FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED APRIL 30, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____ TO _____
COMMISSION FILE NO. 1-7707
MEDTRONIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MINNESOTA 41-0793183
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
7000 CENTRAL AVENUE N.E.
MINNEAPOLIS, MINNESOTA 55432
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (612) 574-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE, INC.
$.10 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 1
NONE
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 ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. ( X )
AGGREGATE MARKET VALUE OF VOTING STOCK OF MEDTRONIC, INC. HELD BY
NONAFFILIATES OF THE REGISTRANT AS OF JULY 8, 1994, BASED ON THE CLOSING
PRICE OF $81.125 AS REPORTED ON THE NEW YORK STOCK EXCHANGE:
$4.53 BILLION.
SHARES OF COMMON STOCK OUTSTANDING ON JULY 8, 1994: 57,559,109
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S 1994 ANNUAL SHAREHOLDER REPORT ARE INCORPORATED BY
REFERENCE INTO PARTS I, II AND IV; PORTIONS OF REGISTRANT'S PROXY STATEMENT
FOR ITS 1994 ANNUAL MEETING ARE INCORPORATED BY REFERENCE INTO PART III.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS.
Medtronic, Inc. (together with its subsidiaries, "Medtronic" or the
"company") was incorporated as a Minnesota corporation in 1957. Medtronic
is the world's leading therapeutic medical device company, developing,
manufacturing and marketing therapies for improved cardiovascular and
neurological health. Primary products include implantable pacemaker
systems used for treatment of bradycardia, implantable tachyarrhythmia
management devices for treatment of ventricular arrhythmias, mechanical
and tissue heart valves, balloon and guiding catheters used in
angioplasty, implantable neurostimulation and drug delivery systems, and
perfusion systems including blood oxygenators, centrifugal blood pumps,
autotransfusion systems and cannula products. More than half of
Medtronic's revenues are generated from the sale of implantable cardiac
pacemaker systems for treatment of bradycardia ("brady pacemakers"). These
systems consist of implantable pulse generators ("IPGs") and leads, which
are the insulated wires that carry electrical impulses from the IPG to the
heart.
In March 1994, Medtronic acquired substantially all assets and liabilities
of DLP, Inc. for approximately $128.3 million in cash. DLP is the market
leader in the development, manufacture, and sale of cannula products used
in heart surgery. Other DLP products are used in marking and targeting
suspected malignancies during diagnostic and interventional procedures.
DLP will operate as part of the company's Cardiac Surgery business.
In April 1994, Medtronic acquired all of the outstanding common stock of
Electromedics, Inc. for approximately $95.3 million. The purchase price
consisted of approximately $39.1 million payable in cash and approximately
778,000 shares of common stock valued at $56.2 million. Electromedics
designs, manufactures and markets blood management and blood conservation
equipment for use in autotransfusion, or retransfusion of a patient's own
blood, during major medical procedures. Electromedics will operate as part
of the company's Cardiac Surgery business.
In April 1994, Medtronic also acquired all of the remaining outstanding
common stock of Carbon Implants, Inc. Carbon Implants is an innovator in
pyrolytic carbon coating processes and the design and manufacture of
mechanical heart valves using these processes for enhanced durability and
biocompatibility. The total purchase price was approximately $34.6 million
in cash.
In July 1993, Medtronic sold substantially all the assets of its Medtronic
Andover Medical, Inc. ("AMI") subsidiary. AMI manufactured electrodes,
cables and related devices for the neurological and cardiovascular
markets. Annual sales of AMI were approximately $23 million. Medtronic has
now completed its recent strategy to divest businesses that do not
directly support its core implantable and invasive medical technology
businesses.
Medtronic operates in a single industry segment, that of providing
products for medical applications. Its revenues, operating profits and
assets for the past three fiscal years (1992-1994) have been attributable
to this single industry segment.
BUSINESS NARRATIVE.
Medtronic generally has vertically integrated manufacturing operations,
and makes its own lithium batteries, feedthroughs, integrated and hybrid
circuits, and certain other components. Sales of pacemaker and
tachyarrhythmia management products, such as IPGs, the implantable
pacer/cardioverter/defibrillator ("PCD(R)") device, leads and
instrumentation accounted for 67.2% of Medtronic's net sales during the
fiscal year ended April 30, 1994 ("fiscal 1994"), 65.7% of net sales in
fiscal 1993 and 66.1% of net sales in fiscal 1992.
Medtronic produces various models of brady pacemakers and leads. These
include pacemakers which can be noninvasively programmed by the physician
to adjust sensing, electrical pulse intensity, duration, rate, and other
characteristics, as well as pacemakers which can sense in both the upper
and lower chambers of the heart and produce impulses to cause upper or
lower chamber contractions, or both, in appropriate relation to heart
activity. Medtronic produces LEGEND II(R) and ELITE II(R) pacemakers,
which are rate variable in response to patient activity levels. LEGEND
II(R) and ELITE II(R) models currently account for a substantial portion
of Medtronic's U.S. and international single chamber and dual chamber
pacemaker product sales, respectively. The Thera(R) pacing system,
consisting of a new line of pulse generators, a new specialized lead and a
new model 9790 programmer which can be used with all brady pacing products
as well as the Jewel(tm) family of PCD(R) devices, was commercially
released outside the U.S. in March 1994, and the pulse generators are in
clinical evaluation in the U.S. In addition to the "Medtronic" line of
pacemakers, the company also produces a separate line of IPGs and leads
under the brand name "Vitatron."
The Pacing business also produces the PCD(R), an implantable device for
treating ventricular tachyarrhythmias using a tiered therapy of pacing,
cardioversion and defibrillation. In December 1993, the Transvene(R) lead
system was commercially introduced in the U.S. This transvenous lead
system allows the PCD(R) device to be implanted without a thoracotomy,
thereby reducing patient trauma and hospitalization time. Medtronic's
Transvene(R) leads and the PCD(R) comprise the first complete transvenous,
tiered therapy system to be cleared by the FDA in the United States.
The next generation of tachyarrhythmia devices is the Jewel(TM) family,
which is designed to be implanted in the chest rather than the abdomen.
The Jewel(TM) PCD(R) implantable defibrillator, which allows shorter
implant procedures and reduced hospital stays, was commercially released
outside the U.S. in December 1993 and has been in clinical evaluation in
the U.S. since September 1993.
Medtronic's products, other than brady pacing and tachyarrhythmia
management products, accounted for the following percentages of its net
sales in fiscal 1994: other cardiovascular products, which include heart
valves, oxygenators, blood pumps, angioplasty catheters and other related
cardiovascular products, 23.6% (22.9% for fiscal 1993 and 21.4% for fiscal
1992); and neurological and other businesses, which include implantable
neurostimulation devices, drug administration systems, and venture-related
products, 9.2% (11.4% for fiscal 1993 and 12.5% for fiscal 1992). The
decrease in percentage of revenue contributed by neurological and other
businesses is due to divested product lines during fiscal 1993 and 1994.
GOVERNMENT REGULATION.
The industry segment in which Medtronic competes involves development,
production and sales of medical devices. In the United States, the FDA,
among other governmental agencies, is responsible for regulating the
introduction of new medical devices, laboratory and manufacturing
practices, and labeling and recordkeeping for medical devices, as well as
for reviewing manufacturers' required reports of adverse experience to
identify potential problems with marketed medical devices. The FDA can ban
certain medical devices, detain or seize adulterated or misbranded medical
devices and order repair, replacement, or refund, and require notification
of health professionals and others with regard to medical devices that
present unreasonable risks of substantial harm to the public health. The
FDA may also enjoin and restrain certain violations of the Food, Drug and
Cosmetic Act and the Safe Medical Devices Act pertaining to medical
devices, or initiate action for criminal prosecution of such violations.
Many of the devices that Medtronic develops and markets are in a category
for which the FDA has implemented stringent clinical investigation and
premarket clearance requirements. Moreover, the FDA administers certain
controls over the export of such devices from the United States.
The number of medical devices approved by the FDA for commercial release
has decreased significantly in recent years due to more rigorous clinical
evaluation requirements, increased enforcement actions, and enactment of
the Safe Medical Devices Act of 1990, which reflect a trend toward more
stringent product regulation by the FDA. Rigorous regulatory action may be
taken in response to deficiencies noted in inspections or to any product
performance problems. The risks in the United States of lengthened
introduction times for new products and additional expense have increased
substantially. In addition, the requirements for post-market surveillance
and device tracking under the Safe Medical Devices Act will continue to
increase the expense of the regulatory process.
Medical device laws are also in effect in many of the countries in which
Medtronic does business outside the United States. These range from
comprehensive device approval requirements for some or all of Medtronic's
medical device products to requests for product data or certifications.
The number and scope of these requirements is increasing. This trend
toward increasing product regulation is evident in the European Economic
Community, where efforts are underway to harmonize the regulatory systems.
President Clinton's administration has introduced a health care reform
bill that would cause significant changes in health care delivery.
Congress is currently considering this bill and others, and it is
generally expected that Congress will pass a health care reform bill in
some form which could affect health care expenditures in the United
States. Similar initiatives to limit the growth of health care costs,
including price regulation, are also underway in several other countries
in which the company does business. These changes are causing the
marketplace to place increased emphasis on the delivery of more
cost-effective medical therapies. Although the company believes it is well
positioned to respond to changes resulting from health care reform, the
uncertainty as to the outcome of any proposed legislation or change in the
marketplace precludes the company from predicting the impact such reform
may have on future operating results.
The U.S. Health Care Financing Agency, which determines Medicare
reimbursement policy and practice, appears to be changing its practice of
reimbursing hospitals for procedures involving medical devices in clinical
evaluation. Such a change in practice is causing some hospitals to treat
Medicare patients only with medical devices that have been cleared for
commercial release by the FDA. This action will probably limit the scope
of clinical trials in the U.S., force more clinical research to non-U.S.
markets and increase the cost and time required to complete clinical
evaluations in the U.S.
Medtronic is also subject to various environmental laws and regulations
both in the United States and abroad. The operations of the company, like
those of other medical device companies, involve the use of substances
regulated under environmental laws, primarily in manufacturing and
sterilization processes. In addition, many of these substances contain
chlorofluorocarbons which, under federal law, must be phased out in the
mid-1990s. Medtronic believes that alternatives are available and plans to
eliminate the use of chlorofluorocarbons in compliance with such
requirements. While it is difficult to quantify the potential impact of
compliance with environmental protection laws, management believes that
such compliance will not have a material impact on the company's financial
position.
SALES, MARKETS AND DISTRIBUTION METHODS.
The primary markets for Medtronic's products are hospitals, other medical
institutions and physicians, both in the United States and abroad. No one
customer individually accounts for a material amount of Medtronic's total
sales.
Medtronic sells most of its products and services directly through its
staff of trained, full-time sales representatives. Sales by these
representatives accounted for approximately 94.5% of Medtronic's U.S.
sales and approximately 61.7% of its sales from other countries in fiscal
1994. The remaining sales were made through independent distributors.
Medtronic maintains inventories of its high volume sales products in
various locations in the United States and in the rest of the world.
NEW PRODUCTS.
New products recently introduced by Medtronic include, in part, the
following: (i) the Thera(TM) pacing system, consisting of a new line of
pulse generators, a new specialized lead and a new 9790 programmer which
can be used with all brady pacing products as well as the Jewel(TM) family
of PCD(R) devices, was commercially released outside the U.S. in March
1994, and the pulse generators are in clinical evaluation in the U.S.;
(ii) the Premier(TM) pacing system, consisting of a single chamber
pacemaker and steroid-eluting lead in one package, began clinical trials
in non-U.S. markets in November 1993; (iii) the Legend Plus(TM) dual
sensor, single chamber pacemaker was commercially released in selected
non-U.S. markets in April 1994; (iv) the Diamond(TM) dual chamber, dual
sensor pacemaker was commercially released in Europe in January 1994 under
the "Vitatron" brand name; (v) the Saphir(TM), a single-lead, atrial
tracking pacemaker, was commercially released in Europe in May 1994 under
the "Vitatron" brand name; (vi) the CapSure(R) Z steroid-eluting lead
began clinical evaluation in Europe in October 1993; (vii) the Jewel(TM)
PCD(R) implantable defibrillator, whose smaller size permits the device to
be implanted in the chest rather than the abdomen, was commercially
released outside the U.S. in December 1993 and has been in clinical
evaluation in the U.S. since September 1993; (viii) the Jewel(TM) PCD(R)
with the Active Can(TM) technology, which features a single tripolar
transvenous lead that simplifies implantation, began clinical evaluation
in non-U.S. markets in November 1993 and in the U.S. in April 1994; (ix)
the Atakr(R) RF Ablation System, the world's first battery-operated radio
frequency ablation system designed to automatically maintain temperature
control, has been granted "expedited review" status by the FDA; (x) the
Spirit(TM) balloon catheter for coronary angioplasty, offering superior
control and maneuverability, was cleared for commercial release by the FDA
in August 1993; (xi) the long-balloon version of the Gold Xchange(TM)
rapid-exchange catheter for PTCA was commercially released outside the
U.S. in 1993, while a new long-balloon model of the 14K(R) over-the-wire
catheter was released worldwide in 1993, with both models permitting
treatment of long arterial lesions that otherwise would require
repositioning and repeat inflation with shorter balloons; (xii) the
Panther(TM) PTCA balloon catheter, which offers superior flexibility,
strength and angioscopic visualization, was cleared for commercial release
in the U.S. in November 1993; (xiii) the Ascent(TM) guiding catheter, with
a stiffer shaft for maximum balloon support, a larger lumen to increase
visualization and compatibility with a wide range of balloons and
adjunctive interventional devices, was cleared for commercial release in
the U.S. in February 1994; (xiv) the Sculptor(TM) annuloplasty ring, which
is used in repairing the heart's natural valves to improve control of
blood flow and circulation, was commercially released in the U.S. in June
1993; (xv) the Hancock(R) M.O. II porcine tissue valve, a bioprosthetic
heart valve that offers significant advantages in hemodynamics and
durability for the older patient, was cleared for commercial release in
the U.S. in December 1993; (xvi) the Mosaic(TM) porcine tissue valve,
designed to combine the best features of earlier Medtronic tissue valves
and serve each patient longer, began non-U.S. clinical evaluations in
February 1994; (xvii) the Parallel(TM) bileaflet mechanical heart valve,
made with an innovative pyrolytic carbon coating process to offer
excellent biocompatibility and mechanical durability, began clinical
evaluations in Europe in May 1994; (xviii) the Hall(TM) collagen
impregnated aortic valved conduit, which reduces potential surgical
complications by eliminating the need for preclotting prior to surgery,
was cleared for commercial release in the U.S. in May 1994; and (xix) the
Maxima Plus(TM) membrane oxygenator received clearance for commercial
release in the U.S. in February 1994.
RAW MATERIALS AND PRODUCTION.
Medtronic purchases many of the parts and materials used in manufacturing
its products from external suppliers and internally manufactures certain
of its product components. Medtronic's single- and sole-sourced materials
include medical adhesives and resins, certain integrated circuits, power
sources, switches, sensors, crystals, polyurethane, silicone rubber,
certain electrolytic capacitors, pyrolytic carbon discs, Lioresal(R)*
(baclofen, USP) Intrathecal, computer and other peripheral equipment,
cable connector assemblies, MP-35N wire, and drawn-brazed stranded wire.
Medtronic believes that its suppliers of polyurethane and medical adhesive
are the sole U. S. suppliers of such materials. The other noted parts and
materials are purchased from single sources for reasons of quality
assurance and cost effectiveness. Medtronic works closely with its
suppliers to assure continuity of supply while maintaining high quality
and reliability. However, the medical device industry was recently advised
that, in an effort to reduce potential product liability exposure, certain
suppliers have terminated or are planning to terminate sales of certain
materials and parts to customers that manufacture implantable medical
devices. Medtronic believes that various design, material or supplier
alternatives can be found for these materials and components without a
significant interruption in production.
