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 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 November 30, 1995:
232,306,928
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MEDTRONIC, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three months ended Six months ended
------------------ --------------------
Oct. 27, Oct. 28, Oct. 27, Oct. 28,
1995 1994 1995 1994
-------- -------- -------- ---------
(in thousands, except per share data)
Net sales $518,553 $408,151 $1,042,310 $811,947
Costs and expenses:
Cost of products sold 145,185 127,763 295,522 254,159
Research and development
expense 54,223 45,002 106,063 89,135
Selling, general, and
administrative expense 164,679 131,273 338,576 266,295
Interest expense 2,229 2,058 3,983 4,716
Interest income (7,532) (2,791) (13,892) (5,070)
--------- --------- --------- --------
Total costs and expenses 358,784 303,305 730,252 609,235
--------- --------- --------- --------
Earnings before income taxes 159,769 104,846 312,058 202,712
Provision for income taxes 55,120 35,124 107,660 67,909
--------- --------- --------- --------
Net earnings $104,649 $ 69,722 $204,398 $134,803
========= ========= ========= ========
Weighted average shares
outstanding 231,159 229,760 231,104 230,416
Net earnings per share $ 0.45 $ 0.30 $ .88 $ 0.59
========= ========= ========= ========
See accompanying Notes to Condensed Consolidated Financial Statements.
MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
October 27, April 30,
1995 1995
---- ----
ASSETS (in thousands)
------
Current assets:
Cash and cash equivalents $ 124,296 $ 98,292
Short-term investments 289,463 225,357
Accounts receivable, less allowance for
doubtful accounts of $21,736 and $22,416 416,143 413,942
Inventories:
Finished goods 90,892 97,048
Work in process 61,196 59,311
Raw materials 76,302 65,573
--------- ---------
Total inventories 228,390 221,932
Prepaid expenses and other current assets 139,427 144,386
--------- ---------
Total current assets 1,197,719 1,103,909
Property, plant, and equipment 760,174 715,476
Accumulated depreciation (414,515) (384,415)
--------- ---------
Net property, plant, and equipment 345,659 331,061
Goodwill and other intangible assets, net 319,018 363,346
Other assets 212,354 148,416
--------- ---------
Total assets $2,074,750 $1,946,732
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings $ 22,245 $ 33,474
Accounts payable 60,457 123,012
Accrued liabilities 308,628 299,643
--------- ---------
Total current liabilities 391,330 456,129
Long-term liabilities 142,039 119,734
Deferred tax liabilities 32,794 35,856
Shareholders' equity:
Common stock--par value $.10 23,122 23,102
Retained earnings 1,499,498 1,318,043
Cumulative translation adjustment 15,947 23,848
--------- ---------
1,538,567 1,364,993
Receivable from Employee Stock Ownership Plan (29,980) (29,980)
--------- ---------
Total shareholders' equity 1,508,587 1,335,013
--------- ---------
Total liabilities and shareholders' equity $2,074,750 $1,946,732
========== ==========
See accompanying notes to condensed consolidated financial statements.
MEDTRONIC, INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
Six months ended
----------------
Oct. 27, Oct. 28,
1995 1994
---- ----
(in thousands)
OPERATING ACTIVITIES:
Net earnings $204,398 $134,803
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 65,526 52,858
Change in assets and liabilities:
(Increase) decrease in accounts receivable (7,872) 7,876
(Increase) decrease in inventories (8,887) 1,473
(Decrease) increase in accounts payable and
accrued liabilities (50,889) 8,017
Changes in other operating assets and
liabilities (23,318) (18,909)
-------- --------
Net cash provided by operating activities 178,958 186,118
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (58,126) (43,158)
Purchases of marketable securities (169,105) (55,616)
Sales of marketable securities 107,688 62,096
Other investing activities (net) 4,480 7,970
-------- --------
Net cash used in investing activities (115,063) (28,708)
FINANCING ACTIVITIES:
Decrease in short-term borrowings (net) (7,459) (28,421)
Reductions in long-term debt (net) (720) (5,191)
Decrease in acquisition price payable 0 (39,130)
Dividends to shareholders (29,990) (23,576)
Repurchase of common stock (3,674) (59,079)
Issuance of common stock 4,436 3,625
-------- -------
Net cash used in financing activities (37,407) (151,772)
Effect of exchange rate changes on cash and
cash equivalents (484) 687
-------- ------
Net Change in Cash and Cash Equivalents 26,004 6,325
Cash and cash equivalents at beginning of period 98,292 108,720
--------- -------
Cash and cash equivalents at end of period $124,296 $115,045
========= ========
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
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
that may be expected for the year as a whole.
