, colon, and prostate cancer combined.1
Early detection has been shown to dramatically increase long-term
survival rates.
1 American Cancer Society: Cancer Facts & Figures 2013
§ Treatment for stroke patients: In FY2015, the results from four trials
conducted and/or funded by our Restorative Therapies Group led to
new stroke treatment guidelines from the American Heart Association
and American Stroke Association. The new guidelines, which were
introduced in June 2015, recommended the use of a stent retriever,
such as the Medtronic Solitaire™ Revascularization device, in addition
to IV-tPA for treatment of stroke patients. In addition, the Solitaire
Revascularization device was named to the Cleveland Clinic’s list of top
medical innovations for 2016.
New product introductions
Following successful R&D and clinical trial programs, we introduce
new products and therapies that help patients live healthier, more
productive lives.
Many of these innovations will have significant impacts on expanding
access to treatment for those in need of new healthcare products and
therapies. Examples include:
§ Evera MRI™ SureScan® ICD System: FDA approval for an implantable
cardioverter defibrillator system for MR Conditional use with magnetic
resonance imaging scans without positioning restrictions.
§ IN.PACT® Admiral® Drug Eluting Balloon: CE mark approval of
arteriovenous access to help maintain hemodialysis access in patients
with end-stage renal disease.
§ Micra Transcatheter Pacing System: FDA approval of the world’s
smallest pacemaker, which provides a safe alternative to conventional
pacemakers without the complications associated with cardiac wires.
§ NURO™ System: Launch of the percutaneous tibial neuromodulation
system, a minimally invasive treatment for overactive bladder.
We also introduced several new products that use data to provide
better guidance or care to patients including:
§ CareLink iPro Pattern Snapshot: Commercial availability of a new
report for the iPro2 Professional Continuous Glucose Monitoring
System that provides healthcare professionals with information for
quick interpretation of detailed glucose data over time.
§ MiniMed® Connect: FDA clearance of the first product that enables
people with diabetes to discreetly and conveniently view insulin pump
and continuous glucose monitoring information on a smartphone.
§ MyCareLink Smart™ Monitor: FDA approval for the world’s
first app-based remote monitoring system for patients with
implantable pacemakers.
Information about other products receiving FDA and CE mark approval
in FY2016 can be found in the Medtronic Newsroom.
ECONOMIC VALUE
As our business grows, we are building on our expertise in working
across healthcare systems to enhance economic value.
Value-based Healthcare
We believe that the current healthcare system is not sustainable and
needs to be transformed to improve patient outcomes and control rising
healthcare costs. Medtronic accepts and supports that healthcare system
leaders around the world will, in fact, implement Value-based Healthcare
(VBHC) delivery and payment systems, whereby they make payment for
our products and services contingent upon their ability to improve patient
outcomes relative to their cost. To compete in this new world and to
advance the transformation, we are assessing new business models where
we share direct accountability for system costs and patient outcomes.
Launched in January 2016, the Value-based Healthcare Council is charged
with accelerating our vision, deepening our knowledge, and sharing
best practices in VBHC. The Council comprises leaders from across
our business units, regions, and functions, including clinical, healthcare
economics, policy reimbursement, and legal experts.
Medtronic has created and follows a proprietary, seven-step framework
for VBHC that helps to develop value-based business models that offer
a value proposition that meets baseline outcomes that are meaningful
for patients.
Medtronic VBHC Business Model Definition
When we share direct accountability for system costs and patient outcomes
in our business models.
There are certain elements that must always be true in a VBHC solution:
§ Outcomes must be measured, with metrics approved by all stakeholders.
§ Relevant costs of care must be known and agreed upon by all stakeholders.
§ Payment to Medtronic is based (or contingent) on the clinically meaningful
outcomes and economic value created by our products, services, and solutions.
Access | 21
http://www.medtronic.com/us-en/about/news.html?intcmp=nasdaq_top_nav_newsroom
Outcome-based payments
A patient-centric VBHC system should prioritize health outcomes, or
patient value, over the volume of medical devices sold or therapies
provided. With this in mind, we are pursuing outcome-based payment
models that make the entire industry more accountable for patient
health by aligning the financial incentives for healthcare providers
and manufacturers.
Since announcing a shift toward risk-sharing and outcome-based
payments in FY2015, the U.S. Centers for Medicare and Medicaid
Services has introduced a bundled payment strategy for treating
disease states. Medtronic has responded by identifying baseline
metrics and factors to develop and standardize new risk-sharing
approaches with our healthcare partners. Our Global Health Economic
and Reimbursement team leads this effort, analyzing the impacts of our
product pricing and reimbursement policies and guiding our business
units on improvement strategies.
Managed services
As part of our economic value strategy, we have invested heavily in
our managed services business, which saw strong growth in FY2016.
Through Medtronic Integrated Health Solutions, we manage facilities
and clinics for hospital partners, with a focus on improving efficiency
and quality of care in catheterization labs and hospital operating rooms.
We expect this business to generate $1.5 billion in revenue in the
Americas by 2021.
In Lagos, Nigeria — a population of more than 16 million — patients
had access to only two operational catheterization labs. During the
year, we entered into our first agreement in Africa to bring efficient
catheterization labs and operating rooms to patients in Lagos at the
Gbagada Cardiac and Renal Centre. Medtronic Integrated Health
Solutions set out to ensure that the catheterization labs are up and
running, effectively managed, staffed with nurses and technicians,
fully equipped with consumables, receiving adequate power and
water, and staffed with clinicians who can execute high-quality cardiac
catheterization procedures.
In the Netherlands, our May 2016 majority investment in Nederlandse
Obesitas Kliniek (NOK) expanded our managed care services to provide
nutritional, psychological, exercise, and medical support to bariatric
surgery patients. The integrated approach provides more sustainable
weight loss for patients, optimizes patient flow for healthcare
providers, and reduces comorbidities for healthcare payers. By bringing
NOK into our portfolio, we are expanding this model across Western
Europe, launching it as a new standard of care in the Middle East, and
offering a more effective business model in the United States.
Telehealth
Advanced telecommunications technologies enable long-term patient
care with increasing efficiency and reduced costs. Medtronic Care
Management Services business provides telehealth services to monitor
patients following acute care admissions and surgical procedures,
which delivers improved long-term health outcomes. Hospitals also
benefit from reduced readmission rates.
Through the Latin America Telemedicine Infarct Network (LATIN), a
partnership among Medtronic, the Lumen Foundation, and ITMAS
(a telemedicine provider), we are making heart attack diagnosis
treatment more efficient in São Paulo, Brazil. The partnership enables
patients to receive EKGs at local primary care centers, which are
read by specialists hundreds of miles away to diagnose and confirm
severe heart attacks. By promptly bypassing local ERs, patients are
able to save precious time and be admitted to specialized cardiac
catheterization labs to receive treatment.
Product pricing and cost savings
Even with efficient contracts in place, we recognize a continual need
to improve the affordability of our products and therapies. We offer a
variety of pricing models, including volume pricing and rebate models
for hospitals, adaptive pricing for treating long-term conditions, and
assisting new and existing patients through other programs.
GLOBALIZATION
Our access initiatives focus most heavily on patients and communities
in need of disruptive models of care — where expansion of existing
systems and economic development cannot sufficiently meet
healthcare needs. Our globalization strategy focuses on reducing
inequity everywhere through solutions tailored to market needs and
expanding access to care in emerging markets.
To learn more about the Medtronic Foundation’s global health
programs, see page 14.
Access | 22
A Hub & Spoke model of healthcare delivery
The Hub & Spoke delivery model is one approach we are applying that
is designed to increase access to care through efficient treatment
across the entire continuum of care. In limited-resource settings, it is
important to organize healthcare systems strategically to maximize
patient outcomes.
The model centers on “hub” hospitals with highly trained physicians and
sophisticated infrastructure that provide state-of-the-art, specialist
care. Healthcare centers in the surrounding communities operate
as the “spokes” to create an integrated model of care that handles
screening and diagnosis, refers patients to specialists, and supports
long-term disease management. Wherever patients enter the system,
they encounter an efficient, integrated system designed to support
their health over the long term.
In FY2016, Medtronic made a significant investment in the Abraaj
Group’s Growth Markets Health Fund (GMHF). GMHF is a private
equity fund focused on improving healthcare access primarily in Asia
and Africa by reducing the gap between supply and demand for health
services. Our investment supports GMHF’s focus on purchasing and
building hub hospitals in emerging markets including Bangladesh,
Ethiopia, Ghana, India, Kenya, Nigeria, and Pakistan.
In partnership with Abraaj, we also invested in the CARE hospital
network, which operates in nine cities across India. CARE is one of
India’s leading hospital systems, and offers opportunities to pilot
Hub & Spoke models and managed care systems across India using
GMHF’s reach.
Innovations in delivery for emerging markets
In communities and markets where the disparity between healthcare
needs and access is greatest, we believe that new and innovative
business models can bridge the gap. We pursue these models agnostic
of any specific technology, product, or therapy.
One way that we do this is through our Global Health Initiative (GHI),
in which we identify pressing, widespread health problems facing local
communities, and look across the entire continuum of care to identify
the barriers to treating patients. GHI then designs solutions and
business models that help overcome those barriers in ways that meet
local needs.
GHI programs made significant progress in FY2016. In Ghana,
we completed the plans for a FY2017 pilot of Akoma Pa, a new
hypertension management system that addresses the country’s
significant shortage of cardiologists. The new model blends
hypertension monitoring hardware with risk assessment software.
Between appointments with cardiologists, patients can visit local
pharmacies for blood pressure monitoring, and the platform
automatically contacts the patient’s physician for a prescription refill or
when a problem is detected. Benefits will include patients making fewer
physician visits, pharmacies building long-term customer relationships,
and physicians able to focus on patients most urgently in need of care.
Applying a different set of strategies and technologies, we launched
Project Elevate, addressing barriers to timely interventional care
for cardiac patients. Although it is widely recognized that patients
experiencing serious heart attacks need surgical intervention within
90 minutes of arriving at the hospital, the typical waiting time is much
longer in emerging markets. Project Elevate uses mobile applications to
reduce that time by allowing physicians to remotely diagnose patients,
evaluate test results, and determine the intervention needed. We
are partnering with hospital systems and governments to bring this
solution to patients in Malaysia, Nigeria, and Russia.
In FY2017, we plan to make further investments in our ability to develop
new, for-profit models of healthcare delivery for emerging markets.
Patient Access Acceleration and Patient Access Solutions
Our Patient Access Acceleration (PAA) methodology helps
identify global market opportunities and unmet patient needs. The
four-step approach helps quantify the need for treatment, identifies
the barriers to care, prioritizes these barriers, and formulates strategies
to tackle them.
This supports expanded access to care in developed and developing
economies alike, and informs the way we approach new challenges.
Through Patient Access Solutions (PAS), Medtronic provides consulting
services to hospitals around the world that help bring medical
technology and therapies to new markets and patient populations. Our
PAS group has conducted workshops in 11 countries, including China,
Colombia, Kazakhstan, Romania, and Saudi Arabia.