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* Registered trademark of CIBA-GEIGY Corporation.
PATENTS AND LICENSES.
Medtronic owns patents on certain of its inventions, and obtains licenses
from others as it deems necessary to its business. Medtronic's policy is
to obtain patents on its inventions whenever practical. Technological
advancement has been characteristically rapid in the industry in which
Medtronic competes, and Medtronic does not consider its business to be
materially dependent upon any individual patent.
COMPETITION AND INDUSTRY.
Medtronic sells therapeutic medical devices in the United States and
throughout the world. In the businesses in which Medtronic competes, the
company faces a mixture of competitors ranging from large multi-national
industrial manufacturers to diversified pharmaceutical companies, as well
as regional or national manufacturers that offer a limited number of
products. Important factors to Medtronic's customers include product
reliability and performance, product technology that provides for improved
patient benefits, product price, and related product services provided by
the manufacturer. Major shifts in industry market shares have occurred in
connection with product problems, physician advisories and safety alerts,
reflecting the importance and risks of product quality in the medical
device industry.
Medtronic is the leading manufacturer and supplier of brady pacemakers in
both the U.S. and non-U.S. markets. Worldwide, approximately ten
manufacturers compete in the pacemaker industry. In the U.S., Medtronic and
four other manufacturers account for a significant portion of pacemaker
sales. Medtronic and five other manufacturers account for most of the
non-U.S. pacemaker sales.
In the tachyarrhythmia management device market, Medtronic and two other
manufacturers based in the U.S. account for most sales of implantable
defibrillators within and outside the U.S. Medtronic and one of these other
manufacturers has a transvenous lead system cleared for commercial sale in
the U.S. Medtronic's PCD(R) device is commercially available with the
company's Transvene(TM) leads in U.S. and non-U.S. markets. Five other
companies have devices in various stages of development and clinical
evaluation.
In the angioplasty device market, including balloon and guiding catheters
used in coronary artery procedures, there are numerous competitors worldwide.
Four competitors based in the United States account for a significant portion
of sales of angioplasty devices both in the United States and abroad.
Medtronic is the second largest manufacturer and supplier of tissue heart
valves and also of mechanical heart valves within and outside the U.S.
Another large manufacturer and distributor of hospital products and services
is the major competitor in tissue heart valves and another company is the
major competitor in mechanical heart valves. These two companies and
Medtronic are the primary manufacturers and suppliers of heart valves within
the U.S. These three companies plus a few competitors outside the U.S.
account for most of the non-U.S. heart valve sales.
In the blood oxygenator market, there are approximately seven companies that
account for a significant portion of the U. S. and non-U.S. markets.
Medtronic believes it is the largest manufacturer and supplier of blood
oxygenators worldwide. Medtronic is the leading manufacturer of centrifugal
blood pumps worldwide.
Medtronic recently entered the cannula market with the acquisition of DLP,
Inc., the market leader in cannula products. See "General Development of
Business" above. Medtronic and four competitors account for a significant
portion of cannulae sales in the U.S.
Medtronic recently entered the autotransfusion market with the acquisition of
Electromedics, Inc. See "General Development of Business" above. Medtronic
and three competitors account for a significant portion of autotransfusion
sales in both U.S. and non-U.S. markets.
In neurological devices, Medtronic is the leading manufacturer and supplier
of implantable neurostimulation systems. There are a few competitors
worldwide. Medtronic and one competitor account for most worldwide sales of
implantable drug delivery systems.
Market complexity has been intensifying in the medical device industry in
recent years. Factors such as relative patent portfolios, government
regulation, including the regulatory approval process for medical devices, a
more rigorous enforcement climate at the FDA, anticipated significant health
care reform, government reimbursement systems for health care costs, product
liability litigation and the rapid rate of technological change are
increasingly important considerations for existing medical device
manufacturers and any potential entrants to the industry.
RESEARCH AND DEVELOPMENT.
Medtronic spent $156.3 million on research and development (11.2% of net
sales) in fiscal 1994, $133.0 million (10.0% of net sales) in fiscal 1993
and $109.2 million (9.3% of net sales) in fiscal 1992. Such amounts have
been applied toward improving existing products, expanding their
applications, and developing new products. Medtronic's present research
and development projects span such areas as sensing and treatment of
cardiovascular disorders (including bradycardia and tachyarrhythmia,
fibrillation, and sinus node abnormalities); improved heart valves,
membrane oxygenators and centrifugal blood pump systems; implantable drug
delivery systems for pain and other neurological applications; muscle and
neurological stimulators; therapeutic catheters; coronary stents and
treatments for restenosis; implantable physiologic sensors; cardiac assist
systems (cardiomyoplasty) and other applications of transformed muscle;
and materials and coatings to enhance blood and device interface.
Medtronic has not engaged in significant customer or government sponsored
research.
EMPLOYEES.
On April 30, 1994, Medtronic and its subsidiaries employed 8,709 persons
on a regular, full-time basis and, including temporary and part-time
employees, a total of 9,856 employees on a full-time equivalent basis.
U.S. AND NON-U.S. OPERATIONS AND EXPORT SALES.
Medtronic sells products in the following markets: United States, Canada,
Latin America, Europe, Middle East, Africa, Japan and other Asia/Pacific.
For financial reporting purposes, the revenues, profitability, and
identifiable assets attributable to significant geographic areas are
presented in Note 14 to the consolidated financial statements,
incorporated herein by reference to Medtronic's 1994 Annual Shareholder
Report on page 51. U.S. export sales to unaffiliated customers comprised
less than one percent of Medtronic's consolidated sales in each of fiscal
1994, 1993 and 1992.
Operation in countries outside the U.S. is accompanied by certain
financial and other risks. Relationships with customers and effective
terms of sale frequently vary by country, often with longer-term
receivables than are typical in the U.S. Inventory management is an
important business concern due to the potential for rapidly changing
business conditions and currency exposure. Currency exchange rate
fluctuations can affect income from, and profitability of, non-U.S.
operations. Medtronic attempts to hedge these exposures to reduce the
effects on net earnings of foreign currency fluctuations. Certain
countries also limit or regulate the repatriation of earnings to the
United States. Non-U.S. operations in general present complex tax and
money management questions requiring sophisticated analysis and precise
execution of strategy to meet the company's financial objectives.
EXECUTIVE OFFICERS OF MEDTRONIC
Set forth below are the names and ages of current executive officers of
Medtronic, Inc., as well as information regarding their positions with
Medtronic, Inc., their periods of service in these capacities, and their
business experience for the past five or more years. Executive officers
generally serve terms of office of approximately one year. There are no
family relationships between any of the officers named, nor is there any
arrangement or understanding pursuant to which any person was selected as an
officer.
WILLIAM W. GEORGE, age 51, has been President and Chief Executive Officer
since May 1991, was President and Chief Operating Officer from March 1989 to
April 1991, and has been a director since March 1989. Prior to joining the
company, Mr. George was President, Space and Aviation Systems Business, at
Honeywell Inc. from December 1987 to March 1989. During his 11 years with
Honeywell, Mr. George served in several other executive positions including
President, Industrial Automation and Control, from May 1987 to December 1987;
and Executive Vice President of that business from January 1983 to May 1987.
GLEN D. NELSON, M.D., age 57, has been Vice Chairman since July 1988, and has
been a director since 1980. From September 1986 to July 1988, he was
Executive Vice President of the company. Dr. Nelson was Chairman and Chief
Executive Officer of American MedCenters, Inc., an HMO management
corporation, from July 1984 to August 1986.
ARTHUR D. COLLINS, JR., age 46, has been Chief Operating Officer since
January 1994. From June 1992 to January 1994, Mr. Collins was Executive Vice
President and President of Medtronic International. Prior to joining the
company, Mr. Collins was Corporate Vice President, Diagnostic Medical
Products, at Abbott Laboratories from October 1989 to May 1992 and Divisional
Vice President, Diagnostic Medical Products, from May 1984 to October 1989.
Mr. Collins held various other management positions at Abbott Laboratories in
the United States and Europe from March 1978 to May 1984. Prior to joining
Abbott Laboratories, Mr. Collins was a consultant with Booz, Allen &
Hamilton.
BOBBY I. GRIFFIN, age 57, has been Executive Vice President since July 1988,
and President, Pacing, since March 1991. From September 1985 to July 1988,
Mr. Griffin was Vice President of the Pacing Business Unit.
BILL K. ERICKSON, age 50, has been Senior Vice President and President,
Americas, since January 1994. From May 1992 to January 1994, Mr. Erickson was
Senior Vice President and President, U.S. Cardiovascular Sales and Marketing
Division. Mr. Erickson was Senior Vice President, U.S. Cardiovascular
Division, from January 1990 to May 1992 and was Vice President, U.S.
Cardiovascular Distribution, from January 1982 to December 1989.
RONALD E. LUND, age 59, has been Senior Vice President and General Counsel
since November 1990, and Secretary since July 1992, and was Vice President
and General Counsel from February 1989 to November 1990. Prior to joining the
company, Mr. Lund held various legal and management positions during his 28
years of employment with The Pillsbury Company, which included serving as
Vice President and Associate General Counsel from 1984 to February 1989.
ROBERT L. RYAN, age 51, has been Senior Vice President and Chief Financial
Officer since April 1993. Prior to joining the company, Mr. Ryan was Vice
President, Finance, and Chief Financial Officer of Union Texas Petroleum
Corp. from May 1984 to April 1993, Controller from May 1983 to May 1984, and
Treasurer from March 1982 to May 1983. Prior to that, Mr. Ryan held several
managerial positions at Citibank and McKinsey & Company.
JANET S. FIOLA, age 52, has been Senior Vice President, Human Resources since
March 1994. She was Vice President, Human Resources, from February 1993 to
March 1994, and was Vice President, Human Resources Development, from
February 1988 to February 1993.
WILLARD H. LEWIS, age 62, has been Senior Vice President and President,
Cardiac Surgery, since March 1994 and was Vice President and President,
Cardiac Surgery, from March 1991 to March 1994. He was Vice President from
January 1989 to March 1994 and General Manager, Vascular
Business/Cardiopulmonary, from January 1989 to March 1991. Mr. Lewis was a
consultant in medical business management from January 1986 to December 1988,
which included responsibility for the operations of the company's
Cardiopulmonary Business from October 1987 to December 1988. Prior to that,
Mr. Lewis held various positions with Bentley Laboratories, including
President from July 1978 to January 1986.
JOHN A. MESLOW, age 55, has been Senior Vice President and President,
Neurological Business, since March 1994. He was Vice President and President,
Neurological Business, from March 1991 to March 1994, and was Vice President,
Neurological Division, from March 1985 to March 1991.
ITEM 2. PROPERTIES
Medtronic's principal offices are owned by the company and located in the
Minneapolis, Minnesota metropolitan area. Manufacturing or research
facilities are located in Arizona, California, Colorado, Massachusetts,
Michigan, Minnesota, Texas, Puerto Rico, Canada, France, Germany, Italy, the
Netherlands and Japan. Approximately 81% of total manufacturing and research
space (approximately 1,382,943 square feet) is owned by the company, and the
balance is leased.
Medtronic also maintains sales and administrative offices inside the United
States at 48 locations in 27 states and outside the United States at 87
locations in 20 countries. Most of these locations are leased.
Medtronic is utilizing substantially all of its currently available
productive space to develop, manufacture and market its products. The
company's facilities are in good operating condition, suitable for their
respective uses and adequate for current needs.
ITEM 3. LEGAL PROCEEDINGS
Notes 11 and 12 to the consolidated financial statements appearing on page 50
of Medtronic's 1994 Annual Shareholder Report are incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR MEDTRONIC'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information in the sections entitled "Price Range of Medtronic Stock" and
"Investor Information" on page 53 of Medtronic's 1994 Annual Shareholder
Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information for the years 1984 through 1994 on page 52 of Medtronic's
1994 Annual Shareholder Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information on pages 35 through 39 of Medtronic's 1994 Annual Shareholder
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
independent accountants dated May 23, 1994, appearing on pages 40 through 51
of Medtronic's 1994 Annual Shareholder Report are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MEDTRONIC
The information on pages 1 through 6 of Medtronic's Proxy Statement for its
1994 Annual Shareholders' Meeting and on page 10 of such Proxy Statement
regarding Section 16(a) requirements is incorporated herein by reference. See
also "Executive Officers of Medtronic" on pages 6 and 7 hereof.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Election of Directors -- Director Compensation" and
"Executive Compensation" on pages 7 through 9 and 14 through 19,
respectively, of Medtronic's Proxy Statement for its 1994 Annual
Shareholders' Meeting are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Shareholdings of Certain Owners and Management" on pages 9 and 10 of
Medtronic's Proxy Statement for its 1994 Annual Shareholders' Meeting is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on pages 8 and 9 of Medtronic's Proxy Statement for its 1994
Annual Shareholders' Meeting, concerning services provided to the company by
the Chairman of the Board and the Founder of the company in fiscal 1994, is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Report of Independent Accountants (incorporated herein by reference to page
40 of Medtronic's 1994 Annual Shareholder Report)
Statement of Consolidated Earnings -- years ended April 30, 1994, 1993, and
1992 (incorporated herein by reference to page 41 of Medtronic's 1994 Annual
Shareholder Report)
Consolidated Balance Sheet -- April 30, 1994 and 1993 (incorporated herein by
reference to page 42 of Medtronic's 1994 Annual
Statement of Consolidated Cash Flow -- years ended April 30, 1994, 1993, and
1992 (incorporated herein by reference to page 43 of Medtronic's 1994 Annual
Shareholder Report)
Notes to Consolidated Financial Statements (incorporated herein by reference
to pages 44 through 51 of Medtronic's 1994 Annual Shareholder Report)
2. FINANCIAL STATEMENT SCHEDULES
V Property, Plant, and Equipment -- years ended April 30, 1994, 1993, and
1992
VI Accumulated Depreciation of Property, Plant, and Equipment -- years
ended April 30, 1994, 1993, and 1992
VIII Valuation and Qualifying Accounts -- years ended April 30, 1994, 1993,
and 1992
IX Short-term Borrowings -- years ended April 30, 1994, 1993, and 1992
X Supplementary Income Statement Information -- years ended April 30,
1994, 1993, and 1992
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Medtronic Restated Articles of Incorporation, as amended to date (Exhibit 3.1).(f)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(e)
4 Form of Rights Agreement dated as of June 27, 1991 between Medtronic and Norwest Bank
Minnesota, National Association, including as Exhibit A thereto the form of Preferred
Stock Purchase Right Certificate, incorporated by reference to Exhibit (1) of Medtronic's
Form 8-A Registration Statement dated June 27, 1991 and filed with the Securities and
Exchange Commission on June 28, 1991.
*10.1 1994 Stock Award Plan (Appendix A).(a)
*10.2 Management Incentive Plan (Appendix B).(a)
*10.3 1979 Restricted Stock and Performance Share Award Plan, as amended to date (Exhibit
10.1).(c)
*10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit A).(d)
*10.5 Form of Employment Agreement for Medtronic executive officers (Exhibit 10.5).(g)
*10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit B).(d)
*10.7 Capital Accumulation Plan Deferral Program (Exhibit 10.6).(c)
*10.8 Postretirement Survivor Benefit Plan (Exhibit 10.7).(c)
*10.9 Amendment effective October 1, 1993 to the Directors' Retirement Plan.
*10.10 Nonqualified Supplemental Benefit Plan (Exhibit 10.9).(c)
*10.11 Consulting Agreement effective May 1, 1989, as amended November 19, 1990, with Earl
E. Bakken (Exhibit 10.10).(b)
*10.12 Consulting Agreement, effective September 1, 1993, with Winston R. Wallin.
