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 January 27, 1995
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 March 1, 1995:
115,384,282
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MEDTRONIC, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JAN. 27, JAN. 28, JAN. 27, JAN. 28,
1995 1994 1995 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $ 413,724 $ 334,601 $ 1,225,670 $ 997,964
Costs and expenses:
Cost of products sold 129,186 103,237 383,345 309,067
Research and development
expense 46,756 38,986 135,891 112,964
Selling, general, and
administrative expense 132,182 107,947 398,476 342,851
Interest expense 2,049 1,956 6,765 6,189
Interest income (3,780) (2,471) (8,850) (6,332)
Gain on sale of subsidiary -- -- -- (13,962)
Total costs and expenses 306,393 249,655 915,627 750,777
Earnings before income taxes 107,331 84,946 310,043 247,187
Provision for income taxes 35,956 28,034 103,864 81,574
Net earnings $ 71,375 $ 56,912 $ 206,179 $ 165,613
Weighted average shares
outstanding 115,048 114,437 115,173 114,810
Net earnings per share $ 0.62 $ 0.50 $ 1.79 $ 1.44
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
JANUARY 27, APRIL 30,
1995 1994
ASSETS (IN THOUSANDS)
Current assets:
Cash and cash equivalents $ 129,251 $ 108,720
Short-term investments 107,813 72,694
Accounts receivable, less allowance for
doubtful accounts of $22,295 and $20,123 342,972 340,927
Inventories:
Finished goods 95,881 102,163
Work in process 55,769 50,751
Raw materials 60,731 60,384
Total inventories 212,381 213,298
Prepaid expenses and other current assets 118,443 110,218
Total current assets 910,860 845,857
Property, plant, and equipment 682,242 609,945
Accumulated depreciation (368,882) (308,160)
Net property, plant, and equipment 313,360 301,785
Goodwill and other intangible assets, net of
accumulated amortization of $66,518 and $48,884 342,370 367,238
Other assets 150,326 108,372
Total assets $1,716,916 $1,623,252
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 38,109 $ 58,173
Accounts payable 90,570 140,295
Accrued liabilities 256,585 240,976
Total current liabilities 385,264 439,444
Long-term liabilities 109,558 114,401
Deferred income taxes 19,542 15,915
Shareholders' equity:
Common stock--par value $.10 11,537 11,626
Retained earnings 1,220,040 1,083,868
Cumulative translation adjustment 3,275 (9,702)
1,234,852 1,085,792
Receivable from Employee Stock Ownership Plan (32,300) (32,300)
Total shareholders' equity 1,202,552 1,053,492
Total liabilities and shareholders' equity $1,716,916 $1,623,252
See accompanying notes to condensed consolidated financial statements.
MEDTRONIC, INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
JAN. 27, JAN. 28,
1995 1994
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net earnings $206,179 $165,613
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 77,397 59,261
Gain on sale of subsidiary, net of tax -- (9,424)
Change in assets and liabilities excluding
effects of divestiture:
Decrease in accounts receivable 5,950 11,914
Decrease (increase) in inventories 4,863 (3,724)
Decrease in accounts payable and
accrued liabilities (8,801) (6,696)
Changes in other operating assets and
liabilities (28,180) (828)
Net cash provided by operating activities 257,408 216,116
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (65,737) (37,064)
Proceeds from sale of subsidiary -- 21,000
Purchases of marketable securities (140,542) (87,596)
Sales of marketable securities 100,196 63,858
Other investing activities (net) 8,450 (13,887)
Net cash used in investing activities (97,633) (53,689)
FINANCING ACTIVITIES:
Decrease in short-term borrowings (net) (17,590) (57,454)
(Reductions) additions to long-term debt (net) (5,078) 3,911
Decrease in acquisition price payable (39,130) --
Dividends to shareholders (35,394) (29,199)
Repurchase of common stock (59,079) (52,026)
Issuance of common stock 17,108 14,607
Net cash used in financing activities (139,163) (120,161)
Effect of exchange rate changes on cash and
cash equivalents (81) (274)
Net Change in Cash and Cash Equivalents 20,531 41,992
Cash and cash equivalents at beginning of period 108,720 76,994
Cash and cash equivalents at end of period $129,251 $118,986
See accompanying notes to condensed consolidated financial statements.
