UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to ______
Commission File Number 1-7707
MEDTRONIC, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0793183
(State of incorporation) (I.R.S. Employer
Identification No.)
Central Avenue N.E.
Minneapolis, Minnesota 55432
(Address of principal executive offices)
Telephone number: (612) 574-4000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Shares of common stock, $.10 par value, outstanding on September 2, 1994:
57,439,042
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MEDTRONIC, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three months ended
July 29, July 30,
1994 1993
(in thousands, except
per share data)
Net sales $403,795 $331,306
Costs and expenses:
Cost of products sold 126,396 101,257
Research and development
expense 44,134 37,329
Selling, general, and
administrative expense 135,021 127,931
Interest expense 2,657 2,069
Interest income (2,279) (1,676)
Gain on sale of subsidiary 0 (13,962)
-------- --------
Total costs and expenses 305,929 252,948
-------- --------
Earnings before income taxes 97,866 78,358
Provision for income taxes 32,785 25,858
-------- --------
Net earnings $ 65,081 $ 52,500
======== ========
Weighted average shares
outstanding 57,721 57,713
Net earnings per share $ 1.13 $ 0.91
======= ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
July 29, April 30,
1994 1994
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $ 76,967 $ 108,720
Short-term investments 76,192 72,694
Accounts receivable, less allowance for
doubtful accounts of $21,537 and $20,123 339,986 340,927
Inventories:
Finished goods 101,178 102,163
Work in process 50,466 50,751
Raw materials 60,953 60,384
---------- ---------
Total inventories 212,597 213,298
Prepaid expenses and other current assets 113,499 110,218
---------- ---------
Total current assets 819,241 845,857
Property, plant, and equipment 647,075 609,945
Accumulated depreciation (337,291) (308,160)
------------ ----------
Net property, plant, and equipment 309,784 301,785
Goodwill and other intangible assets, net 357,214 367,238
Other assets 125,681 108,372
---------- -----------
Total assets $ 1,611,920 $ 1,623,252
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 92,822 $ 58,173
Accounts payable 71,763 140,295
Accrued liabilities 250,415 240,976
---------- ---------
Total current liabilities 415,000 439,444
Long-term liabilities 113,854 114,401
Deferred income taxes 19,687 15,915
Shareholders' equity:
Common stock--par value $.10 5,742 5,813
Retained earnings 1,092,165 1,089,681
Cumulative translation adjustment (2,228) (9,702)
---------- -----------
1,095,679 1,085,792
Receivable from Employee Stock Ownership Plan (32,300) (32,300)
---------- -----------
Total shareholders' equity 1,063,379 1,053,492
--------- ----------
Total liabilities and shareholders' equity $ 1,611,920 $ 1,623,252
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MEDTRONIC, INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
Three months ended
July 29, July 30,
1994 1993
(in thousands)
OPERATING ACTIVITIES:
Net earnings $ 65,081 $ 52,500
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 30,168 18,132
Gain on sale of subsidiary, net of tax -- (9,424)
Change in assets and liabilities excluding
effects of divestiture:
Decrease in accounts receivable 5,857 12,954
Decrease in inventories 1,960 5,328
Decrease in accounts payable and
accrued liabilities (23,636) (9,814)
Changes in other operating assets and
liabilities (11,451) (8,212)
--------- ---------
Net cash provided by operating activities 67,979 61,464
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (27,929) (13,878)
Proceeds from sale of subsidiary -- 21,000
Purchases of marketable securities (10,079) (10,150)
Sales of marketable securities 9,755 9,500
Other investing activities (net) 4,755 (3,353)
--------- --------
Net cash (used in) provided by
investing activities (23,498) 3,119
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings (net) 37,212 (43,941)
(Reductions) additions to long-term debt (net) (5,237) 4,325
Decrease in acquisition price payable (39,130) --
Dividends to shareholders (11,831) (9,817)
Repurchase of common stock (59,079) (27,384)
Issuance of common stock 1,366 3,322
---------- ---------
Net cash used in financing activities (76,699) (73,495)
Effect of exchange rate changes on cash and
cash equivalents 465 (241)
--------- ---------
Net Change in Cash and Cash Equivalents (31,753) (9,153)
Cash and cash equivalents at beginning of period 108,720 76,994
--------- ---------
Cash and cash equivalents at end of period $ 76,967 $ 67,841
========= =========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts
of Medtronic, Inc. and all of its subsidiaries, after elimination of all
significant intercompany transactions and accounts. In the opinion of
management, all adjustments necessary for a fair presentation of operating
results have been made. All such adjustments are of a normal recurring nature.