11 Computation of Earnings Per Share.
13 Those portions of Medtronic's 1994 Annual Shareholder Report expressly incorporated
by reference herein, which shall be deemed filed with the Commission.
21 List of Subsidiaries.
23 Consent and Report of Price Waterhouse (set forth on page 12 of this report).
24 Powers of Attorney.
</TABLE>
(a) Incorporated herein by reference to the cited Appendix in Medtronic's
Proxy Statement for its 1994 Annual Meeting of Shareholders filed with the
Commission on July 27, 1994.
(b) Incorporated herein by reference to the cited exhibit in Medtronic's
Annual Report on Form 10-K for the year ended April 30, 1993, filed with the
Commimssion on July 23, 1993.
(c) Incorporated herein by reference to the cited exhibit in Medtronic's
Annual Report on Form 10-K for the year ended April 30, 1992, filed with the
Commission under cover of Form SE dated July 24, 1992.
(d) Incorporated herein by reference to the cited exhibit in Medtronic's
Proxy Statement for its 1991 Annual Meeting of Shareholders, filed with the
Commission on July 24, 1991.
(e) Incorporated herein by reference to the cited exhibit in Medtronic's
Annual Report on Form 10-K for the year ended April 30, 1991, filed with the
Commission under cover of Form SE dated July 24, 1991.
(f) Incorporated herein by reference to the cited exhibit in Medtronic's
Annual Report on Form 10-K for the year ended April 30, 1990, filed with the
Commission under cover of Form SE dated July 20, 1990.
(g) Incorporated herein by reference to the cited exhibit in Medtronic's
Annual Report on Form 10-K for the year ended April 30, 1989, filed with the
Commission under cover of Form SE dated July 20, 1989.
*Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Medtronic during the quarter ended April
30, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: July 25, 1994
BY: /S/ WILLIAM W. GEORGE
WILLIAM W. GEORGE
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, the
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: July 25, 1994
BY: /S/ WILLIAM W. GEORGE
WILLIAM W. GEORGE
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Dated: July 25, 1994
BY: /S/ ROBERT L. RYAN
ROBERT L. RYAN
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
EARL E. BAKKEN
F. CALEB BLODGETT
WILLIAM W. GEORGE
ANTONIO M. GOTTO, JR., M.D.
BERNADINE P. HEALY, M.D.
VERNON H. HEATH
THOMAS E. HOLLORAN
EDITH W. MARTIN, PH.D. DIRECTORS
GLEN D. NELSON, M.D.
RICHARD L. SCHALL
JACK W. SCHULER
GERALD W. SIMONSON
GORDON M. SPRENGER
RICHARD W. SWALIN, PH.D.
WINSTON R. WALLIN
Ronald E. Lund, by signing his name hereto, does hereby sign this document on
behalf of each of the above named directors of the Registrant pursuant to
powers of attorney duly executed by such persons.
Dated: July 25, 1994
BY: /S/ RONALD E. LUND
RONALD E. LUND
ATTORNEY-IN-FACT
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Medtronic, Inc.
Our audits of the consolidated financial statements referred to in our report
dated May 23, 1994 appearing on page 40 of the 1994 Annual Shareholder Report
of Medtronic, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedules listed in Item 14(a) of this
Form 10-K. In our opinion, these Financial Statement Schedules present
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
/S/ PRICE WATERHOUSE
PRICE WATERHOUSE
Minneapolis, Minnesota
May 23, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each Prospectus
constituting part of the Registration Statements on Form S-8 (Registration
Nos. 2-65157, 2-68408, 33-169, 33-36552, 2-65156, 33-24212, 33-37529, and
33-44230) and Form S-4 (Registration No. 33-52751) of Medtronic, Inc. of our
report dated May 23, 1994 appearing on page 40 of the 1994 Annual Shareholder
Report which is incorporated by reference in this Annual Report on Form 10-K.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedules as shown above.
/S/ PRICE WATERHOUSE
PRICE WATERHOUSE
Minneapolis, Minnesota
July 25, 1994
MEDTRONIC, INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT, AND EQUIPMENT(B)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHANGES BALANCE
BEGINNING ADDITIONS RETIREMENTS DEBIT AT END OF
CLASSIFICATION OF PERIOD AT COST(c) OR SALES(d) (CREDIT) PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30,
1994
Land and land
improvements $ 15,261 $ 1,198 $ -- $ 8 (a) $ 16,624
157
Buildings and leasehold
improvements 148,639 16,280 3,133 4,458 (a) 165,821
(423)
Equipment 366,854 37,354 23,652 23,989 (a) 409,050
4,505
Construction in progress 19,696 31,174 3,271 (28,454)(a) 18,449
(696)
$550,450 $86,006 $30,056 $ 3,544 $609,944
YEAR ENDED APRIL 30,
1993
Land and land
improvements $ 14,093 $ 75 $ 20 $ 667 (a) $ 15,261
446
Buildings and leasehold
improvements 132,176 5,616 4,891 14,421 (a) 148,639
1,317
Equipment 327,942 39,026 33,245 30,474 (a) 366,854
2,657
Construction in Progress 23,388 42,720 178 (45,562)(a) 19,696
(672)
$497,599 $87,437 $38,334 $ 3,748 $550,450
YEAR ENDED APRIL 30,
1992
Land and land
improvements $ 12,753 $ 807 $ -- $ 500 (a) $ 14,093
33
Buildings and leasehold
improvements 120,489 5,428 1,651 7,441 (a) 132,176
469
Equipment 272,402 43,018 21,339 28,974 (a) 327,942
4,887
Construction in Progress 20,317 33,981 -- (36,915)(a) 23,388
6,005
$425,961 $83,234 $22,990 $ 11,394 $497,599
</TABLE>
(a) Completed and transferred to other categories.
(b) Depreciation is provided using the straight-line method over the
following estimated useful lives:
Land improvements -- 10 to 20 years
Buildings -- 10 to 40 years
Equipment -- 3 to 8 years.
(c) Includes assets associated with the acquisitions of DLP, Electromedics
and Carbon Implants in fiscal 1994.
(d) Includes sales of assets of the Andover Medical, Inc. division in fiscal
1994 and CardioCare and Nortech divisions in fiscal 1993.
MEDTRONIC, INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION OF
PROPERTY, PLANT, AND EQUIPMENT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS OTHER
BALANCE AT CHARGED TO CHANGES BALANCE
BEGINNING COSTS AND RETIREMENTS (DEBIT) AT END OF
OF PERIOD EXPENSES OR SALES(a) CREDIT PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30,
1994
Land Improvements $ 1,635 $ 181 $ -- $ 9 $ 1,825
Buildings and Leasehold 52,298 7,644 1,880 (310) 57,752
Improvements
Equipment 213,734 55,143 19,678 (681) 248,518
$267,667 $62,968 $21,558 $(982) $308,095
YEAR ENDED APRIL 30,
1993
Land Improvements $ 1,419 $ 193 $ -- $ 23 $ 1,635
Buildings And Leasehold 48,562 7,251 3,871 356 52,298
Improvements
Equipment 190,863 47,274 25,984 1,581 213,734
$240,844 $54,718 $29,855 $1,960 $267,667
YEAR ENDED APRIL 30,
1992
Land Improvements $ 1,300 $ 113 $ -- $ 6 $ 1,419
Buildings And Leasehold 42,427 6,527 1,294 902 48,562
Improvements
Equipment 165,061 43,043 19,032 1,791 190,863
$208,788 $49,683 $20,326 $2,699 $240,844
</TABLE>
(a) Includes sales of the assets of Andover Medical, Inc. in fiscal 1994 and
CardioCare and Nortech in fiscal 1993.
MEDTRONIC, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHARGES/ CHANGES BALANCE
BEGINING (CREDITS) TO (DEBIT) AT END OF
OF PEROD EARNINGS CREDIT PERIOD
<S> <C> <C> <C> <C> <C>
Allowance For Doubtful Accounts:
Year Ended 4/30/94 $ 9,456 $13,185 $(2,902)(a) $20,123
384
Year Ended 4/30/93 17,229 9,404 (5,050)(a) 9,456
(4,608)(b)
(7,015)(c)
(504)
Year Ended 4/30/92 12,584 11,027 (7,215)(a) 17,229
833
Accrued Warranty and Product Liability(d):
Year Ended 4/30/94 $15,326 $ 8,645 $(3,844)(e) $20,127
Year Ended 4/30/93 15,544 4,667 (4,885)(e) 15,326
Year Ended 4/30/92 10,684 6,860 (2,000)(e) 15,544
</TABLE>
(a) Uncollectible accounts written off, less recoveries.
(b) Reflects the sale of all assets of the CardioCare division.
(c) Reflects reclassification of assets retained in the sale of the Nortech
division.
(d) Includes both current and noncurrent amounts.
(e) Claims settled, less reimbursement by insurance carrier.
SCHEDULE IX -- SHORT-TERM BORROWINGS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
BALANCE WEIGHTED AMOUNT AMOUNT AVERAGE
CATEGORY OF AGGREGATE SHORT-TERM AT END AVERAGE OUTSTANDING AT OUTSTANDING INTEREST RATE
BORROWINGS OF PERIOD INTEREST RATE ANY MONTH-END (BASED ON MONTH-END BALANCES)
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1994
Bank Borrowings $57,495 5.1% $57,495 $37,596 8.3%
YEAR ENDED APRIL 30, 1993
Bank Borrowings 86,644 5.3% 88,589 58,725 10.9%
YEAR ENDED APRIL 30, 1992
Bank Borrowings 79,848 9.9% 91,175 82,024 11.8%
</TABLE>
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
1994 1993 1992
<S> <C> <C> <C>
Amortization of intangible assets $12,919 $11,094(a) $ 7,515
Taxes, other than payroll and income 7,444 6,799 5,248
Taxes
Advertising expense 5,912 7,914 7,955
Royalty expense 6,560 6,645 5,161
Maintenance and repairs expense 14,773 15,071 14,243
</TABLE>
(a) Does not include $18,000 of accelerated intangible assets amortization, a
significant portion of which related to the Nortech division.
UC9401963-EN
Commission File Number: 1-7707
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1994
---------------
LOGO
MEDTRONIC, INC.
7000 CENTRAL AVENUE N.E.
MINNEAPOLIS, MINNESOTA 55432
TELEPHONE: 612/574-4000
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Medtronic Restated Articles of Incorporation, as amended to date (Exhibit
3.1).(f)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(e)
4 Form of Rights Agreement dated as of June 27, 1991 between Medtronic and
Norwest Bank Minnesota, National Association, including as Exhibit A thereto
the form of Preferred Stock Purchase Right Certificate, incorporated by
reference to Exhibit (1) of Medtronic's Form 8-A Registration Statement
dated June 27, 1991 and filed with the Securities and Exchange Commission on
June 28, 1991.
10.1 1994 Stock Award Plan (Appendix A).(a)
10.2 Management Incentive Plan (Appendix B).(a)
10.3 1979 Restricted Stock and Performance Share Award Plan, as amended to date (Exhibit 10.1).(c)
10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit A).(d)
10.5 Form of Employment Agreement for Medtronic executive officers (Exhibit
10.5).(g)
10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit B).(d)
10.7 Capital Accumulation Plan Deferral Program (Exhibit 10.6).(c)
10.8 Postretirement Survivor Benefit Plan (Exhibit 10.7).(c)
10.9 Amendment effective October 1, 1993, to the Directors' Retirement Plan.
10.10 Nonqualified Supplemental Benefit Plan (Exhibit 10.9).(c)
10.11 Consulting Agreement dated May 1, 1989, as amended November 19, 1990, with
Earl E. Bakken (Exhibit 10.10).(b)
10.12 Consulting Agreement, effective September 1, 1993, with Winston R. Wallin.
11 Computation of Earnings Per Share.
13 Those portions of Medtronic's 1994 Annual Shareholder Report expressly
incorporated by reference herein, which shall be deemed filed with the
Commission.
21 List of Subsidiaries.
23 Consent and Report of Price Waterhouse (set forth on page 12 of this
report).
24 Powers of Attorney.
</TABLE>
(a) Incorporated herein by reference to the cited Appendix in
Medtronic's Proxy Statement for its 1994 Annual Meeting of
Shareholders filed with the Commission on July 27, 1994.
(b) Incorporated herein by reference to the cited exhibit in
Medtronic's Annual Report on Form 10-K for the year ended April
30, 1993, filed with the Commission on July 23, 1993.
(c) Incorporated herein by reference to the cited exhibit in
Medtronic's Annual Report on Form 10-K for the year ended April
30, 1992, filed with the Commission under cover of Form SE dated
July 24, 1992.
(d) Incorporated herein by reference to the cited exhibit in
Medtronic's Proxy Statement for its 1991 Annual Meeting of
Shareholders, filed with the Commission on July 24, 1991.
(e) Incorporated herein by reference to the cited exhibit in
Medtronic's Annual Report on Form 10-K for the year ended April
30, 1991, filed with the Commission under cover of Form SE dated
July 24, 1991.
(f) Incorporated herein by reference to the cited exhibit in
Medtronic's Annual Report on Form 10-K for the year ended April
30, 1990, filed with the Commission under cover of Form SE dated
July 20, 1990.
(g) Incorporated herein by reference to the cited exhibit in
Medtronic's Annual Report on Form 10-K for the year ended April
30, 1989, filed with the Commission under cover of Form SE dated
July 20, 1989.
EXHIBIT NUMBER 10.9
DIRECTORS' RETIREMENT PLAN, AS AMENDED
Exhibit 10.9
Amendment Effective October 1, 1993
to the Medtronic, Inc.
Directors' Retirement Plan
The Board of Directors of Medtronic, Inc. at a meeting held June 24, 1993,
amended the Medtronic, Inc. Directors' Retirement Plan, effective October 1,
1993, to replace Section 2(c) in its entirety with the following:
2(c) Notwithstanding any contrary provisions of this Section 2, the
maximum Payment Period for retirement benefits provided by this
Plan shall be 20 years.
EXHIBIT NUMBER 10.12
CONSULTING AGREEMENT EFFECTIVE SEPTEMBER 1, 1993
WITH WINSTON R. WALLIN
Exhibit 10.12
June 21, 1993
Winston R. Wallin
7022 Tupa Circle
Edina, MN 55435
CONSULTING AGREEMENT
We are pleased with your willingness to continue to work with Medtronic, Inc.,
hereinafter referred to as "Medtronic," as a consultant in the areas specified
in this Consulting Agreement. This letter will define a contractual relationship
between you and Medtronic. Our Agreement is as follows:
I. DUTIES
A. As a consultant you will:
1. Represent the company at official company functions, both
in the United States and at international locations, and at
major medical meetings.
2. In conjunction with management, formulate the company's
public affairs strategy and policy position:
a. Meet with U.S. Senators and Congressmen regarding
medical device legislation and health care cost issues;
b. Work with senior administrators of the Food and Drug
Administration regarding its policies and practices
which affect Medtronic;
c. Meet with U.S. Government officials regarding public
policy issues affecting Medtronic such as
reimbursement, health care costs, regulation, and
international trade issues.
3. Be available, at management request, to meet with, or talk
to, senior executives of other health care corporations on
issues of particular importance to Medtronic.
4. Consult with management on a regular basis, (and be
available as needed), on the progress of Medtronic's
business and on issues of concern to management.
5. Be available to take on additional assignments as requested
by Medtronic management.
B. Your duties under this Agreement shall be directed on behalf of
Medtronic by William George, the Chief Executive Officer, either
directly or through other corporate officers designated by
William George.
II. COMPENSATION
A. For your services, Medtronic will pay you Eight Thousand Three
Hundred Thirty-Three Dollars and Thirty-Three Cents ($8,333.33)
each month that this Agreement is in effect.
B. Medtronic will also reimburse you for reasonable travel,
entertainment and other expenses incurred at Medtronic's request
in carrying out your duties under this Agreement. Reasonable
travel expenses will include first class air travel.