Access | 23
Partnerships
We also rely on partnerships to help scale our impact and reach more
patients. Opportunities range from developing new technologies
and therapies with our peers to thought leadership and research
collaborations with universities, and on-the-ground care delivery with
governmental and nongovernmental organizations.
§ IBM Watson Health: A new partnership between Medtronic and IBM
Watson Health combines data gathered from our diabetes therapies
with the advanced computing and analytic power of IBM’s Watson
software to predict hypoglycemic attacks to one day be able to alert
patients hours before they occur, with the hope of preventing these
events altogether.
§ World Economic Forum: In FY2016, our CEO was appointed co-chair
of the World Economic Forum’s Healthcare Community, a public-
private partnership bringing together stakeholders from across the
continuum of care to discuss healthcare access and value-based
models for care.
Capacity building
In order for our product and therapy innovations to reach local
communities in emerging markets, healthcare providers must be
equipped with the skills and knowledge to offer them, and patients
must have access to information about their medical conditions and
their treatment options. In FY2016, we invested $152.4 million
in capacity building and training for medical professionals and
$20.3 million in patient education. The vast majority of these efforts
took place in emerging markets including:
§ China: Our Cardiac Rhythm and Heart Failure business hosted
a series of 12 pacemaker implantation training sessions for 120
physicians from across China at our innovation center in Shanghai.
Despite similar rates of arrhythmia, pacemakers are used in China
at less than 0.5 percent the rate of the United States. This is due
primarily to a lack of physician proficiency in the procedure.
§ Panama: We opened the Panama Technical Service Training Center,
a facility that will train approximately 100 hospital biomedical
technicians and engineers to correctly use and repair Medtronic
technologies. Previously, healthcare providers across Latin America
had to travel to the United States for this training. In addition, the
ability to offer training in the local language will enhance
its effectiveness.
§ Turkey: Our MITG innovation center in Istanbul offers training for
up to 5,000 physicians, nurses, and hospital technicians each year
in advanced procedures and surgical techniques for treating
vascular disease, metabolic disorders, and chronic obstructive
pulmonary disease.
Patient outreach and education efforts raise awareness about
health conditions and when to seek medical attention. In FY2016, we
partnered with the World Stroke Organization as part of the “Take
2… Tell 2” campaign which encourages people to spend two minutes
learning about the warning signs of stroke and sharing that knowledge
with two others. By raising baseline awareness of medical conditions
among patients, we hope to reach more patients who can benefit from
our products and therapies.
HEALTHCARE CAPACITY BUILDING
FY2014 FY2015 FY2016*
Education for Medical Professionals ($ millions) $97.5 $108.8 $152.4
Education for Patients ($ millions) $23.0 $18.7 $20.3
Medical Professionals Reached N/R 50,796 64,233
*Excludes MITG Patient Monitoring and Recovery business
In FY2016, we made $17 million in product donations, our largest
amount ever, through the philanthropic efforts of our business units.
See Economic Contributions to Society for more information.
Access | 24
UNIVERSAL
HEALTHCARE NEEDS
BUSINESS STRATEGIES
Improve clinical
outcomes
Expand access
Optimize cost
and efficiency Therapy
Innovation
Globalization Economic
Value
BUSINESS STRATEGIES LONG-TERM QUALITY IMPERATIVES
Therapy Innovation
Globalization
Economic Value
Product
Superiority
Effective and
Efficient Compliance
Mindset of
Excellence
Providing
products of
highest quality
and reliability
Complying with
applicable
regulations
efficiently
Ingraining a
proactive and
patient-centric
quality culture and
quality talent
management
Product Quality | 25
PRODUCT
QUALITY
Medtronic always puts patient safety first. We deploy rigorous controls
at every stage of the value chain to ensure the safety and efficacy of
every product we make. Our patient-centric quality culture, strategy, and
programs incorporate the highest ethical standards, and build employee
capabilities. This unerring focus on quality improves patient outcomes
and builds trust in our company.
RESPONSIBILITY AND QUALITY
We design and manufacture medical devices that patients rely on daily,
many of which are implanted inside their bodies. To protect patients’
health and maintain their confidence, it is imperative that these products,
and the materials of which they are made, are of the highest quality.
Our Global Quality Strategy takes a patient-centered approach to deliver
consistent, enterprise-wide quality. This supports our business, increasing
operational efficiency and reducing reputational risk.
Employee responsibility
Originally launched by Covidien in 2011, Quality Begins with Me is
now integral to our Global Quality Strategy to improve our mindset
of excellence. In FY2016, we began rolling out patient-centric and
leader-led employee training across our combined company (legacy
Medtronic and legacy Covidien). The program empowers employees
to demonstrate excellence and individual leadership through the
following behaviors:
§ Be courageous.
§ Put the patient first.
We also require employees worldwide to obtain our Annual Quality
Training Certification, which focuses on regulatory compliance, good
documentation practices, continual improvement, and product quality.
By June 2016, 98 percent of employees completed this training, meeting
our participation goal.
§ Strive to prevent issues before they arise.
§ Hold each other accountable.
UNIVERSAL
HEALTHCARE NEEDS
BUSINESS STRATEGIES
Improve clinical
outcomes
Expand access
Optimize cost
and efficiency Therapy
Innovation
Globalization Economic
Value
BUSINESS STRATEGIES LONG-TERM QUALITY IMPERATIVES
Therapy Innovation
Globalization
Economic Value
Product
Superiority
Effective and
Efficient Compliance
Mindset of
Excellence
Providing
products of
highest quality
and reliability
Complying with
applicable
regulations
efficiently
Ingraining a
proactive and
patient-centric
quality culture and
quality talent
management
Our business strategies and long-term quality imperatives are
summarized below.
Design and production
Our Design for Reliability and Manufacturability (DRM) program brings
quality into research and development (R&D), designing safety and
reliability throughout the R&D process. By simulating real-world
product use, we collect valuable information that helps us predict
product performance.
The Medtronic Operating System (MOS) embeds quality into production
by applying Lean Six Sigma principles, a team-based methodology for
achieving continual improvement in waste reduction and efficiency
(see also Product Stewardship). We also use International Standards
Organization (ISO) 13485, a leading standard for comprehensive quality
management systems that meet international medical device regulations.
Third-party safety and quality
Medtronic provides training and learning opportunities to help our
third-party suppliers build their own systems and capabilities in
alignment with our expectations. See Responsible Sourcing for more
information about our approach to supply chain management.
MAINTAINING QUALITY FACILITIES
External regulatory agencies review and monitor our performance for
quality and safety every year. We welcome these inspections because
they help us understand each regulatory body’s expectations and
priorities, and identify areas where we can improve. Through our
Inspection Knowledge Management process, we share what we learn
and roll out necessary changes across our global facilities.
In FY2016, we hosted 242 global regulatory inspections, of which 88
percent resulted in no findings. Our goal is to maintain an average of 0.5
or fewer findings per global regulatory inspection, which we met with
0.31 this year.
However, with respect to FDA inspections, we received 1.5 findings
per FDA inspection, which fell short of our expectations but below the
overall industry average. Our goal for FY2017 is to have 1.0 or fewer
findings per FDA inspection.
Our global compliance oversight program, Medtronic Corporate-Wide
Assessment for Regulatory Excellence (MCARE), analyzes quality
management systems, identifies gaps, develops corrective action
plans, and focuses on our readiness to address changing regulatory
requirements. In FY2016, the team completed investigations and
supported improvements at 37 Medtronic facilities.
MAINTAINING QUALITY FACILITIES
FY2015 FY2016
Global External Regulatory Inspections at Medtronic Sites 152 242
Global External Regulatory Inspections Which Resulted
in No Findings
93% 88%
Average Findings per Global External
Regulatory Inspection
0.15 0.31
MCARE Investigations and Supported Improvements 28 37
PRODUCT USE AND PERFORMANCE
To support product quality and improved patient outcomes, we monitor
the performance of our products in use, collecting data through
corporate post-market surveillance. Our continuous improvement
process involves analyzing findings and approaches to achieving
measurable, cost-effective improvements.
A dedicated team at Medtronic captures critical data on products from
our network of partner hospitals, health systems, physicians, clinics,
governments, and third-party databases. Our partner network includes
sites in North America, Europe, and Latin America, and continues to
grow in line with our business.
Medtronic therapies and product lines currently under post-market
surveillance include:
§ Cardiac rhythm
§ Deep brain stimulation
§ Sacral neuromodulation
§ Spinal cord stimulation
§ Surgical heart valves
§ Targeted drug delivery devices
Product Quality | 26
Enhancing post-market surveillance
Post-market surveillance techniques and methods play a vital role
in our move toward Value-based Healthcare with a focus on patient
outcomes. We collaborate with the FDA and stakeholders across the
industry to enhance post-market surveillance.
More than 1,600 clinical professionals across Medtronic help develop
and standardize new measurement models to improve patient safety
and clinical outcomes. We are continually exploring new methods to
obtain valuable product use information at lower cost. We aim to do this
without compromising quality or regulatory compliance.
Collaborations and partnerships in FY2016 included:
COLLABORATIONS AND PARTNERSHIPS FOR IMPROVING
POST-MARKET SURVEILLANCE
ORGANIZATION FY2016
The Medical Device Innovation
Consortium (MDIC) — Public-
private partnership that advances
regulatory science in the medical
device industry.
Our Chief Scientific, Clinical, and
Regulatory Officer serves on the MDIC
Board of Directors. He also chairs the
Clinical Trial Innovation and Reform
Steering Committee, which has the
goal of increasing the efficiency and
effectiveness in research design, data
collection, and infrastructure both
pre- and post-market.
The Patient-Centered Outcomes
Research Institute (PCORI) —
Established by the 2010 Patient
Protection and Affordable Care
Act. Government-sponsored
organization that investigates the
relative effectiveness of
various medical treatments.
Our Chief Scientific, Clinical, and
Regulatory Officer serves on the
PCORI Board of Governors.
The National Academy of
Medicine — Provides national advice
on issues relating to biomedical
science, medicine, and health. Its
Clinical Effectiveness Research
Innovation Collaborative (CERIC)
provides a venue to help stimulate
and support innovation by
bringing together experts from
various fields.
Our Chief Scientific, Clinical,
and Regulatory Officer co-chairs
the CERIC.
Product-related regulatory actions
Medtronic is committed to resolving all regulatory action and field
corrective action issues swiftly and effectively. When field corrective
actions occur, our expertise in quality management enables us to
implement the required program efficiently. We take all necessary steps
to correct or remedy the root cause of any problems that occur, and have
systems in place to prevent future field corrective actions. For example, we
are accelerating implementation of DRM and MOS across more products
and manufacturing sites in FY2017. In addition, we are expanding our
supplier quality risk-reduction programs.
In the United States, the FDA classifies recalls with a numerical designation
(I, II, or III) to indicate the relative degree of health hazard presented by the
product. The Class I designation indicates the most serious type of recall.
