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, 1995
( ) 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
[LOGO]
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 $.10 PER SHARE NEW YORK STOCK EXCHANGE, INC.
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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. ( )
AGGREGATE MARKET VALUE OF VOTING STOCK OF MEDTRONIC, INC. HELD BY NONAFFILIATES
OF THE REGISTRANT AS OF JULY 7, 1995, BASED ON THE CLOSING PRICE OF $77.00 AS
REPORTED ON THE NEW YORK STOCK EXCHANGE: $8.76 BILLION.
SHARES OF COMMON STOCK OUTSTANDING ON JULY 7, 1995: 115,513,007
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S 1995 ANNUAL SHAREHOLDER REPORT ARE INCORPORATED BY
REFERENCE INTO PARTS I, II AND IV; PORTIONS OF REGISTRANT'S PROXY STATEMENT FOR
ITS 1995 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
technology 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 systems, mechanical and tissue heart valves, balloon
and guiding catheters and stents used in angioplasty, implantable
neurostimulation and drug delivery systems, and perfusion systems including
blood oxygenators, centrifugal blood pumps, cannula products, and
autotransfusion and blood monitoring systems.
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 (1993-1995) have been attributable to this single
industry segment. The Company does business in more than 120 countries and
reports on three business units -- Pacing, Other Cardiovascular, and
Neurological and Other -- and three geographic areas -- the Americas,
Europe/Middle East/Africa, and Asia/Pacific.
BUSINESS NARRATIVE. Medtronic's Pacing business unit is the company's
largest operating unit, consisting of Bradycardia Pacing, which produces
products for treating patients with slow or irregular heartbeats, and
Tachyarrhythmia Management, which develops products for hearts with abnormally
fast rhythms. The bradycardia pacing systems include pacemakers, leads and
accessories. The pacemakers can be noninvasively programmed by the physician to
adjust sensing, electrical pulse intensity, rate, duration and other
characteristics, and can produce impulses to cause contractions in either the
upper or lower heart chamber, or both, in appropriate relation to heart
activity. In January 1995, the company commercially released the Thera(R) line
of pacemakers in the U.S. Thera(R) is a flexible, technically advanced family of
five new pacemakers for virtually every pacing application, a new specialized
lead and the new Model 9790 programmer. This versatile programmer can be used
interchangeably with all of the company's bradycardia pacemakers as well as with
its Jewel(R) line of tachyarrhythmia management devices.
More than half of Medtronic's revenues are generated from the sale of
implantable cardiac pacemaker systems for treatment of bradycardia. In addition
to the "Medtronic" line of pacing products, the company also produces a separate
line under the brand name "Vitatron."
The Tachyarrhythmia Management business produces implantable devices and
transvenous lead systems for treating ventricular tachyarrhythmias, which are
abnormally fast, and sometimes fatal, heartbeats. The systems offer tiered
therapy of pacing, cardioversion and defibrillation, and may be implanted
without a thoracotomy, which reduces patient trauma, and hospitalization time
and costs. The company's Jewel(R) line of devices, which were released in the
U.S. in March 1995, are the smallest currently commercially available and are
programmed with the Model 9790 pacing programmer. In fiscal 1995 the company
also commercially released the Jewel(R) Active Can(tm) outside the United
States. This system makes implantation possible with a single lead, resulting in
faster, less costly implantation and quicker patient recovery. The Active
Can(tm) device continues in clinical trials in the U.S. The company also
produces the Atakr(R) radio frequency ablation system to neutralize heart muscle
cells that cause tachyarrhythmias through a nonsurgical procedure. The Atakr(R)
system consists of a closed-loop, temperature-controlled radio frequency
generator with an array of steerable and non-steerable catheters.
The company's Pacing business unit accounted for 65.5% of Medtronic's net
sales during the fiscal year ended April 30, 1995 ("fiscal 1995"), 67.2% of net
sales in fiscal 1994 and 65.7% of net sales in fiscal 1993.
The company's Other Cardiovascular business unit consists of
Cardiopulmonary, Blood Management, DLP, Heart Valves, and Interventional
Vascular. Through a series of strategic acquisitions over the past decade,
Medtronic now markets a complete line of blood-handling products. These include
the Bio-Medicus Bio-Pump(R), the Maxima(R) oxygenator, Electromedics'
autotransfusion equipment, a broad line of cannulae and hemostasis management
equipment. These devices form a life-saving circuit by maintaining blood
circulation, oxygen supply and body temperature while the patient is undergoing
emergency treatment or open-heart surgery.
The company's Heart Valve business produces tissue and mechanical valve
replacements for damaged or diseased heart valves. Two new tissue valves, the
Mosaic(tm) stented valve and the Freestyle(R) non-stented aortic root, have
improved antimineralization and durability and are currently in clinical trials
outside the U.S. The company's Interventional Vascular business produces balloon
and guiding catheters, stents and accessories used by physicians to open
arteries obstructed by deposits of fatty plaque. In fiscal 1995, the company
commercially released worldwide the Ascent(tm) guiding catheter, which provides
the conduit and support of balloon catheters to reach the obstructed coronary
artery, and two new balloon catheters, the Evergreen(tm) over-the-wire and the
Falcon(tm). The Falcon(tm) is a "rapid exchange" style catheter which makes it
possible for a single operator to perform the procedure, reducing the time
required for an angioplasty procedure and minimizing the need for additional
staff to assist the interventional cardiologist.
The company's Other Cardiovascular business unit accounted for 26.1% of net
sales in fiscal 1995, and 23.6% and 22.9% of net sales, respectively, for fiscal
1994 and 1993.
The Neurological and Other business unit produces implantable systems for
spinal cord stimulation and programmable drug delivery that are used in treating
chronic intractable pain, tremor and spasticity. These include the SynchroMed(R)
pump and the Itrel(R) II spinal cord stimulation system. The Mattrix(R)
stimulator, which was commercially released in the U.S. in June 1995, is the
first neurostimulation system that offers a dual stimulation mode for more
effective pain management. The company is also collaborating with several
biotechnology companies to develop therapies for neurodegenerative disorders
such as Alzheimer's disease, Parkinson's disease, and amyotrophic lateral
sclerosis or Lou Gehrig's disease. Compounds for treating these diseases, called
neurotrophic factors, are still in development by these companies. Once they are
proven to be safe and effective, Medtronic believes its drug delivery technology
could be effective in administering these agents directly to their site of
action in precise doses. The Neurological and Other business unit accounted for
8.4% of net sales for fiscal 1995, and 9.2% and 11.4% of net sales,
respectively, for fiscal 1994 and 1993. The decrease in percentage of revenue is
due to divested product lines during fiscal 1994 and 1995.
GOVERNMENT REGULATION. The industry segment in which Medtronic competes
involves development, production and sales of medical devices. In the United
States, the Food and Drug Administration (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, order repair, replacement, or refund of such
devices, 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 more stringent
product regulation by the FDA. Rigorous regulatory action may be taken in
response to deficiencies noted in inspections or to 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.
The U.S. Health Care Financing Administration, which determines Medicare
reimbursement policy and practice, has changed its practice of reimbursing
hospitals for procedures involving medical devices in clinical evaluation. This
change in practice is causing hospitals to treat Medicare patients only with
medical devices that have been cleared for commercial release by the FDA. This
action has further limited the scope of clinical trials in the U.S., is forcing
more clinical research to non-U.S. markets, and is increasing the cost and time
required to complete clinical evaluations in the U.S.
Government and private sector initiatives to limit the growth of health
care costs, including price regulation and competitive pricing, are continuing
in several countries in which the company does business, including the United
States. These changes are causing the marketplace to put 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 this
worldwide trend toward cost containment, the uncertainty as to the outcome of
any proposed legislation or changes in the marketplace preclude the company from
predicting the impact these changes may have on future operating results.
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.
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.
Management believes that the company's risk management practices, including
insurance coverage, are reasonably adequate to protect against potential product
liability losses.
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 93.6% of Medtronic's U.S. sales and
approximately 64.8% of its sales from other countries in fiscal 1995. The
remaining sales were made through independent distributors.
RAW MATERIALS AND PRODUCTION. Medtronic generally has vertically integrated
manufacturing operations, and makes its own lithium batteries, feedthroughs,
integrated and hybrid circuits, microprocessors, and certain other components.
Medtronic purchases many of the parts and materials used in manufacturing its
components and products from external suppliers. Medtronic's single- and
sole-sourced materials include biomaterials such as adhesives, polymers,
elastomers and resins; certain integrated circuits and other
electrical/electronic components; power sources, battery anodes, pyrolytic
carbon discs, pharmaceutical preparations such as Lioresal(R) (baclofen, USP)
Intrathecal (registered trademark of CIBA-GEIGY Corporation), and computer and
other peripheral equipment.
Certain of the raw materials and components (e.g., silicone adhesives and
polyurethanes) used in Medtronic products are available only from a sole U.S.
supplier. 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, 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 companies 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.
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 characteristically has been rapid in the medical
device industry, 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 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 have transvenous lead systems cleared for commercial sale in the
U.S. Medtronic's Jewel(R) PCD(R) devices are commercially available with the
company's Transvene(tm) leads in U.S. and non-U.S. markets. Approximately three
other companies have devices in various stages of development and clinical
evaluation.
In the coronary angioplasty market, which includes balloon and guiding
catheters and implantable stents, there are numerous competitors worldwide.
Medtronic believes that it is the leading manufacturer and supplier of guiding
catheters worldwide. Medtronic and three other manufacturers account for most
combined balloon and guiding catheter sales. In stents, Medtronic and two
competitors account for most sales worldwide, with one competitor holding a
dominant market position and numerous new competitors emerging.
Medtronic is the second largest manufacturer and supplier of tissue heart
valves and also of mechanical heart valves within and outside the U.S. A 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 is the leading manufacturer and supplier of blood oxygenators and
centrifugal blood pumps worldwide.
Medtronic is the market leader in cannula products. Medtronic and four
competitors account for a significant portion of cannulae sales in the U.S.
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 and drug delivery systems. Medtronic and two
competitors account for most sales worldwide.
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 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 $191.4 million on research and
development (11.0% of net sales) in fiscal 1995, $156.3 million (11.2% of net
sales) in fiscal 1994 and $133.0 million (10.0%of net sales) in fiscal 1993.
Such amounts have been applied toward improving existing products, expanding
their applications, and developing new products. Medtronic's 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, spasticity 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
the blood/device interface.
Medtronic has not engaged in significant customer or government sponsored
research.
EMPLOYEES. On April 30, 1995, Medtronic and its subsidiaries employed 8,896
people on a regular, full-time basis and, including temporary and part-time
employees, a total of 10,313 employees on a full-time equivalent basis.
U.S. AND NON-U.S. OPERATIONS AND EXPORT SALES. Medtronic sells products in
more than 120 countries in three geographic areas: the Americas, Europe/Middle
East/Africa, and Asia/Pacific. For financial reporting purposes, 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 1995 Annual Shareholder Report
on page 49. U.S. export sales to unaffiliated customers comprised less than two
percent of Medtronic's consolidated sales in each of fiscal 1995, 1994 and 1993.