Reimbursement will be made within thirty (30) days of the receipt
from you of an itemized expense report.
C. In addition, Medtronic will provide you with the following as set
forth in Medtronic's Perquisite program during the term of this
Agreement:
1. Financial Planning/Tax Preparation Services;
2. Payment of your club membership fees to the following clubs:
Minneapolis Club and Minikahda Club; and
3. Auto insurance premiums for the car you use primarily for
business, and related auto expenses incurred for business
purposes.
4. Annual Physical
D. The compensation under this Agreement is in addition to the
compensation and benefits you will receive as an Outside Director
on Medtronic's Board of Directors and as a retiree of Medtronic.
III. OFFICE/SUPPORT
During the term of this Agreement, Medtronic will provide you with an office of
approximately 400 square feet in the Lincoln Center, Minneapolis, Minnesota.
Utilities and parking will be provided. Medtronic will also provide to you the
services of a secretary employed by Medtronic for approximately one-half of the
usual work week.
IV. CONFIDENTIALITY
A. Any information acquired by you from Medtronic concerning
existing or contemplated products, services, processes,
techniques, know-how or data identified as confidential to
Medtronic and any information, data, devices and results
developed in the course of providing your consulting services
(herein referred to as "Confidential Information") are or shall
be the property of Medtronic and shall be maintained in
confidence and not used by you except as necessary to perform the
duties set forth in this Agreement without written consent of
Medtronic or until the expiration of five (5) years from the date
of expiration or cancellation of this Agreement.
B. You may, at your discretion, publish materials relating to your
performance of services for Medtronic under this Agreement.
However, should you contemplate publishing, you shall provide
copies of any abstracts, papers or manuscripts to Medtronic for
review and approval within a reasonable period prior to submittal
for publication or presentation. Medtronic shall limit its review
to a determination of whether Confidential Information is
disclosed and shall not attempt to censor or in any way interfere
with your presentation or conclusions beyond the extent necessary
to protect Medtronic Confidential Information or to allow
Medtronic to protect its rights in patentable or copyrightable
material. You agree not to publish Confidential Information
without Medtronic's written approval.
V. IDEAS/ASSIGNMENT
During the term of this Agreement it is contemplated that you may generate
ideas, inventions, improvements or suggestions whether or not patentable
(hereinafter referred to as "Ideas") derived directly from your consultation
under this Agreement.
You agree to disclose and assign to Medtronic in a form satisfactory to its
Chief Patent Counsel any Ideas whether made alone or in conjunction with others.
You agree to render assistance as Medtronic may require to perfect such
assignments and to publish, patent or protect such Ideas in any Patent Office or
in litigation for the duration of this Agreement and thereafter for reasonable
compensation based on your then prevailing hourly consulting charges following
termination or expiration of this Agreement.
Your ideas, inventions, improvements or suggestions which are not derived
directly from work under this Agreement remain your property. You will not
disclose these to Medtronic unless you have established a separate written
agreement with Medtronic.
VI. MISCELLANEOUS
The following additional Medtronic standard terms and conditions for consulting
agreements also apply to this Agreement:
A. It is agreed that you will furnish services under this Agreement
as an independent contractor and not as an employee of Medtronic.
B. This Agreement represents the only agreement relating to this
subject matter between you and Medtronic.
C. Except as explicitly stated elsewhere in this Agreement, you may
not incur any liability on Medtronic's behalf or bind Medtronic
to any contractual or payment obligation without the prior
express written authorization of Medtronic.
D. This Agreement shall be construed and interpreted under and in
accordance with the laws of the State of Minnesota, United States
of America.
E. No modifications to this Agreement can be made except in writing,
signed by you and Medtronic.
VII. DURATION OF AGREEMENT
This consulting relationship shall begin on September 1, 1993 and terminate on
December 31, 1993. This relationship shall terminate automatically without a
notice requirement at the end of the stated period.
If this Agreement is acceptable to you, please sign and date the enclosed copy
of the Agreement and return same to me.
Sincerely,
MEDTRONIC, INC.
By /s/ David A. Ness Date 7/14/93
David A. Ness
Title Vice President, Compensation, Benefits and HRIS
ACCEPTED:
I have read the terms and conditions of the Agreement expressed above and hereby
render my acceptance thereof on my behalf or on behalf of my organization as
indicated.
WINSTON R. WALLIN
/s/ Winston R. Wallin Date 7/29/93
Winston R. Wallin
CORP/WALLIN2.lmh.6/21/93
EXHIBIT NUMBER 11
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
MEDTRONIC, INC.
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Years ended April 30, 1994 1993 1992
<S> <C> <C> <C>
PRIMARY
Shares oustanding:
Weighted average outstanding 57,404 59,416 59,606
Share equivalents (1)(2) 435 689 918
Adjusted shares outstanding (2) 57,839 60,105 60,524
FULLY DILUTED
Shares outstanding:
Weighted average outstanding 57,404 59,416 59,606
Share equivalents (1)(2) 560 770 927
Adjusted shares outstanding (2) 57,964 60,186 60,533
Net earnings before cumulative
effect of accounting changes $232,357 $211,584 $161,541
Net earnings 232,357 197,228 161,541
</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%.
NOTE: Throughout this annual report, references to years, when used alone, refer
to fiscal years ended April 30.
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
SUMMARY
Medtronic is the world's leading therapeutic medical technology company,
developing, manufacturing, and marketing therapies for improving cardiovascular
and neurological health. Primary products include implantable pacemaker systems
used for the treatment of bradycardia, implantable tachyarrhythmia management
systems, mechanical and tissue heart valves, balloon and guiding catheters used
in angioplasty, implantable neurostimulation and drug delivery systems, and
perfusion systems including blood oxygenators, centrifugal blood pumps,
autotransfusion systems, and cannula products.
Significant events during the company's fiscal year included several new product
introductions and three acquisitions. In December 1993, the United States Food
and Drug Administration (FDA) cleared the company's Transvene lead system for
use with the Medtronic implantable pacer/cardioverter/defibrillator (PCD)
device. In March 1994, two devices in the new Jewel PCD product line were
commercially released outside the United States as was the company's Thera line
of bradycardia pacemaker systems. The company strengthened its cardiac surgery
business product line with the March acquisition of DLP, Inc., a manufacturer of
cannula and interventional radiology products, and the April acquisitions of
Electromedics, Inc. and Carbon Implants, Inc. Electromedics designs,
manufactures, and markets blood conservation equipment for use in
autotransfusion during major medical procedures. Carbon Implants is an innovator
in the design and manufacturing of implantable prosthetic heart valves.
Operating results for 1994 are highlighted by the ninth consecutive year of
growth in net sales ($1.4 billion), net earnings ($232.4 million), and earnings
per share ($4.05). Net sales in 1994 increased 11.3% over the prior year on a
comparable operations basis (i.e., after adjusting for the effects of
acquisitions and divestitures discussed in Note 2 to the consolidated financial
statements and foreign currency translations), compared to increases of 13.0% in
1993 and 13.6% in 1992. The increase in net sales results from another year of
strong growth in all three of the company's businesses: pacing, other
cardiovascular, and neurological and other. Net earnings increased 17.8% in
1994, compared with increases of 22.1% in 1993 and 21.1% in 1992. Earnings per
share increased 22.0% in 1994, compared with increases of 22.5% in 1993 and
20.4% in 1992.
NET SALES
The following is a summary of sales by business as a percentage of total net
sales:
Years ended April 30, 1994 1993 1992
Pacing 67.2% 65.7% 66.1%
Other Cardiovascular 23.6 22.9 21.4
Neurological & Other 9.2 11.4 12.5
Total Medtronic 100.0% 100.0% 100.0%
Net sales of the pacing business, consisting mainly of bradycardia pacing and
tachyarrhythmia management, increased 12.0% over the prior year on a comparable
operations basis. Sales of both tachyarrhythmia management and bradycardia
devices grew significantly in 1994. Sales growth within the tachyarrhythmia
management business was attributable to the U.S. commercial release of the PCD
device in February 1993 and U.S. commercial release of the Transvene lead system
in December 1993. The FDA approval of the Transvene lead system established the
company's PCD system as the first tiered-therapy transvenous tachyarrhythmia
system cleared for implant in the United States. The new, smaller Jewel PCD
devices, commercially released in markets outside the United States in December
1993 and in clinical evaluation in the United States, also contributed to
tachyarrhythmia revenue growth. Bradycardia pacing net sales surpassed the rate
of market growth led by the Elite II dual-chamber rate responsive pacemaker,
market released in the United States in December 1992, and the company's broad
line of CapSure leads.
<PAGE> 35
Also contributing to the bradycardia sales growth was the Thera pacemaker
system, consisting of a family of six new pacemakers, a specialized new lead,
and a new programmer, which was commercially released in Europe in March 1994.
Net sales of the other cardiovascular business, consisting of cardiopulmonary,
heart valves, and interventional vascular, increased 8.4% on a comparable
operations basis in 1994. The interventional vascular business reported strong
double digit sales growth stemming from an increase in worldwide unit sales of
the 14K and Spirit over-the-wire balloon catheters and Gold Xchange
rapid-exchange catheter. The overall increase in unit growth was slightly offset
by declining average selling prices. The decrease in selling prices was the
result of increasing price competition and it is anticipated that further
erosion of selling prices will continue into 1995. Within the cardiopulmonary
and heart valves businesses, centrifugal blood pumps and bioprosthetic tissue
valves contributed solid revenue growth. A moderation in the growth rate of open
heart surgeries slowed the overall sales growth of the heart valves and
cardiopulmonary businesses. With the recent acquisitions of DLP, Inc.,
Electromedics, Inc., and Carbon Implants, Inc., management believes the company
is well positioned for future growth in the cardiac surgery market.
On a comparable operations basis, net sales of the neurological and other
businesses, primarily consisting of implantable neurostimulation devices, drug
administration systems, and components, grew 14.5% over the previous year. These
results reflect strong growth in sales of the implantable SynchroMed infusion
system, which received clearance from the FDA in August 1992 for use with
Lioresal(R) Intrathecal for the treatment of chronic spasticity and morphine for
malignant pain. In February 1994, the U.S. Health Care Financing Administration
authorized Medicare reimbursement for use of the SynchroMed system in treatment
of these indications. The neurological and other businesses sales have decreased
as a percentage of total sales in 1994 because of the divestitures of certain
product lines within this business.
As part of its overall growth strategy, the company is continuing to pursue
opportunities that address unmet patient needs in areas where there is synergy
with current businesses. Currently, these opportunities include, among others,
treatment of congestive heart failure and voiding dysfunctions. Net sales of
products from venture-related activities, included in the neurological and other
business, were not material in each of the three years ended 1994.
In 1994, U.S. sales increased 10.9%, excluding the effects of acquisitions and
divestitures. Sales outside the United States increased 11.9% on a comparable
operations basis. Sales in non-U.S. markets accounted for 42.5% of worldwide net
sales, compared with 42.0% in 1993 and 40.6% in 1992. However, the impact of
foreign currency fluctuations on net sales affects comparisons between years.
Net sales growth in 1994 was affected by $30.8 million of unfavorable foreign
exchange rate movements caused by the U.S. dollar strengthening against major
foreign currencies. Conversely, comparing 1993 to 1992, net sales were increased
by $22.0 million from the effect of the U.S. dollar weakening against major
foreign currencies. When adjusted for the impact of foreign exchange
fluctuations to the respective prior year, net sales in non-U.S. markets as a
percent of worldwide net sales were 43.7% in 1994, 41.0% in 1993, and 41.5% in
1992. The impact of foreign currency fluctuations on net earnings is
significantly less than the impact on sales due to the offsetting foreign
currency impact on costs and expenses and the company's hedging activities.
<PAGE> 36
COSTS AND EXPENSES
The following is a summary of major costs and expenses as a percentage of net
sales:
Years ended April 30, 1994 1993 1992
Cost of Products Sold 31.0% 31.6% 32.4%
Research & Development 11.2 10.0 9.3
Selling, General & Administrative 33.8 36.1 37.4
The improvement in cost of goods sold as a percentage of net sales in 1994 was
primarily the result of the divestitures of lower margin product lines,
productivity increases, and effective cost controls. The efficiencies of higher
production levels were evident in most businesses, especially for
tachyarrhythmia management, drug administration system devices, and
interventional vascular products. Future gross margins will be impacted by
regulatory and competitive pricing pressures, recently acquired product lines,
new product introductions, the mix of products both within and between
businesses, productivity fluctuations, and the effects of foreign currency
fluctuations.
The increase in research and development (R&D) expense reflects the company's
strategy and commitment to invest significant resources to increase revenue and
market share by developing technological enhancements and new indications for
existing products as well as developing new technologies to address unmet
patient needs. R&D expense increased 17.6% to $156.3 million in 1994 from $133.0
million in 1993.
The decline in selling, general, and administrative expense (SG&A) in 1994 was
caused by the divestitures in 1993 and 1994, effective spending controls, and
increased royalty income. SG&A expense in 1994 was also affected by $14.3
million of charges which primarily relate to the impact of adoption of a new
accounting principle and a provision for potentially uncollectible trade and
other receivables.
Interest expense was $8.2 million in 1994, compared with $10.4 million in 1993
and $13.4 million in 1992. Interest income was $8.4 million in 1994, compared
with $8.8 million in 1993 and $10.3 million in 1992. Interest income and
interest expense in 1994 are lower than in 1993 primarily due to the redemption
of Industrial Development Serial Revenue Bonds early in 1994 and lower interest
rates paid on bank borrowings and earned on investments.
In July 1993, the company sold substantially all of the assets of its Andover
Medical, Inc., subsidiary for $21.0 million, recognizing a pretax gain of $14.0
million. Andover Medical developed, manufactured, and marketed external
electrodes used primarily with electrical nerve stimulation and neuromuscular
stimulation devices.
INCOME TAXES
The effective income tax rate in 1994 was 33.0%, compared with 32.5% in 1993,
and 33.5% in 1992. The increase in 1994 was primarily the result of an increase
in the U.S. income tax rate. The decrease in 1993 was primarily the result of
adopting Statement of Financial Accounting Standards No. (SFAS) 109, "Accounting
for Income Taxes," and lower income taxes in certain non-U.S. locations.
Federal tax legislation has been passed 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. However, the impact of these
factors on the effective tax rate in future years will be primarily dependent
upon the level of operating activity in Puerto Rico and level of research
activities. Accordingly, the company cannot determine the impact the tax
legislation will have on future operating results. For further discussion, see
Note 8 to the consolidated financial statements.
<PAGE> 37
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY
At April 30, 1994, cash and cash equivalents were $108.7 million and short-term
investments were $72.7 million, compared with $77.0 million and $79.0 million at
April 30, 1993, respectively. The company continued to maintain a high level of
working capital, the excess of current assets over current liabilities, at
$406.4 million at April 30, 1994, compared with $426.6 million at April 30,
1993. The current ratio at April 30, 1994, was 1.9:1, compared with 2.2:1 and
2.3:1 at April 30, 1993 and 1992, respectively. The decrease in working capital
and current ratio is primarily due to an increase in current liabilities
resulting from acquisitions near year-end and the timing of estimated income tax
payments. The company's net cash position, defined as the sum of cash, cash
equivalents, and short-term investments less short-term borrowings and long-term
debt was $103.0 million at April 30, 1994, compared to $53.3 million and 21.2
million at April 30, 1993 and 1992, respectively.
CASH FLOW
Cash provided by operating activities was $356.9 million, compared with $291.5
million in 1993 and $151.4 million in 1992. The company's cash position was
favorably impacted by the timing of income tax payments, ongoing royalty income,
and decreases in prepaid expenses and other current assets offset by increases
in accounts receivable and inventories.