PRODUCT USE AND PERFORMANCE
FY2015 FY2016
Open FDA Consent Decree for Product-Related
Regulatory Actions
1 1
Open FDA Warning Letters for Product-Related
Regulatory Actions
3 1
Open FDA Warning Letters Resolved During the Year
2 0
FDA Class I Recalls 6 4
FDA MedWatch Safety Alerts for Human Medical
Products Database
1 3
FY2016 FDA CLASS I RECALLS AND MEDWATCH SAFETY ALERT
PRODUCT LIST FOR MEDTRONIC DEVICES
FDA Class I Recalls
§ Shiley™ neonatal, pediatric and long
pediatric tracheostomy tubes
§ EnVeo R Loading System
§ Puritan Bennett™ 980 ventilator
§ Battery pack used with Capnostream™ 20
and Capnostream™ 20p
patient monitor
FDA MedWatch Safety
Alerts for Human Medical
Products Database
§ Shiley™ neonatal, pediatric and long
pediatric tracheostomy tubes
§ Puritan Bennett™ 980 ventilator
§ Battery pack used with Capnostream™ 20
and Capnostream™ 20p patient monitor
Product Quality | 27
http://mdic.org/about-us/
http://mdic.org/about-us/
http://www.pcori.org/about-us
http://www.pcori.org/about-us
https://nam.edu/about-the-nam/
https://nam.edu/about-the-nam/
http://www.nationalacademies.org/hmd/Activities/Quality/VSRT/Clinical-Effectiveness-Research-Innovation-Collaborative.aspx
http://www.nationalacademies.org/hmd/Activities/Quality/VSRT/Clinical-Effectiveness-Research-Innovation-Collaborative.aspx
CUSTOMER FEEDBACK
Our businesses are responsive to customer and patient needs, and
track satisfaction levels through surveys, customer visits, and net
promoter scores. They then integrate this feedback into product and
service development.
Our standardized global complaint handling system collects and
manages customer feedback. In FY2016, we received 853,000
customer complaints, and resolved more than 99 percent during
the year.
CLINICAL TRIALS
Medtronic conducts clinical trials to measure, and provide evidence
for, the safety and effectiveness of products for patients. We are
committed to conducting these trials rigorously and responsibly, in line
with applicable laws and regulations and with the following internal and
external guidelines.
Medtronic guidelines
§ Code of Conduct
§ Global Business Conduct Standards Policy
§ Clinical Trials Principles
International guidelines for clinical research
§ International Conference on Harmonization / World Health
Organization Good Clinical Practice (GCP) standards
§ ISO 14155:2011
Product Quality | 28
Medtronic also engages with organizations advancing clinical standard
development and education, including those shown below.
CLINICAL STANDARD DEVELOPMENT AND EDUCATION ENGAGEMENTS
ORGANIZATION FY2016
Clinical Trials Transformation
Initiative (CTTI)
Our Chief Medical Officer serves on
the CTTI Executive Committee.
Association for the
Advancement of Medical
Instrumentation (AAMI)
Medtronic is involved in both the U.S.
national and international work of
AAMI. Medtronic employees participate
in more than 120 AAMI committees and
working groups, and hold 11 leadership
positions, including the rotating Chair of
the Board of Directors.
International Medical Device
Regulators Forum (IMDRF)
Medtronic maintains an active presence
in the IMDRF. Medtronic subject matter
experts serve as industry representatives
on IMDRF work initiatives. Medtronic
has also supported the Medical Device
Single Audit Program (MDSAP), and has
participated in that pilot.
Transparency and open data
Transparency is essential to maintaining patient safety and scientific
integrity when performing clinical research. Medtronic publicly
discloses clinical trials through our Clinical Trials Registry available at
clinicaltrials.gov. This registry and results database details information
about the purpose, eligibility requirements, locations, and status of
each trial we sponsor. We also publish our findings in peer-reviewed
scientific and medical journals, and collaborate with researchers and
external institutions when possible.
Medtronic believes that open data benefits our industry, physicians,
and patients in the long term. That is why we are committed to clinical
trial data transparency. In 2013, we were the first company to make all
clinical trial data for a product publicly available, through a partnership
with the Yale Open Data Access Project (YODA). Specifically, we
released all clinical research trial data for the INFUSE® spinal fusion
growth protein for review by two independent academic teams.
While we took this action in response to complications related to that
product, releasing all clinical trial data for independent review proved to
be a valuable learning opportunity.
http://www.medtronic.com/corporate-governance/principles-and-ethics/code-of-conduct/index.htm
http://www.medtronic.com/corporate-governance/principles-and-ethics/global-business-conduct-policy/index.htm
http://clinicaltrials.medtronic.com/Medtronic_Clinical_Trials_Principles
http://www.aami.org/
http://www.aami.org/
http://www.aami.org/
http://www.imdrf.org/
http://www.imdrf.org/
http://www.fda.gov/MedicalDevices/InternationalPrograms/MDSAPPilot/
http://www.fda.gov/MedicalDevices/InternationalPrograms/MDSAPPilot/
http://clinicaltrials.medtronic.com/
http://www.clinicaltrials.gov
https://medicine.yale.edu/core/projects/yodap/
Product Quality | 29
ANIMAL RESEARCH
Regulatory requirements necessitate animal research and testing for
many of our products. For this research, we apply high ethical standards
and work with scientists, veterinary surgeons, pathologists, regulatory
experts, and technical staff to devise the best approaches possible.
The Medtronic Institutional Animal Care and Use Committee, made up
of internal and external stakeholders, evaluates all proposals for animal
research, reviews our protocols and standards annually, and conducts
facility and program inspections twice a year.
Our animal-related research and testing meets all relevant standards
and requirements set by the:
§ Food and Drug Administration (FDA)
§ U.S. Department of Agriculture’s Animal Welfare Act
§ Association for Assessment and Accreditation of Laboratory
Animal Care
Our animal research protocols are published in our Policy Regarding
Use of Animals and the Feasibility Assessment of Eliminating the Use of
Animals for Training Purposes.
We also look for ways to replace, refine, and reduce animal testing
wherever possible. In 2014, Medtronic toxicologist Kelly Coleman
published his team’s findings, which researched human cell-based
alternatives to animal testing for skin irritation. The current industry
standard uses rabbits, which are more sensitive than humans to skin
irritation and can lead to over-prediction in lab testing. In FY2016, an
ISO Technical Committee sponsored an international validation study
to confirm Coleman’s findings. The validation study, underway in 23
laboratories across the United States, Europe, and Asia, is expected
to end next year. If the findings are validated, it could lead to changes
in ISO standards that allow in vitro human skin assays to replace rabbit
skin irritation tests in evaluation of medical devices.
http://www.medtronic.com/corporate-governance/principles-and-ethics/animals-in-research/index.htm
http://www.medtronic.com/corporate-governance/principles-and-ethics/animals-in-research/index.htm
http://www.medtronic.com/corporate-governance/principles-and-ethics/report-on-use-of-animals-in-training/index.htm
http://www.medtronic.com/corporate-governance/principles-and-ethics/report-on-use-of-animals-in-training/index.htm
Product Stewardship | 30
PRODUCT
STEWARDSHIP
Our materiality assessment highlighted product stewardship as a
sustainability priority for Medtronic. We continually pursue innovations
that minimize the environmental impacts of our products and packaging
throughout our value chain — from product design to end of life.
OUR APPROACH
Medtronic has long taken steps to minimize the lifecycle footprint of
our products. Our approach begins with research and development
(R&D) and product design. To guide our scientists and engineers, we
incorporate Environmental, Health, Safety, and Sustainability (EHS&S)
guidelines into early stages of the development protocol. Product
designers consider these guidelines to minimize the environmental
impacts, effects of the manufacturing process, and materials used for
the product and its packaging.
To reduce the incidence of potentially harmful materials in our products
during manufacturing, Medtronic facilities follow all applicable laws and
regulations regarding hazardous materials. At the end-of-life stage,
we operate product reclamation programs that recover materials for
reuse and divert waste from landfill where possible.
Our EHS&S program commits us to continually advance our product
stewardship initiatives across the lifecycle, meeting customer needs
and expectations. Our recently established Sustainability Steering
Committee is responsible, among other things, for overseeing new
product stewardship strategies.
Sustainable product program
To take our product stewardship to the next level, with a focus on
individual products, we completed research in FY2015 on establishing
a formal product stewardship program. This process:
§ Developed criteria for determining product sustainability.
§ Produced a potential product sustainability scorecard.
§ Established a framework for a product-specific pilot.
Packaging design and innovation
Packaging is the first thing customers see when they purchase
Medtronic products. Our companywide efforts to shrink packaging and
make it more customer-friendly not only reduce our environmental
impacts, but showcase our sustainability commitment to customers.
In addition, minimizing packaging lowers our production costs and cuts
waste management expenses for our customers.
Design is a focus when it comes to reducing the impact of Medtronic
products. For example, in FY2016, we began testing new device
protection options for an electrosurgical product used in the operating
room. The new packaging substitutes pre-formed trays and lids for
die-cut insert cards (DCICs). DCICs — which can be recycled —
decrease the risk of damage to devices during transport. They also
reduce the package system’s overall footprint and decrease the
amount of plastic used — by weight — by more than 50 percent.
This lowers packaging and the associated costs for Medtronic and
our customers.
Product end-of-life management
Product stewardship includes managing the environmental impact of
our products beyond delivery to patients and customers. When possible,
Medtronic strives to capture value from our products beyond their usable
life. Our reclamation programs collect precious metals including gold,
silver, platinum, titanium, and palladium from products that are no longer
in use, including pacemakers, defibrillators, and neurostimulators.
In addition, Medtronic now owns a Sustainable Technologies business
acquired through Covidien. The Sustainable Technologies business
delivers environmental value to healthcare by diverting a significant
portion of the medical waste stream to purposeful use through
reprocessing and recycling. In FY2016, this business diverted 127 metric
tons (MT) of used medical devices from the landfill, primarily driven
by electrocardiogram (ECG) cables and compression sleeves. The
reprocessing operation based near Tampa, Florida, aims to more than
triple in scale in FY2017, further reducing landfill waste associated with
used medical devices.
As part of our commitment to lifecycle product stewardship, we
expect our suppliers to comply with best practices that minimize their
environmental impacts. Read more in Responsible Sourcing.
Product Stewardship | 31
Responsible Sourcing | 32
RESPONSIBLE
SOURCING
Medtronic strives to ensure that our supply chain reflects the same
responsible values we uphold in our own operations. We partner with
suppliers to maintain high-quality management and ethical standards
throughout our global supply chains. Careful supply management helps
us reduce business risks, support safe and healthy workplaces, and
meet customer needs.
Our suppliers are critical to our business, allowing us to produce and deliver
the medical technologies, products, and therapies on which customers and
patients around the world depend. To ensure a robust and reliable supply
base, we cultivate long-standing relationships with companies committed
to high standards.
Medtronic sources from more than 85,000 suppliers in 125 countries.
In FY2016, we spent more than $11.5 billion with our suppliers globally.