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 of foreign currency fluctuations on net earnings. 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 52, 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 58, 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 47, has been Chief Operating Officer since
January 1994 and has been a director since August 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 Products, at Abbott Laboratories from October 1989 to
May 1992 and Divisional Vice President, Diagnostic Products, from May 1984 to
October 1989. During his 14 years with Abbott, Mr. Collins served in various
general management positions both in the United States and Europe.
BOBBY I. GRIFFIN, age 58, 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 51, 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.
JANET S. FIOLA, age 53, 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.
PHILIP M. LAUGHLIN, age 47, joined the company as Senior Vice President and
President, Cardiac Surgery, in July 1995. Prior to that he served with Clintec
Nutrition Company (worldwide joint venture of Baxter International and Nestle
Company in the field of clinical nutrition), as President, North America, from
1994 through July 1995 and as President, United States, from 1989 to 1993. From
1976 to 1989, he held numerous management positions at Baxter International,
most recently as Vice President, Operations, Global Business Group.
RONALD E. LUND, age 60, 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 served as Vice President and Associate General Counsel of The
Pillsbury Company from 1984 to February 1989.
JOHN A. MESLOW, age 56, 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.
ROBERT L. RYAN, age 52, 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.
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. The company's total manufacturing and research space is approximately
1,653,000 square feet, of which 80% is owned by the company and the balance is
leased.
Medtronic also maintains sales and administrative offices inside the United
States at 47 locations in 27 states and outside the United States at 96
locations in 24 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 pages
48 and 49 of Medtronic's 1995 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 51 of Medtronic's 1995 Annual Shareholder
Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information for the years 1985 through 1995 on page 50 of Medtronic's
1995 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 33 through 37 of Medtronic's 1995 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 22, 1995, appearing on pages 38 through 49 of
Medtronic's 1995 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
1995 Annual Shareholders' Meeting and on page 9 of such Proxy Statement
regarding Section 16(a) reporting is incorporated herein by reference. See also
"Executive Officers of Medtronic" on pages 5 and 6 hereof.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Election of Directors -- Director Compensation" and
"Executive Compensation" on pages 7 and 8, and 14 through 20, respectively, of
Medtronic's Proxy Statement for its 1995 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 page 9 of Medtronic's
Proxy Statement for its 1995 Annual Shareholders' Meeting is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 8 of Medtronic's Proxy Statement for its 1995
Annual Shareholders' Meeting, concerning services provided to the company by the
Chairman of the Board and the Founder of the company in fiscal 1995, 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
38 of Medtronic's 1995 Annual Shareholder Report)
Statement of Consolidated Earnings -- years ended April 30, 1995, 1994, and
1993 (incorporated herein by reference to page 39 of Medtronic's 1995
Annual Shareholder Report)
Consolidated Balance Sheet -- April 30, 1995 and 1994 (incorporated herein
by reference to page 40 of Medtronic's 1995 Annual Shareholder Report)
Statement of Consolidated Cash Flow -- years ended April 30, 1995, 1994,
and 1993 (incorporated herein by reference to page 41 of Medtronic's 1995
Annual Shareholder Report)
Notes to Consolidated Financial Statements (incorporated herein by
reference to pages 42 through 49 of Medtronic's 1995 Annual Shareholder
Report)
2. FINANCIAL STATEMENT SCHEDULES
II Valuation and Qualifying Accounts -- years ended April 30, 1995, 1994,
and 1993
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
3.1 Medtronic Restated Articles of Incorporation, as amended to date
(Exhibit 3.1).(g)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(f)
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).(b)
*10.2 Management Incentive Plan (Appendix B).(b)
*10.3 1979 Restricted Stock and Performance Share Award Plan, as amended
to date (Exhibit 10.1).(d)
*10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit A).(e)
*10.5 Form of Employment Agreement for Medtronic executive officers.
*10.6 1991 Restricted Stock Plan for Non-Employee Directors
(Exhibit B).(e)
*10.7 Capital Accumulation Plan Deferral Program (Exhibit 10.6).(d)
*10.8 Postretirement Survivor Benefit Plan (Exhibit 10.7).(d)
*10.9 Amendment effective October 1, 1993 to the Directors' Retirement
Plan (Exhibit 10.9).(a)
*10.10 Nonqualified Supplemental Benefit Plan (Exhibit 10.9).(d)
*10.11 Management Incentive Plan Stock Option Replacement Program
11 Computation of Earnings Per Share.
13 Those portions of Medtronic's 1995 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 11 of
this report).
24 Powers of Attorney.
27 Financial Data Schedule
(a) Incorporated herein by reference to the cited exhibit in Medtronic's
Annual Report on Form 10-K for the year ended April 30, 1994, filed
with the Commission on July 27, 1994.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
*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, 1995.
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, 1995
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, 1995
BY: /S/ WILLIAM W. GEORGE
William W. George
President and
Chief Executive Officer
Dated: July 25, 1995
BY: /S/ ROBERT L. RYAN
Robert L. Ryan
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
F. CALEB BLODGETT
ARTHUR D. COLLINS, JR.
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, 1995
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 22, 1995 appearing on page 38 of the 1995 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 Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
May 22, 1995
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, 33-44230 and
33-55329) and Form S-4 (Registration No. 33-52751) of Medtronic, Inc. of our
report dated May 22, 1995 appearing on page 38 of the 1995 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 Schedule as shown above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
July 25, 1995
MEDTRONIC, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHANGES BALANCE
BEGINNING CHARGES TO (DEBIT) AT END OF
OF PERIOD EARNINGS CREDIT PERIOD
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended 4/30/95 $20,123 $ 2,501 $(1,464)(a) $22,416
1,256 (b)
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)(c)
(7,015)(d)
(504)
Accrued warranty and product liability (e):
Year ended 4/30/95 $20,127 $16,062 $(5,956)(f) $30,233
Year ended 4/30/94 15,326 8,645 (3,844)(f) 20,127
Year ended 4/30/93 15,544 4,667 (4,885)(f) 15,326
</TABLE>
(a) Uncollectible accounts written off, less recoveries.
(b) Reflects primarily the effects of foreign currency fluctuations.
(c) Reflects the sale of all assets of the CardioCare division.
(d) Reflects reclassification of assets retained in the sale of the Nortech
division.
(e) Includes both current and noncurrent amounts.
(f) Claims settled, less reimbursement by insurance carrier
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, 1995
[LOGO]
Medtronic, Inc.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
Telephone: 612/574-4000
EXHIBIT INDEX
3.1 Medtronic Restated Articles of Incorporation, as amended to date
(Exhibit 3.1).(g)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(f)
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).(b)
10.2 Management Incentive Plan (Appendix B).(b)
10.3 1979 Restricted Stock and Performance Share Award Plan, as amended to
date (Exhibit 10.1).(d)
10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit A).(e)
10.5 Form of Employment Agreement for Medtronic executive officers.
10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit B).(e)
10.7 Capital Accumulation Plan Deferral Program (Exhibit 10.6).(d)
10.8 Postretirement Survivor Benefit Plan (Exhibit 10.7).(d)
10.9 Amendment effective October 1, 1993 to the Directors' Retirement Plan
(Exhibit 10.9).(a)
10.10 Nonqualified Supplemental Benefit Plan (Exhibit 10.9).(d)
10.11 Management Incentive Plan Stock Option Replacement Program
11 Computation of Earnings Per Share.
13 Those portions of Medtronic's 1995 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 11 of this
report).
24 Powers of Attorney.
27 Financial Data Schedule
_________________
(a) Incorporated herein by reference to the cited exhibit in
Medtronic's Annual Report on Form 10-K for the year ended April
30, 1994, filed with the Commission on July 27, 1994.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
EXHIBIT NUMBER 10.5
EMPLOYMENT AGREEMENT FOR MEDTRONIC EXECUTIVE OFFFICERS
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT by and between Medtronic, Inc. a Minnesota corporation (the
"Company") and ________________________________ (the "Executive"), dated as of
the ______ day of ______________,_______.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section l(b)) on
which a Change of Control (as defined in Section 2) occurs.
Anything in this Agreement to the contrary notwithstanding,
if a Change of Control occurs and if the Executive's
employment with the Company is terminated or the Executive
ceases to be an officer of the Company prior to the date on
which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of
employment or cessation of status as an officer (i) was at
the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise
arose in connection with or anticipation of the Change of
Control, then for all purposes of this Agreement the
"Effective Date" shall mean the date immediately prior to the
date of such termination of employment or cessation of status
as an officer.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third
anniversary of such date; provided, however, that commencing
on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate three years from
such Renewal Date, unless at least 60 days prior to the
Renewal Date the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either
(i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company, (ii) any
acquisition by the Company or any of its subsidiaries, (iii)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its
subsidiaries or (iv) any acquisition by any corporation with
respect to which, following such acquisition, more than 55%
of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Company Voting Securities
immediately prior to such acquisition in substantially the
same proportions as their ownership, immediately prior to
such acquisition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents; or
(c) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange
of Outstanding Company voting Securities, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such reorganization,
merger, consolidation or exchange do not, following such
reorganization, merger, consolidation or exchange,
beneficially own, directly or indirectly, more than 55% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such reorganization, merger, consolidation or exchange
in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger,
consolidation or exchange of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case
may be; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets
of the Company, other than to a corporation with respect to
which, following such sale or other disposition, more than
55% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other
disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other
disposition, of the outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
Notwithstanding the foregoing provisions of this Section 2, a Change of
Control shall not be deemed to occur if the acquisition of the 30% or greater
interest referred to in Section 2(a) is by a group, acting in concert, that
includes the Executive or if at least 40% of the then outstanding common stock
or combined voting power of the then outstanding voting securities (or voting
equity interests) of the surviving corporation or of any corporation (or other
entity) acquiring all or substantially all of the assets of the Company shall be
beneficially owned, directly or indirectly, immediately after a reorganization,
merger, consolidation, statutory share exchange or disposition of assets
referred to in Section 2(c) or (d) by a group, acting in concert, that includes
the Executive.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain
in the employ of the Company, for the period commencing on the
Effective Date and ending on the third anniversary of such date
(the "Employment Period"), provided that nothing stated in this
Agreement shall restrict the right of the Company or the Executive
at any time to terminate the Executive's employment with the
Company, subject to the obligations of the Company provided for in
this Agreement in the event of such termination.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all
material respects with the most significant of those
held, exercised and assigned at any time during the
90-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at
the location where the Executive was employed
immediately preceding the Effective Date or any office
or location less than 35 miles from such location.
(ii) Except as otherwise expressly provided in this
Agreement, during the Employment Period, and excluding
any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business
hours to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal
investments, so long as such activities do not
significantly interfere with the performance of the
Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is
expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive
prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to
the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base
Salary") which shall be paid at a monthly rate, at least
equal to twelve times the highest monthly base salary
paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month
period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time
as shall be substantially consistent with increases in
base salary generally awarded in the ordinary course of
business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary
shall not serve to limit or reduce any other obligation
to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term
"affiliated companies" shall include any company
controlled by, controlling or under common control with
the Company.