During 1994, the cash portion of the purchase price paid for the acquisitions of
DLP, Electromedics, Inc., Carbon Implants, Inc., and CardioRhythm, was
approximately $189.4 million. For further details, see Note 2 to the
consolidated financial statements. In addition to acquisitions, significant
items affecting cash flows during 1994 included repurchases of the company's
common stock and additions to property, plant, and equipment (PP&E). The cost of
stock repurchases in 1994 were $53.4 million, compared to $142.9 million and
$38.3 million in 1993 and 1992, respectively. Additions to PP&E, net of
retirements and additions associated with newly acquired entities, were $60.8
million in 1994, compared with $77.1 million in 1993 and $77.2 million in 1992.
The company expects growth in capital spending to support increased
manufacturing capacity and operational requirements. This spending will be
financed primarily by funds from operations.
DEBT AND CAPITAL
During 1993, the Board of Directors authorized the company to repurchase an
additional 3.0 million shares of its common stock, of which authorization to
repurchase approximately 1.5 million shares remained at April 30, 1994.
Approximately 860,000 shares were repurchased in 1994 at a cost of $53.4 million
(average price, $62.16 per share), financed in part by short-term borrowings.
The company repurchased shares in 1994 to offset dilution resulting from the
issuance of stock under employee benefit plans and to take advantage of market
conditions. Future repurchases of common stock will depend upon market
conditions, the company's cash position, and other factors. In April 1994,
approximately 778,000 shares of common stock were issued for the acquisition of
Electromedics. For further details, see Note 2 to the consolidated financial
statements.
Dividends to shareholders were $39.0 million, $33.3 million, and $29.3 million
in 1994, 1993, and 1992, respectively. Consistent with the company's financial
objectives, the company expects to continue paying dividends at a rate of
approximately 20% of the previous year's net earnings.
The company's capital structure consists of equity and interest-bearing debt.
The company utilizes long-term debt minimally. Interest-bearing debt as a
percent of total capital was 6.9% at April 30, 1994, compared with 10.9% and
10.1% at April 30, 1993 and 1992, respectively. These ratios are well within the
company's financial objective of maintaining a debt-to-total capital ratio not
exceeding 30%.
<PAGE> 38
Return on equity (ROE), which compares net earnings to average shareholders'
equity, is a key measure of management's ability to utilize the shareholders'
investment in the company effectively. Achieving ROE of at least 20% per year,
one of the company's financial objectives, was again exceeded in 1994. The
company continued its strong performance with ROE of 24.5% in 1994, compared
with 24.1% in 1993 and 21.8% in 1992.
GOVERNMENT REGULATION AND OTHER MATTERS
President Clinton's Administration has introduced a health care reform bill that
would cause significant changes in health care delivery. Congress is currently
considering this bill and others, and it is generally expected that Congress
will pass a health care reform bill in some form which could affect health care
expenditures in the United States. Similar initiatives to limit the growth of
health care costs, including price regulation, are also underway in several
other countries in which the company does business. These changes are causing
the marketplace to place increased emphasis on the delivery of more
cost-effective medical therapies. Although the company believes it is well
positioned to respond to changes resulting from health care reform, the
uncertainty as to the outcome of any proposed legislation or change in the
marketplace precludes the company from predicting the impact such reform may
have on future operating results.
The number of medical devices approved by the FDA for commercial release has
decreased significantly in recent years due to more rigorous clinical evaluation
requirements, increased enforcement actions, and the enactment of the Safe
Medical Devices Act of 1990, which reflect a trend toward more stringent product
regulation by the FDA. Rigorous regulatory action may be taken in response to
deficiencies noted in inspections or to any product performance problems. The
risks in the United States of lengthened introduction times for new products and
additional expense have increased substantially. In addition, the requirements
for post-market surveillance and device tracking under the Safe Medical Devices
Act continue to increase the expense of the regulatory process.
The U.S. Health Care Financing Agency, which determines Medicare reimbursement
policy and practice, appears to be changing its practice of reimbursing
hospitals for procedures involving medical devices in clinical evaluation. Such
a change in practice is causing some hospitals to treat Medicare patients only
with medical devices that have been cleared for commercial release by the FDA.
This action will probably limit the scope of clinical trials in the United
States, force more clinical research to non-U.S. markets, and increase the cost
and time required to complete clinical evaluations in the United States.
The operations of the company, like those of other medical device companies,
involve the use of substances regulated under environmental laws, primarily in
manufacturing and sterilization processes. In addition, many of these substances
contain chlorofluorocarbons which, under federal law, must be phased out in the
mid-1990s. Medtronic believes that alternatives are available and plans to
eliminate the use of chlorofluorocarbons in compliance with such requirements.
While it is difficult to quantify the potential impact of compliance with
environmental protection laws, management believes that such compliance will not
have a material impact on the company's financial position.
The company operates in an industry susceptible to significant product liability
claims. Product liability claims may be asserted against the company in the
future relative to events not known to management at the present time. The
company has insurance coverage which management believes is adequate to protect
against any material product liability losses.
<PAGE> 39
REPORT OF MANAGEMENT
The management of Medtronic, Inc., is responsible for the integrity of the
financial information presented in the annual report. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles. Where necessary, they reflect estimates based on management's
judgment.
Management relies upon established accounting procedures and related systems of
internal control for meeting its responsibilities to maintain reliable financial
records. These systems are designed to provide reasonable assurance that assets
are safeguarded and that transactions are properly recorded and executed in
accordance with management's intentions. Internal auditors periodically review
the accounting and control systems, and these systems are revised if and when
weaknesses or deficiencies are found.
The Audit Committee of the Board of Directors, composed of directors from
outside the company, meets regularly with management, the company's internal
auditors, and its independent accountants to discuss audit scope and results,
internal control evaluations, and other accounting, reporting, and financial
matters. The independent accountants and internal auditors have access to the
Audit Committee without management's presence.
/S/ William W. George
William W. George
President and Chief Executive Officer
/S/ Arthur D. Collins, Jr.
Arthur D. Collins, Jr.
Chief Operating Officer
/S/ Robert L. Ryan
Robert L. Ryan
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of Medtronic, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings and of cash flows present fairly, in all
material respects, the financial position of Medtronic, Inc., and its
subsidiaries at April 30, 1994 and 1993, and the results of their operations and
their cash flows for each of the three years in the period ended April 30, 1994,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/ Price Waterhouse
Price Waterhouse
Minneapolis, Minnesota
May 23, 1994
<PAGE> 40
STATEMENT OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
(in thousands of dollars, except per share data) Medtronic, Inc.
Years ended April 30, 1994 1993 1992
<S> <C> <C> <C>
NET SALES $ 1,390,922 $ 1,328,208 $ 1,176,912
COSTS AND EXPENSES:
Cost of products sold 431,668 420,132 381,779
Research and development expense 156,314 132,955 109,181
Selling, general, and administrative expense 470,266 480,006 439,908
Interest expense 8,208 10,448 13,437
Interest income (8,373) (8,791) (10,311)
Gain on sale of subsidiary (13,962) -- --
Litigation settlement -- (50,000) --
Intangible asset amortization -- 18,000 --
Foundation commitment -- 12,000 --
TOTAL COSTS AND EXPENSES 1,044,121 1,014,750 933,994
EARNINGS BEFORE INCOME TAXES 346,801 313,458 242,918
PROVISION FOR INCOME TAXES 114,444 101,874 81,377
NET EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 232,357 211,584 161,541
CUMULATIVE EFFECT OF ACCOUNTING CHANGES:
Postretirement benefits (net of deferred taxes of $5,674) -- (9,256) --
Income Taxes -- (5,100) --
NET EARNINGS $ 232,357 $ 197,228 $ 161,541
WEIGHTED AVERAGE SHARES OUTSTANDING 57,404 59,416 59,606
Earnings per Share:
Earnings before cumulative effect of accounting change $ 4.05 $ 3.56 $ 2.71
Cumulative effect of accounting changes -- (0.24) --
NET EARNINGS PER SHARE $ 4.05 $ 3.32 $ 2.71
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 41
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(in thousands of dollars) Medtronic, Inc.
April 30, 1994 1993
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 108,720 $ 76,994
Short-term investments 72,694 78,984
Accounts receivable, less allowance for doubtful accounts of $20,123 and $9,456 340,927 331,248
Inventories:
Finished goods 102,163 90,046
Work in process 50,751 45,658
Raw materials 60,384 53,362
Total Inventories 213,298 189,066
Prepaid income taxes 79,809 68,404
Prepaid expenses and other current assets 30,409 36,022
TOTAL CURRENT ASSETS 845,857 780,718
PROPERTY, PLANT, AND EQUIPMENT:
Land and land improvements 16,624 15,261
Buildings and leasehold improvements 165,822 148,639
Equipment 409,050 366,854
Construction in progress 18,449 19,696
609,945 550,450
Accumulated depreciation (308,160) (267,667)
Net Property, Plant, and Equipment 301,785 282,783
GOODWILL, net of accumulated amortization of $27,842 and $21,160 279,514 109,575
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $21,042 and $17,974 87,724 29,983
OTHER ASSETS 108,372 89,421
TOTAL ASSETS $ 1,623,252 $ 1,292,480
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 58,173 $ 91,864
Accounts payable--trade 32,673 25,429
Accounts payable--other 68,492 56,747
Acquisition price payable 39,130 --
Accrued compensation 53,537 49,154
Accrued income taxes 104,894 63,414
Other accrued expenses 82,545 67,518
TOTAL CURRENT LIABILITIES 439,444 354,126
LONG-TERM DEBT 20,232 10,851
DEFERRED INCOME TAXES 15,915 5,012
OTHER LONG-TERM LIABILITIES 94,169 81,013
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock--par value $1.00; 2,500,000 shares authorized, none
outstanding
Common stock--par value $.10; 200,000,000 shares authorized,
58,128,714 and 57,819,736 shares issued and outstanding 5,813 5,782
Retained earnings 1,089,681 870,303
Cumulative translation adjustments (9,702) (1,057)
1,085,792 875,028
Receivable from Employee Stock Ownership Plan (32,300) (33,550)
TOTAL SHAREHOLDERS' EQUITY 1,053,492 841,478
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,623,252 $ 1,292,480
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 42
STATEMENT OF CONSOLIDATED CASH FLOW
<TABLE>
<CAPTION>
(in thousands of dollars) Medtronic, Inc.
Years ended April 30, 1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 232,357 $ 197,228 $ 161,541
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 78,577 69,625 59,358
Gain on sale of subsidiary, net of tax (9,424) -- --
Deferred income taxes (3,150) (11,141) (11,789)
Foreign currency transaction loss 7,511 8,115 5,766
Changes in operating assets and liabilities
excluding effects of acquisitions and divestiture:
Increase in accounts receivable (8,635) (8,736) (29,727)
Increase in inventories (8,087) (14,660) (42,725)
Decrease (increase) in prepaid expenses and other assets 8,954 (29,043) (19,795)
Increase in accounts payable and accrued liabilities 10,626 22,664 5,810
Increase in accrued income taxes 37,653 3,697 19,602
Increase in deferred income 400 20,450 96
Increase in postretirement benefit accrual 2,156 16,623 --
Increase in other long-term liabilities 7,918 16,689 3,233
NET CASH PROVIDED BY OPERATING ACTIVITIES 356,856 291,511 151,370
INVESTING ACTIVITIES
Additions to property, plant, and equipment (60,799) (77,077) (77,189)
Acquisitions, net of cash acquired (189,440) (18,668) --
Proceeds from sale of subsidiary 21,000 -- --
Repayment from Employee Stock Ownership Plan 1,250 2,400 2,050
Sales of marketable securities 92,985 12,133 27,522
Purchases of marketable securities (109,346) (72,616) (24,402)
Other investing activities (13,713) (8,958) (6,230)
NET CASH USED IN INVESTING ACTIVITIES (258,063) (162,786) (78,249)
FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings (28,285) 591 (10,750)
(Decrease) increase in long-term debt (8,199) 5,618 140
Increase in acquisition price payable 45,630 -- --
Dividends to shareholders (38,985) (33,337) (29,339)
Repurchase of common stock (53,423) (142,919) (38,299)
Issuance of common stock 16,339 17,408 17,103
NET CASH USED IN FINANCING ACTIVITIES (66,923) (152,639) (61,145)
Effect of exchange rate changes on cash and cash equivalents (144) 92 (7)
NET CHANGE IN CASH AND CASH EQUIVALENTS 31,726 (23,822) 11,969
Cash and cash equivalents at beginning of year 76,994 100,816 88,847
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 108,720 $ 76,994 $ 100,816
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 73,858 $ 110,864 $ 69,390
Interest 8,346 10,769 13,537
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars, except per share data) Medtronic, Inc.
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Medtronic, Inc.,
and all of its subsidiaries. All significant intercompany transactions and
accounts have been eliminated. Certain prior period amounts have been
reclassified to conform to the 1994 presentation.
CASH EQUIVALENTS
The company considers temporary cash investments with maturities of three months
or less from the date of purchase to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined on a
first-in, first-out basis.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation is
provided using the straight-line method over the estimated useful lives of the
various assets.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over net assets of businesses acquired,
while other intangible assets consist primarily of purchased technology and
patents. These assets are being amortized using the straight-line method over
their estimated useful lives, of which periods up to 26 years remain.
The increases in goodwill and other intangible assets during 1994 are related
primarily to the acquisitions of DLP, Inc., Electromedics, Inc., and Carbon
Implants, Inc. See Note 2 for discussion of acquisitions.
FOREIGN CURRENCY TRANSLATION
Essentially all assets and liabilities are translated to U.S. dollars at
year-end exchange rates, while elements of the income statement are translated
at average exchange rates in effect during the year. Adjustments arising from
the translation of most net assets located outside the United States are
recorded as a component of shareholders' equity.
ROYALTY INCOME
Income earned from royalty and license agreements is recorded as a reduction of
selling, general, and administrative expense.
NOTE 2--ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
On March 17, 1994, the company acquired substantially all of the assets and
liabilities of DLP, Inc., for approximately $128.3 million in cash. DLP is the
market leader in the development, manufacture, and sale of cannula products used
in heart surgery.
On April 25, 1994, the company acquired all of the outstanding shares of
Electromedics, Inc., for approximately $95.3 million. The purchase price
consisted of approximately $39.1 million payable in cash and approximately
778,000 shares of the company's common stock valued at $56.2 million.
Electromedics designs, manufactures, and markets blood management and blood
conservation equipment for use in autotransfusion during major medical
procedures.
On April 29, 1994, the company acquired all of the remaining outstanding common
stock of Carbon Implants, Inc., an innovator in the design and manufacturing of
implantable prosthetic heart valves. The total purchase price was approximately
$34.6 million.
The acquisitions of DLP, Electromedics, and Carbon Implants were accounted for
as purchases. Accordingly, the results of operations of the acquired entities
have been included in the company's consolidated financial statements since the
respective dates of acquisition. Acquired goodwill, patents, trademarks, and
other intangible assets associated with these acquisitions are being amortized
using the straight-line method over periods ranging from 8 to 25 years.
The following unaudited pro forma information has been prepared assuming that
the acquisitions of DLP, Electromedics, and Carbon Implants had occurred at the
beginning of the periods presented. Permitted pro forma adjustments include only
the effects of events directly attributable to a transaction that are factually
supportable and expected to have a continuing impact, such as: amortization of
intangibles, decreased net interest income on cash paid, income tax effects, and
increased outstanding shares of common stock. Pro forma adjustments reflecting
anticipated "efficiencies" in operations resulting from a transaction are not
permitted. As a result of the limitations imposed with regard to the types of
permitted pro forma adjustments, Medtronic believes that this unaudited pro
forma information is not indicative of future results of operations, nor the
results of historical operations had the acquisitions been consummated as of the
assumed dates.