SUPPLIER QUALITY MANAGEMENT
Our healthcare partners, and the patients they serve, rely on us to deliver
high-quality, reliable technologies, products, and therapies. Fulfilling this
charge underpins our business success, while supplier error can have an
impact on patient health and damage our reputation. Our No. 1 priority
in supply chain management is, therefore, to ensure that our products
consistently meet both regulatory and self-imposed quality standards.
Our product quality program provides direct suppliers with protocols,
training, and support through the following tools:
§ Our Supplier Audit and Excellence Manual, which every supplier
must follow
§ Continuous improvement opportunities through training
and development
§ Direct supplier participation in our Design, Reliability, and
Manufacturability process, which ensure standard product performance
For more information about how we manage quality in our finished
products, see Supplier Quality.
SUPPLY CHAIN SPEND ($ MILLIONS)
FY2015* FY2016**
Australia $54.9 $52.7
Canada $77.4 $139.8
China $143.2 $252.5
France $93.3 $247.5
Germany $160.9 $233.3
Ireland $153.5 $195.1
Israel $10.3 $17.5
Japan $100.7 $138.0
Mexico $55.2 $128.0
Netherlands $129.7 $179.9
Singapore $31.4 $93.8
Switzerland $139.6 $180.6
United States $4,755.3*** $8,256.8
Total for Locations Listed $5,905.4*** $10,115.5
Total Spend $6,707.9 $11,543.5
*FY2015 does not include legacy Covidien data.
**FY2016 data reflects the Covidien acquisition.
***Totals reflect all U.S. supplier spending. This differs from the FY2015 report, which only
accounted for nine U.S. states.
http://www.medtronic.com/content/dam/medtronic-com/us-en/corporate/documents/019-G034-v5-2
http://www.medtronic.com/us-en/about/corporate-social-responsibility/suppliers/lean-supply-chain-principles.html
http://www.medtronic.com/us-en/about/corporate-social-responsibility/suppliers/design-development-value-chain.html
http://www.medtronic.com/us-en/about/corporate-social-responsibility/suppliers/design-development-value-chain.html
http://www.medtronic.com/us-en/about/corporate-social-responsibility/suppliers/supply-chain-collaboration.html
RESPONSIBLE SUPPLY MANAGEMENT
Our Supplier Code of Conduct requires Medtronic suppliers to follow
all applicable laws related to governance, environmental responsibility,
workplace health and safety, and human rights. Now that Medtronic
and Covidien are fully integrated, we are working to align best practices
from our legacy companies to enhance supply chain management,
oversight, and performance.
During FY2016, Medtronic established a Responsible Supply
Management function to encourage and support social, ethical, and
environmentally responsible business practices by suppliers. Its duties
include establishing overall strategy and goals, prioritizing regulatory
compliance, supplier diversity, and customer compliance. As a first
step, the team tracked how many of our core suppliers produced a
sustainability report in FY2016. The pool included 100 legacy Medtronic
suppliers and 347 legacy Covidien suppliers, and the survey found that
15 percent currently produce sustainability reports. Moving forward,
we will continue to monitor the number of suppliers that publish
sustainability reports and develop processes to address supplier
compliance with regulatory and customer requirements.
During FY2017, we will begin developing Global Supplier Standards and
release our new Labor and Human Rights policy to replace our existing
Supplier Code of Conduct.
Materials of concern
Medtronic implements practices to comply with applicable local and
country-specific regulations related to the environmental and social
impacts of the materials in our products. We consider the responsible
management of materials of concern in products and packaging at
both the design and manufacturing stages. This allows us to address
the requirements of the following European Directives: Restriction of
Hazardous Substances (RoHS), Registration, Evaluation, Authorization
and Restriction of Chemicals (REACH), Medical Device Directive, and
similar requirements.
Conflict minerals
Medtronic actively participates in industry-wide forums such as the
Ethical Sourcing Forum, Marcus Evans Conflict Minerals conference, and
Conflict-Free Smelter Initiative (CFSI). Our Conflict Minerals program
leader, Julia Litvak, was named to the 2016 Top 100 Conflict Minerals
Influencer Leaders by Assent Compliance, an independent compliance
services firm.
The U.S. Dodd-Frank Act requires companies to disclose conflict
minerals — tin, tungsten, tantalum, and gold — originating from
Democratic Republic of Congo and neighboring countries, where
sourcing has been linked to armed conflict. We expect all suppliers using
one or more of these minerals in our products or materials to comply
with conflict minerals regulations and responsible sourcing practices.
We reference conflict minerals requirements in supplier agreements
and purchase order terms and conditions. Medtronic also performs
annual due diligence by following the OECD Guidance Framework on
Conflict Minerals, including surveying suppliers and collecting data.
Medtronic supports and works to comply with regulations as detailed
in our Conflict Minerals Policy.
SUPPLIER DIVERSITY
Medtronic is committed to partnering with a diverse group of suppliers.
Our Supplier Diversity Policy, endorsed by Omar Ishrak, includes small
businesses and those owned by women, minorities, and veterans. In
FY2016, approximately 30 percent of our supplier spend was directed
to small and diverse companies.
Our Supplier Diversity team, Supplier Diversity Steering Committee,
and executive management team oversee our Supplier Diversity
program. We advance inclusive sourcing practices through employee
training, business unit annual plans, and sponsorship of organizations
that develop and promote small and diverse suppliers. As of FY2016,
99 percent of Sourcing and Supply Chain Management teams had
completed Supplier Diversity eLearning training.
We also encourage our Tier 1 suppliers to track and report their own
spend with diverse suppliers.
Medtronic was named “2016 Corporation of the Year” from the North
Central Minority Supplier Development Council.
Responsible Sourcing | 33
http://www.medtronic.com/us-en/about/corporate-social-responsibility/suppliers/value-chain.html
http://www.medtronic.com/content/dam/medtronic-com-m/mdt/corp/documents/conflictmineralspolicyv6-2
http://www.medtronic.com/us-en/about/corporate-social-responsibility/supplier-diversity.html
http://www.medtronic.com/us-en/about/corporate-social-responsibility/supplier-diversity.html
U.S. DIVERSE SUPPLY CHAIN SPEND BY CATEGORY ($ MILLIONS)*
FY2012 FY2013 FY2014 FY2015 FY2016**
$
SPEND
% U.S.
SPEND
$
SPEND
% U.S.
SPEND
$
SPEND
% U.S.
SPEND
$
SPEND
% U.S.
SPEND
$
SPEND
% U.S.
SPEND
Small Business $1,191.3 27.9% $1,175 28.9% $1,069 30.7% $1,102 29.9% $2,122.9 32.5%
Veteran-Owned Business $45.2 1.1% $35.4 0.9% $42.9 1.0% $49.7 1.4% $82.6 1.3%
Minority-Owned
Business Enterprise
$108.3 2.5% $106.6 2.6% $131.4 3.8% $149.0 4.0% $192.8 3.0%
Women-Owned
Business Enterprise
$167.1 3.9% $166 4.1% $74.2 2.1% $83.1 2.3% $123.7 1.9%
*The diversity table includes only U.S. addressable spend. For FY2016, addressable spend was approximately $6.5 billion. Exclusions from this total: employee-related benefits, health insurance,
taxes, royalties, and others.
**FY2016 data reflects the Covidien acquisition.
Responsible Sourcing | 34
Ethics in Sales and Marketing | 35
Guiding Policies and Principles
• Global Business Conduct
Standards Policy, including
our Anti-Corruption Policy
and Global Conflicts of
Interest Policy
• Code of Conduct
• Code of Ethics for Senior
Financial Officers
• Code of Business Conduct
and Ethics for Members of
the Board of Directors
• Medtronic Donations
• U.S. Patient Privacy Principles
ETHICS IN SALES
AND MARKETING
Our credibility as a healthcare industry leader is inseparable from our business success. Our ethical approach
to business underpins the trust of our many stakeholders, including customers, patients, industry partners,
healthcare providers, investors, regulators, governments, and employees. We are committed to being transparent
about our products, services, and practices, honest in our marketing and communications, and diligent in
preventing corruption. We are committed to marketing and promoting our products and therapies clearly, fairly,
and lawfully.
ETHICAL BUSINESS CONDUCT
Our business operations and marketing are guided by the Medtronic Code of Conduct and related policies and
principles. Together, these inform our ethical conduct, interactions with healthcare professionals, and how
we market our products to customers. The Office of Ethics and Compliance (OEC) oversees, monitors, and
implements all ethics- and compliance-related obligations, policies, and programs.
Countering corruption
Corruption and conflicts of interest in sales interactions between our employees and healthcare personnel is an
ongoing risk and a sector-wide challenge.
Employees must comply with our Global Anti-Corruption Policy (ACP), Global Business Conduct Standards (BCS),
and all applicable external laws, regulations, policies, and procedures. On an annual basis, employees receive
training on the Medtronic Code of Conduct, which reinforces the expectation that all employees must comply with
anti-corruption laws, regulations, policies, and procedures. Customer-facing employees benefit from mandatory
in-depth anti-corruption training. Existing customer-facing employees must complete anti-corruption training
biennially; some business groups and locations receive more frequent instruction. Additionally, we require that all
new employees in customer-facing and other select roles — including senior leaders — receive anti-corruption
training. Medtronic employs the equivalent of 223 full-time experts to support global anti-corruption compliance.
Medtronic distributors, dealers, and certain other third parties also undergo anti-corruption training. We maintain
a distributor compliance program to support and monitor those working on our behalf. This includes:
§ Conducting due diligence on distributors for potential corruption issues prior to entering or renewing a contract.
§ Including terms in our distributor contracts that require the implementation of anti-corruption programs.
These include: adopting compliance policies and conducting training on those policies; agreeing to be audited
or monitored by Medtronic or a third party for compliance with our program requirements; maintaining accurate
books and records; and complying with local and global anti-corruption laws.
http://www.medtronic.com/us-en/about/corporate-governance/global-business-conduct-standards-policy.html
http://www.medtronic.com/us-en/about/corporate-governance/global-business-conduct-standards-policy.html
http://www.medtronic.com/us-en/about/corporate-governance/code-conduct.html
http://www.medtronic.com/us-en/about/corporate-governance/code-ethics-senior-financial-officers.html
http://www.medtronic.com/us-en/about/corporate-governance/code-ethics-senior-financial-officers.html
http://www.medtronic.com/us-en/about/corporate-governance/board-directors-code-conduct-ethics.html
http://www.medtronic.com/us-en/about/corporate-governance/board-directors-code-conduct-ethics.html
http://www.medtronic.com/us-en/about/corporate-governance/board-directors-code-conduct-ethics.html
http://www.medtronic.com/us-en/about/corporate-governance/medtronic-charitable-donations.html
http://www.medtronic.com/us-en/about/corporate-governance/us-patient-privacy-principles.html
In some markets, Medtronic accelerates growth by increasing our direct
sales infrastructure and reducing reliance on third-party distributors.
This also reduces corruption risk and provides better customer service.
Medtronic continues to look for ways to transform our global sales
organization to have more direct interaction with our customers and
reduce dependence on the use of third parties for certain activities.