Note 2 - Stockholders' Equity
- -----------------------------
On August 30, 1995, the Board of Directors approved a two-for-one common stock
split, paid September 29, 1995 in the form of a 100 percent stock dividend to
shareholders of record at the close of business on September 14, 1995. The stock
split resulted in the issuance of 115,599 additional shares and the reclass of
$11,560 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.
Note 3 - Subsequent Events
- --------------------------
In November 1995, the company acquired all of the outstanding capital stock of
Pudenz-Schulte Medical Corporation ("PS Medical"), which manufactures and
distributes cerebrospinal fluid shunts and neurosurgical implants such as
catheters, reservoirs and fluid drainage systems, in a stock-for-stock
transaction.
During November 1995, the company also acquired all of the outstanding capital
stock of Micro Interventional Systems, Inc., a developer of products for the
minimally invasive treatment of stroke and other diseases, in a stock-for-stock
transaction.
These acquisitions will be integrated into, and will complement, the company's
neurological business.
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 27, 1995 were $104.6 million,
or $0.45 per share. Earnings per share reflect an increase of 50.0 percent over
the $0.30 per share reported on earnings of $69.7 million in the same quarter
last year. Net earnings increased 51.6 percent to $204.4 million for the six
months ended October 27, 1995, compared to $134.8 million for the same period in
the prior year. Earnings per share for the six-month period ended October 27,
1995 were $.88, an increase of 49.2 percent over the $0.59 reported last year.
Sales
- -----
Sales for the quarter and six month period ended October 27, 1995 increased 27.0
percent and 28.4 percent, respectively, compared to the same periods last year.
Exclusive of the effects of foreign currency translation, sales for the quarter
and six month period ended October 27, 1995 increased 25.6 percent and 24.9
percent, respectively, over the comparable periods last year. Sales growth in
the quarter and six-month period was positively impacted by $6.0 million and
$27.9 million, respectively, of favorable exchange rate movements caused
primarily by the weakening of the U.S. dollar versus major European currencies
and the Japanese Yen.
The growth over last year was led by strong contributions from the Pacing
business, which includes bradycardia pacing and tachyarrhythmia management.
After removing the impact of foreign exchange rate fluctuations, worldwide sales
of the Pacing business grew 30.1 percent and 31.7 percent, during the quarter
and six-month period ended October 27, 1995, respectively, compared to the same
periods a year ago. Bradycardia sales continued to reflect strong growth in both
U.S. and non-U.S. markets, primarily on the strength of the Thera(R) pacemaker
family worldwide and the improved Thera(R) i-series(TM) in Europe. The Thera(R)
i-series(TM) pacemakers were commercially released in the U.S. in November 1995.
Tachyarrthymia management sales nearly doubled last year's performance for the
comparable periods as the company's Jewel(R) PCD(R) implantable
cardioverter-defibrillator continues to hold a strong market share position.
Sales outside the United States were led by Jewel(R) products offering single
lead Active Can(TM) technology. The Jewel(R) Active Can(TM) models are currently
in U.S. clinical evaluation.
Sales within the other cardiovascular business, consisting of interventional
vascular and cardiac surgery (includes heart valves, cardiopulmonary, DLP and
blood management) increased 13.9 percent and 10.6 percent on a comparable
operations basis for the quarter and six-month period ended October 27, 1995,
respectively. This growth was primarily attributable to the interventional
vascular business which experienced strong sales growth in the U.S. led by the
Falcon(R) single-operator balloon catheter for coronary angioplasty, and strong
sales growth in Europe led by significant gains made by the Medtronic Wiktor(R)
coronary stent.
In addition, guiding catheters were solid sales performers in the U.S., Europe
and Japan. The growth in both balloon and guiding catheters continues to result
from significant unit sales growth partially offset by declining average selling
prices. Quarter-to-quarter growth in the cardiac surgery businesses reflect
continued progress by the cannulae and surgical accessories of Medtronic DLP and
a solid performance by tissue heart valves. Growth in the cardiopulmonary and
blood management businesses has been impacted by delays in certain new products.
On a comparable operations basis, sales of the neurological and other businesses
grew 26.4 percent and 18.1 percent for the quarter and six month period ended
October 27, 1995, respectively, compared to the same periods in the prior year.
This growth was led by two new products - the Mattrix(R) implantable drug
infusion system, introduced in worldwide markets, and the Itrel(R)3 spinal cord
stimulation system, launched in Europe. Both systems have won rapid market
acceptance following their commercial introductions. Following FDA approval, the
Itrel(R)3 was launched in the U.S. in November 1995.