(Unaudited)
Years ended April 30, 1994 1993
Net Sales $1,464,001 $ 1,400,314
Net Earnings $ 225,172 $ 204,036*
Net Earnings per Share $ 3.87 $ 3.39*
Average Shares Outstanding 58,205 60,159
* Net earnings and net earnings per share for 1993 exclude the cumulative effect
of accounting changes (Notes 8 and 9).
In May 1992, the company acquired all of the outstanding capital stock of
CardioRhythm, a manufacturer of electrophysiological catheters used for the
diagnosis and treatment of cardiac arrhythmias. The initial price paid of $20.0
million was accounted for as a purchase and the results of operations have been
included in the company's consolidated financial statements since the date of
acquisition. In 1994, the company made additional payments of $6.5 million to
settle substantially all remaining obligations existing at the acquisition date.
These payments were recorded as additions to the initial price of the
acquisition.
<PAGE> 44
(in thousands of dollars, except per share data) Medtronic, Inc.
DIVESTITURES
In July 1993, the company sold substantially all the assets of its Andover
Medical, Inc., subsidiary for $21.0 million, recognizing a pretax gain of $14.0
million. Andover Medical developed, manufactured, and marketed external
electrodes used primarily with electrical nerve stimulation and neuromuscular
stimulation devices. Exclusive of the gain recognized, this transaction did not
have a significant impact on the company's operating results.
In November 1992, the company sold substantially all the assets of its Nortech
business, excluding accounts receivable. Nortech developed, manufactured, and
marketed transcutaneous electrical nerve stimulation and neuromuscular
stimulation devices for pain control and muscle rehabilitation. During 1993,
intangible asset amortization of $18.0 million was recorded, a significant
portion of which related to the Nortech business.
In February 1993, the company sold all the assets of its CardioCare division.
CardioCare was in the business of telephonic pacemaker monitoring. This
transaction did not have a significant impact on the company's operating
results.
NOTE 3--FINANCIAL INSTRUMENTS
FOREIGN CURRENCY INSTRUMENTS
A significant portion of the company's cash flows are derived from sales
denominated in foreign currencies. To the extent the U.S. dollar value of sales
denominated in foreign currencies is diminished as a result of a strengthening
dollar, the company's ability to fund dollar-based strategic initiatives at a
consistent level may be impaired. To minimize the impact of foreign exchange
rate movements on sales denominated in foreign currencies, the company enters
into forward exchange and option contracts. The company's hedging activities do
not subject it to exchange rate risk as gains and losses on these financial
instruments offset gains and losses on the assets, liabilities, and transactions
being hedged.
The company had contracts to exchange foreign currencies, principally the
Japanese Yen and German Deutschemark, for U.S. dollars as follows:
April 30, 1994 1993
Forward exchange contracts $ 371,672 $112,746
Foreign currency put options 66,875 131,086
These option and forward exchange contracts, which typically expire within one
year, are designed to hedge anticipated foreign currency transactions. Such
transactions, primarily export intercompany sales, are probable but not firmly
committed. The carrying amounts of forward contracts are adjusted at each
balance sheet date for changes in exchange rates. The aggregate losses on
forward contracts of $12,869 and $11,959 in 1994 and 1993, respectively, were
offset by gains on the assets, liabilities, and transactions being hedged.
Unrealized gains and losses on options that are designated and effective as
hedges on such transactions are deferred and recognized in income in the same
period as the hedged transaction.
OTHER FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the company's significant
financial instruments were as follows:
April 30, 1994 1993
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
ASSETS
Cash and short-term
investments $181,414 $181,414 $155,978 $155,978
Long-term investments 91,177 106,655 57,533 79,983
Purchased options 907 210 5,454 11,977
LIABILITIES
Short-term borrowings 55,406 55,406 86,115 86,115
Long-term debt 22,999 23,748 16,600 16,956
Forward exchange
contracts 12,205 12,205 6,030 6,030
Fair values of short-term financial instruments approximate their carrying
values due to their short maturity. The fair values of certain long-term
investments are based on quoted market prices for those or similar investments.
For long-term investments which have no quoted market prices, a reasonable
estimate of fair value was made using available market information and
appropriate valuation techniques. The fair value of long-term debt is based on
the current rates offered to the company for debt of similar maturities. The
estimates presented above on long-term financial instruments are not necessarily
indicative of the amounts that would be realized in a current market exchange.
The fair value of foreign currency contracts were estimated based on quoted
market prices at April 30, 1994 and 1993.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires certain debt
and equity securities to be accounted for based on their fair value. The company
must adopt SFAS No. 115 in 1995, however, adoption of SFAS 115 is not expected
to have a material impact on the company's financial position.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the company to significant
concentrations of credit risk, consist principally of cash investments, foreign
currency exchange contracts, and trade accounts receivable.
The company maintains cash and cash equivalents, investments, and certain other
financial instruments with various major financial institutions. The company
performs periodic evaluations of the relative credit standing of these financial
institutions and limits the amount of credit exposure with any financial
institution.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across many
geographic areas. However, a significant amount of trade receivables are with
national health care systems in several countries within the European Economic
Community. Although the company does not currently foresee a credit risk
associated with these receivables, repayment is dependent upon the financial
stability of those countries' national economies.
<PAGE> 45
(in thousands of dollars, except per share data) Medtronic, Inc.
NOTE 4--DEBT
SHORT-TERM
Short-term borrowings consist primarily of U.S. bank borrowings used to finance
recent acquisition activity (see Note 2 to consolidated financial statements)
and company stock repurchases and non-U.S. bank borrowings used for foreign
exchange purposes. Short-term borrowings and current maturities of long-term
debt amounted to $58,173 and $91,864 at April 30, 1994 and 1993, respectively.
The average interest rate of short-term borrowings was 5.1% and 5.3% at April
30, 1994 and 1993, respectively.
The company has existing lines of credit of $426,000 with various banks, of
which $370,594 was unused at April 30, 1994. There are no compensating balance
requirements.
LONG-TERM
Long-term debt consisted of the following:
April 30, 1994 1993
Various notes, maturing through 2007
(5.2% - 9.9%) $18,869 $ 7,564
Industrial Development
Serial Revenue bonds 7.4% -- 4,170
Capitalized lease obligations 4,130 4,866
22,999 16,600
Less current maturities (included in
short-term borrowings) 2,767 5,749
Total long-term debt $20,232 $10,851
Aggregate maturities of the various notes are $2,088 in 1995, $2,006 in 1996,
$3,117 in 1997, $3,232 in 1998, $2,928 in 1999, and $5,498 thereafter.
NOTE 5--SHAREHOLDERS' EQUITY
Changes in shareholders' equity accounts were as follows:
Cumulative Receivable
Common Retained Translation from
Stock Earnings Adjustments ESOP
Balance, April 30, 1991 5,953 713,156 2,057 (38,000)
Net earnings 161,541
Dividends paid (29,339)
Issuance of common stock
under employee benefit
and incentive plans 43 13,270
Repurchase of common stock (53) (38,246)
Income tax benefit from
restricted stock and
nonstatutory stock options 3,790
Translation adjustments 233
Repayment from ESOP 2,050
Balance, April 30, 1992 5,943 824,172 2,290 (35,950)
Net earnings 197,228
Dividends paid (33,337)
Issuance of common stock
under employee benefit
and incentive plans 53 17,355
Repurchase of common stock (214) (142,705)
Income tax benefit from
restricted stock and
nonstatutory stock options 7,590
Translation adjustments (3,347)
Repayment from ESOP 2,400
Balance, April 30, 1993 $5,782 $870,303 $(1,057) $(33,550)
Net earnings 232,357
Dividends paid (38,985)
Issuance of common stock
under employee benefit
and incentive plans 39 16,300
Issuance of common stock in
acquisition of subsidiary 78 56,099
Repurchase of common stock (86) (53,337)
Income tax benefit from
restricted stock and
nonstatutory stock options 6,944
Translation adjustments (8,645)
Repayment from ESOP 1,250
Balance, April 30, 1994 $5,813 $1,089,681 $(9,702) $(32,300)
At April 30, 1994, Board of Directors' authorization existed to repurchase
approximately 1.5 million shares of the company's common stock.
A shareholder rights plan exists which provides for a dividend distribution of
one right to be attached to each share of common stock to shareholders of record
on July 10, 1991. The rights are currently not exercisable or transferable apart
from the common stock. The basic right entitles the holder to purchase one
two-hundredth of a share of a new series of participating preferred stock, which
is substantially equivalent to one share of common stock, at an exercise price
of $300 per share. These rights would become exercisable if a person or group
acquires 15% or more of the company's common stock or announces a tender offer
which would increase the person's or group's beneficial ownership to 15% or more
of the company's common stock, subject to certain exceptions. After the rights
become exercisable, each right entitles the holder, instead, to purchase common
stock having a market value of two times the exercise price. If the company is
acquired in a merger or other business combination transaction, each exercisable
right entitles the holder to purchase common stock of the acquiring company
having a market value of two times the exercise price of the right. In certain
events the Board of Directors may exchange rights for common stock or equivalent
securities having a market price equal to the exercise price of the rights. Each
right is redeemable at $0.005 any time before a person or group triggers the 15%
ownership threshold. The rights expire on July 10, 2001.
<PAGE> 46
(in thousands of dollars, except per share data) Medtronic, Inc.
NOTE 6--EMPLOYEE STOCK OWNERSHIP PLAN
The company has an Employee Stock Ownership Plan (ESOP) for eligible U.S.
employees. In December 1989, the ESOP borrowed $40,000 from the company and used
the proceeds to purchase 1,183,308 shares of the company's common stock. The
company makes annual contributions to the plan which are used, in part, by the
ESOP to make loan and interest payments. Expenses related to the ESOP are based
on debt service requirements less any dividends received by the ESOP on the
company's common stock. This amount is further adjusted by any additional
company contribution necessary to meet an annual targeted benefit level.
Compensation and interest expense recognized were as follows:
Years ended April 30, 1994 1993 1992
Interest expense $3,020 $3,235 $3,420
Dividends paid 811 667 583
Net interest expense 2,209 2,568 2,837
Compensation expense 3,588 4,802 2,497
Total expense $5,797 $7,370 $5,334
Shares of common stock acquired by the plan are allocated to each employee in
amounts based on company performance and the employee's annual compensation.
Allocated shares were 271,563 and 188,103 at April 30, 1994 and 1993,
respectively. Unallocated shares were 858,528 and 920,799 at April 30, 1994 and
1993, respectively. Unallocated shares are released based on the ratio of
current debt service to total remaining debt. The loan from the company to the
ESOP is repayable over 20 years, ending on April 30, 2010. Interest is payable
annually at a rate of 9.0%. The receivable from the ESOP is recorded as a
reduction of the company's shareholders' equity and allocated and unallocated
shares of the ESOP are treated as outstanding common stock in the computation of
earnings per share.
NOTE 7--STOCK PURCHASE, OPTION, AND AWARD PLANS
The company has a stock purchase plan, nonqualified and incentive stock option
plans, a restricted and performance share award plan, and a plan to allow
non-employee directors to receive restricted stock in payment of their annual
retainer. Issuance of the aggregate outstanding grants available under these
plans would not have a material dilutive effect on reported earnings per share.
STOCK PURCHASE PLAN
The stock purchase plan enables employees to contribute up to 10% of their wages
toward purchase of the company's common stock at 85% of the market value.
Employees purchased 170,019 shares at $63.01 per share in 1994. At April 30,
1994, plan participants have indicated they will purchase shares worth
approximately $8,563 at a price of $63.44 per share, or 85% of the market value
of the company's common stock at October 31, 1994, whichever is less.
STOCK OPTION PLANS
Options under a nonqualified stock option plan are granted to officers and key
employees at prices not less than market value at the date of grant. There were
339,981 shares available under this plan for future grants at April 30, 1994. No
future grants will be made under this plan, if the shareholders approve the 1994
stock award plan described below.
A summary of option transactions in 1994 follows:
Option Price
Range Per Number of Expiration
Share Shares Date
NONQUALIFIED OPTIONS
Outstanding at beginning
of year $ 6.69-$98.00 1,271,475 1994-2003
Granted 62.13- 84.38 521,931 2003-2004
Exercised 6.69- 74.38 (171,347) 1994-2001
Cancelled 30.13- 98.00 (29,144) 1999-2003
Outstanding at end of year 6.69- 98.00 1,592,915 1994-2004
Exercisable at end of year 6.69- 98.00 840,956 1994-2003
Nonqualified options are generally exercisable beginning one year from the date
of grant in cumulative yearly amounts of one-fourth of the shares under option.
RESTRICTED STOCK AND PERFORMANCE SHARE AWARD PLAN
The restricted stock and performance share award plan provides for issuance of
common stock to company officers and key employees. Awards are dependent upon
continued employment and, in the case of performance shares, achievement of
certain performance objectives. In 1994, 83,100 restricted shares were issued
and 46,541 performance shares were awarded. At April 30, 1994, total restricted
shares outstanding were 374,108 and total performance share grants outstanding
were 116,999. The actual number of performance shares awarded may vary from the
number of shares granted depending on the degree to which the performance
objectives are met. The cost of the restricted stock is generally expensed over
five years from the date of issuance ($4,205 in 1994, $3,763 in 1993, and $2,487
in 1992). The estimated cost of the performance shares is expensed over three
years from the date of grant ($3,131 in 1994, $3,387 in 1993, and $4,999 in
1992). There were no shares of common stock available for future grants under
this plan at April 30, 1994. No future grants will be made under this plan, if
the shareholders approve the 1994 stock award plan described below.
1994 STOCK AWARD PLAN
The Board of Directors approved the 1994 stock award plan, effective April 29,
1994, to replace the existing stock option, stock award, and non-employee
director restricted stock plans and incorporate requirements necessary to comply
with new federal tax law requirements for the deductibility of executive
compensation. The stock award plan provides for the grant of nonqualified and
incentive stock options, stock appreciation rights, performance shares,
restricted stock in lieu of the annual retainer to non-employee directors, and
other stock-based awards.
In addition to the shares issued and outstanding under each of the individual
stock option and award plans, the following awards were granted on April 29,
1994, and were outstanding as of April 30, 1994, under the new stock award
<PAGE> 47
(in thousands of dollars, except per share data) Medtronic, Inc.
plan: Performance share awards for up to 44,924 shares, assuming maximum
performance payout for the three-year performance cycle ending April 30, 1997;
restricted stock awards of 1,056 shares; and nonqualified options of 6,287
shares. The 1994 grants under the stock award plan are contingent upon approval
of the plan by the shareholders. Assuming shareholder approval of the stock
award plan, there were 2,747,733 shares available under this plan for future
grants at April 30, 1994.
NOTE 8--INCOME TAXES
The company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. (SFAS) 109 which was adopted in 1993 on a prospective
basis. The asset and liability approach used in SFAS 109 requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of other assets and liabilities. Adoption of SFAS 109 resulted in a
one-time charge to earnings of $5,100, which primarily represents the impact of
adjusting net deferred tax assets to reflect current tax rates as opposed to
overall higher tax rates in effect when the net deferred tax assets originated.