Medtronic also engages in frequent dialogue with U. S. and other global
anti-corruption regulators regarding market and company challenges
in this space, and employs several former U.S. Department of Justice
prosecutors in key leadership roles and with expertise in
anti-corruption and investigation efforts.
In FY2016, Medtronic did not enter into any settlements with or pay any
fines to the United States or any other national government related to
noncompliance with anti-corruption laws.
COUNTERING CORRUPTION
FY2015* FY2016
Employees Supporting Anti-Corruption Efforts
(Full-Time Employee Equivalents)
223 223
Third-Party Distributors Receiving
Anti-Corruption Training
87% 88%
Third-Party Distributors Receiving On-site Monitoring 15% 12%
*FY2015 data does not include legacy Covidien operations.
Responsible marketing to customers and patients
Medtronic strives to be the most trusted partner in our industry. This
commitment is reflected in how we promote our products, services,
and therapies to our customers and patients — honestly, factually,
and with a clear explanation of intended use. Each Medtronic business
unit is responsible for ensuring accurate and appropriate product
promotion and full compliance with all relevant industry guidelines
and government regulations. When marketing directly to healthcare
providers, as in the United States, we follow our internal Code of
Conduct and AdvaMed’s voluntary Code of Ethics on Interactions with
Health Care Professionals.
Our corporate and business-level policies prohibit unlawful promotion
of products for off-label uses. To prevent promotion of off-label use, we
provide ongoing education for employees who interact with healthcare
professionals. We routinely review our policies to ensure effectiveness.
For example, in FY2016, we updated our U.S. policy prohibiting promotion
of products for off-label uses to enhance and clarify policy requirements.
In support of the updated policy, Medtronic redesigned and launched
new training for employees and for external faculty training on behalf
of Medtronic. We also conduct structured risk assessments related to
off-label use for approved or cleared products and therapies, and monitor
compliance with our policies.
Medtronic adheres to appropriate marketing communications practices
— in line with external regulations and internal expectations — and has
a comprehensive compliance program in place. In FY2016, we tested
and monitored approximately 140,000 transactions for a variety of risks
including sales- and marketing-related risks, of which 99.97 percent met
internal expectations. The number of transactions tested in FY2016
increased considerably due to the addition of Covidien, and expansion of
the types of business transactions tested.
Globally in FY2016, the company was not subject to any fines or
settlements regarding the improper marketing or sales of products.
RESPONSIBLE MARKETING TO CUSTOMERS AND PATIENTS
FY2015* FY2016
Number of Fines or Settlements Related to
Improper Marketing or Sales of Products
2 0
Marketing and Sales Employees Trained in
Product Promotion
13,944 14,409
Transactions Monitored and Tested for Sales
and Marketing Risks
50,000 140,000
*FY2015 data does not include legacy Covidien operations.
Ethics in Sales and Marketing | 36
http://www.advamed.org/sites/default/files/resource/112_112_code_of_ethics_0
http://www.advamed.org/sites/default/files/resource/112_112_code_of_ethics_0
Ethical partnerships with healthcare professionals
Our close working relationships with physicians, healthcare professionals,
and consultants drive the innovations that improve patient outcomes. We
collaborate on physician training, product development, consultation, and
clinical research. To foster trust and eliminate any potential for conflicts of
interest in these relationships, our employees follow internal guiding principles
for physician collaboration rooted in the overall benefit to patients.
Medtronic fully supports industry initiatives to make payments to healthcare
professionals publicly available. Where required by law, such as in the United
States, we disclose payments made by our business groups to physicians
and teaching hospitals. This information is published on the U.S. Centers for
Medicare and Medicaid Services (CMS) Open Payments website. In addition,
we fully comply with related regulatory reporting requirements.
For more information on our approach to physician collaboration, please see
our website.
CUSTOMER AND PRODUCT SECURITY
Our customers rely on us to keep their data safe and secure, and their medical
devices functioning as intended. To meet this expectation, we continually work
to strengthen our procedures, programs, and technologies.
The Global Privacy and Security Office and Security Steering Committee
oversee our security framework, including all relevant practices, policies,
procedures, and partnerships. In FY2015, Medtronic formally approved a
companywide Global Product Security Policy to strengthen our efforts to
keep all products and therapies safe from threats, including cyber-threats.
In FY2016, we hired a third-party expert to assess gaps in compliance with
this policy across each business unit. We are currently acting to resolve the
gaps identified.
Medtronic employees are a critical line of defense. We provide mandatory
training for employees who handle or have access to sensitive patient or
customer data.
Medtronic maintains best practices and ensures that we meet or exceed
external standards by engaging with outside organizations and experts.
These include the National Health Information Sharing and Analysis Center,
the Medical Device Innovation Safety and Security Consortium, and privacy
regulators. In the past year, we also provided content, commentary, and
feedback on newly developing product security standards in the United States
and globally. Examples included new standards developed by the Association
for the Advancement of Medical Instrumentation, the National Institute of
Standards and Technology, and the FDA.
Ethics in Sales and Marketing | 37
http://www.medtronic.com/us-en/about/corporate-social-responsibility/physician-collaboration/physician-payment-guidelines.html
https://www.cms.gov/openpayments/
http://www.medtronic.com/us-en/about/corporate-social-responsibility/physician-collaboration.html
http://www.nhisac.org/
http://www.mdiss.org/
WORKING
RESPONSIBLY:
OUR COMPANY
Governance and Engagement | 39
Board Committees
• Audit
• Compensation
• Nominating and
Corporate Governance
• Finance
• Quality and Technology
To learn more about committee
charters and membership,
please visit our website.
GOVERNANCE
AND ENGAGEMENT
Medtronic is committed to conducting business the right way, all the time. Every Medtronic employee has a role to
play and our efforts are united by executive leadership. The Medtronic board and CEO are tasked with embedding
a culture of ethics, integrity, and strong governance, and they lead by example.
We recognize that to meet our industry’s challenges and support our Mission, we can go further if we collaborate.
We engage governments and other stakeholders to drive meaningful change across the global healthcare system.
CORPORATE GOVERNANCE
Our business success is built on a foundation of strong corporate governance and transparency. The Medtronic
board of directors and executive leadership establish and oversee rigorous corporate policies and procedures that
support our Mission and safeguard our company and the interests of our shareholders.
Board of directors
The Medtronic board of directors comprises 13 members, including our chairman and CEO, Omar Ishrak. Five
standing committees of independent directors oversee our business operations.
Diverse board leadership reflects the needs of our wide-ranging stakeholders, including patients, partners,
employees, and our communities. More than 30 percent of our board members are women and more than
30 percent represent minority groups.
For more information, please visit our Corporate Governance website.
Executive compensation
To attract diverse and talented executives willing to challenge the status quo, we offer competitive benefits in
addition to cash and equity incentives. The board Compensation Committee evaluates, oversees, and approves
executive compensation. For more information on our compensation philosophy, please see our Proxy Statement.
ETHICAL WORKPLACE
Our board and CEO lead efforts to embed a culture of integrity across our business. We invest significant time
and resources into ethics and compliance systems, data analytics, and human resources management. To drive
continuous improvement, we look to industry best practices and other benchmarks to assess our performance,
consistently scoring in the top quartile by these measures.
Employees are accountable for compliance with our ethics policies and guidelines, and managers assess ethical
behavior during annual performance reviews. If an employee does not meet ethical expectations, recognition, in
the form of awards or monetary compensation, may be withheld.
http://www.medtronic.com/us-en/about/corporate-governance.html
http://www.medtronic.com/us-en/about/mission.html
http://www.medtronic.com/us-en/about/corporate-governance.html
http://phx.corporate-ir.net/phoenix.zhtml%3Fc%3D76126%26p%3Dirol-sec
Management approach
The Office of Ethics and Compliance (OEC) plays a role in our
commitment to meet legal, compliance, and ethical obligations, and
oversees, monitors, and implements all related policies and programs.
The Chief Ethics and Compliance Officer reports quarterly to the Audit
Committee and at least annually to the full board. OEC activities include:
§ Facilitating ethics training and running ethics program analytics
§ Maintaining the Medtronic Voice Your Concern Line and leading
investigations into alleged misconduct
§ Supporting compliance teams and leaders across the organization
§ Developing and monitoring programs and campaigns that increase
employees’ ethical awareness
Code of Conduct
Our global Code of Conduct underpins our ethics and compliance
program and our company’s reputation for integrity. The Code guides
daily actions and interactions with internal and external stakeholders.
Employees and board members must certify their understanding of the
Code and all its requirements.
To ensure global awareness, we make the Code available in many
languages and build engagement through multilingual training for
new employees. Every year, Medtronic employees are retrained on
and expected to certify their understanding of the Code. In FY2016,
Medtronic held an Ethics and Compliance Integrity Week to reinforce
messages on ethical conduct and Code compliance. In total, employees
at sites in 71 countries received these messages in 17 languages.
CODE OF CONDUCT
FY2015* FY2016
Employees Receiving Code of Conduct Training
and Certification
98% 98%
New Employees Receiving Code of Conduct
Training and Certification
99% 99%
U.S. Employees Certified as Having Read and
Understood the Code of Conduct
100% 100%
Employees Terminated for Ethical and
Compliance-Related Infractions
99** 125***
*FY2015 data does not include legacy Covidien operations.
**Calendar year 2014.
***Calendar year 2015.
Reporting concerns
Medtronic employees can report questions or concerns about potential
legal or ethics violations directly to their managers, Human Resources,
Legal or Compliance representatives, the OEC, the Director’s email
inbox, or the confidential Voice Your Concern Line. The OEC processes,
tracks, and oversees all reported concerns from investigation to
resolution. In FY2016, the OEC tracked 905 concerns.
Our annual employee engagement survey includes compliance-related
questions to measure employee confidence in how concerns are
reported and managed. Employees evaluate the company on three
ethical culture topics. The FY2016 survey found that:
§ 80 percent of employees believe unethical behavior is not tolerated
at Medtronic.
§ 78 percent of employees think unethical behavior prompts a quick
response from the organization.
§ 77 percent of employees are willing to raise concerns without fear
of retaliation.
We use survey findings to identify ethical topics to highlight during
training and communication campaigns. We also use the survey results
with small groups of employees to identify and provide solutions
for ethical challenges at specific Medtronic locations. The first four
programs supporting these efforts launched in FY2016 and more than
30 are planned for FY2017.
In FY2017, we will conduct a dedicated compliance culture survey to
assess employee attitudes toward the company’s management of this
business-critical issue.
Governance and Engagement | 40
http://www.medtronic.com/us-en/about/corporate-governance/code-conduct.html
https://secure.ethicspoint.com/domain/media/en/gui/30106/index.html
PUBLIC POLICY
Medtronic engages governments in support of public policies that
advance our business objectives and Mission. We advocate for policies
that enable therapy innovations, facilitate access to lifesaving devices,
generate economic value, and increase globalization.
Around the world, our Government Affairs and Regulatory Affairs
teams and other functions support efforts that improve access to
innovative care for patients and promote outcome-driven and
Value-based Healthcare.