(ii) Annual Incentive Payments. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal
year during the Employment Period, an annual bonus
("Annual Bonus") in cash at least equal to the average
annual or annualized (for any fiscal year consisting of
less than twelve full months or with respect to which
the Executive has been employed by the Company for less
than twelve full months) award paid to or accrued for
the Executive under the Company's Management Incentive
Plan, as amended from time to time prior to the
Effective Date (the "MIP"), for the three fiscal years
immediately preceding the fiscal year in which the
Effective Date occurs (the "Recent Average Bonus"). In
addition, the Executive shall be awarded, for each
fiscal year during the Employment Period, an additional
annual incentive payment (the "Annual Performance Share
Equivalent") in cash at least equal to the average
annual or annualized (for any fiscal year consisting of
less than twelve full months or with respect to which
the Executive has been employed by the Company for less
than twelve full months) value, when distributed, of the
distributions of vested performance share awards paid to
or accrued for the Executive under the Company's
Restricted Stock and Performance Share Award Plan, as
amended from time to time prior to the Effective Date
(the "PSP"), for the three fiscal years immediately
preceding the fiscal year in which the Effective Date
occurs (the "Recent Average PSP Payments"). The Annual
Bonus and Annual Performance Share Equivalent are herein
referred to collectively as the Annual Incentive
Payments. The Annual Incentive Payments shall be paid no
later than the end of the third month of the fiscal year
for which the Annual Incentive Payments are awarded,
unless the Executive shall elect to defer the receipt of
such Annual Incentive Payments.
(iii) Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate
in all savings and retirement plans, practices, policies
and programs applicable generally to other peer
executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies
and programs provide the Executive with savings
opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any
time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective
Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may
be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company
and its affiliated companies (including, without
limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other
peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices,
policies and programs provide the Executive with
benefits which are less favorable,, in the aggregate,
than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any
time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective
Date to other peer executives of the Company and its
affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in
accordance with the most favorable policies, practices
and procedures of the Company and its affiliated
companies in effect for the Executive at any time during
the 90-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated
companies.
(vi) Perquisites. During the Employment Period, the Executive
shall be entitled to perquisites in accordance with the
most favorable plans, practices, programs and policies
of the Company and its affiliated companies in effect
for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments,
and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and
its affiliated companies at any time during the 90-day
period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally
at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacations in accordance with
the most favorable plans, policies, programs and
practices of the Company and its affiliated companies as
in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other
peer incentives of the Company and its affiliated
companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the
Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice
in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for
180 consecutive days as a result of incapacity due to mental
or physical illness which is determined to be total and
permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) repeated violations by the
Executive of the Executive's obligations under Section 4(a)
of this Agreement (other than as a result of incapacity due
to physical or mental illness) which are demonstrably willful
and deliberate on the Executive's part, which are committed
in bad faith or without the belief on the part of the
Executive that such violations are in the best interests of
the Company and which are not remedied in a reasonable period
of time after receipt of written notice from the Company
specifying such violations or (ii) the conviction of the
Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this
Agreement, or any other action by the Company which
results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than
an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in
Section 4(a)(i)(B) hereof or the Company's requiring the
Executive to travel on Company business to a
substantially greater extent than required immediately
prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive during the 30-day
period immediately following the first anniversary of the Effective Date (the
"Window Period") which would not otherwise constitute Good Reason shall be
deemed to be a termination by the Executive for Good Reason for all purposes of
this Agreement (other than the purposes of Sections 6(a)(i)B and 6(a)(ii)).
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be
not more than fifteen days after the giving of such notice).
The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or
preclude the Executive or the Company from asserting such
fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for
Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other
than for Cause or Disability or death, the Date of
Termination shall be the date on which the Company notifies
the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as
the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or
Disability or the Executive shall terminate employment for
Good Reason, in lieu of further payments pursuant to Section
4(b) with respect to periods following the Date of
Termination:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the
aggregate of the following amounts (such aggregate shall
be hereinafter referred to as the "Special Termination
Amount"):
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, and, unless the termination of
the Executive's employment shall occur during the
plan year of the MIP in which the Change in Control
occurs, as defined in the MIP, in which event the
bonus award payable to the Employee with respect to
the fiscal year of termination shall be made
pursuant to the terms of the MIP and the PSP, (2)
the product of (x) the higher of (I) the sum of the
Recent Average Bonus and the Recent Average PSP
Payments and (II) the Annual Incentive Payments
paid or payable, including by reason of deferral,
(and annualized for any fiscal year consisting of
less than twelve full months or for which the
Executive has been employed for less than twelve
full months) for the most recently completed fiscal
year during the Employment Period, if any, and (y)
a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of
Termination, and the denominator of which is 365
(the sum of the amounts described in clauses (1)
and (2) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) three (two,
in the case of a voluntary termination by the
Executive without Good Reason during the Window
Period) and (2) the sum of (x) the Executive's
Annual Base Salary and (y) the higher of (i) the
amount the Executive would be entitled to receive
as a final award under the MIP for the year in
which a Change in Control, as defined in the MIP,
occurs, presuming that such Change in Control
occurred on the Effective Date and (ii) the Annual
Bonus paid or payable to the Executive for the most
recently completed fiscal year during the
Employment Period prior to the Date of Termination;
and
C. an amount equal to the value of PSP awards, if any,
including without limitation the lapse or
restrictions on restricted stock awards, that would
have been paid or payable to the Executive under
the PSP but for Section 17(d) of the PSP but are
not paid or payable to the Executive under the PSP
because of Section 17(d); and
(ii) for the remainder of the Employment Period (or two years
in the case of a voluntary termination by the Executive
without Good Reason during the Window Period), or such
longer period as any plan, program, practice or policy
may provide, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal
to those which would have been provided to them in
accordance with the plans programs, practices and
policies described in Section 4(b)(iv) of this Agreement
if the Executive's employment had not been terminated,
in accordance with the most favorable plans, practices,
programs or policies of the Company and its affiliated
companies applicable generally to other peer executives
and their families during the 90-day period immediately
preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes
re-employed with another employer and is eligible to
receive medical or disability welfare benefits under
another employer provided plan, the medical and
disability welfare benefits described herein shall be
secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of
determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have
remained employed until the end of the Employment Period
and to have retired on the last day of such period.
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of the Accrued Obligations. The Accrued
Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30
days of the Date of Termination. In addition, the Executive's
family shall be entitled to receive benefits at least equal
to the most favorable benefits provided by the Company and
any of its affiliated companies to surviving families of
deceased peer executives of the Company and such affiliated
companies under such plans, programs, practices and policies
relating to family death benefits, if any, as in effect with
respect to other deceased peer executives and their families
at any time during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect on the date of
the Executive's death with respect to other deceased peer
executives of the Company and its affiliated companies and
their families.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of the
Accrued Obligations. The Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the
Date of Termination. In addition, the Executive shall be
entitled after the Disability Effective Date to receive
disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices,
and policies relating to disability, if any, as in effect
generally with respect to other disabled peer executives and
their families at any time during the 90-day period
immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as
in effect at any time thereafter generally with respect to
other disabled peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the
obligation to pay to the Executive Annual Base Salary through
the Date of Termination plus the amount of any compensation
previously deferred by the Executive, in each case to the
extent theretofore unpaid. If the Executive voluntarily
terminates employment during the Employment Period, excluding
a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for
Accrued Obligations. In such case, all Accrued Obligations
shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any
of its affiliated companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program
or contract or agreement except as explicitly modified by this
Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and
such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay, to the full
extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive
or others of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at
the applicable Federal rate provided for in Section 7872(f)(2)(A)
of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by Price
Waterhouse & Co. or such other certified public accounting
firm as may be designated by the Executive (the "Accounting
Firm") which shall provide detailed supporting calculations
both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to
the Executive within five days of the receipt of the
Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have
been made by the Company should have been made
("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts
its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit
of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless,
on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control
all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may,
at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine;
provided, however, that if the Company directs the Executive
to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year
of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive
becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid.
10. Confidential Information. The Executive shall comply with any and
all confidentiality agreements with the Company to which the
Executive is, or shall be, a party.
11. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
Attention: General Counsel
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other
provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section
5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the
Executive by the Company may be terminated by either the
Executive or the Company at any time prior to the Effective
Date or, subject to the obligations of the Company provided
for in this Agreement in the event of a termination after the
Effective Date, at anytime on or after the Effective Date.
Moreover, if prior to the Effective Date, (i) the Executive's
employment with the Company terminates or (ii) the Executive
ceases to be an officer of the Company, then the Executive
shall have no further rights under this Agreement. From and
after the Effective Date, this Agreement shall supersede any
other agreement between the parties with respect to the
subject matter hereof, including, without limitation, the
Management Agreement, if any, between the Company and the
Executive in effect immediately prior to the execution of
this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
_____________________________ MEDTRONIC, INC.
By ____________________________
EXHIBIT NUMBER 10.11
MANAGEMENT INCENTIVE PLAN STOCK OPTION REPLACEMENT PROGRAM
EXHIBIT 10.11
MANAGEMENT INCENTIVE PLAN STOCK OPTION REPLACEMENT PROGRAM
In keeping with the company's philosophy of encouraging stock ownership by
officers, in fiscal 1995 the company introduced a program which allows executive
officers to elect to receive stock options in lieu of some or all of the cash
compensation earned under the Management Incentive Plan, which is the company's
annual cash bonus incentive plan. By foregoing cash compensation for stock
options, the variable "at risk" component of each officer's compensation package
is increased and officers are further motivated to perform to enhance
shareholder value over the long term. Under the program, the amount of the stock
option grant is determined by the Compensation Committee of the Board of
Directors based on consideration of a number of factors, including a present
value estimate of stock option value, the degree of risk incurred by the officer
and the positive economic impact to the company.
EXHIBIT NUMBER 11
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
MEDTRONIC, INC.
(Unaudited)
(in thousands)
Years ended April 30, 1995 1994 1993
PRIMARY
Shares oustanding:
Weighted average outstanding 115,240 114,808 118,832
Share equivalents (1)(2) 1,377 871 1,379
Adjusted shares outstanding (2) 116,617 115,679 120,211
FULLY DILUTED
Shares outstanding:
Weighted average outstanding 115,240 114,808 118,832
Share equivalents (1)(2) 2,190 1,120 1,541
Adjusted shares outstanding (2) 117,430 115,928 120,373
Net earnings before cumulative
effect of accounting changes $294,000 $232,357 $211,584
Net earnings 294,000 232,357 197,228
(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.