Costs of Products Sold
- ----------------------
Cost of products sold as a percent of sales for the quarter and the six month
period ended October 27, 1995 was 28.0 percent and 28.4 percent, respectively,
compared to 31.3 percent for the quarter and the six month period a year ago.
The decrease in the cost of products sold as a percent of sales resulted from
increased productivity, the impact of favorable product and geographic mix
combined with substantially increased volumes, and the favorable impact of
foreign exchange rate fluctuations.
Research and Development Expense
- --------------------------------
Research and development expense was $54.2 million for the quarter and $106.1
million for the six month period ended October 27, 1995, an increase of 20.5
percent and 19.0 percent, respectively, over the comparable periods of the prior
year. The increase in research and development expense over the prior year
comparable periods reflects the company's continued commitment and strategy to
grow revenue and market share by developing technologically advanced medical
devices to meet patient needs.
Selling, General, and Administrative Expense (SG&A)
- ---------------------------------------------------
SG&A expense for the quarter ended October 27, 1995, was $164.7 million compared
to $131.3 million for the comparable period last year. SG&A as a percent of
sales decreased from 32.2 percent a year ago to 31.8 percent for the current
quarter. The decrease in SG&A as a percent of sales is attributable to strong
sales growth combined with effective spending controls.
Interest
- --------
Interest expense of $2.2 million for the quarter ended October 27, 1995 was
slightly lower than the $2.1 million for the same period last year. Interest
income of $7.5 million for the quarter ended October 27, 1995 increased
significantly from the $2.8 million for the same period last year, and was
primarily due to increased average investment balances over the prior year.
Income Taxes
- ------------
The estimated effective tax rate for the company's current fiscal year is 34.5
percent compared to an effective rate of 33.5 percent for the fiscal year ended
April 30, 1995. The company continues to experience upward pressure on the tax
rate, resulting from tax legislation passed in 1993 which increased the U.S.
corporate income tax rate and reduced U.S. tax benefits derived from operations
in Puerto Rico. 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. Accordingly, the company cannot determine the impact
the tax legislation will have on future operating results.
Liquidity and Capital Resources
- -------------------------------
Operating activities provided $179.0 million of cash and cash equivalents for
the six month period ended October 27, 1995 compared to $186.1 million for the
same period a year ago. Working capital was $806.4 million at October 27, 1995,
an increase of $158.6 million over the $647.8 million at April 30, 1995. The
current ratio increased to 3.1:1 at October 27, 1995, compared to 2.4:1 at April
30, 1995. Cash and cash equivalents increased $26.0 million during the six
months ended October 27, 1995, compared with an increase of $6.3 million during
the same period last year. The increase in cash and cash equivalents is
primarily attributable to earnings growth. Significant uses of cash during the
six month period ended October 27, 1995 included the reduction of trade accounts
payable, purchases of property, plant and equipment and dividends paid to
shareholders.
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 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: December 5, 1995 /s/ WILLIAM W. GEORGE
---------------------
William W. George
President
and Chief Executive Officer
Date: December 5, 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 Six months ended
------------------ ----------------
Oct. 27, Oct. 28, Oct. 27, Oct. 28,
1995 1994 1995 1994
------- ------- ------- -------
PRIMARY
- ----------------------------------
Shares outstanding:
Weighted average outstanding 231,159 229,760 231,104 230,416
Share equivalents (1)(2) 4,792 3,008 4,474 2,612
------- ------- ------- -------
Adjusted shares outstanding (2) 235,951 232,768 235,578 233,028
======= ======= ======= =======
FULLY DILUTED
- ----------------------------------
Shares outstanding:
Weighted average outstanding 231,159 229,760 231,104 230,416
Share equivalents (1)(2) 5,380 3,570 5,380 3,570
------- ------- ------- -------
Adjusted shares outstanding (2) 236,539 233,330 236,484 233,986
======= ======= ======= =======
- ----------------------------------
(1) Share equivalents consist primarily of nonqualified stock options.
(2) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND CONDENSED CONSOLIDATED BALANCE SHEET FOR
THE QUARTERLY PERIOD ENDED OCTOBER 27, 1995 FILED WITH THE SEC ON FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> OCT-27-1995
<CASH> 124,296
<SECURITIES> 289,463
<RECEIVABLES> 437,879
<ALLOWANCES> (21,736)
<INVENTORY> 228,390
<CURRENT-ASSETS> 1,197,719
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<OTHER-SE> 1,485,465
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<SALES> 1,042,310
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