Our teams focus on advocacy efforts that build care continuum
pathways, increase access to lifesaving therapies and technologies,
and streamline international regulatory practices.
We maintain active membership in numerous medical device trade
organizations globally, such as AdvaMed and MedTech Europe.
Medtronic complies with all relevant state and federal political
contribution disclosure laws.
STAKEHOLDER ENGAGEMENT
Medtronic actively engages a wide spectrum of stakeholders across
the healthcare system. Our daily collaborations advance the innovative
medical solutions necessary to improve patient outcomes and increase
global access to healthcare.
Stakeholders include: patients, physicians, hospital administrators,
advocacy groups, governments, nonprofits and nongovernmental
organizations, employees, suppliers, investors, shareholders,
regulators, and the communities where we operate.
Examples of how we engage these stakeholders are presented
throughout this report and on our website.
Governance and Engagement | 41
http://advamed.org/
http://www.medtecheurope.org/
http://www.medtronic.com/us-en/index.html?cmpid=mdt_com_orcl_us_home_f52_plc_home&utm_source=mdt_com_orcl_us_home&utm_medium=f5_redirect&utm_campaign=PLC_Launch_2015
Operations | 42
OPERATIONS
Medtronic is committed to conducting business in a safe and
environmentally sustainable way. In support of our Mission, we promote
the health of our employees, customers, community, and the planet.
Minimizing our impact is good for the environment and helps save
resources, resulting in cost savings across our business. We set ambitious
goals to measure our progress toward reducing our climate impact, water
use, and waste generation, and have already exceeded several of them.
OUR ENVIRONMENTAL, HEALTH, SAFETY,
AND SUSTAINABILITY APPROACH
We proactively manage environmental, health, safety, and sustainability
issues across our value chain to reduce our environmental impact
and address workplace hazards. In January 2015, the acquisition of
Covidien significantly increased our global footprint, adding more
than 100 facilities worldwide. In FY2016, Medtronic introduced a new
Global Environmental Health and Safety (EHS) Policy, combining the
operational best practices of legacy Medtronic and Covidien. Guided by
our Mission and Code of Conduct, our EHS Policy requires that we:
§ Comply with applicable laws, regulations, and corporate and
industry standards.
§ Establish EHS goals and targets to measure and continually
improve our performance.
§ Integrate EHS into business decisions.
§ Minimize our impact on the environment.
§ Create a safe and healthy workplace.
§ Communicate our policy to stakeholders.
In FY2016, Medtronic also introduced a new corporate EHS&S team,
which oversees EHS&S governance, programs, systems, and talent for
all businesses and regions.
The corporate EHS&S team leads four program offices:
§ Environmental Management
§ Health and Safety and EHS Compliance
§ Sustainability
§ Environmental Remediation
Four regional EHS directors coordinate with EHS representatives
throughout the company to support program management and ensure
compliance with all relevant regulations. The directors oversee the
following regions:
§ Americas
§ Asia Pacific
§ China
§ Europe, Middle East, and Africa
In May 2016, Medtronic established a Sustainability Steering Committee
to develop and oversee sustainable business strategies. The committee
comprises executive-level leaders in sustainability priority areas. For more
information, see Sustainability Risks and Opportunities.
To expand and report on our internal EHS&S management commitments,
we participate in the CDP and the U.S. Environmental Protection Agency’s
(EPA) SmartWay Transportation Partnership and Energy Star Program.
http://www.medtronic.com/us-en/about/mission.html
http://www.medtronic.com/us-en/about/corporate-governance/ehs-policy.html
https://www.cdp.net/en-US/Pages/HomePage.aspx
https://www.epa.gov/smartway
https://www.energystar.gov/
Site management standards
Every Medtronic facility must meet rigorous EHS&S standards that go
beyond many country regulations. In some cases, we require sites to
implement an EHS&S management system based on ISO 14001 and
OHSAS 18001 standards. We conduct internal EHS&S audits across our
major factories and offices worldwide to ensure compliance with both
internal and external obligations and regulations.
Many of our facilities with higher potential for EHS&S risks have received
formal certification to ISO 14001 and OHSAS 18001.
CERTIFIED MEDTRONIC
FACILITIES
EHS&S MANAGEMENT
SYSTEMS STANDARD
# OF
CERTIFIED
FACILITIES
% OF TOTAL
MANUFACTURING
FACILITIES
# OF FACILITIES
WORKING TOWARD
CERTIFICATION
ISO 14001 27 24% 4
OHSAS 18001 8 10% 0
OPERATIONAL FOOTPRINT
Our environmental performance priorities are to reduce waste, water,
energy, and greenhouse gas (GHG) emissions intensity across our global
operations. In FY2013, we set ambitious 2020 Environmental Performance
Goals for each of these areas to underscore our commitment. In FY2016,
even with the acquisition of Covidien, we made accelerated progress
toward these goals, surpassing the 2020 targets for non-regulated waste,
GHG emissions, and energy and water use as shown to the right.
2020 ENVIRONMENTAL PERFORMANCE GOALS*
FY2013
(BASELINE)
FY2014 FY2015 FY2016 % CHANGE
FY 2013 TO
FY 2016
2020
GOAL
Non-Regulated
Waste
(Metric Tons/$
Billion Revenue)
1,950 1,924 1,854 1,635 -16% -15%
Regulated Waste
(Metric Tons/$
Billion Revenue)
90 98 98 101 +12% -10%
Energy Use
(MWh/$ Million
Revenue)
51.3 50.5 47.7 42.4 -17% -15%
GHG Emissions
(Metric Tons/$
Million Revenue)
20.0 19.6 18.5 16.0 -20% -15%
Water Use
(Cubic Meters/$
Million Revenue)
136 142 128 116 -15% -10%
*All percentage reduction goals are based on a FY2013 baseline year recalculated to account for
Covidien acquisition in FY2015. All data reflects Medtronic and Covidien operations.
ENERGY USE AND GHG EMISSIONS
In recognition of global climate change concerns, we are working hard
to conserve energy and reduce GHG emissions across our facilities. The
majority of these emissions come from the use of electricity, natural
gas, liquefied petroleum gas, and fuel oil. In FY2016, we used 1.2 million
megawatt-hours (MWh) of energy, with corresponding GHG emissions of
about 462,000 metric tons (MT). The combined emissions performance
by legacy Medtronic and Covidien facilities met our goal to reduce our
energy use and GHG emissions by 15 percent by 2020 from a FY2013
baseline. Our energy conservation strategy focuses on best practice
energy conservation in the short and long term and on-site renewable
energy generation.
Operations | 43
Efficiency best practice
Wherever feasible, our facilities use energy-efficient lighting, ventilation
systems, and equipment, as well as automated building controls. In
FY2016, we implemented more than 50 energy conservation projects
globally, including process efficiency, lighting upgrades, building
automation, and equipment upgrades as well as renewable energy
installations. Each year, our energy conservation projects prevent an
estimated 30,000 MT of GHG emissions and cut operating costs by
approximately $5 million.
Renewable energy
Medtronic generated 50,000 MWh of on-site renewable or clean energy
from solar, cogeneration, and fuel cell technologies in FY2016 at five sites
in California, Ireland, Italy, Puerto Rico, and South Africa. During the year, we
installed a 4.5 MW solar energy system at our Juncos, Puerto Rico, facility.
Additional sites are under evaluation for solar installations.
FY2016 performance
ENERGY USE
FY2012 FY2013 FY2014 FY2015 FY2016*
MWh 512,000 528,000 533,000 524,000 1,224,000
MWh/$ Million Revenue 31.6 31.9 31.3 29.6 42.4
*FY2016 data reflects January 2015 Covidien acquisition. Prior year data does not include
legacy Covidien operations.
GHG EMISSIONS
FY2012 FY2013 FY2014 FY2015 FY2016*
Metric Tons 242,000 199,000 200,000 197,000 462,000
Metric Tons/$ Million
Revenue
14.9 12.0 11.8 11.1 16.0
*FY2016 data reflects January 2015 Covidien acquisition. Prior year data does not include
legacy Covidien operations.
FY2016 ENERGY AND COST SAVINGS
Energy Conservation Savings 45,000 MWh
Savings from Energy Rebates and Energy Cost Avoidance $4.7 million
MANAGING WASTE
We strive to generate less waste in our operations through a variety of
innovative landfill diversion initiatives. These include: reducing production
scrap rates, eliminating paper use, composting food waste in our
cafeterias, and increasing recycling opportunities such as reclaiming raw
materials used in our products.
In FY2016, our manufacturing facilities and office buildings generated
more than 47,000 MT of non-regulated office and cafeteria waste, and
more than 900 MT of regulated waste. Of this, we recycled more than
28,000 MT — 56 percent of the total.
During the year, we surpassed our 2020 goal to reduce non-regulated
waste by 15 percent by 2020 compared to a FY2013 baseline. However,
our regulated waste, which comprises less than 6 percent of our total
waste generation and includes production-related metals and chemicals,
increased by 12 percent from FY2013. To address this challenge, we will
identify and target specific processes and waste streams in a concerted
effort to reduce regulated waste in line with our 2020 goal.
In addition to day-to-day operational waste management, we manage
28 clean-up sites across the globe. This includes a former Medtronic
operating site in Maine where remediation and restoration work is
underway. Most of our clean-up sites in the United States fall under the
Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA), also known as Superfund.
FY2016 performance
NON-
REGULATED WASTE
FY2012 FY2013 FY2014 FY2015 FY2016*
Metric Tons 12,914 12,806** 12,950** 12,998** 47,145
Metric Tons/
$ Billion Revenue
798 772 762 734** 1,635
*FY2016 data reflects January 2015 Covidien acquisition. Prior year data does not include legacy
Covidien operations.
**Restated from 2015 Integrated Report due to internal validation processes.
Operations | 44
REGULATED WASTE
FY2012 FY2013 FY2014 FY2015 FY2016*
Metric Tons 1,576 1,651** 1,831** 1,912** 2,922
Metric Tons/$ Billion
Revenue
97 99 108** 108** 101
*FY2016 data reflects January 2015 Covidien acquisition. Prior year data does not include
legacy Covidien operations.
**Restated from 2015 Integrated Report due to internal validation processes.
RECYCLING
FY2012 FY2013 FY2014 FY2015 FY2016*
Metric Tons 7,745 7,806** 8,036 7,667** 28,207
% Recycled 53 54 54 51 56
*FY2016 data reflects January 2015 Covidien acquisition. Prior year data does not include
legacy Covidien operations.
**Restated from 2015 Integrated Report due to internal validation processes.
WATER
While our operations are not water intensive, we recognize the need
to promote water conservation. Our initiatives include improving
efficiencies in production line processes, installing landscape and
irrigation system updates, and upgrading heating and cooling systems.
In FY2016, our water use totaled close to 3.3 million cubic meters,
surpassing our 2020 water reduction goals by 5 percent from a
FY2013 baseline.
FY2016 performance
WATER USE
FY2012 FY2013 FY2014 FY2015 FY2016*
Cubic Meters 1,190,472 1,241,880** 1,326,452** 1,240,867** 3,334,349
Cubic Meters/$
Million Revenue
74 75 78** 70 116
*FY2016 data reflects January 2015 Covidien acquisition. Prior year data does not include legacy
Covidien operations.