Operating results for interim periods are not necessarily indicative of results
which may be expected for the year as a whole.
Note 2 - Accounting Change
On May 1, 1994, the company adopted Statement of Financial Accounting Standard
(SFAS) 115. SFAS 115 established standards of financial accounting and reporting
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Those investments are classified and
accounted for in three categories. The company's securities investments that are
bought and held principally for the purpose of selling them in the near term are
classified as trading securities. Trading securities are recorded at fair value
on the balance sheet in cash and cash equivalents or short-term investments with
the change in fair value during the period included in earnings. Securities
investments that the company has the positive intent and ability to hold to
maturity are classified as held-to-maturity securities and recorded at amortized
cost in short-term investments or other assets. Securities investments not
classified as either held-to-maturity or trading securities are classified as
available-for-sale securities. Available-for-sale securities are recorded at
fair value in short-term investments or other assets on the balance sheet, with
the change in fair value during the period excluded from earnings and recorded
net of tax as a component of retained earnings.
In accordance with SFAS 115, prior period financial statements have not been
restated to reflect the change in accounting principle, however, the effect of
this change to reflect the net unrealized holding gains related to securities
classified as available-for-sale was to increase shareholders' equity at May 1,
1994 by $10,066 (net of $5,420 of deferred income taxes). This change in
accounting principle had no impact on the statement of earnings for the quarter
ended July 29, 1994.
There were no realized gains or losses on sales of available-for-sale or
held-to-maturity securities during the first quarter ended July 29, 1994. At
July 29, 1994, the balance of net unrealized holding gains included as a
component of retained earnings was $8,003 (net of deferred income taxes of
$4,309).
<PAGE>
Note 3 - Subsequent Event
On August 31, 1994, the Board of Directors approved a two-for-one common stock
split in the form of a 100 percent stock dividend. This stock split will be
effective for shareholders of record at the close of business on September 15,
1994 and distribution is expected to be made on September 30, 1994.
Earnings per share adjusted for the pro forma effect of the stock split will be
$0.56 and $0.45 for the three-month periods ended July 29, 1994 and July 30,
1993, respectively. The effect of the stock split on shareholders' equity will
be to double shares issued and outstanding to 114,834,294 and 116,257,428 at
July 29, 1994 and April 30, 1994, respectively, and reclass $5,742 and $5,813
from retained earnings to common stock at July 29, 1994 and April 30, 1994,
respectively.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Earnings
Net earnings for the first quarter ended July 29, 1994, were $65.1 million, an
increase of 24.0 percent over the $52.5 million of the same quarter a year ago.
Earnings per share were $1.13, representing a 24.2 percent increase over the
$0.91 per share of the first quarter last year.
Sales
Exclusive of the effects of foreign currency translation and previously
disclosed acquisitions and divestitures, sales for the quarter ended July 29,
1994 increased 16.0 percent over last year. Sales growth in the quarter was
positively impacted by $5.9 million of favorable exchange rate movements caused
primarily by the weakening of the U.S. dollar versus major European currencies
and the Japanese yen. Given the uncertainties in world health care markets, it
is unclear whether the significant growth rate of the first quarter will
continue.