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 nine month period ended January 27, 1995.
There were no realized gains or losses on sales of available-for-sale securities
during the nine months ended January 27, 1995. At January 27, 1995, the balance
of net unrealized holding gains included as a component of retained earnings was
$8,395 (net of deferred income taxes of $4,521).
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net Earnings
Net earnings for the third quarter ended January 27, 1995 were $71.4 million, or
$0.62 per share. Earnings per share reflect an increase of 24.0 percent over the
$0.50 per share reported on earnings of $56.9 million in the same quarter last
year. Net earnings increased 24.5 percent to $206.2 million for the nine months
ended January 27, 1995, compared to $165.6 million for the same period in the
prior year. Earnings per share for the nine-month period ended January 27, 1995
were $1.79, an increase of 24.3 percent over the $1.44 reported last year.
Sales
Sales during the quarter and nine month period ended January 27, 1995 increased
23.6 percent and 22.8 percent, respectively, compared to the same periods last
year. Sales growth in the quarter and nine-month period was positively impacted
by $16.1 million and $33.7 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. Exclusive of the effects of foreign
currency translation and acquisitions, sales for the quarter ended January 27,
1995 increased 13.8 percent over the comparable period last year. Sales in the
nine-month period ended January 27, 1995, adjusted for foreign currency,
acquisitions, and a divestiture, increased 14.6 percent from the same period
last year.
Sales of the pacing business on a comparable operations basis grew 13.2 percent
and 14.9 percent in the quarter and nine-month period ended January 27, 1995,
respectively, compared to the same periods a year ago. This increase in sales
was attributable to double-digit percentage growth in both the bradycardia and
tachyarrhythmia management businesses. Bradycardia unit sales continued to
reflect strong growth in both the U.S. and non-U.S. markets. The worldwide sales
performance was again led by the Thera(R) family of pacemakers which were
released outside the U.S. in prior quarters and were commercially released in
the U.S. on January 16, 1995. Sales of tachyarrhythmia devices also continued to
reflect solid worldwide growth, led by strong European and Canadian sales of the
Jewel(R) PCD(R) devices. The Jewel models of the PCD devices, including the new
7219C and 7202C with single-lead technology, remain in U.S. clinical evaluation.
Sales within the other cardiovascular business consisting of interventional
vascular, heart valves, and cardiopulmonary, increased 13.5 percent and 11.5
percent on a comparable operations basis in the quarter and nine-month period
ended January 27, 1995, respectively. The interventional vascular business
continued its excellent growth in revenues with sales of the Panther(TM),
Evergreen(TM), and 14K(R) balloon catheters, guiding 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 the Maxima(R) blood oxygenator and blood monitoring and
management products, including the Medtronic Bio-pump(R). Organizations acquired
near the end of fiscal 1994 continue to supplement sales of the cardiopulmonary
business. Sales of the heart valve business improved in the quarter, principally
on the strength of bioprosthetic products. Heart valve sales showed modest
growth in the nine-month period compared to the same period last year.
On a comparable operations basis, sales of the neurological and other businesses
grew 20.1 percent for the quarter and 21.1 percent for the nine-month period
ended January 27, 1995 compared to the same periods in the prior year. This
growth reflects continued strong worldwide growth in sales of the company's
implantable SynchroMed(R) drug infusion system and the Itrel(R) II implantable
neurostimulation system.