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 and
stents used in angioplasty, implantable neuro stimulation and drug delivery
systems, and perfusion systems including blood oxygenators, centrifugal blood
pumps, cannula products, and autotransfusion and blood monitoring systems. The
company reports on three business units--Pacing, Other Cardiovascular, and
Neurological and Other--and three geographic areas--the Americas, Europe/Middle
East/Africa, and Asia/Pacific.
Fiscal 1995 was another record year for the company, evidenced by the doubling
of the stock price from April 1994 to April 1995 (after adjusting for the
September 1994 stock split paid in the form of a 100% stock dividend). Net sales
of $1.7 billion represent a 25.3% increase over 1994. Net sales on a comparable
operations basis (i.e., after adjusting for the effects of prior year
acquisitions and a divestiture and foreign currency translations), increased
16.5% compared to increases of 11.3% in 1994 and 13.0% in 1993. Net earnings and
earnings per share increased 26.5% and 26.2% to $294.0 million and $2.55,
respectively. The growth during 1995 was the result of solid contributions from
each of the businesses and geographic areas and was accelerated by significant
new product and therapy introductions. These product introductions included the
Thera family of six new bradycardia pacing pulse generators, the Jewel family of
tachyarrhythmia devices, and the Evergreen balloon catheter. Other product
introductions which occurred late in the year included the Falcon rapid-exchange
catheter and the Atakr cardiac ablation system.
Worldwide health care markets continue to change. Developed world markets,
including the United States and Europe, continue to focus on cost controls and
cost-effective therapies. The developing markets in China and Latin America are
increasing their focus on the health and well-being of their citizens.
Management believes that the company's broad base of proven, cost-effective
products coupled with the strength of its worldwide manufacturing, marketing,
and distribution capabilities will enable the company to continue to meet the
needs of these changing markets and gain market share. In addition, the company
is committed to continuing development of technologically advanced, more
cost-effective products and therapies.
NET SALES
The increase in net sales from 1994 to 1995 on a comparable operations basis was
primarily the result of increases in unit volume. Selling prices for the
company's products overall remained relatively stable despite the market's focus
on cost controls and competitive pricing, an indication of the cost
effectiveness of the company's products. Sales in the United States in 1995
increased 15.2% on a comparable operations basis over the prior year, compared
to 10.9% in 1994. Sales outside the United States increased 18.2% on a
comparable operations basis compared to 11.9% in 1994. Sales in non-U.S. markets
accounted for 43.8% of worldwide net sales, compared with 42.5% in 1994 and
42.0% in 1993. However, foreign exchange rate movements had a favorable
year-to-year impact of $59.1 million and $22.0 million on international net
sales in 1995 and 1993, respectively and an unfavorable impact of $30.8 million
in 1994. Exclusive of the effects of foreign currency, non-U.S. net sales as a
percentage of total net sales increased in each of the three years. The impact
of foreign currency fluctuations on net sales is not necessarily indicative of
the impact on net earnings due to the offsetting foreign currency impact on
costs and expenses and the company's hedging activities (see Note 3 to the
consolidated financial statements for further details on foreign currency
instruments).
The following is a summary of sales by business unit as a percentage of total
net sales:
Year ended April 30, 1995 1994 1993
Pacing 65.5% 67.2% 65.7%
Other Cardiovascular 26.1 23.6 22.9
Neurological & Other 8.4 9.2 11.4
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net sales of the Pacing business, consisting mainly of Bradycardia Pacing and
Tachyarrhythmia Management, increased 17.6% over the prior year on a comparable
operations basis versus growth of 12.0% in 1994. The increase in the growth rate
from 1994 to 1995 was attributable to worldwide contributions from both
bradycardia and tachyarrhythmia management devices. Bradycardia unit sales of
implantable pulse generators (IPGs) achieved mid-teens percentage growth led by
the Thera family of pacemakers. The Thera family, which consists of IPGs, a
specialized pacemaker lead, and a new model 9790 programmer, was commercially
released in Europe in March 1994 and was cleared by the Food and Drug
Administration (FDA) for commercial sale in the United States in January 1995.
Significant sales growth within the Tachyarrhythmia Management business was
primarily attributable to the Jewel family of implantable
cardioverter-defibrillators (ICDs). The first Jewel devices were introduced
outside the United States in December 1993. In November 1994, two additional
technologically advanced models of the Jewel were introduced outside the United
States, and in March 1995, the FDA cleared five Jewel models for commercial sale
in the United States. All of the Jewel devices are programmable using the 9790
programmer.
The Thera and Jewel product lines contributed significantly to the overall sales
growth of the company in 1995 and are expected to continue to perform well in
the future. Management believes the Pacing business is well positioned for
continued growth based on the proven cost effectiveness of the products and the
company's commitment to continue to develop technologically advanced products.
The next generation of products for both bradycardia and tachyarrhythmia
management, Thera i series and Jewel Plus, respectively, are currently in
clinical evaluation.
The Other Cardiovascular business unit, consisting of Interventional Vascular,
Cardiopulmonary, Blood Management, DLP and Heart Valves, accounted for an
increased proportion of total net sales. Excluding the effects of acquisitions
and foreign currency translation, net sales of the Other Cardiovascular business
unit increased 12.2% compared with 8.4% in 1994. The Interventional Vascular
business again reported strong double digit sales growth. Product introductions
significantly broadened both the balloon and guiding catheter product lines and
led to substantially increased worldwide unit sales. Balloon catheter sales
growth was led by the Panther and Evergreen over-the-wire catheters, and strong
growth in sales of guiding catheters was led by the new Ascent product line. The
overall increase in unit growth of balloon catheters continued to be partially
offset by declining average selling prices in the United States. Selling prices
have deteriorated over the past two years as a result of increased price
competition. It is unclear to what extent erosion of selling prices will
continue into 1996. Within the Cardiopulmonary and Blood Management businesses,
centrifugal blood pumps and oxygenators contributed double digit percentage
revenue growth. The growth on a comparable operation basis was augmented by
contributions from Electromedics, acquired in late 1994. In addition, DLP, also
acquired in late 1994, contributed to the overall growth of the Other
Cardiovascular business unit. Heart Valves reported moderate revenue growth. The
overall growth of the Other Cardiovascular business was boosted by significant
progress in the company's Cardiovascular Alliance program of multi-line
contracting. This program allows customers to take advantage of the company's
breadth of products by purchasing a broad variety of products under a single
contract, thereby reducing administrative and product costs.
Net sales of the Neurological and Other businesses, primarily consisting of
implantable neurostimulation devices, drug administration systems, and
components, continued to record strong growth. Net sales on a comparable
operations basis grew 19.5% over the previous year compared to growth of 14.5%
in 1994. Sales growth in 1995 was led by the implantable SynchroMed infusion
system. In March 1994 the U.S. Health Care Financing Administration authorized
Medicare reimbursement for use of the SynchroMed system with Lioresal
Intrathecal for the treatment of chronic spasticity of spinal cord origin and
morphine for malignant pain. In February 1995, the FDA granted a Treatment
Protocol for the use of Lioresal Intrathecal in the treatment of spasticity of
cerebral origin. The Itrel II implantable neurostimulation system also realized
solid double digit percentage growth in 1995. In February 1995, a new
neurostimulation therapy to control the involuntary motion and trembling
associated with Parkinson's disease or essential tremor was commercially
released outside the United States.
<PAGE> 34
COSTS AND EXPENSES
The following is a summary of major costs and expenses as a percentage of net
sales:
Year ended April 30, 1995 1994 1993
Cost of Products Sold 31.0% 31.0% 31.6%
Research & Development 11.0 11.2 10.0
Selling, General & Administrative 33.0 33.8 36.1
Cost of products sold as a percentage of net sales in 1995 remained consistent
with 1994 as cost savings from increased production levels and cost-control
efforts were offset by increased start-up costs related to new product
introductions and fluctuations in product mix. The efficiencies of higher
production levels were most evident in bradycardia and tachyarrhythmia
management devices, drug administration system devices, and interventional
vascular products. The decrease in cost of sales as a percent of sales from 1993
to 1994 was primarily the result of the divestitures of lower margin product
lines, productivity increases, and effective cost controls. Gross margins will
continue to be impacted by regulatory and competitive pricing pressures, new
product introductions, the mix of products both within and between businesses,
productivity fluctuations, and the effects of foreign currency fluctuations.
The company continued its commitment and strategy of achieving long-term growth,
in part, by investing in research and development (R&D). R&D expense increased
22.4% to $191.4 million in 1995 from $156.3 million in 1994. Investing
significant resources in R&D is intended to result in future revenue growth and
market share gains by developing technological enhancements and new indications
for existing products as well as developing new technologies to address unmet
patient needs. The success of this strategy is reflected in the rapid market
acceptance of new, technologically advanced products during 1995.
Selling, general, and administrative expense (SG&A) as a percent of sales
decreased slightly in 1995 primarily due to overall cost efficiencies and
accelerated revenue growth. SG&A expense includes unusual costs and income items
such as royalty income, litigation settlement income, costs related to market
value adjustments on hedging activity, and other items. The net effect of these
unusual items was insignificant in 1995 and 1994 and does not have a material
impact on the year-to-year comparison. The decrease in SG&A as a percent of
sales from 1993 to 1994 was the result of effective spending controls, increased
royalty income, and divestiture of businesses with higher overhead structures.
INCOME TAXES
The company's effective income tax rate in 1995 was 33.5%, up from 33.0% in 1994
and 32.5% in 1993. The increases in 1995 and 1994 were primarily the result of
the Omnibus Budget Reconciliation Act of 1993, which increased the U.S. income
tax rate and significantly reduced U.S. tax benefits resulting from the
company's operations in Puerto Rico. During 1995, the negative impact of these
changes was in part offset by increased tax credits. Although these changes in
the tax code will continue to put upward pressure on the company's effective tax
rate in the future, management believes that the adverse impact should be
minimized by other tax planning initiatives.
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY
The company continued to strengthen its financial position during 1995. At April
30, 1995, working capital, the excess of current assets over current
liabilities, totaled $647.8 million, an increase of 59.4% over the $406.4
million at April 30, 1994. The current ratio at April 30, 1995, was 2.4:1
compared with 1.9:1 and 2.2:1 at April 30, 1994 and 1993, respectively. 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 $276.0
million at April 30, 1995, compared to $103.0 million at April 30, 1994, and
$53.3 million at April 30, 1993.
Because of its strong financial condition, the company is well positioned to
maintain its commitment to ongoing diversification strategies which include
research and development spending, internal ventures, and acquisitions. The
company intends to continue exploring potential mergers and acquisitions of
companies which are strategically aligned with or will complement current
businesses.
CASH FLOW
Cash provided by operating activities was $387.2 million in 1995 compared to
$356.9 million in 1994 and $291.5 million in 1993. These operating cash flows
were sufficient to fund the company's capital expenditures, acquisitions,
dividends to shareholders, and stock repurchases. Capital spending totaled
$104.0 million in 1995, an increase of 20.9% over the $86.0 million in 1994.