The provision for income taxes is based on earnings before income taxes reported
for financial statement purposes. The components of earnings before income taxes
were:
Years ended April 30, 1994 1993 1992
United States $279,220 $275,047 $212,396
Non-U.S. 67,581 38,411 30,522
Earnings before income taxes $346,801 $313,458 $242,918
The provision for income taxes consisted of:
Years ended April 30, 1994 1993 1992
Taxes currently payable:
U.S. federal $ 64,840 $ 70,402 $56,864
U.S. state and other 21,268 18,919 14,944
Non-U.S. 29,859 26,039 21,395
Total currently payable 115,967 115,360 93,203
Deferred tax expense (benefit):
U.S. federal (7,049) (17,129) (8,084)
U.S. state and other (2,459) 397 876
Non-U.S. 1,539 (7,257) (4,618)
Net deferred tax benefit (7,969) (23,989) (11,826)
Tax expense credited directly to
shareholders' equity 6,446 10,503 --
Total provision $114,444 $ 101,874 $81,377
Deferred tax assets (liabilities) were comprised of the following:
April 30, 1994 1993
Deferred tax assets:
Inventory (Intercompany profit in inventory
and excess of tax over book valuation) $56,375 $48,579
Deferred income 5,250 10,841
Accrued liabilities 40,133 29,416
Other 10,594 10,306
Total deferred tax assets 112,352 99,142
April 30, 1994 1993
Deferred tax liabilities:
Intangible assets (17,823) (10,582)
Undistributed earnings of
subsidiaries (8,846) (10,521)
Accumulated depreciation (14,819) (14,519)
Other (6,970) (128)
Total deferred tax liabilities (48,458) (35,750)
Net deferred tax assets $ 63,894 $63,392
The company's effective income tax rate varied from the U.S. federal statutory
tax rate as follows:
Years ended April 30, 1994 1993 1992
U.S. federal statutory tax rate 35.0% 34.0% 34.0%
Increase (decrease) in tax rate
resulting from:
U.S. state taxes, net of federal
tax benefit 2.5 2.7 2.7
Tax benefits from operations in
Puerto Rico (8.2) (8.5) (8.5)
Non-U.S. taxes 1.7 1.9 2.7
Nondeductible expenses (primarily
amortization) 2.1 2.5 2.1
Other, net (.1) (.1) .5
Effective tax rate 33.0% 32.5% 33.5%
Taxes are provided on undistributed earnings of non-U.S. and Puerto Rican
subsidiaries to the extent such earnings are not permanently reinvested. Current
U.S. tax regulations provide that earnings of the company's manufacturing
subsidiaries in Puerto Rico may be repatriated tax free; however, the
Commonwealth of Puerto Rico will assess a tax of up to 10% in the event of
repatriation of earnings prior to liquidation. The company has provided for the
anticipated tax attributable to earnings intended for dividend repatriation. At
April 30, 1994, earnings permanently reinvested in subsidiaries outside the
United States were $108,491. It is not practical to estimate the amount of taxes
that might be payable on these foreign earnings.
At April 30, 1994, approximately $9,317 of non-U.S. tax losses were available
for carryforward. These carryforwards generally expire within a period of one to
five years.
NOTE 9--RETIREMENT BENEFIT PLANS
The company has various retirement benefit plans covering substantially all U.S.
employees and many employees outside the United States. The cost of these plans
was $20,208 in 1994, $17,611 in 1993, and $12,007 in 1992.
DEFINED BENEFIT PLAN (UNITED STATES)
In the United States, the company maintains a pension plan designed to provide
guaranteed minimum retirement benefits to substantially all U.S. employees. Plan
benefits are calculated using a combination of years of service, final average
earnings, primary social security benefits, and age. It is the company's policy
to fund retirement costs within the limits of allowable tax deductions. The net
prepaid pension cost was caused by maximum funding during the last several
years. Contributions to the plan were $5,075,
<PAGE> 48
(in thousands of dollars, except per share data) Medtronic, Inc.
$2,871, and $7,520 in 1994, 1993, and 1992, respectively. Plan assets consist of
a diversified portfolio of fixed-income investments, equity securities, and cash
equivalents. Plan assets include investments in the company's common stock of
$6,020 and $5,230 at April 30, 1994 and 1993, respectively.
Net pension cost for the U.S. plan included the following components:
Years ended April 30, 1994 1993 1992
Service cost--benefits earned during
the year $5,795 $ 4,370 $3,170
Interest cost on projected benefit
obligation 5,222 4,013 3,410
Return on assets (7,218) (7,556) (6,829)
Net amortization and deferral 819 2,009 1,976
Net pension cost $4,618 $ 2,836 $1,727
The funded status of the U.S. plan was as follows:
April 30, 1994 1993
Actuarial present value of benefit obligation:
Vested benefits $(45,787) $(32,105)
Nonvested benefits (5,741) (3,419)
Accumulated benefit obligation (51,528) (35,524)
Excess of projected benefit obligation
over accumulated benefit obligation (23,181) (19,577)
Projected benefit obligation (74,709) (55,101)
Plan assets at fair value 73,160 65,568
Plan assets (less than) in excess of
projected benefit obligation (1,549) 10,467
Unrecognized May 1, 1986, net asset (2,833) (4,033)
Unrecognized net actuarial loss (gain) 8,130 (969)
Unrecognized prior service cost 1,615 1,854
Net prepaid pension cost $ 5,363 $ 7,319
The actuarial assumptions were as follows:
Years ended April, 30 1994 1993 1992
Discount rate 7.5% 8.5% 9.0%
Expected long-term return on assets 9.0% 9.0% 9.0%
Average increase in compensation 5.5% 6.0% 6.0%
DEFINED BENEFIT PLANS (NON-U.S.)
Retirement coverage for non-U.S. employees of the company is provided, to the
extent deemed appropriate, through separate plans. Funding policies are based on
local statutes. Retirement benefits are based on years of service, final average
earnings, and social security benefits.
Net pension cost for the non-U.S. plans included the following components:
Years ended April 30, 1994 1993 1992
Service cost--benefits earned
during the year $1,374 $1,840 $1,132
Interest cost on projected
benefit obligation 268 249 206
Return on assets (26) (19) (37)
Net amortization and deferral 49 (17) 9
Net pension cost $1,665 $2,053 $1,310
In certain countries, the funding of pension plans is not a common practice as
funding provides no economic benefit. Consequently, the company has pension
plans which are underfunded. The following table sets forth the funded status of
the non-U.S. plans:
April 30, 1994 1993
Actuarial present value of benefit obligation:
Vested benefits $(6,485) $(6,282)
Nonvested benefits (581) (782)
Accumulated benefit obligation (7,066) (7,064)
Excess of projected benefit obligation over
accumulated benefit obligation (1,133) (932)
Projected benefit obligation (8,199) (7,996)
Plan assets at fair value 555 608
Projected benefit obligation in excess of
plan assets (7,644) (7,388)
Unrecognized May 1, 1989, net obligation 98 242
Unrecognized net actuarial loss 914 251
Net accrued pension liability $(6,632) $(6,895)
The range of assumptions for the non-U.S. plans, reflecting the different
economic environments within the various countries, were as follows:
Years ended April 30, 1994 1993 1992
Discount rate 6.5%-8.5% 8.5% 8.5%-9.0%
Expected long-term return on assets 8.5% 8.5% 9.0%
Average increase in compensation 4.5% 5.5% 5.5%-6.0%
DEFINED CONTRIBUTION PLANS
The company has defined contribution savings plans that cover substantially all
U.S. employees and certain non-U.S. employees. The purpose of these plans is
generally to provide additional financial security during retirement by
providing employees with an incentive to make regular savings. Company
contributions to the plans are based on employee contributions and company
performance. Expense under the plans was $10,402 in 1994, $9,453 in 1993, and
$8,072 in 1992.
RETIREE HEALTH CARE BENEFITS
U.S. employees of the company are currently eligible to receive specified
company-paid health care and life insurance benefits during retirement based on
their age and years of service. The health care benefits include cost-sharing
features based on years of service and retirement age. The life insurance plans
require minimum retiree contributions.
The company adopted Statement of Financial Accounting Standards No. (SFAS) 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," for
U.S. plans in 1993. SFAS 106 requires the company to recognize expense as
employees earn these postretirement benefits, rather than on the cash basis. The
company chose to immediately recognize the transition obligation, which is the
cost of postretirement benefits earned as of May 1, 1992, by employees and
retirees. This resulted in a one-time charge in 1993 of $14,930, which was
recorded net of $5,674 in deferred income taxes.
<PAGE> 49
(in thousands of dollars, except per share data) Medtronic, Inc.
The net postretirement benefit cost of these U.S. plans, exclusive of the
transition obligation in 1993, included the following components:
Years ended April 30, 1994 1993
Service cost--benefits earned during the year $1,049 $ 785
Interest cost on accumulated benefit obligation 1,440 1,254
Net amortization and deferral (243) --
Postretirement benefit cost $2,246 $2,039
The company's policy has been to fund the cost of these benefits as they are
paid. The funded status of the U.S. plans at April 30, 1994 and 1993, was as
follows:
Years ended April 30, 1994 1993
Actuarial present value of postretirement
benefit obligation:
Retirees $ 5,787 $ 4,674
Other fully eligible participants 4,769 3,287
Other active plan participants 11,752 8,861
Unrecognized net loss (3,330) --
Accrued postretirement benefit cost $18,978 $16,822
Actuarial assumptions included a discount rate of 7.5% in 1994 and 8.5% in 1993,
and an assumed rate of increase in health care costs, also known as the health
care cost trend rate, of 12% for 1994 and 1993. This trend rate is assumed to
decrease gradually to 6% by 2003. Based on current estimates, increasing the
health care cost trend rate by one percentage point each year would increase the
accumulated postretirement benefit obligation by $1,977 and the postretirement
benefit cost by $279.
The company must adopt SFAS 106 for non-U.S. plans by 1996. However, management
does not believe adoption of SFAS 106 for these plans will have a material
impact on the company's financial position.
POSTEMPLOYMENT BENEFITS
During 1994, the company adopted Statement of Financial Accounting Standards
(SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No.
112 requires the company to recognize expense as employees earn postemployment
benefits or when an event, such as a disability, triggers postemployment
benefits, rather than on the cash basis. Adoption of SFAS No. 112 had an
insignificant impact on the 1994 operating results.
NOTE 10--LEASES
The company leases offices, manufacturing and research facilities, and
warehouses, as well as transportation, data processing, and other equipment,
under capital and operating leases. A substantial number of these leases contain
options that allow the company to renew at the then fair rental value.
Future minimum payments under capitalized leases and noncancellable operating
leases at April 30, 1994, were:
Capitalized Operating
Leases Leases
1995 $ 678 $16,962
1996 391 13,381
1997 238 10,505
1998 211 7,694
1999 101 6,725
2000 and thereafter 2,511 4,280
Total minimum lease payments 4,130 $59,547
Less amounts representing interest 2,405
Present value of net minimum lease
payments $ 1,725
Rent expense for all operating leases was $18,510 in 1994, $21,555 in 1993, and
$16,893 in 1992.
NOTE 11--LITIGATION SETTLEMENT
In September 1992, the company and Siemens AG settled all ongoing patent
litigation between the companies and cross-licensed all existing patents
covering cardiac stimulation devices. Siemens made an initial payment of $50.0
million to Medtronic and will make ongoing royalty payments for approximately 10
years based on Siemens' worldwide sales of all cardiac stimulation devices.
Medtronic will pay no royalties for the cross-license received from Siemens. In
addition to the initial payment, which was recognized as income in 1993, Siemens
made a $25.0 million contingent prepayment against future royalties. The
prepayment is being recognized as income when earned.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The company is involved in litigation and disputes which are normal to its
business. Management believes losses that might eventually be sustained from
such litigation and disputes would not be material to future years. Further,
product liability claims may be asserted in the future relative to events not
known to management at the present time. The company has insurance coverage
which management believes is adequate to protect against such product liability
losses as could materially affect the company's financial position.
The Medtronic Foundation, funded entirely by the company, was established to
maintain good corporate citizenship in its communities. In 1993, the company
made a commitment to contribute $12,000 over a five-year period ending September
30, 1997. At April 30, 1994, the remaining balance of this commitment was
$11,365. Commitments to the Medtronic Foundation are expensed when authorized
and approved by the company's Board of Directors.
<PAGE> 50
(in thousands of dollars, except per share data) Medtronic, Inc.
NOTE 13--QUARTERLY FINANCIAL DATA
(UNAUDITED, IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
Net Sales
1994 $331.3 $332.1 $334.6 $393.0 $1,390.9
1993 329.9 331.8 308.2 358.2 1,328.2
Gross Profit
1994 230.0 227.5 231.4 270.4 959.2
1993 225.3 226.7 210.7 245.4 908.1
Net Earnings before
Cumulative Effects
1994 52.5 56.2 56.9 66.7 232.4
1993 45.6 60.2 47.8 58.0 211.6
Net Earnings
1994 52.5 56.2 56.9 66.7 232.4
1993 31.2 60.2 47.8 58.0 197.2
Earnings per Share:
Before Cumulative
Effects
1994 .91 .98 .99 1.16 4.05
1993 .77 1.01 .80 .98 3.56
Net Earnings
1994 .91 .98 .99 1.16 4.05
1993 .53 1.01 .80 .98 3.32
Quarterly and annual earnings per share are calculated independently based on
the weighted average number of shares outstanding during the period.
In the first quarter of 1994, the company sold substantially all the assets of
its Andover Medical, Inc., subsidiary for $21.0 million, recognizing a pretax
gain of $14.0 million. The first quarter was also affected by $14.3 million of
charges which primarily relate to the impact of adoption of a new accounting
principle and a provision for potentially uncollectible trade and other
receivables.
In the second quarter of 1993, the company settled all ongoing patent litigation
with Siemens and recognized income of $50.0 million. In addition, the company
recorded a commitment to the Medtronic Foundation of $12.0 million and
accelerated intangible asset amortization of $18.0 million. For further
information, see Notes 2, 11, and 12 to the consolidated financial statements.
NOTE 14--SEGMENT REPORTING
The company operates in a single industry segment--providing medical products
and services. Its business is segmented into three geographic areas--the United
States, Europe, and other international markets. The geographic areas are, to a
significant degree, interdependent with respect to research, product supply, and
business expertise. Sales between geographic areas are made at prices which
would approximate transfers to unaffiliated distributors. In the presentation
below, the profit derived from such transfers is attributed to the area in which
the sale to the unaffiliated customer is eventually made. Because of the inter
dependence of the geographic areas, the operating profit as presented may not be
representative of the geographic distribution which would occur if the areas
were not interdependent.
GEOGRAPHIC AREA INFORMATION
United Other Elimi- Consoli-
States Europe Int'l nations dated
1994
Sales to unaffiliated
customers $800,391 $386,009 $204,522 $ -- $1,390,922
Intergeographic
sales 163,905 18,710 309 (182,924) --
Total sales 964,296 404,719 204,831(182,924) 1,390,922
Operating
profit 210,445 53,512 67,566 -- 331,523
Nonoperating
income 15,278
Earnings before
income taxes 346,801
Identifiable
assets 1,103,222 276,047 128,851 (94,858) 1,413,262
Corporate assets 209,990
Total assets $1,623,252
1993
Sales to unaffiliated
customers $770,655 $392,894 $164,659 $ -- $1,328,208
Intergeographic
sales 142,750 19,370 125 (162,245) --
Total sales 913,405 412,264 164,784 (162,245)1,328,208
Operating
profit 258,170 62,269 46,679 -- 367,118
Nonoperating
expense (53,660)
Earnings before
income taxes 313,458
Identifiable
assets 818,898 287,048 101,125 (82,541) 1,124,530
Corporate assets 167,950
Total assets $1,292,480
1992
Sales to unaffiliated
customers $698,548 $336,792 $141,572 $ -- $1,176,912
Intergeographic
sales 133,517 26,223 297(160,037) --
Total sales 832,065 363,015 141,869 (160,037)1,176,912
Operating
profit 186,154 55,758 40,047 -- 281,959
Nonoperating
expense (39,041)
Earnings before
income taxes 242,918
Identifiable
assets 733,156 278,836 85,870 (54,406) 1,043,456
Corporate assets 120,000
Total assets $1,163,456
Nonoperating expense includes interest income, interest expense, currency
exchange gains and losses, and certain corporate general and administrative
expenses. Intergeographic sales and the intergeographic profit remaining in
ending inventories are the principal items reflected as eliminations.
<PAGE> 51
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in millions of dollars, except per share data) Medtronic, Inc.