**Restated from 2015 Integrated Report due to internal validation processes.
Operations | 45
Employees | 46
EMPLOYEES
Our ability to address the world’s most pressing medical challenges
and improve the lives of patients everywhere is a direct result of our
talented workforce. We are committed to advancing Tenet 5 of our
Mission, which is “to recognize the personal worth of employees by
providing an employment framework that allows personal satisfaction
in work accomplished, security, advancement opportunity, and means
to share in the company’s success.” We work to create and support
an inclusive and diverse culture where the varied backgrounds and
experiences of our employees spur innovation. By engaging employees,
and advancing their personal and professional growth, we invest in our
company’s future and the patients we serve.
GLOBAL WORKFORCE
A diverse, dedicated, and growing workforce supports our strategic
business priorities of therapy innovation, globalization, and economic
value. Our workforce nearly doubled following the acquisition of
Covidien in January 2015. In FY2016, Medtronic hired more than
16,000 new employees, 45 percent of which were female. Our turnover
rate during this time period was 16 percent. At the end of FY2016,
Medtronic employed more than 88,000 people,2 and operated in
160 countries.
A complete breakdown of our workforce, including new hires by region and
gender is located in the Data Summary at the end of this section.
INVESTING IN OUR WORKFORCE
To develop an exceptional, diverse, and collaborative workforce, we
continue to expand opportunities for learning and advancement. In
FY2016, we launched a Career Development for All framework to
give employees the tools to successfully navigate their careers at
Medtronic. We believe this comprehensive approach supports Tenet 5
of our Mission and will improve employee engagement, retention, and
ultimately, business results.
2 This total workforce number is in accordance with our 2016 10-K. Employee population
numbers may vary depending on the time of year in which data was gathered.
Performance management
To drive personal and professional growth, we expect employees to
participate in annual performance reviews. In FY2016, we enhanced our
procedures by:
§ Identifying four leadership expectations — Shape, Engage, Innovate,
and Achieve — to provide a common foundation for performance
management and development activities
§ Adding a Mid-Year Performance and Career Development
Conversation, based on feedback from our Employee Engagement
Survey, that focuses mainly on career aspirations and development
These new steps reinforce our commitment to developing and retaining
the world-class workforce we need to achieve our strategic priorities.
Learning and development
Employee learning begins on day one with most new employees
completing a virtual or in-person new employee orientation workshop.
New managers and leaders receive additional online orientation and
participate in leader-led onboarding activities.
Employees have the opportunity to participate in in-person programs
and workshops. In FY2016, more than 75 percent of employees took
advantage of development resources, including Career Development
for All workshops, webinars, and eLearning opportunities, as part of our
mid-year performance and career development conversations. Nearly
3,000 leaders attended leadership development programs offered by the
enterprise, groups, and regions.
Medtronic is working to harmonize and streamline its leadership
development programs in FY2017 to ensure that all leaders around the
world are consistently equipped with the foundational skills required to
be effective managers and developers of talent.
In April 2016, Medtronic established a Leadership Advisory Panel
comprising 24 vice presidents from around the globe, representing
groups, regions, corporate functions, and employee network groups.
This panel was established to provide visible leadership and strategic
guidance on program prioritization, design, and development. The panel
participates in the communication, advocacy, and often the delivery of
key programs, and is led by Executive Committee members Geoff Martha
and Hooman Hakami, in partnership with Human Resources.
EMPLOYEE ENGAGEMENT
An engaged workforce is critical to business performance. Each year, our
Employee Engagement Survey elicits feedback on topics such as ethical
behavior, inclusion, and leadership and management performance.
In FY2016, more than 77,000 employees took the survey, a response
rate of 87 percent. The company’s employee engagement score was 74
percent, well above the industry average of 65 percent. Seventy-seven
percent of respondents reported that they feel they belong at Medtronic,
a strong number given the recent integration with Covidien. Employees
cited areas for improvement including more opportunities to voice their
ideas and better career development for manufacturing employees.
Medtronic also conducts monthly pulse surveys distributed to 5,000
randomly selected employees. Leaders use business and organizational
key performance indicators measured in these surveys to make
improvements and better manage change.
INCLUSION AND DIVERSITY
Our commitment to fostering an inclusive working environment and
increasingly diverse workforce is good for business and aligns with our
values. We are committed to equal employment opportunity and to
growing our representation of women and ethnically diverse employees
at all levels and in all locations. Our Global Inclusion, Diversity, and
Engagement (GIDE) team leads these efforts.
Diversity networks
Medtronic has four Diversity Networks: the Global Medtronic Women’s
Network, the African Descent Network, the Hispanic Descent Network,
and the Asian Descent Network. The Networks are designed to help
accelerate the advancement of women and ethnically diverse leaders, and
identify initiatives to improve healthcare for their respective populations.
Executive Committee members support the Networks, providing
momentum and enabling change across the organization.
The Medtronic leadership team is actively engaged in diversity initiatives
across the company. Our CEO is a strong advocate for inclusion and
diversity in the workplace, and regularly shares these views with
employees, customers, and stakeholders. He has also established an
operating mechanism and added rigor to monitoring inclusion and diversity
progress by conducting quarterly Diversity Reviews with the Network
leadership teams.
WORKFORCE DIVERSITY (RACE/ETHNICITY)
FY2012 FY2013 FY2014 FY2015 FY2016
Minority representation
in the United States
excluding Puerto Rico
28% 28% 29% 30% 33%
Employee Resource Groups
We also unite and empower employees through Employee Resource
Groups (ERGs). The ERGs are affinity groups that organize around
a common identity and partner with the GIDE team to support the
company’s recruiting, development, and community involvement
efforts. The groups host events and activities to provide career
development and networking opportunities for their members.
Our PRIDE (LGBTQA3) ERG plays a leading role in creating and
maintaining an inclusive culture. For the seventh consecutive year,
Medtronic received a perfect score on the Human Rights Campaign
Corporate Equality Index in FY2016.
Creating opportunities for women
Gender balance remains a priority for Medtronic. Currently, women
make up 49 percent of our total workforce and 33 percent of
management positions or higher.
The Medtronic Women’s Network supports our GIDE office in
improving our ability to attract, develop, retain, and advance women
employees. FY2016 marked the Network’s first signature event, a
two-day conference in Minnesota for approximately 800 Medtronic
employees focused on community-building and skills development.
3 Lesbian, gay, bisexual, transgender, and queer employees and their allies
Employees | 47
EMPLOYEE COMPENSATION
Our compensation package is competitive and determined by industry and
local market standards, our company’s overall performance, and individual
accomplishments. For information on executive compensation, see
Governance and Engagement.
We are also committed to offering retirement, health, and other benefits
that are:
§ Flexible, so employees can choose benefits that meet their needs
§ Affordable for employees and the company
§ Competitive for our industry and attractive to current and
future employees
§ A valuable and important part of an employee’s total rewards package
Benefits vary by country and comply with all relevant national regulations.
Employees receive benefit information through in-person presentations,
AskHR support, on-demand web-based tools, and our virtual, interactive
benefit counselor, “Alex.”
Typical benefits include:
§ Health, dental, and vision coverage for employees and
eligible dependents
§ Life and disability insurance
§ Paid time off and leaves of absence
§ Retirement plans
§ Employee stock purchase program, offering stock at a
15 percent discount
Recognition
Our global Recognize! program empowers managers and employees to
reward colleagues who model behavior that meets the high expectations
grounded in our patient-centered Mission. In FY2016, we recognized
more than 50,000 employees through this program, including 1,711 for
outstanding ethical behavior.
SAFETY AND WELLNESS
Employee safety is a top priority at Medtronic. In FY2013, we established
2020 health and safety improvement goals which include:
§ Identifying injury trends and reducing injury risk
§ Reducing ergonomic-related injury rates
§ Establishing a safe driving program
§ Accelerating global employee training on environmental, health, and
safety requirements
FY2016 saw noticeable improvement in our safety record. The employee
incident rate fell by 10 percent over FY2015, and the employee lost/
restricted workday case rate decreased by 4 percent over FY2015
(see table). No work-related fatalities occurred.
As a healthcare company, Medtronic is deeply committed to the health
and happiness of our employees. We invest in global wellness programs
that contribute to employees’ physical, emotional, social, and financial
well-being. In FY2016, 50,700 employees, approximately 57 percent of our
workforce, participated in the program, Healthier Together.
SAFETY RECORD
FY2012 FY2013 FY2014 FY2015 FY2016
Employee Injury
Incident Rate1,3
1.05 1.03 0.87 0.50 0.45
Employee Lost/Restricted
Workday Case Rate2,3
0.47 0.45 0.39 0.23 0.22
1The number of work-related injuries or illnesses serious enough to require treatment beyond
first aid, per 100 employees working a full year.
2The number of work-related injuries or illnesses serious enough to cause an employee to miss
one or more workdays or to have one or more workdays of restricted duty, per 100 employees
working a full year.
³FY2015 and FY2016 data include both legacy Medtronic and legacy Covidien employees.
HEALTHIER TOGETHER
FY2012 FY2013 FY2014 FY2015 FY2016
Countries with
Program Access
12 19 43 43 65
Employees with
Program Access
82% 85% 98% 98% 100%
Employees Registered on
the Wellness Platform1
– – – – 50,769
1Historical participation rates were based on questionnaires that are no longer used.
Employee participation is now measured by registration on the wellness platform. Historical
data has been removed.
Employees | 48
DATA SUMMARY
MEDTRONIC GLOBAL WORKFORCE1,2
FY2012 FY2013 FY2014 FY2015 FY20163
Total 42,471 43,091 43,707 46,368 90,549
Female 20,824 21,148 21,468 22,657 44,371
Asia-Pacific 3,465 4,053 4,470 4,950 12,363
Female 1,549 1,754 1,959 2,169 5,381
Canada 734 749 738 792 1,544
Female 451 474 462 495 900
Europe/Central Asia/Middle East/Africa 9,229 9,126 9,270 9,754 17,820
Female 4,798 4,875 4,944 5,069 9,149
Latin America 2,972 3,064 3,302 3,786 16,425
Female 2,172 2,201 2,357 2,628 10,019
U.S. and Puerto Rico 26,071 26,099 25,927 27,086 42,397
Female 11,854 11,844 11,746 12,296 18,922
1FY2015–FY2012 does not include legacy Covidien employees.
2Employee population data expressed here may vary from our 2016 10-K form depending on the time of year when the data was gathered.
3595 records do not specify gender.
EMPLOYMENT TYPE1,2
FY2016
Support staff 40,213
Female 23,972
Professional 39,268
Female 16,733
Management3 9,313
Female 3,109
VPs and higher 498
Female 117
1Employee population data expressed here may vary from our 2016 10-K form depending on the
time of year when the data was gathered.
21,257 employees do not have a job category designation.
3Management = managers, senior managers, directors, and senior directors.