The increase in sales on a comparable operations basis was attributable to
double-digit percentage increases within each of the company's three businesses
(pacing, other cardiovascular, and neurological and other businesses). Worldwide
sales of the pacing business on a comparable operations basis grew 16.4 percent
in the quarter, reflecting double-digit percentage growth in both the
bradycardia and tachyarrthymia management businesses. Bradycardia sales
continued to surpass the market rate of growth led by rapid acceptance of the
Thera(TM) pacemaker system in Europe, the new Collection pacemakers from
Medtronic Vitatron in Europe and Japan, and the Medtronic Elite II(R) dual
chamber, rate responsive pacemaker, which continued to solidify its position as
the pacemaker of choice in the United States and Japan. Tachyarrthymia
management non-U.S. sales were led by the company's Jewel(TM) PCD(R) implantable
cardioverter-defibrillator while the Medtronic PCD Transvene(R) system continued
to lead U.S. sales growth.
Sales of the other cardiovascular business, consisting of interventional
vascular, heart valves, and cardiopulmonary, increased 12.1 percent on a
comparable operations basis in the quarter ended July 29, 1994. The
interventional vascular business continued to gain market share due to strong
sales growth led by the Panther(TM) and 14K(R) balloon catheters in the United
States and joined by the Gold Xchange(TM) rapid-exchange catheter in non-U.S.
markets. This growth resulted from significant unit sales growth, which more
than offset continuing reductions in average selling prices. Solid
cardiopulmonary sales growth continued to be led by sales of centrifugal blood
pumps and oxygenators. The cardiopulmonary business also received solid revenue
contributions from organizations acquired near the end of fiscal 1994. Sales of
the heart valves business showed only modest improvement in the quarter ended
July 29, 1994.
Sales of the neurological and other business for the quarter ended July 29, 1994
increased 26.0 percent over comparable operations of the same quarter a year
ago, led by U.S. sales of the Medtronic SynchroMed(R) implantable drug infusion
system for treatment of spasticity.
<PAGE>
Cost of Products Sold
Cost of products sold as a percent of sales was 31.3 percent for the quarter
compared to 30.6 percent for the same quarter a year ago. The slight increase in
cost of products sold is primarily the result of recent acquisitions and pricing
pressures within the interventional vascular business.
Selling, General, and Administrative Expense (SG&A)
SG&A expense for the quarter ended July 29, 1994 was $135.0 million compared to
$127.9 million for the comparable period last year. SG&A as a percent of sales
was 33.4 percent for the current quarter compared to 34.3 percent for the same
period last year after adjusting the prior period expense for $14.3 million of
non-recurring charges primarily relating to adoption of a new accounting
principle and a provision for potentially uncollectable trade and other
receivables. The decrease in SG&A as a percent of sales, exclusive of
non-recurring charges in the prior year, is attributable to strong sales growth,
divestitures in prior periods, effective spending controls, and increased
royalty income, which are partially offset by increased currency expense and
spending associated with newly acquired organizations.
Income Taxes
Federal tax legislation was passed in August 1993 which increases the U.S.
corporate income tax rate, retroactively reinstates the research tax credit, and
beginning in 1995, limits U.S. tax benefits from operations in Puerto Rico. The
increase in the federal tax rate and Puerto Rico benefit limitations will put
upward pressure on the company's effective tax rate. Accordingly, the estimated
effective tax rate for the company's current fiscal year is 33.5 percent
compared to an effective rate of 33.0 percent for the fiscal year ended April
30, 1994. However, the impact of the federal tax legislation on the effective
tax rate in future years will be primarily dependent upon the level of operating
activity in Puerto Rico and the level of research activities. Accordingly, the
company cannot determine the impact the tax legislation will have on future
operating results.
Liquidity and Capital Resources
Operating activities provided $68.0 million of cash and cash equivalents for the
first quarter ended July 29, 1994 compared to $61.5 million in the same period a
year ago. Working capital was $404.2 million at July 29, 1994, compared to
$406.4 million at April 30, 1994. The current ratio was 2.0:1 and 1.9:1 at July
29,1994 and April 30, 1994, respectively. Cash and cash equivalents decreased
$31.8 million during the three months ended July 29, 1994. This decrease is
primarily attributable to stock repurchases made during the quarter ended July
29, 1994. Other significant uses of cash during the quarter included the
reduction of trade accounts payable and accrued liabilities, purchases of
property, plant and equipment, dividends to shareholders, and the cash payment
associated with the fiscal 1994 acquisition of Electromedics, Inc. which was
funded with additional short term borrowings.