Costs of Products Sold
Cost of products sold as a percent of sales was 31.2 percent for the quarter and
31.3 percent for the nine months ended January 27, 1995 compared to 30.9 percent
and 31.0 percent, respectively, for the same periods a year ago. The slight
increase in cost of products sold as a percent of sales is attributable to
fluctuations in production levels and start-up costs related new product
introductions.
Selling, General, and Administrative Expense (SG&A)
SG&A expense for the quarter ended January 27, 1995, was $132.2 million compared
to $107.9 million for the comparable period last year. SG&A as a percent of
sales was 31.9 percent and 32.3 percent in the current quarter and the same
quarter last year, respectively. SG&A as a percent of sales for the nine-month
period ended January 27, 1995 was 32.5 percent compared to 32.9 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. SG&A
expense as a percentage of sales in the nine month period ended January 27, 1995
was affected by increased currency expense and spending associated with newly
acquired organizations, which was offset by strong sales growth, and increased
royalty income. Royalty income increased significantly due to the accelerated
recognition of deferred royalty income during the quarter ended October 28,
1994. 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.
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 $257.4 million of cash and cash equivalents for
the nine months ended January 27, 1995 compared to $216.1 million in the same
period a year ago. Working capital was $525.6 million at January 27, 1995, an
increase of $119.2 million over the $406.4 million at April 30, 1994. The
current ratio increased to 2.4:1 at January 27, 1995, compared to 1.9:1 at April
30, 1994. Cash and cash equivalents increased $20.5 million during the nine
months ended January 27, 1995, compared with an increase of $42.0 million during
the same period last year. The current period increase in cash and cash
equivalents was affected by cash balances which were invested in long-term
securities. 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.
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 January 27, 1995.
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: March 7, 1995 /s/ WILLIAM W. GEORGE
William W. George
President
and Chief Executive Officer
Date: March 7, 1995 /s/ ROBERT L. RYAN
Robert L. Ryan
Senior Vice President
and Chief Financial Officer
EXHIBIT 11
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
MEDTRONIC, INC.
(Unaudited)
(in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
JAN. 27, JAN. 28, JAN. 27, JAN. 28,
1995 1994 1995 1994
PRIMARY
Shares outstanding:
Weighted average outstanding 115,048 114,437 115,173 114,810
Share equivalents (1)(2) 1,426 1,136 1,204 903
Adjusted shares outstanding (2) 116,474 115,573 116,377 115,713
FULLY DILUTED
Shares outstanding:
Weighted average outstanding 115,048 114,437 115,173 114,810
Share equivalents (1)(2) 1,869 1,366 1,869 1,366
Adjusted shares outstanding (2) 116,917 115,803 117,042 116,176
(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>
Exhibit 27
MEDTRONIC, INC.
FINANCIAL DATA SCHEDULE
January 27, 1995
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND CONDENSED CONSOLIDATED BALANCE SHEET FOR
THE QUARTERLY AND NINE MONTH PERIOD ENDED JANUARY 27, 1995 FILED WITH THE SEC ON
FORM 10-Q AND IS QUALIFIED INITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> JAN-27-1995
<CASH> 129,251
<SECURITIES> 107,813
<RECEIVABLES> 365,267
<ALLOWANCES> 22,295
<INVENTORY> 212,381
<CURRENT-ASSETS> 910,860
<PP&E> 682,242
<DEPRECIATION> 368,882
<TOTAL-ASSETS> 1,716,916
<CURRENT-LIABILITIES> 385,264
<BONDS> 0
<COMMON> 11,537
0
0
<OTHER-SE> 1,191,015
<TOTAL-LIABILITY-AND-EQUITY> 1,716,916
<SALES> 1,225,670
<TOTAL-REVENUES> 1,225,670
<CGS> 383,345
<TOTAL-COSTS> 383,345
<OTHER-EXPENSES> 534,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,765
<INCOME-PRETAX> 310,043
<INCOME-TAX> 103,864
<INCOME-CONTINUING> 206,179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,179
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 0
</TABLE>
