UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1-7707
MEDTRONIC, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0793183
(State of incorporation) (I.R.S. Employer
Identification No.)
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(Address of principal executive offices)
Telephone number: (612) 574-4000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Shares of common stock, $.10 par value, outstanding on December 1, 1994:
114,931,667
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MEDTRONIC, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
Oct. 28, Oct. 29, Oct. 28, Oct. 29,
1994 1993 1994 1993
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 408,151 $ 332,057 $ 811,947 $ 663,363
Costs and expenses:
Cost of products sold 127,763 104,573 254,159 205,830
Research and development
expense 45,002 36,649 89,135 73,978
Selling, general, and
administrative expense 131,273 106,973 266,295 234,904
Interest expense 2,058 2,164 4,716 4,233
Interest income (2,791) (2,185) (5,070) (3,861)
Gain on sale of subsidiary -- -- -- (13,962)
Total costs and expenses 303,305 248,174 609,235 501,122
Earnings before income taxes 104,846 83,883 202,712 162,241
Provision for income taxes 35,124 27,682 67,909 53,540
Net earnings $ 69,722 $ 56,201 $ 134,803 $ 108,701
Weighted average shares
outstanding 114,880 114,444 115,208 114,932
Net earnings per share $ 0.61 $ 0.49 $ 1.17 $ 0.95
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
October 28, April 30,
1994 1994
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $ 115,045 $ 108,720
Short-term investments 81,664 72,694
Accounts receivable, less allowance for
doubtful accounts of $22,475 and $20,123 347,155 340,927
Inventories:
Finished goods 104,062 102,163
Work in process 52,715 50,751
Raw materials 62,399 60,384
Total inventories 219,176 213,298
Prepaid expenses and other current assets 114,564 110,218
Total current assets 877,604 845,857
Property, plant, and equipment 669,422 609,945
Accumulated depreciation (359,649) (308,160)
Net property, plant, and equipment 309,773 301,785
Goodwill and other intangible assets, net of
accumulated amortization of $60,695 and $48,884 350,585 367,238
Other assets 117,784 108,372
Total assets $1,655,746 $1,623,252
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 27,939 $ 58,173
Accounts payable 89,055 140,295
Accrued liabilities 278,149 240,976
Total current liabilities 395,143 439,444
Long-term liabilities 105,189 114,401
Deferred income taxes 19,480 15,915
Shareholders' equity:
Common stock--par value $.10 11,491 11,626
Retained earnings 1,146,652 1,083,868
Cumulative translation adjustment 10,091 (9,702)
1,168,234 1,085,792
Receivable from Employee Stock Ownership Plan (32,300) (32,300)
Total shareholders' equity 1,135,934 1,053,492
Total liabilities and shareholders' equity $1,655,746 $1,623,252
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MEDTRONIC, INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
Six months ended
Oct. 28, Oct. 29,
1994 1993
(in thousands)
OPERATING ACTIVITIES:
Net earnings $134,803 $108,701
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 52,858 40,460
Gain on sale of subsidiary, net of tax -- (9,424)
Change in assets and liabilities excluding
effects of divestiture:
Decrease in accounts receivable 7,876 18,737
Decrease in inventories 1,473 280
Increase (decrease) in accounts payable and
accrued liabilities 8,017 (18,447)
Changes in other operating assets and
liabilities (18,909) (13,084)
Net cash provided by operating activities 186,118 127,223
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (43,158) (26,607)
Proceeds from sale of subsidiary -- 21,000
Purchases of marketable securities (55,616) (42,276)
Sales of marketable securities 62,096 34,500
Other investing activities (net) 7,970 (702)
Net cash used in investing activities (28,708) (14,085)
FINANCING ACTIVITIES:
Decrease in short-term borrowings (net) (28,421) (68,673)
(Reductions) additions to long-term debt (net) (5,191) 3,786
Decrease in acquisition price payable (39,130) --
Dividends to shareholders (23,576) (19,500)
Repurchase of common stock (59,079) (52,026)
Issuance of common stock 3,625 4,610
Net cash used in financing activities (151,772) (131,803)
Effect of exchange rate changes on cash and
cash equivalents 687 (221)
Net Change in Cash and Cash Equivalents 6,325 (18,886)
Cash and cash equivalents at beginning of period 108,720 76,994
Cash and cash equivalents at end of period $115,045 $ 58,108
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 1 - Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts
of Medtronic, Inc. and all of its subsidiaries, after elimination of all
significant intercompany transactions and accounts. In the opinion of
management, all adjustments necessary for a fair presentation of operating
results have been made. All such adjustments are of a normal recurring nature.
Operating results for interim periods are not necessarily indicative of results
which may be expected for the year as a whole.