<PAGE>
PART II -- OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the company's 1994 Annual Meeting of Shareholders held on August 31, 1994,
the shareholders approved the following:
(a) The election of five class II directors of the company to serve for
three-year terms ending in 1997, as follows:
Director Votes For Votes Withheld
William W. George 46,573,562 906,640
Bernadine P. Healy, M.D. 45,992,315 1,487,887
Richard L. Schall 46,583,354 896,849
Gordon M. Sprenger 46,604,620 875,582
Richard A. Swalin, Ph.D. 46,590,382 889,820
There were no broker non-votes.
(b) A proposal to adopt the Medtronic, Inc. 1994 Stock Award Plan,
effective as of April 29, 1994. The proposal received 37,732,231 votes for, and
9,261,930 against, ratification. There were 486,039 abstentions and no broker
non-votes.
(c) A proposal to approve the Medtronic, Inc. Management Incentive
Plan, effective as of April 29, 1994. The proposal received 44,308,800 votes
for, and 2,606,880 against, ratification. There were 564,520 abstentions and no
broker non-votes.
(d) A proposal to ratify the appointment of Price Waterhouse to serve
as independent auditors of the company for the fiscal year ending April 30, 1995
The proposal received 47,233,376 votes for, and 99,931 against, ratification.
There were 146,894 abstentions and no broker non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement on computation of per share earnings
27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
No report on Form 8-K was filed by the company during
the quarter ended July 29, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Medtronic, Inc.
(Registrant)
Date: September 9, 1994 /s/ WILLIAM W. GEORGE
----------------------
William W. George
President
and Chief Executive Officer
Date: September 9, 1994 /s/ ROBERT L. RYAN
--------------------
Robert L. Ryan
Senior Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
MEDTRONIC, INC.
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
July 29, July 30,
1994 1993
---- ----
PRIMARY
<S> <C> <C>
Shares outstanding:
Weighted average outstanding 57,721 57,713
Share equivalents (1)(2) 555 458
Adjusted shares outstanding (2) 58,276 58,171
====== ======
FULLY DILUTED
Shares outstanding:
Weighted average outstanding 57,721 57,713
Share equivalents (1)(2) 754 522
Adjusted shares outstanding (2) 58,475 58,235
====== ======
Net earnings $65,081 $52,500
======= =======
</TABLE>
- -----------------------
(1) Share equivalents consist primarily of nonqualified stock options.
(2) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The schedule contains summary financial information extracted from the
Consolidated Statement of Earnings and Condensed Consolidated Balance Sheet for
the Quarterly period ended July 29, 1994 filed with the SEC on Form 10-Q and is
qualified in its entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> JUL-29-1994
<PERIOD-TYPE> QTR-1
<CASH> 76,967
<SECURITIES> 76,192
<RECEIVABLES> 361,523
<ALLOWANCES> (21,537)
<INVENTORY> 212,597
<CURRENT-ASSETS> 819,241
<PP&E> 647,075
<DEPRECIATION> (337,291)
<TOTAL-ASSETS> 1,611,920
<CURRENT-LIABILITIES> 415,000
<BONDS> 0
<COMMON> 5,742
0
0
<OTHER-SE> 1,057,637
<TOTAL-LIABILITY-AND-EQUITY> 1,611,920
<SALES> 403,795
<TOTAL-REVENUES> 403,795
<CGS> 126,396
<TOTAL-COSTS> 126,396
<OTHER-EXPENSES> 179,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,657
<INCOME-PRETAX> 97,866
<INCOME-TAX> 32,785
<INCOME-CONTINUING> 65,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,081
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.11
</TABLE>