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
OPERATING RESULTS FOR THE YEAR:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,390.9 $1,328.2 $1,176.9$1,021.4 $865.9 $765.8 $669.9 $515.4 $411.5 $370.4 $390.8
Cost of products sold 431.7 420.1 381.8 331.7 281.7 248.5 217.4 176.9 154.5 140.6 144.8
Research and development expense 156.3 133.0 109.2 89.5 81.5 67.7 55.1 43.6 40.1 39.5 35.6
Selling, general, and administrative
expense 456.3* 460.0* 439.9 399.9* 331.3* 291.9* 267.2 187.7 132.6* 142.6 138.5
Interest expense 8.2 10.4 13.4 13.8 10.1 8.4 5.9 4.3 4.4 3.6 3.0
Interest income (8.4) (8.8) (10.3) (9.7) (6.2) (5.6) (7.1) (7.2) (12.5) (13.4) (10.7)
Earnings from continuing operations
before income taxes 346.8 313.5 242.9 196.2 167.5 155.0 131.4 110.2 92.3 57.6 79.6
Provision for income taxes 114.4 101.9 81.4 62.9 54.6 54.7 44.8 34.8 24.3 5.8 19.0
Earnings from continuing
operations 232.4 211.6 161.5 133.4 112.9 100.3 86.6 75.3 68.0 51.8 60.6
Discontinued operations
and cumulative
effect of accounting
changes (net) -- (14.4) -- -- -- -- -- -- (14.0) (13.7) (.9)
Net earnings 232.4 197.2 161.5 133.4 112.9 100.3 86.6 75.3 54.0 38.1 59.7
Net earnings as a percent
of net sales 16.7% 14.8% 13.7% 13.1% 13.0% 13.1% 12.9% 14.6% 13.1% 10.3% 15.3%
Net earnings as a percent of average
shareholders' equity 24.5% 24.1% 21.8% 21.4% 21.3% 22.2% 21.2% 19.8% 15.5% 11.2% 18.7%
Per share of common stock:
Earnings from continuing operations
before cumulative effects of
accounting changes 4.05 3.56 2.71 2.25 1.92 1.73 1.46 1.25 1.09 .79 .88
Net earnings 4.05 3.32 2.71 2.25 1.92 1.73 1.46 1.25 .86 .58 .87
Cash dividends declared .68 .56 .48 .41 .35 .30 .26 .22 .20 .19 .18
Gross margin percentage 69.0% 68.4% 67.6% 67.5% 67.5% 67.6% 67.5% 65.7% 62.4% 62.1% 63.0%
FINANCIAL POSITION AT APRIL 30:
Working capital $ 406.4 $ 426.6$ 387.3$ 320.1 $240.4 $206.1 $244.6 $250.2 $227.8 $221.7 $208.4
Current ratio 1.9:1 2.2:1 2.3:1 2.1:1 1.9:1 1.9:1 2.3:1 3.0:1 2.7:1 3.3:1 3.6:1
Property, plant, and
equipment, net 301.8 282.8 256.8 217.2 183.6 157.2 134.6 121.1 113.7 113.1 108.5
Total assets 1,623.3 1,292.5 1,163.5 1,024.1 885.3 783.0 661.3 580.0 540.9 473.2 460.8
Long-term debt 20.2 10.9 8.6 7.9 8.0 8.2 11.1 7.6 13.8 9.4 10.2
Long-term debt as a percent of
shareholders' equity 1.9% 1.3% 1.1% 1.2% 1.4% 1.7% 2.7% 1.9% 3.8% 2.8% 3.0%
Shareholders' equity 1,053.5 841.5 796.5 683.2 565.2 492.7 412.0 403.1 358.9 338.1 345.0
Shareholders' equity
per common share 18.12 14.55 13.40 11.48 9.59 8.47 6.88 6.42 5.65 5.09 4.87
ADDITIONAL INFORMATION:
Expenditures for property, plant, and
equipment $86.0 $87.4 $83.2 $73.7 $59.3 $57.4 $39.1 $28.5 $17.6 $29.7 $28.1
Full-time employees at year-end 8,709 8,334 8,314 7,560 7,030 6,529 5,939 5,156 4,964 5,046 5,315
Full-time equivalent employees
at year-end 9,856 9,247 9,392 8,470 7,717 7,152 6,471 5,587 5,329 5,362 5,590
</TABLE>
*Certain unusual costs and income from litigation settlements are included in
selling, general, and administrative expense.
<PAGE> 52
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting of Medtronic shareholders will take place on Wednesday,
August 31, 1994, beginning at 10:00 a.m. at the Corporate Center, 7000 Central
Avenue, NE, Minneapolis, Minnesota. The Notice of Annual Meeting and Proxy
Statement are mailed to shareholders with the annual report.
INVESTOR INFORMATION
Shareholders, securities analysts, and investors seeking additional information
about the company should call Investor Relations at 612-574-3035.
The following information may be obtained upon request from the Medtronic
Investor Relations Department, 7000 Central Avenue, NE, Minneapolis, Minnesota
55432, USA:
* News releases describing significant company events and sales and earnings
results for each quarter and the fiscal year.
* Form 10-K Annual and Form 10-Q Quarterly Reports to the Securities and
Exchange Commission detailing Medtronic's business and financial condition.
As part of continuing efforts to reduce expenses and make information available
on a more timely basis, Medtronic is discontinuing its practice of automatically
sending quarterly reports to shareholders. Quarterly financial results may be
obtained by requesting news releases as described above.
PRICE RANGE OF MEDTRONIC STOCK
Fiscal Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1994
High $70.50 $75.38 $85.00 $87.50
Low 60.00 57.63 71.63 70.50
1993
High 83.75 100.38 103.50 91.13
Low 68.00 73.13 87.63 53.25
Prices are closing quotations. On June 16,1994, there were 21,437 holders of
record of the company's common stock. The regular quarterly cash dividend was 17
cents per share for 1994 and 14 cents per share for 1993.
STOCK TRANSFER AGENT, REGISTRAR, AND DIVIDEND REINVESTMENT AGENT
Shareholders with questions about stockholdings, dividend checks, dividend
reinvestment, transfer requirements, and address changes should contact:
Norwest Bank Minnesota, N.A.
Stock Transfer
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
Telephone: 1-800-468-9716 or
1-612-450-4064
DIVIDEND REINVESTMENT PLAN
The dividend reinvestment plan provides a convenient way for shareholders to
increase their holdings of Medtronic,Inc., common stock through automatic
dividend reinvestment and voluntary cash purchase. All registered holders of
Medtronic,Inc., common stock may participate. For more information, please
contact the transfer agent.
INDEPENDENT ACCOUNTANTS
Price Waterhouse, Minneapolis
STOCK EXCHANGE LISTING
New York Stock Exchange
(symbol: MDT)
The following are registered and unregistered trademarks of Medtronic, Inc., and
its affiliated companies: Atakr(R), Bio-Console(R), Bio-Medicus(R), Bio-Pump(R),
Buchbinder(R), CapSure(R), CapSure(R) SP, CapSure(R) Z, DLP(R), 18K(R), Elite
II(R), 14K(R), Freestyle(R), Hancock(R), Inrad(R), Interventional Vascular(R),
Itrel(R) II, Maxima(R), Maxima Plus(R), Medtronic(R), Micro-Rel(R), Minimax(R),
PBS(R), PCD(R), Peak Flow(R), RF Ablatr(R), Sherpa(R), Spirit(R), SynchroMed(R),
Target Tip(R), Torqr(R), Transvene(R), Transvene(R) PCD(R); Active Can(TM),
Ascent(TM), CapSureFix(TM), DBS(TM), Giant Lumen(TM), Gold Xchange(TM),
Interstim(TM), Jewel(TM), Jewel(TM)CD, Jewel(TM)PCD, Jewel Plus(TM), Marinr(TM),
Marker Channel(TM), Mattrix(TM), Medtronic Hall(TM), Minimax Plus(TM),
Momentum(TM), Mosaic(TM), Panther(TM), Parallel(TM), Premier(TM), RF Marinr(TM),
Thera(TM), Thera(TM)D, Thera(TM)DR, Thera(TM)S, Thera(TM)SR, Thera(TM)VDD,
Transform(TM), Verify(TM).
Carmeda(R) is a registered trademark of Carmeda AB, Sweden.
Hemashield(R) is a registered trademark of Meadox Medicals(TM) Inc., Oakland,
NJ, USA.
Hot Wheels(TM) is an unregistered trademark of Mattel, Inc., El Segundo, CA,
USA.
Lioresal(R) is a registered trademark of the CIBA-GEIGY Corporation, Summit, NJ,
USA.
The narrative text and cover of this annual report are printed on recycled paper
including 50% pre-consumer and 10% post-consumer fiber. The financial text of
the book is printed on 100% recycled paper including 69% pre-consumer and 31%
post-consumer fiber, of which 16% is paper gathered through the internal
recycling program at Medtronic's Minneapolis facilities.
<PAGE> 53
APPENDIX: Graphic and Image Material
<TABLE>
<CAPTION>
Page
Number Description
<S> <C>
35 Bar graph of net earnings in millions of dollars for the last three fiscal years as follows:
1994 $232.4
1993 197.2
1992 161.5
35 Bar graph of earnings per share in dollars for the last three fiscal years as follows:
1994 $4.05
1993 3.32
1992 2.71
36 Stacked bar graph of net sales in millions of dollars for the
pacing, other cardiovascular, and neurological and other
business for each of the last three fiscal years. The data
points (in millions of dollars) are as follows:
1994 1993 1992
Pacing $ 934 $ 872 $ 778
Other Cardiovascular 328 304 252
Neurological & Other 129 152 147
$1,391 $1,328 $1,177
36 Stacked bar graph showing net sales in millions of dollars for U.S. and international operations for the last
three fiscal years. Data points (in millions of dollars) are as follows:
1994 1993 1992
U.S. $ 800 $ 771 $ 699
International 591 557 478
$1,391 $1,328 $1,177
37 Bar graph of research and development expense in millions of dollars for the last three fiscal years as follows:
1994 $156.3
1993 133.0
1992 109.2
38 Bar graph of net cash in millions of dollars for the last three fiscal years as follows:
1994 $103.0
1993 53.3
1992 21.2
38 Bar graph of cash flows from operating activities in millions of dollars for the last three fiscal years as
follows:
1994 $356.9
1993 291.5
1992 151.4
39 Stacked bar graph of equity and interest-bearing debt in millions of dollars for the last three fiscal years.
Data points (in millions of dollars) are as follows:
1994 1993 1992
Equity $1,053 $841 $796
Interest-Bearing Debt 78 103 89
$1,131 $944 $885
</TABLE>
EXHIBIT NUMBER 21
LIST OF SUBSIDIARIES
EXHIBIT 21
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
Biotec International S.r.L. Italy
Carbon Implants, Inc. Delaware
CardioRhythm California
Electromedics, Inc. Minnesota
Electromedics Medizintechnik GmbH Germany
Electromedics France, SARL France
Electromedics FSC, Inc. Barbados
India Biomedical Investment Limited Minnesota
Interamerica Medtronic, Inc. Illinois
International Medical Corporation Colorado
Interbank Leasing Colorado
International Medical Education Corp. Colorado
MedRel, Inc. Minnesota
Medtronic Asia, Ltd. Minnesota
Medtronic Asset Management, Inc. Minnesota
Medtronic Australasia Pty. Ltd. New South Wales
Medtronic Belgium S.A. Belgium
Medtronic Bio-Medicus, Inc. Minnesota
Medtronic HemoTec, Inc. Colorado
Hemadyne Corporation Minnesota
Medtronic B.V. The Netherlands
Bakken Research Center, B.V. The Netherlands
Medtronic China, Ltd. Minnesota
Medtronic de Venezuela S.A. Venezuela
Telecardiocontrol, C.A. Venezuela
Medtronic do Brasil Ltda. Brazil
Medtronic Dominicana C. por A. Dominican Republic
Medtronic Europe, NV Belgium
Medtronic Export, Inc. Delaware
Medtronic FSC B.V. The Netherlands
Medtronic France S.A. France
Medtronic G.B., Inc. Minnesota
Medtronic G.m.b.H. Federal Republic of
Germany
Cardiotron Medizintechnik G.m.b.H. Federal Republic of
Germany
Medical Data Systems International Ltd. Ireland
Medtronic Ges. m.b.H. Austria
Medtronic Heart Valves, Inc. Minnesota
Medtronic Iberica, S.A. Spain
Medtronic International, Ltd. Delaware
Medtronic Interventional Vascular, Inc. Massachusetts
Medtronic Interventional Vascular, Inc. Delaware
Medtronic Italia S.p.A. Italy
Medtronic Japan Co., Ltd. Japan
Medtronic Korea Co., Ltd. Korea
Medtronic Latin America, Inc. Minnesota
Medtronic Limited United Kingdom
QRS Limited United Kingdom
Medtronic Milaca, Inc. Minnesota
Medtronic of Canada, Ltd. Canada
Medtronic Overseas, Inc. Delaware
Medtronic Puerto Rico, Inc. Minnesota
Medtronic S.A.I.C. Argentina
Medtronic S. de R.L. de C.V. Mexico
Medtronic (Schweiz) AG Switzerland
Medtronic (S) Pte Ltd Singapore
Medtronic World Trade Corporation Minnesota
OSMED, Inc. Michigan
Vitatron Japan Co., Ltd. Japan
Vitatron N.V. The Netherlands
Vitafin, N.V. Curacao
Vitatron Beheersmaatschappij, B.V. The Netherlands
Vitatron Belgium N.V. Belgium
Vitatron G.m.b.H. Federal Republic of
Germany
Vitatron Medical B.V. The Netherlands
Vitatron Medical Espana S. A. Spain
Vitatron Nederland B. V. The Netherlands
Vitatron S.A.R.L. France
Vitatron Scientific B. V. The Netherlands
Vitatron U.K. Limited England
Vitatron Incorporated Delaware
EXHIBIT NUMBER 24
POWERS OF ATTORNEY
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of
Medtronic, Inc., a Minnesota corporation, hereby constitute and appoint each of
William W. George and Ronald E. Lund, acting individually or jointly, their true
and lawful attorney-in-fact and agent, with full power to act for them and in
their name, place and stead, in any and all capacities, to do any and all acts
and things and execute any and all instruments which either said attorney and
agent may deem necessary or desirable to enable Medtronic, Inc. to comply with
the Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing with said Commission of its annual report on Form
10-K for the fiscal year ended April 30, 1994, including specifically, but
without limiting the generality of the foregoing, power and authority to sign
the names of the undersigned directors to the Form 10-K and to any instruments
and documents filed as part of or in connection with said Form 10-K or
amendments thereto; and the undersigned hereby ratify and confirm all that each
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have set their hands this 23rd day
of June, 1994.
/S/EARL E. BAKKEN /S/GLEN D. NELSON, M.D.
Earl E. Bakken Glen D. Nelson, M.D.
/S/F. CALEB BLODGETT /S/RICHARD L. SCHALL
F. Caleb Blodgett Richard L. Schall
/S/WILLIAM W. GEORGE /S/JACK W. SCHULER
William W. George Jack W. Schuler
/S/ANTONIO M. GOTTO, JR., M.D. /S/GERALD W. SIMONSON
Antonio M. Gotto, Jr., M.D. Gerald W. Simonson
/S/BERNADINE P. HEALY, M.D. /S/GORDON M. SPRENGER
Bernadine P. Healy, M.D. Gordon M. Sprenger
/S/VERNON H. HEATH /S/RICHARD A. SWALIN, PH.D.
Vernon H. Heath Richard A. Swalin, Ph.D.
/S/THOMAS E. HOLLORAN /S/WINSTON R. WALLIN
Thomas E. Holloran Winston R. Wallin
/S/EDITH W. MARTIN, PH.D.
Edith W. Martin, Ph.D.