Note 2 - Accounting Change
On May 1, 1994, the company adopted Statement of Financial Accounting Standard
(SFAS) 115. SFAS 115 established standards of financial accounting and reporting
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Those investments are classified and
accounted for in three categories. The company's securities investments that are
bought and held principally for the purpose of selling them in the near term are
classified as trading securities. Trading securities are recorded at fair value
on the balance sheet in cash and cash equivalents or short-term investments with
the change in fair value during the period included in earnings. Securities
investments that the company has the positive intent and ability to hold to
maturity are classified as held-to-maturity securities and recorded at amortized
cost in short-term investments or other assets. Securities investments not
classified as either held-to-maturity or trading securities are classified as
available-for-sale securities. Available-for-sale securities are recorded at
fair value in short-term investments or other assets on the balance sheet, with
the change in fair value during the period excluded from earnings and recorded
net of tax as a component of retained earnings.
In accordance with SFAS 115, prior period financial statements have not been
restated to reflect the change in accounting principle, however, the effect of
this change to reflect the net unrealized holding gains related to securities
classified as available-for-sale was to increase shareholders' equity at May 1,
1994 by $10,066 (net of $5,420 of deferred income taxes). Adoption of this
change in accounting principle had no impact on the statement of earnings for
the six month period ended October 28, 1994.
There were no realized gains or losses on sales of available-for-sale securities
during the six months ended October 28, 1994. At October 28, 1994, the balance
of net unrealized holding gains included as a component of retained earnings was
$8,003 (net of deferred income taxes of $4,309).
Note 3 - Stockholders' Equity
On August 31, 1994, the Board of Directors approved a two-for-one common stock
split, paid September 30, 1994 in the form of a 100 percent stock dividend to
shareholders of record at the close of business on September 15, 1994. The stock
split resulted in the issuance of 57,450 additional shares and the reclass of
$5,745 from retained earnings to common stock, representing the par value of the
shares issued. All references in the financial statements to average number of
shares outstanding and earnings per share amounts have been restated to reflect
the split.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net Earnings
Net earnings for the second quarter ended October 28, 1994 were $69.7 million,
or $0.61 per share. Earnings per share reflect an increase of 24.5 percent over
the $0.49 per share reported on earnings of $56.2 million in the same quarter
last year. Net earnings increased 24.0 percent to $134.8 million for the six
months ended October 28, 1994, compared to $108.7 million for the same period in
the prior year. Earnings per share for the six-month period ended October 28,
1994 were $1.17, an increase of 23.2 percent over the $0.95 reported last year.
Sales
Sales during the quarter and six month period ended October 28, 1994 increased
22.9 percent and 22.4 percent, respectively, compared to the same periods last
year. Exclusive of the effects of foreign currency translation and acquisitions,
sales for the quarter ended October 28, 1994 increased 14.2 percent over the
comparable period last year. Sales in the six-month period ended October 28,
1994, adjusted for foreign currency, acquisitions, and a divestiture, increased
15.1 percent from the same period last year. Sales growth in the quarter and
six-month period was positively impacted by $11.8 million and $17.6 million,
respectively, of favorable exchange rate movements primarily caused by the
weakening of the U.S. dollar versus major European currencies and the Japanese
Yen.
Sales of the pacing business on a comparable operations basis grew 15.2 percent
and 15.9 percent in the quarter and six-month period ended October 28, 1994,
respectively, compared to the same periods a year ago. This increase in sales is
attributable to double-digit percentage growth in both the bradycardia and
tachyarrthymia management businesses. Bradycardia unit sales continued to
reflect strong growth in both the U.S. and non-U.S. markets. Growth in the U.S.
and Japan was led by the Medtronic Elite II(R) dual chamber, rate responsive
pacemaker. Strong sales performance in Europe continued to be led by the
Thera(R) family of pacemakers which remain in clinical evaluation in the U.S.
The dual-sensor Collection(TM) pacemakers developed and marketed by Vitatron,
Inc., a Medtronic subsidiary, also made solid sales contributions in Europe.
Unit sales of tachyarrthymia devices also showed solid gains worldwide, with the
Model 7217B PCD(R) device and its Transvene(R) transvenous leads providing
strong sales in the U.S. Worldwide sales were led by the new smaller Jewel(R)
PCD(R) devices in Europe, Canada, and Latin America. The Jewel models of the PCD
devices remain in U.S. clinical evaluation.
Sales within the other cardiovascular business consisting of interventional
vascular, heart valves, and cardiopulmonary, increased 8.8 percent and 10.4
percent on a comparable operations basis in the quarter and six-month period
ended October 28, 1994, respectively. The interventional vascular business
continued its excellent growth in revenues with sales of the Panther(TM) and
14K(R) balloon catheters and the Wiktor(TM) stent. Unit sales growth of balloon
catheters continued to more than offset reductions in average selling prices.
Solid cardiopulmonary sales growth was led by sales of oxygenators and blood
monitoring and management products. The cardiopulmonary business continued to
receive solid revenue contributions from organizations acquired near the end of
fiscal 1994. Sales of the heart valve business showed only modest growth in the
quarter and six-month periods.
On a comparable operations basis, sales of the neurological and other businesses
grew 21.0 percent for the quarter and 21.6 percent for the six-month period
ended October 28, 1994 compared to the same periods in the prior year,
reflecting significant growth in sales of the company's implantable
SynchroMed(R) drug infusion system and solid growth in sales of the Itrel(R) II
implantable neurostimulation system.