This increase in capital spending was primarily the result of spending
associated with the new model 9790 programmer which is utilized to program all
Medtronic pacemakers and the company's Jewel line of ICDs. This cost-effective
programmer with its advanced features and ease of use is contributing
significantly to the rapid acceptance of the Thera and Jewel product lines.
Capital spending in 1994 decreased 1.6% from 1993 while the 1993 spending
reflected an increase of 5.0%. The company expects future growth in capital
spending to support increased manufacturing capacity and operational
requirements. This spending will be financed primarily by funds from operations.
Repurchases of common stock totaled $59.1 million in 1995, compared to $53.4
million and $142.9 million in 1994 and 1993, respectively.
In addition to capital spending and stock repurchase activity, significant items
affecting cash flows during 1995 included $39.1 million paid for settlement of
payables related to 1994 acquisitions, dividends to shareholders totaling $47.2
million, and $36.2 million reduction of debt. Cash flows from increases and
decreases in operating assets and liabilities essentially offset each other.
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, capital
spending, and stock repurchases, the company's cash position was favorably
impacted by the timing of income tax payments, ongoing royalty income, and
increases in liabilities.
<PAGE> 36
DEBT AND CAPITAL
During 1995, the Board of Directors authorized the company to repurchase an
additional 6.0 million shares of its common stock. At April 30, 1995, the total
shares authorized for repurchase were approximately 7.4 million shares. During
1995, approximately 1.5 million shares were repurchased at an average cost of
$38.39 per share. During 1994, approximately 1.7 million shares were repurchased
at an average price of $31.08 per share. The company repurchased shares in 1995
and 1994 to offset dilution resulting from the issuance of stock under employee
benefit plans, shares issued in conjunction with the acquisition of
Electromedics, Inc., 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.
Dividends to shareholders were $47.2 million, $39.0 million, and $33.3 million
in 1995, 1994, and 1993, 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 minimally utilizes long-term debt. Interest-bearing debt as a
percent of total capital was 3.4% at April 30, 1995, compared with 6.9% and
10.9% at April 30, 1994, and 1993, respectively.
One of the company's key financial objectives is achieving an annual return on
equity (ROE) of at least 20%. ROE compares net earnings to average shareholders'
equity and is a key measure of management's ability to utilize the shareholders'
investment in the company effectively. In 1995, ROE was 24.6%, up one-tenth of a
percentage point over the 24.5% in 1994. This increase is significant
considering average shareholders' equity increased 26.0% during the same period.
In 1993, ROE was 24.1% and in each of the preceding five years, ROE exceeded
20%.
GOVERNMENT REGULATION AND OTHER MATTERS
Government and private sector initiatives to limit the growth of health care
costs, including price regulation and competitive pricing, are continuing in
several countries where the company does business, including the United States.
These changes are causing the marketplace to put 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 this worldwide trend
toward cost containment, the uncertainty as to the outcome of any proposed
legislation or changes in the marketplace preclude the company from predicting
the impact these changes 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 more stringent product
regulation by the FDA. Rigorous regulatory action may be taken in response to
deficiencies noted in inspections or to 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 postmarket 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, has changed its practice of reimbursing hospitals for
procedures involving medical devices in clinical evaluation. This change in
practice is causing hospitals to treat Medicare patients only with medical
devices that have been cleared for commercial release by the FDA. This action
has further limited the scope of clinical trials in the United States, is
forcing more clinical research to non-U.S. markets, and is increasing the cost
and time required to complete clinical evaluations in the United States.
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.
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.
Management believes that the company's risk management practices, including
insurance coverage, are reasonably adequate to protect against potential product
liability losses.
<PAGE> 37
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
statements of consolidated earnings and consolidated cash flows present fairly,
in all material respects, the financial position of Medtronic, Inc., and its
subsidiaries at April 30, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended April 30, 1995,
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 LLP
Price Waterhouse LLP
Minneapolis, Minnesota
May 22, 1995
<PAGE> 38
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED EARNINGS
(in thousands of dollars, except per share data) Medtronic, Inc.
Year ended April 30, 1995 1994 1993
<S> <C> <C> <C>
NET SALES $ 1,742,392 $ 1,390,922 $ 1,328,208
COSTS AND EXPENSES:
Cost of products sold 540,080 431,668 420,132
Research and development expense 191,351 156,314 132,955
Selling, general, and administrative expense 574,624 470,266 480,006
Interest expense 9,007 8,208 10,448
Interest income (14,775) (8,373) (8,791)
Gain on sale of subsidiary -- (13,962) --
Litigation settlement -- -- (50,000)
Intangible asset amortization -- -- 18,000
Foundation commitment -- -- 12,000
TOTAL COSTS AND EXPENSES 1,300,287 1,044,121 1,014,750
EARNINGS BEFORE INCOME TAXES 442,105 346,801 313,458
PROVISION FOR INCOME TAXES 148,105 114,444 101,874
NET EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 294,000 232,357 211,584
CUMULATIVE EFFECT OF ACCOUNTING CHANGES:
Postretirement benefits (net of deferred taxes of $5,674) -- -- (9,256)
Income taxes -- -- (5,100)
NET EARNINGS $ 294,000 $ 232,357 $ 197,228
WEIGHTED AVERAGE SHARES OUTSTANDING 115,240 114,808 118,832
EARNINGS PER SHARE:
Earnings before cumulative effect of accounting change $ 2.55 $ 2.02 $ 1.78
Cumulative effect of accounting changes -- -- (0.12)
NET EARNINGS PER SHARE $ 2.55 $ 2.02 $ 1.66
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 39
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(in thousands of dollars) Medtronic, Inc.
April 30, 1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 98,292 $ 108,720
Short-term investments 225,357 72,694
Accounts receivable, less allowance for doubtful accounts of $22,416 and $20,123 413,942 340,927
Inventories:
Finished goods 97,048 102,163
Work in process 59,311 50,751
Raw materials 65,573 60,384
Total Inventories 221,932 213,298
Prepaid income taxes 92,563 79,809
Prepaid expenses and other current assets 51,823 30,409
TOTAL CURRENT ASSETS 1,103,909 845,857
PROPERTY, PLANT, AND EQUIPMENT:
Land and land improvements 17,920 16,624
Buildings and leasehold improvements 174,592 165,822
Equipment 501,134 409,050
Construction in progress 21,830 18,449
715,476 609,945
Accumulated depreciation (384,415) (308,160)
Net Property, Plant, and Equipment 331,061 301,785
GOODWILL, net of accumulated amortization of $39,990 and $27,842 278,724 279,514
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $31,482 and $21,042 84,622 87,724
OTHER ASSETS 148,416 108,372
TOTAL ASSETS $ 1,946,732 $ 1,623,252
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 33,474 $ 58,173
Accounts payable--trade 25,369 32,673
Accounts payable--other 97,643 68,492
Acquisition price payable -- 39,130
Accrued compensation 67,193 53,537
Accrued income taxes 119,018 104,894
Other accrued expenses 113,432 82,545
TOTAL CURRENT LIABILITIES 456,129 439,444
LONG-TERM DEBT 14,200 20,232
DEFERRED INCOME TAXES 35,856 15,915
OTHER LONG-TERM LIABILITIES 105,534 94,169
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,
115, 509, 425 and 116, 257, 428 shares issued and outstanding 11,551 11,626
Retained earnings 1,329,594 1,083,868
Cumulative translation adjustments 23,848 (9,702)
1,364,993 1,085,792
Receivable from Employee Stock Ownership Plan (29,980) (32,300)
TOTAL SHAREHOLDERS' EQUITY 1,335,013 1,053,492
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,946,732 $ 1,623,252
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 40
STATEMENT OF CONSOLIDATED CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
Year ended April 30, 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 294,000 $ 232,357 $ 197,228
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 106,502 78,577 69,625
Gain on sale of subsidiary, net of tax -- (9,242) --
Deferred income taxes 692 (3,150) (11,141)
Changes in operating assets and liabilities:
Increase in accounts receivable (48,534) (8,635) (8,736)
Decrease (increase) in inventories 7,165 (8,087) (14,660)
(Increase) decrease in prepaid expenses and other assets (37,609) 8,954 (29,043)
Increase in accounts payable and accrued liabilities 62,103 18,137 30,779
Increase in accrued income taxes 7,931 37,653 3,697
(Decrease) increase in deferred income (24,775) 400 20,450
(Decrease) increase in postretirement benefit accrual (452) 2,156 16,623
Increase in other long-term liabilities 20,154 7,918 16,689
NET CASH PROVIDED BY OPERATING ACTIVITIES 387,177 356,856 291,511
INVESTING ACTIVITIES
Additions to property, plant, and equipment (96,862) (60,799) (77,077)
Acquisitions, net of cash acquired -- (189,440) (18,668)
Proceeds from sale of subsidiary -- 21,000 --
Sales of marketable securities 158,462 92,985 12,133
Purchases of marketable securities (289,235) (109,346) (72,616)
Other investing activities (12,361) (12,463) (6,558)
NET CASH USED IN INVESTING ACTIVITIES (239,996) (258,063) (162,786)
FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings (29,270) (28,285) 591
(Decrease) increase in long-term debt (6,885) (8,199) 5,618
(Decrease) increase in acquisition price payable (39,130) 45,630 --
Dividends to shareholders (47,226) (38,985) (33,337)
Repurchase of common stock (59,079) (53,423) (142,919)
Issuance of common stock 21,874 16,339 17,408
NET CASH USED IN FINANCING ACTIVITIES (159,716) (66,923) (152,639)
Effect of exchange rate changes on cash and cash equivalents 2,107 (144) 92
NET CHANGE IN CASH AND CASH EQUIVALENTS (10,428) 31,726 (23,822)
Cash and cash equivalents at beginning of year 108,720 76,994 100,816
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 98,292 $ 108,720 $ 76,994
SUPPLEMENTAL CASH FLOW INFORMATION CASH PAID DURING THE YEAR FOR:
Income taxes $ 131,731 $ 73,858 $ 110,864
Interest 9,249 8,346 10,769
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 41
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 1995 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 25 years remain.
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.
EARNINGS PER SHARE
Earnings per share of common stock are computed by dividing net income by the
weighted average number of shares outstanding during the period.
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
1,555,000 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.
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.
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.
<PAGE> 42
NOTE 3--FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the company's significant
financial instruments were as follows:
April 30, 1995 1994
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
Assets
Short-term investments $225,357 $226,031 $ 72,694 $ 72,694
Long-term investments
and notes receivable 108,404 108,404 76,280 91,746
Purchased currency
options - - 907 210
Liabilities
Short-term debt 33,474 33,474 58,173 58,173
Long-term debt 14,200 15,427 20,232 20,981
Forward exchange
contracts 29,293 29,293 12,205 12,205
The fair value of cash and cash equivalents, receivables, and short-term debt
approximate their carrying value due to their short maturities. The fair value
of certain short-term and 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 forward exchange contracts were
estimated based on quoted market prices at April 30, 1995 and 1994.