Employees | 49
GLOBAL FULL-TIME1,2
FY2012 FY2013 FY2014 FY2015 FY20163, 5
Total 41,293 41,895 42,497 45,084 88,520
30 and under 7,464 6,950 7,065 7,967 18,043
31–50 26,570 27,076 27,299 28,341 52,891
51 and above 7,259 7,869 8,133 8,776 16,546
Female4 19,767 20,066 20,371 21,530 42,687
Asia-Pacific 1,492 1,694 1,900 2,113 5,299
Canada 444 465 456 484 896
Europe/Central Asia/Middle East/Africa 4,000 4,054 4,099 4,192 7,939
Latin America 2,172 2,201 2,357 2,628 10,013
U.S. and Puerto Rico 11,659 11,652 11,559 12,113 18,540
1FY2015–FY2012 does not include legacy Covidien employees.
2Employee population data expressed here may vary from our 2016 10-K form depending on the time of year when the data was gathered.
31,041 records have values out of bounds and are not included in age breaks.
4Numbers by region are based on female employees only.
5595 records do not specify gender.
GLOBAL PART-TIME1,2
FY2012 FY2013 FY2014 FY2015 FY20163, 5
Total 1,177 1,196 1,210 1,284 2,029
30 and under 94 73 71 66 228
31–50 897 924 937 985 1,373
51 and above 186 199 202 233 427
Female4 1,057 1,082 1,097 1,127 1,684
Asia-Pacific 57 60 59 56 82
Canada 7 9 6 11 4
Europe/Central
Asia/Middle East/Africa
798 821 845 877 1,210
Latin America 0 0 0 0 6
U.S. and Puerto Rico 195 192 187 183 382
1FY2015–FY2012 does not include legacy Covidien employees.
2Employee population data expressed here may vary from our 2016 10-K form depending on the time of year when the data was gathered.
31,041 records have values out of bounds and are not included in age breaks.
4Numbers by region are based on female employees only.
5595 records do not specify gender.
Employees | 50
NEW EMPLOYEE HIRES1,2
FY2012 FY2013 FY2014 FY2015 FY20164,5
Total3 4,784 4,581 4,699 5,407 16,026
30 and under 2,001 1,736 1,959 2,384 7,344
31–50 2,501 2,521 2,450 2,702 6,673
51 and above 282 324 290 321 867
Female6 2,462 2,255 2,302 2,574 7,266
Asia-Pacific 413 463 394 431 1,189
Canada 32 59 24 29 132
Europe/Central Asia/Middle East/Africa 354 336 420 440 1,255
Latin America 509 295 360 255 2,027
U.S. and Puerto Rico 1,154 1,102 1,104 1,419 2,663
1FY2015–FY2012 does not include legacy Covidien employees.
2Employee population data expressed here may vary from our 2016 10-K form depending on the time of year when the data was gathered.
3Fiscal years 2012–2015 did not include employees who were hired and terminated within the same year.
41,142 records have values out of bounds (e.g., age=0).
5672 records do not specify gender.
6Numbers by region are based on female employees only.
Employees | 51
About This Report | 52
ABOUT
THIS REPORT
This is our third annual Integrated Performance Report, which includes
both financial and nonfinancial information. Our reporting reflects the
way we do business, combining social, environmental, ethical, and
financial performance.
The Report was prepared in accordance with the G4 Core guidelines
of the Global Reporting Initiative (GRI), the world’s most recognized
framework for sustainability reporting. It also references points
of interest as determined by the Sustainability Accounting Board
Standards (SASB) for Medical Equipment and Supplies and the Dow
Jones Sustainability Index questionnaire.
Unless otherwise stated, all performance data covers our fiscal
year 2016 (FY2016) from Apr. 25, 2015, through Apr. 29, 2016. Our
last integrated report, which covered FY2015, was published in
November 2015.
This report includes data from Medtronic plc and all of its consolidated
subsidiaries. Financial and nonfinancial data from Covidien plc, acquired
by Medtronic in January 2015, is fully incorporated in all FY2016
disclosures unless otherwise stated. FY2015 financial reporting (and
our FY2015 Form 10-K) includes Covidien’s fourth quarter performance
and results. Except where otherwise noted, Covidien’s FY2015
nonfinancial performance data has not been integrated in this year’s
report. All data reported is best estimates. Some entity data has been
excluded from the report because it is believed to be not significant
(<10 percent effect on overall data). Data exclusions are noted
throughout the report.
All financial information is reported in U.S. dollars. Environmental,
health, and safety data is from our manufacturing and research and
development facilities.
Any forward-looking statements are subject to risks and uncertainties
such as those described in our periodic reports on file with the
Securities and Exchange Commission. Actual results may differ
materially from anticipated results.
For additional business and sustainability information, please refer to
our SEC filings, including Form 10-K, Proxy filings, press releases, and
our CDP disclosure.
Medtronic has not sought independent verification of this report but
has practices in place to internally validate the data.
The integrated reporting index that follows highlights some of the
most important ways that our business success is tied to our social,
environmental, and ethical performance, and provides page references
for more information.
We want to hear from all our stakeholders. To provide feedback
or request additional information, please email
integratedreport@medtronic.com.
http://phx.corporate-ir.net/phoenix.zhtml?c=76126&p=irol-reportsannual
http://phx.corporate-ir.net/phoenix.zhtml?c=76126&p=irol-reportsannual
http://newsroom.medtronic.com/phoenix.zhtml%3Fc%3D251324%26p%3Dirol-news%26nyo%3D0
https://www.cdp.net/en-US/Pages/HomePage.aspx
MEDTRONIC 2016
INTEGRATION INDEX
Integrated reporting at Medtronic
We believe that our integrated report provides a comprehensive
overview of Medtronic. It reflects how we operate, considering
the social and environmental factors and impacts. This Integration
Index highlights some of the most important ways that our social,
environmental, and ethical performance is tied to our business success.
SECTION INTEGRATION FEATURE
Sustainability Risks
and Opportunities
Sustainability risk management
Sustainability Risks
and Opportunities
Business continuity risk management
Sustainability Risks
and Opportunities
Meeting customer expectations through
sustainability performance
Sustainability Risks
and Opportunities
Responding to investor requirements
Economic
Contributions
to Society
Driving revenue growth in emerging markets
Economic
Contributions
to Society
Supporting local communities through
operating costs
Economic
Contributions
to Society
Aligning business with healthcare needs through
strategic acquisitions
Economic
Contributions
to Society
Philanthropy as a percentage of pre-tax profits
Access Meeting unserved medical needs and treating
conditions more effectively through R&D, clinical
trials, and innovative new products and therapies
Access Exploring Value-based Healthcare models to share
accountability, improve clinical outcomes, and align
value across healthcare systems
Access Expanding our managed services businesses to
improve efficiency and quality of care
Access Addressing affordability through a variety
of pricing models and product donations
Access Developing new business models to address local
healthcare needs around the world
Product Quality Quality imperatives support business strategy
Product Quality Enhancing post-market surveillance to improve
patient outcomes
Product Quality Product-related regulatory actions
Product Quality High ethical standards for animal research
Product
Stewardship
Reducing waste and saving costs across the
value chain
Responsible
Sourcing
Supplier quality management to avoid errors that
can affect patient health and damage reputation
Responsible
Sourcing
Advancing inclusive sourcing practices through
training, strategic planning, and supporting
diverse suppliers
Ethics in Sales
and Marketing
Reducing risk in distribution channels
Ethics in Sales
and Marketing
Protecting patient privacy and health data
Governance and
Engagement
Assessing ethical behavior in performance reviews
Operations Environmental, Health, Safety, and Sustainability
(EHS&S) management to improve operational
efficiencies and save costs
Employees Building a diverse and inclusive workforce
Medtronic 2016 Integration Index | 53
BUS687 Week 5 Discussion
Required Resources
Text
There is not an official text for this course. Instead, there is a variety of selected reading materials that will be reviewed to ensure your success and meeting the learning objectives of the capstone.
· Selected TRI Corporation Critical Equations for Business Leaders
· Selected videos on strategy, developing an annual plan/budget, and variance analysis
· Selected MBA materials in prior classe
Book
Stanko, B., & Zeller, T. L (2003).
Understanding corporate annual reports: A user’s guide
. Hoboken, N.J.: John Wiley & Sons, Inc. eBook., Database: eBook Collection (EBSCOhost).
· The full-text version of this book is available through the EBSCOhost database in the Ashford University Library. This book section provides information about evaluation of company operations through the analysis of information contained in annual reports and will assist you in your Key Learnings in Your Annual Operating Review (AOR) discussion this week.
Articles
Bujaki, M., & McConomy, B. (2010, May).
Voluntary disclosures in corporate annual reports — More than meets the eye
. CMA Management, 84(3), 14-16.
· The full-length version of this article is available through the Ebscohost database in the Ashford University Library. This article provides information about the difference between mandatory information in a annual report that is required by law and voluntary information that the organization supplements the report with and will assist you in your Key Learnings in Your Annual Operating Review (AOR) discussion this week.
Medtronic. (2016).
Integrated performance report (Links to an external site.)
. Retrieved from http://www.medtronic.com/content/dam/medtronic-com/us-en/corporate/documents/17267.MED.Sustainability.Report_4_FINAL%20NOV%208
· The full-length version of this report is available through the Google database. This report provides information about 2016 performance of Medtronic, a global medial technology provider serving 160 countries and will assist you in your Key Learnings in Your Annual Operating Review (AOR) discussion this week. The report provides a real world example of a complete annual report in the medical device field.
Accessibility Statement does not exist.
Privacy Policy (Links to an external site.)
Supplemental Materials
Cadrain, S. (2020).
How to read the cash flow walk chart
[Presentation slides]. Canvas@AU. https://student.ashford.edu
· This PowerPoint presentation covers information about how to analyze HISCO’s financial metrics, specifically the cash flow. The presentation can be used as a tool to better understand the ‘Cash Flow Walk’ chart located in the ‘Grow Your Business’ (GYB) simulation.
Cadrain, S. (2020).
Pre-tax net income chart explanation
[Presentation slides]. Canvas@AU. https://student.ashford.edu
· This PowerPoint presentation covers information about how to analyze HISCO’s financial metrics specifically pre-tax and after-tax income. The presentation can be used as a tool to better understand the “Pre-Tax Income: Year Plan vs. Actual” graph located in the Grow Your Business” (GYB) simulation.
Required Technology
Website
“Growing Your Business” – A Management Simulation
. (https://ashford.trisimulation.com/canvas)
· This website is where you will conduct your readings and work to complete the Decisions for Quarter Four assignment and the Annual Operating Review (AOR) assignment.
Accessibility Statement does not exist.
Instruction
Prior to beginning work in this discussion thread, read pages 51 through 80 of Understanding Corporate Annual Reports, Voluntary disclosures in corporate annual reports – More than meets the eye, and Integrated Performance Report. This is the time to share in discussion format your critical learnings and any details from your AOR. These thoughts should be qualitative, quantitative, generic, and specific. The learnings should be related to your AOR and what you can put to work in the short- and long-term in the real world. Please use 150 words or more.