Costs of Products Sold
Cost of products sold as a percent of sales was 31.3 percent for the quarter and
the six months ended October 28, 1994 compared to 31.5 percent and 31.0 percent,
respectively, for the same periods a year ago.
Selling, General, and Administrative Expense (SG&A)
SG&A expense for the quarter ended October 28, 1994, was $131.3 million compared
to $107.0 million for the comparable period last year. SG&A as a percent of
sales was 32.2 percent in both the current quarter and the same quarter last
year. SG&A in the current quarter was affected by increased currency expense
offset by accelerated recognition of deferred royalty income. The accelerated
recognition of deferred royalty income was caused by the acquisition of Siemens
A.G.'s cardiac rhythm management unit by St. Jude Medical, Inc. St. Jude will
pay royalties to Medtronic in the future under the terms of the royalty
agreement between Medtronic and Siemens. SG&A as a percent of sales for the
six-month period ended October 28, 1994 was 32.8 percent compared to 33.2
percent last year after adjusting the prior period expense for $14.3 million of
non-recurring charges primarily related to adoption of a new accounting
principle and a provision for potentially uncollectible trade and other
receivables. In addition to increased currency expense, SG&A as a percentage of
sales in the six month period was affected by spending associated with newly
acquired organizations, strong sales growth, and increased royalty income.
Income Taxes
Federal tax legislation was passed in August 1993 which increases the U.S.
corporate income tax rate, retroactively reinstates the research tax credit, and
beginning in 1995, limits U.S. tax benefits from operations in Puerto Rico. The
increase in the federal tax rate and Puerto Rico benefit limitations will put
upward pressure on the company's effective tax rate. Accordingly, the estimated
effective tax rate for the company's current fiscal year is 33.5 percent
compared to an effective rate of 33.0 percent for the fiscal year ended April
30, 1994. However, the impact of the federal tax legislation on the effective
tax rate in future years will be primarily dependent upon the level of operating
activity in Puerto Rico and the level of research activities. Accordingly, the
company cannot determine the impact the tax legislation will have on future
operating results.
Liquidity and Capital Resources
Operating activities provided $186.1 million of cash and cash equivalents for
the six months ended October 28, 1994 compared to $127.2 million in the same
period a year ago. Working capital was $482.5 million at October 28, 1994, an
increase of $76.1 million over the $406.4 million at April 30, 1994. The current
ratio increased to 2.2:1 at October 28, 1994, compared to 1.9:1 at April 30,
1994. Cash and cash equivalents increased $6.3 million during the six months
ended October 28, 1994, compared with a decrease of $18.9 million during the
same period last year. The increase in the current ratio is the result of
increased operating cash inflows which have been partially utilized to pay down
short term borrowings and accounts payable, including $39.1 million acquisition
price payable at April 30, 1994.
<PAGE>
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement on computation of per share earnings
27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
No report on Form 8-K was filed by the company during the
quarter ended October 28, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Medtronic, Inc.
(Registrant)
Date: December 6, 1994 /s/ WILLIAM W. GEORGE
William W. George
President
and Chief Executive Officer
Date: December 6, 1994 /s/ ROBERT L. RYAN
Robert L. Ryan
Senior Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
MEDTRONIC, INC.
(Unaudited)
(in thousands)
Three months ended Six months ended
Oct. 28, Oct. 29, Oct. 28, Oct. 29,
1994 1993 1994 1993
PRIMARY
Shares outstanding:
Weighted average outstanding 114,880 114,444 115,208 114,932
Share equivalents (1)(2) 1,504 962 1,306 963
Adjusted shares outstanding (2) 116,384 115,406 116,514 115,895
FULLY DILUTED
Shares outstanding:
Weighted average outstanding 114,880 114,444 115,208 114,932
Share equivalents (1)(2) 1,785 1,320 1,785 1,320
Adjusted shares outstanding (2) 116,665 115,764 116,992 116,252
(1) Share equivalents consist primarily of nonqualified stock options.
(2) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3 %.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
MEDTRONIC, INC.
FINANCIAL DATA SCHEDULE
October 28, 1994
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND CONDENSED CONSOLIDATED BALANCE SHEET FOR
THE QUARTERLY PERIOD ENDED OCTOBER 38, 1994 FILED WITH THE SEC ON FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> OCT-28-1994
<CASH> 115,045
<SECURITIES> 81,664
<RECEIVABLES> 369,630
<ALLOWANCES> (22,475)
<INVENTORY> 219,176
<CURRENT-ASSETS> 877,604
<PP&E> 669,422
<DEPRECIATION> (359,649)
<TOTAL-ASSETS> 1,655,746
<CURRENT-LIABILITIES> 395,143
<BONDS> 0
<COMMON> 11,491
0
0
<OTHER-SE> 1,124,443
<TOTAL-LIABILITY-AND-EQUITY> 1,655,746
<SALES> 811,947
<TOTAL-REVENUES> 811,947
<CGS> 254,159
<TOTAL-COSTS> 254,159
<OTHER-EXPENSES> 350,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,716
<INCOME-PRETAX> 202,712
<INCOME-TAX> 67,909
<INCOME-CONTINUING> 134,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,803
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.15
</TABLE>