On May 1, 1994 the company adopted Statement of Financial Accounting Standard
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 requires that all investments in debt securities and
investments in equity securities that have readily determinable fair values be
classified and accounted for in one of three categories: held-to-maturity,
trading, or available-for-sale. Held-to-maturity securities are recorded at
amortized cost in short-term investments and other assets. Trading securities
are recorded at fair value in short-term investments with the change in fair
value during the period included in earnings. Available-for-sale securities are
recorded at fair value in short-term investments or other assets with the change
in fair value during the period excluded from earnings and recorded net of tax
as a component of stockholders' equity. Prior to May 1, 1994, investments were
recorded at the lower of cost or market. Adoption of this statement did not
materially impact the company's financial position and had no impact on
operating results.
At April 30, 1995, available-for-sale investments included only equity
securities with a cost of $19,469 and a fair value of $63,687. Gross unrealized
gains and losses amounted to $48,233 and $4,015, respectively. At April 30,
1995, the net unrealized gain associated with available-for-sale securities of
$28,742, net of tax of $15,476, was included in retained earnings. There were no
sales of available-for-sale securities during 1995. Held-to-maturity investments
at April 30, 1995 consisted primarily of U.S. government and corporate debt
securities, all of which mature within three years. These securities were
carried at amortized cost of $232,042 and have a fair value of $232,716.
FOREIGN CURRENCY INSTRUMENTS
A significant portion of the company's cash flows is derived from sales
denominated in foreign currencies. To the extent that the U.S. dollar value of
sales denominated in foreign currencies fluctuates as a result of a
strengthening or weakening dollar, the company's ability to fund dollar-based
strategic initiatives at a consistent level may be impaired. In order to reduce
the uncertainty of foreign exchange rate movements on sales denominated in
foreign currencies, the company enters into forward exchange and option
contracts with major international financial institutions. These forward and
option contracts, which typically expire within one year, are designed to hedge
anticipated foreign currency transactions. Such transactions, primarily export
intercompany sales, occur throughout the year and are probable but not firmly
committed.
The company had contracts to exchange foreign currencies, principally the
Japanese Yen and German Mark, for U.S. dollars in the following notional
amounts:
April 30, 1995 1994
Forward exchange contracts $431,504 $371,672
Foreign currency put options - 66,875
The company had aggregate foreign currency transaction losses, primarily related
to forward contracts, of $57,715, $10,025, and $22,240 in 1995, 1994, and 1993,
respectively. Realized losses on these contracts were offset by the assets,
liabilities, and transactions being hedged. Forward contracts in existence at
the balance sheet date are recorded at their fair value. Gains and losses on
forward contracts are recorded in selling, general, and administrative expense.
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 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. 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> 43
NOTE 4--DEBT
Debt consisted of the following at April 30:
Average
Short-Term Debt Interest Rate 1995 1994
Bank borrowings 4.0% $30,819 $55,406
Current Portion of
Long-term debt 7.2% 2,655 2,767
Total Short-Term Debt $33,474 $58,173
Average Maturity
Long-Term Debt Interest Rate Date 1995 1994
Various Notes 6.4% 1995-2007 $10,207 $16,780
Capitalized lease
Obligations 9.9% 1995-2009 3,993 3,452
Total Long-Term Debt $14,200 $20,232
Short-term borrowings consisted primarily of non-U.S. bank borrowings used for
foreign exchange purposes. The company has existing lines of credit of $531
million with various banks, of which $501 million was unused at April 30, 1995.
Maturities of long-term debt for the next five years are as follows: 1996,
$2,654; 1997, $2,471; 1998, $2,606; 1999, $2,212; 2000, $1,923; thereafter,
$4,988.
NOTE 5--SHAREHOLDERS' EQUITY
Changes in shareholders' equity accounts were as follows:
<TABLE>
<CAPTION>
Cumulative Receivable
Common Retained Translation from
Stock Earnings Adjustments ESOP
<S> <C> <C> <C> <C>
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)
Net earnings 294,000
Dividends paid (47,226)
Two-for-one stock split 5,745 (5,745)
Issuance of common stock
under employee benefit
and incentive plans 70 21,804
Repurchase of common stock (77) (59,002)
Unrealized gain on investments,
net of tax 28,742
Income tax benefit from
restricted stock and
nonstatutory stock options 7,340
Translation adjustments 33,550
Repayment from ESOP 2,320
Balance, April 30, 1995 $ 11,551 $ 1,329,594 $ 23,848 $ (29,980)
</TABLE>
At April 30, 1995, Board of Directors' authorization existed to repurchase
approximately 7.4 million shares of the company's common stock.
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 57,452 thousand 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 per
share information, number of shares, except shares authorized, and related share
prices have been restated to reflect the stock split.
A shareholder rights plan exists which provides for a dividend distribution of
one right to be attached to each share of common stock. The rights are currently
not exercisable or transferable apart from the common stock. The basic right
entitles the holder to purchase one four-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 $150 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 $.0025
any time before a person or group triggers the 15% ownership threshold. The
rights expire on July 10, 2001.
<PAGE> 44
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 2,366,616 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:
Year ended April 30, 1995 1994 1993
Interest expense $2,907 $3,020 $3,235
Dividends paid 992 811 667
Net interest expense 1,915 2,209 2,568
Compensation expense 2,327 3,588 4,802
Total expense $4,242 $5,797 $7,370
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. At
April 30, 1995 and 1994, allocated shares were 702,542 and 543,126,
respectively, shares committed-to-be released were 152,710 and 124,542,
respectively, and unallocated shares were 1,717,056 and 1,841,598, respectively.
Unallocated shares are released based on the ratio of current debt service to
total remaining principle and interest. 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 AND AWARD PLANS
1994 STOCK AWARD PLAN
Effective April 29, 1994, the Board of Directors and shareholders approved the
1994 stock award plan which replaced the stock option, stock award, and
non-employee director restricted stock plans. The 1994 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. There were 4,916,266
shares available under this plan for future grants at April 30, 1995.
Under the provisions of the 1994 stock award plan, nonqualified stock options
and other stock awards are granted to officers and key employees at prices not
less than fair market value at the date of grant. In addition, awards granted
under the previous nonqualified stock option and stock award plans remain
outstanding though no additional awards will be made under these plans.
A summary of option transactions in 1995 follows:
Option Price
Range Per Number of Expiration
Share Shares Date
NONQUALIFIED OPTIONS
Outstanding at beginning
of year $ 3.34-$49.00 3,185,830 1995-2004
Granted 37.88- 70.00 479,675 2000-2005
Exercised 3.34- 53.00 368,421 1995-2005
Cancelled 15.06- 53.00 41,942 2000-2005
Outstanding at end of year 5.34- 70.00 3,255,142 1996-2005
Exercisable at end of year 5.34- 53.00 1,842,079 1996-2005
Nonqualified options are generally exercisable beginning one year from the date
of grant in cumulative yearly amounts of 25 percent of the shares under option.
Restricted stock and performance share awards are dependent upon continued
employment and, in the case of performance shares, achievement of certain
performance objectives. In 1995, 111,514 restricted shares were issued and
37,766 performance shares were awarded. At April 30, 1995, total restricted
shares outstanding under both the 1994 stock award plan and the previous
restricted stock and performance share award plan were 621,163. Performance
share awards for up to 253,228 shares, assuming maximum performance payout, were
outstanding under the two plans at April 30, 1995. The actual number of
performance shares awarded may vary 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 ($3,797 in 1995, $4,205 in
1994, and $3,763 in 1993). The estimated cost of the performance shares is
expensed over three years from the date of grant ($8,840 in 1995, $3,131 in
1994, and $3,387 in 1993).
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 388,140 shares at $31.72 per share in 1995. As of April 30,
1995, plan participants have had approximately $9,228 withheld to purchase
shares at a price of $44.20 per share, or 85% of the market value of the
company's common stock at October 31, 1995, whichever is less.
Common stock to be issued under all outstanding grants persuant to the 1994
stock award plan, the stock purchase plan, and the previous individual stock
option and award plans would not have a material dilutive effect on reported
earnings per share.
<PAGE> 45
NOTE 8--INCOME TAXES
The company accounts for income taxes in accordance with Statement of Financial
Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes," which was
adopted in 1993 on a prospective basis. The asset and liability approach used in
SFAS No. 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 No. 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:
Year ended April 30, 1995 1994 1993
United States $356,758 $279,220 $275,047
Non-U.S. 85,347 67,581 38,411
Earnings before income taxes $442,105 $346,801 $313,458
The provision for income taxes consisted of:
Year ended April 30, 1995 1994 1993
Taxes currently payable:
U.S. federal $ 80,023 $ 64,840 $ 70,402
U.S. state and other 22,297 21,268 18,919
Non-U.S. 45,717 29,859 26,039
Total currently payable 148,037 115,967 115,360
Deferred tax (benefit) expense:
U.S. federal (1,955) (7,049) (17,129)
U.S. state and other 2,755 (2,459) 397
Non-U.S. (9,925) 1,539 (7,257)
Net deferred tax benefit (9,125) (7,969) (23,989)
Tax expense credited directly to
shareholders' equity 9,193 6,446 10,503
Total provision $ 148,105 $ 114,444 $ 101,874
Deferred tax assets (liabilities) were comprised of the following:
April 30, 1995 1994
Deferred tax assets:
Inventory (Intercompany profit in inventory
and excess of tax over book valuation) $ 69,836 $ 56,375
Deferred income -- 5,250
Accrued liabilities 37,526 40,133
Other 7,528 10,594
Total deferred tax assets 114,890 112,352
April 30, 1995 1994
Deferred tax liabilities:
Intangible assets (17,264) (17,823)
Undistributed earnings of subsidiaries (11,787) (8,846)
Accumulated depreciation (13,301) (14,819)
Unrealized gain on investments (15,476) --
Other (355) (6,970)
Total deferred tax liabilities (58,183) (48,458)
Net deferred tax assets $ 56,707 $ 63,894
The company's effective income tax rate varied from the U.S. federal statutory
tax rate as follows:
Year ended April 30, 1995 1994 1993
U.S. federal statutory tax rate 35.0% 35.0% 34.0%
Increase (decrease) in tax rate
resulting from:
U.S. state taxes, net of federal
tax benefit 2.2 2.5 2.7
Tax benefits from operations in
Puerto Rico (4.2) (8.2) (8.5)
Non-U.S. taxes 1.5 1.7 1.9
Other, net (1.0) 2.0 2.4
Effective tax rate 33.5% 33.0% 32.5%
Taxes are not provided on undistributed earnings of non-U.S. and Puerto Rican
subsidiaries because such earnings are either permanently reinvested or do not
exceed available foreign tax credits. 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, 1995, earnings permanently reinvested in
subsidiaries outside the United States were $117,049. It is not practical to
estimate the amount of taxes that might be payable on these foreign earnings.
At April 30, 1995, approximately $4,267 of non-U.S. tax losses were available
for carryforward. These carryforwards are subject to adequate valuation
allowances and 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 $28,483 in 1995, $20,208 in 1994 and $17,611 in 1993.
DEFINED BENEFIT PLAN (UNITED STATES)
In the United States, the company maintains a qualified 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. Contributions to the plan were $13,784, $5,075 and $2,871 in 1995,
1994, and 1993, respectively. Plan assets consist of a diversified portfolio of
fixed-income
<PAGE> 46
investments, equity securities, and cash equivalents. Plan assets include
investments in the company's common stock of $11,900 and $6,020 at April 30,
1995 and 1994, respectively.
Net pension cost for the U.S. plan included the following components:
Year ended April 30, 1995 1994 1993
Service cost--benefits earned during
the year $ 6,391 $ 5,795 $ 4,370
Interest cost on projected benefit
obligation 5,680 5,222 4,013
Return on assets (9,775) (7,218) (7,556)
Net amortization and deferral 2,155 819 2,009
Net pension cost $ 4,451 $ 4,618 $ 2,836
The funded status of the U.S. plan was as follows:
April 30, 1995 1994
Actuarial present value of benefit obligation:
Vested benefits $(49,913) $(45,787)
Nonvested benefits (6,673) (5,741)
Accumulated benefit obligation (56,586) (51,528)
Excess of projected benefit obligation
over accumulated benefit obligation (25,852) (23,181)
Projected benefit obligation (82,438) (74,709)
Plan assets at fair value 95,468 73,160
Plan assets in excess (less than) of
projected benefit obligation 13,030 (1,549)
Unrecognized May 1, 1986, net asset (1,632) (2,833)
Unrecognized net actuarial loss 5,593 8,130
Unrecognized prior service cost (564) 1,615
Net prepaid pension cost $ 16,427 $ 5,363
The actuarial assumptions were as follows:
Year ended April, 30 1995 1994 1993
Discount rate 8.0% 7.5% 8.5%
Expected long-term return on assets 9.0% 9.0% 9.0%
Average increase in compensation 5.0% 5.5% 6.0%
In addition to the benefits provided under the qualified pension plan,
retirement benefits associated with wages in excess of the IRS allowable wages
are provided to certain employees under non-qualified plans. Prior to 1995, the
net periodic cost and accrued liability associated with these non-qualified
plans was not material. However, the Omnibus Budget Reconciliation Act of 1993
significantly reduced the qualified wage limit which resulted in an increase in
benefits under non-qualified plans. The net periodic cost of non-qualified
pension plans was $989 in 1995. The unfunded accrued pension cost totaled $4,045
at April 30, 1995.
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:
Year ended April 30, 1995 1994 1993
Service cost--benefits earned
during the year $ 2,032 $ 1,374 $ 1,840
Interest cost on projected
benefit obligation 666 268 249
Return on assets (27) (26) (19)
Net amortization and deferral 135 49 (17)
Net pension cost $ 2,806 $ 1,665 $ 2,053
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, 1995 1994
Actuarial present value of benefit obligation:
Vested benefits $ (7,619) $ (6,485)
Nonvested benefits (642) (581)
Accumulated benefit obligation (8,261) (7,066)
Excess of projected benefit obligation over
accumulated benefit obligation (13,943) (1,133)
Projected benefit obligation (22,204) (8,199)
Plan assets at fair value 579 555
Projected benefit obligation in excess of
plan assets (21,625) (7,644)
Unrecognized May 1, 1994 net obligation 11,647 98
Unrecognized net actuarial loss 1,386 914
Net accrued pension liability $ (8,592) $ (6,632)
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, 1995 1994 1993
Discount rate 6.5%-8.5% 6.5%-8.5% 8.5%
Expected long-term return on assets 8.5% 8.5% 8.5%
Average increase in compensation 3.0%-4.5% 4.5% 5.5%
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 $15,452 in 1995, $10,402 in 1994 and
$9,453 in 1993.
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.
<PAGE> 47
The company adopted Statement of Financial Accounting Standard (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," for
U.S. plans in 1993. SFAS No. 106 requires the company to recognize expense as
employees earn 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.
The net postretirement benefit cost of U.S. plans, exclusive of the transition
obligation in 1993, included the following components:
Year ended April 30, 1995 1994 1993
Service cost-benefits earned
during the year $ 1,446 $ 1,049 $ 785
Interest cost on accumulated
benefit obligation 1,425 1,440 1,254
Return on assets (255) -- --
Net amortization and deferral 299 (243) --
Postretirement benefit cost $ 2,915 $ 2,246 $ 2,039
The company's policy has been to fund the cost of postretirement benefits as
they are paid. In 1995, the company also began funding a trust within the limits
of allowable tax deductions for the cost of these benefits. The funded status of
the U.S. plans was as follows:
Year ended April 30, 1995 1994
Actuarial present value of postretirement benefit
obligation:
Retirees $ (6,251) $ (5,787)
Other fully eligible participants (4,341) (4,769)
Other active plan participants (14,179) (11,752)
(24,771) (22,308)
Plan assets at fair value 2,925 --
Unrecognized net loss 3,320 3,330
Net accrued postretirement benefit liability $(18,526) $(18,978)
The actuarial assumptions were as follows:
Year ended April, 30 1995 1994 1993
Discount rate 8.0% 7.5% 8.5%
Expected long-term return on assets 9.0% -- --
Health care cost trend rate 10.0% 12.0% 12.0%
The health care cost 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 $2,587 and the annual postretirement benefit cost by $418.
The company must adopt SFAS No. 106 for non-U.S. plans in 1996. However,
adoption of SFAS No. 106 for these plans will not have a material impact on the
company's financial position.
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, 1995, were:
Capitalized Operating
Leases Leases
1996 $ 960 $ 19,347
1997 635 14,290
1998 646 10,089
1999 517 6,655
2000 490 5,694
2001 and thereafter 3,898 9,030
Total minimum lease payments 7,146 $ 65,105
Less amounts representing interest 2,546
Present value of net minimum lease
payments $ 4,600
Rent expense for all operating leases was $22,366 in 1995, $18,510 in 1994 and
$21,555 in 1993.
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 made ongoing royalty payments, based on Siemens'
worldwide sales of all cardiac stimulation devices through September 1994.
Medtronic does not pay 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 was recognized as income when earned. As of April 30, 1995, the
prepayment had been fully recognized.
In September 1994, St. Jude Medical, Inc. acquired Siemens Pacesetter, the
worldwide cardiac rhythm management business of Siemens AG. Under terms of the
prior litigation settlement with Siemens AG, St. Jude will make ongoing royalty
payments for approximately 10 years based on Pacesetters' worldwide sales of all
cardiac stimulation devices.
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. Management believes that the company's
risk management practices, including insurance coverage, are reasonably adequate
to protect against potential product liability losses.
<PAGE> 48
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, 1995, the remaining balance of this commitment was
$7,465. Commitments to the Medtronic Foundation are expensed when authorized and
approved by the company's Board of Directors.
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
1995 $403.8 $408.2 $413.7 $516.7 $1,742.4
1994 331.3 332.1 334.6 393.02 1,390.9
Gross Profit
1995 277.4 280.4 284.5 360.0 1,202.3
1994 230.0 227.5 231.4 270.4 959.2
Net Earnings
1995 65.1 69.7 71.4 87.8 294.0
1994 52.5 56.2 56.9 66.7 232.4
Earnings per Share:
1995 .56 .61 .62 .76 2.55
1994 .45 .49 .50 .58 2.02
Quarterly and annual earnings per share are calculated independently based on
the weighted average number of shares outstanding during the period.
NOTE 14--SEGMENT REPORTING
The company operates in a single industry segment--providing medical products
and services. For management purposes, the company is segmented into three
geographic areas--the Americas, Europe/Middle East/Africa (Europe), and
Asia/Pacific 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 interdependence 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. In addition, comparison of operating results between geographic
areas and between years may be significantly impacted by foreign currency
fluctuations.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA INFORMATION
United Asia Other Elimi- Consoli-
States Europe Pacific Americas nations dated
<S> <C> <C> <C> <C> <C> <C>
1995
Sales to unaffiliated
customers $ 976,589 $ 505,914 $ 212,725 $ 47,164 $ -- $ 1,742,392
Intergeographic
sales 132,105 52,002 -- 3,020 (187,127) --
Total sales 1,108,694 557,916 212,725 50,184 (187,127) 1,742,392
Operating profit 287,824 106,243 91,046 4,746 489,859
Nonoperating
expense (47,754)
Earnings before
income taxes 442,105
Identifiable assets 1,206,912 308,579 149,394 30,515 (123,220) 1,572,180
Corporate assets 374,552
Total assets $ 1,946,732
1994
Sales to unaffiliated
customers $ 800,391 $ 386,009 $ 161,279 $ 43,243 $ -- $ 1,390,922
Intergeographic
sales 163,905 18,710 -- 309 (182,924) --
Total sales 964,296 404,719 161,279 43,552 (182,924) 1,390,922
Operating profit 244,638 53,512 63,389 4,177 -- 365,716
Nonoperating
expense (18,915)
Earnings before
income taxes 346,801
Identifiable assets 1,103,222 276,047 103,247 25,604 (94,858) 1,413,262
Corporate assets 209,990
Total assets $ 1,623,252
1993
Sales to unaffiliated
customers $ 770,655 $ 392,894 $ 126,005 $ 38,654 -- $ 1,328,208
Intergeographic
sales 142,750 19,370 -- 147 (162,267) --
Total sales 913,405 412,264 126,005 38,801 (162,267) 1,328,208
Operating profit 258,170 62,269 45,910 769 -- 367,118
Nonoperating
expense (53,660)
Earnings before
income taxes 313,458
Identifiable assets 818,898 287,048 80,867 20,258 (82,541) 1,124,530
Corporate assets 167,950
Total assets $ 1,292,480
</TABLE>
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> 49
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in millions of dollars, except per share data) Medtronic, Inc.
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS FOR THE YEAR:
Net sales $1,742.4 $1,390.9 $1,328.2 $1,176.9 $1,021.4 $865.9
Cost of products sold 540.1 431.7 420.1 381.8 331.7 281.7
Research and development expense 191.4 156.3 133.0 109.2 89.5 81.5
Selling, general, and administrative
expense 574.6 456.3* 460.0* 439.9 399.9* 331.3*
Interest expense 9.0 8.2 10.4 13.4 13.8 10.1
Interest income (14.8) (8.4) (8.8) (10.3) (9.7) (6.2)
Earnings from continuing operations
before income taxes 442.1 346.8 313.5 242.9 196.2 167.5
Provision for income taxes 148.1 114.4 101.9 81.4 62.9 54.6
Earnings from continuing operations 294.0 232.4 211.6 161.5 133.4 112.9
Discontinued operations and cumulative
effect of accounting changes (net) -- -- (14.4) -- -- --
Net earnings $ 294.0 $ 232.4 $ 197.2 $ 161.5 $ 133.4 $112.9
Net earnings as a percent of net sales 16.9% 16.7% 14.8% 13.7% 13.1% 13.0%
Net earnings as a percent of average
shareholders' equity 24.6% 24.5% 24.1% 21.8% 21.4% 21.3%
Per share of common stock:
Earnings from continuing operations
before cumulative effects of
accounting changes $ 2.55 $ 2.02 $ 1.78 $ 1.36 $ 1.12 $ .96
Net earnings 2.55 2.02 1.66 1.36 1.12 .96
Cash dividends declared .41 .34 .28 .24 .21 .18
Gross margin percentage 69.0% 69.0% 68.4% 67.6% 67.5% 67.5%
Financial Position at April 30:
Working capital $ 647.8 $ 406.4 $ 426.6 $ 387.3 $ 320.1 $240.4
Current ratio 2.4:1 1.9:1 2.2:1 2.3:1 2.1:1 1.9:1
Property, plant, and equipment, net 331.1 301.8 282.8 256.8 217.2 183.6
Total assets 1,946.7 1,623.3 1,292.5 1,163.5 1,024.1 885.3
Long-term debt 14.2 20.2 10.9 8.6 7.9 8.0
Long-term debt as a percent of
shareholders' equity 1.1% 1.9% 1.3% 1.1% 1.2% 1.4%
Shareholders' equity 1,335.0 1,053.5 841.5 796.5 683.2 565.2
Shareholders' equity
per common share 11.56 9.06 7.28 6.70 5.74 4.80
Additional Information:
Expenditures for property, plant, and
equipment $ 104.0 $ 86.0 $ 87.4 $ 83.2 $ 73.7 $ 59.3
Full-time employees at year-end 8,896 8,709 8,334 8,314 7,560 7,030
Full-time equivalent employees
at year-end 10,313 9,856 9,247 9,392 8,470 7,717
</TABLE>
(TABLE CONTINUED)
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in millions of dollars, except per share data) Medtronic, Inc.
1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS FOR THE YEAR:
Net sales $765.8 $669.9 $515.4 $411.5 $370.4
Cost of products sold 248.5 217.4 176.9 154.5 140.6
Research and development expense 67.7 55.1 43.6 40.1 39.5
Selling, general, and administrative
expense 291.9* 267.2 187.7 132.6* 142.6
Interest expense 8.4 5.9 4.3 4.4 3.6
Interest income (5.6) (7.1) (7.2) (12.5) (13.4)
Earnings from continuing operations
before income taxes 155.0 131.4 110.2 92.3 57.6
Provision for income taxes 54.7 44.8 34.8 24.3 5.8
Earnings from continuing operations 100.3 86.6 75.3 68.0 51.8
Discontinued operations and cumulative
effect of accounting changes (net) -- -- -- (14.0) (13.7)
Net earnings $100.3 $ 86.6 $ 75.3 $ 54.0 $ 38.1
Net earnings as a percent of net sales 13.1% 12.9% 14.6% 13.1% 10.3%
Net earnings as a percent of average
shareholders' equity 22.2% 21.2% 19.8% 15.5% 11.2%
Per share of common stock:
Earnings from continuing operations
before cumulative effects of
accounting changes $ .86 $ .73 $ .62 $ .54 $ .39
Net earnings .86 .73 .62 .43 .29
Cash dividends declared .15 .13 .11 .10 .10
Gross margin percentage 67.6% 67.5% 65.7% 62.4% 62.1%
FINANCIAL POSITION AT APRIL 30:
Working capital $206.1 $244.6 $250.2 $227.8 $221.7
Current ratio 1.9:1 2.3:1 3.0:1 2.7:1 3.3:1
Property, plant, and equipment, net 157.2 134.6 121.1 113.7 113.1
Total assets 783.0 661.3 580.0 540.9 473.2
Long-term debt 8.2 11.1 7.6 13.8 9.4
Long-term debt as a percent of
shareholders' equity 1.7% 2.7% 1.9% 3.8% 2.8%
Shareholders' equity 492.7 412.0 403.1 358.9 338.1
Shareholders' equity
per common share 4.24 3.44 3.21 2.83 2.55
ADDITIONAL INFORMATION:
Expenditures for property, plant, and
equipment $ 57.4 $ 39.1 $ 28.5 $ 17.6 $ 29.7
Full-time employees at year-end 6,529 5,939 5,156 4,964 5,046
Full-time equivalent employees
at year-end 7,152 6,471 5,587 5,329 5,362
</TABLE>
*Certain unusual costs and income separately disclosed on the statement of
consolidated earnings are included in selling, general, and administrative
expense.
<PAGE> 50
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting of Medtronic shareholders will take place on Wednesday,
August 30, 1995, beginning at 10:30 a.m. at the Corporate Center, 7000 Central
Avenue, NE, Minneapolis (Fridley), 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.
You may also learn more about Medtronic via the Internet. Contact us at
http://www.medtronic.com.
As part of continuing efforts to reduce expenses and make information available
on a more timely basis, Medtronic has discontinued 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.
1995
High $44.56 $54.88 $59.50 $75.75
Low 36.13 42.69 49.00 55.75
1994
High 35.25 37.69 42.50 43.75
Low 30.00 28.81 35.81 35.25
Prices are closing quotations. On June 26, 1995, there were 21,947 holders of
record of the company's common stock. The regular quarterly cash dividend was
10.25 cents per share for 1995 and 8.5 cents per share for 1994.
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 LLP, Minneapolis
STOCK EXCHANGE LISTING
New York Stock Exchange
(symbol: MDT)
The financial text of this annual report was printed on recycled paper including
50% pre-consumer and 20% post-consumer fiber. Please recycle this book or donate
it to your local library.
<PAGE> 51
APPENDIX: Graphic and Image Material
Page
Number Description
33 Bar graph of net earnings in millions of dollars
for the last three fiscal years as follows:
1995 $294.0
1994 232.4
1993 197.2
33 Bar graph of earnings per share in dollars for the
last three fiscal years as follows:
1995 $2.55
1994 2.02
1993 1.66
34 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:
1995 1994 1993
U.S. $ 979.7 $ 800.4 $ 770.6
International 762.7 590.5 557.6
$1,742.4 $1,390.9 $1,328.2
34 Stacked bar graph of net sales in millions of
dollars for the Pacing, Other Cardiovascular, and
Neurological and Other business units for each of
the last three fiscal years. The data points (in
millions of dollars) are as follows:
1995 1994 1993
Pacing $1,140.9 $ 934.2 $ 872.4
Other Cardiovascular 455.2 328.1 304.1
Neurological & Other 146.3 128.6 151.7
$1,742.4 $1,390.9 $1,328.2
35 Bar graph of research and development expense in
millions of dollars for the last three fiscal
years as follows:
1995 $191.4
1994 156.3
1993 133.0
36 Bar graph of net cash in millions of dollars for
the last three fiscal years as follows:
1995 $276.0
1994 103.0
1993 53.3
36 Bar graph of cash flows from operating activities
in millions of dollars for the last three fiscal
years as follows:
1995 $387.2
1994 356.9
1993 291.5
37 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:
1995 1994 1993
Equity $1,335.0 $1,053.5 $841.5
Interest-Bearing Debt 47.7 78.4 102.7
$1,382.7 $1,131.9 $944.2
EXHIBIT NUMBER 21
LIST OF SUBSIDIARIES
EXHIBIT 21
NAME OF SUBSIDIARY JURISDICTION OF
INCORPORATION
Biotec International S.r.L. Italy
Cardiotron Medizintechnik G.m.b.H. Federal Republic of
Germany
Electromedics France S.a.r.l. France
Electromedics FSC, Inc. Barbados
Electromedics Medizintechnik G.m.b.H. Germany
India Biomedical Investment Limited Minnesota
Interamerica Medtronic, Inc. Illinois
International Finance C.V. (INFIN) Netherlands
International Medical Corporation Colorado
Interbank Leasing Colorado
International Medical Education Corp. Colorado
Med Rel, Inc. Minnesota
Medtronic (Africa)(Proprietary) Limited South Africa
Medtronic Andover Medical, Inc. Delaware
Medtronic Asia, Ltd. Minnesota
Medtronic Asset Management, Inc. Minnesota
Medtronic Treasury International, Inc. Minnesota
Medtronic Treasury Management, Inc. Minnesota
Medtronic Australasia Pty. Limited New South Wales
Medtronic Belgium S.A. Belgium
Medtronic Bio-Medicus, Inc. Minnesota
Medtronic HemoTec, Inc. Colorado
Hemadyne Corporation Minnesota
Medtronic do Brasil Ltda. Brazil
Medtronic B.V. The Netherlands
Bakken Research Center, B.V. The Netherlands
Medtronic of Canada, Ltd. Canada
Medtronic Carbon Implants, Inc. Delaware
Medtronic CardioRhythm California
Medtronic China, Ltd. Minnesota
Medtronic Dominicana C. por A. Dominican Republic
Medtronic Electromedics, Inc. Minnesota
Medtronic Europe, N.V. Belgium
Medtronic Export, Inc. Delaware
Medtronic FSC B.V. The Netherlands
Medtronic France S.A. France
Medtronic G.B., Inc. Minnesota
Medtronic Ges.m.b.H. Austria
Medtronic G.m.b.H. Federal Republic of
Germany
Medtronic Heart Valves, Inc. Minnesota
Medtronic Iberica, S.A. Spain
Medtronic International, Ltd. Delaware
Medtronic Interventional Vascular, Inc. Delaware
Medtronic Interventional Vascular, Inc. Massachusetts
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 Mediterranean SAL Lebanon
Medtronic Milaca, Inc. Minnesota
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 de Venezuela S.A. Venezuela
Telecardiocontrol, C.A. Venezuela
Medtronic World Trade Corporation Minnesota
OSMED, Inc. Michigan
Euromed, S.N.C. France
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 United Kingdom
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, 1995, 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 29th day
of June, 1995.
/s/ F. Caleb Blodgett /s/ Glen D. Nelson, M.D.
F. Caleb Blodgett Glen D. Nelson, M.D.
/s/ Arthur D. Collins, Jr. /s/ Richard L. Schall
Arthur D. Collins, Jr. 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
MEDTRONIC, INC.
FINANCIAL DATA SCHEDULE
April 30, 1995
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT
OF CONSOLIDATED EARNINGS AND CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED APRIL
30, 1995 FILED WITH THE SEC ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> APR-30-1995
<CASH> 98,292
<SECURITIES> 225,357
<RECEIVABLES> 436,358
<ALLOWANCES> 22,416
<INVENTORY> 221,932
<CURRENT-ASSETS> 1,103,909
<PP&E> 715,476
<DEPRECIATION> 384,415
<TOTAL-ASSETS> 1,946,732
<CURRENT-LIABILITIES> 456,129
<BONDS> 0
<COMMON> 11,551
0
0
<OTHER-SE> 1,323,462
<TOTAL-LIABILITY-AND-EQUITY> 1,946,732
<SALES> 1,742,392
<TOTAL-REVENUES> 1,742,392
<CGS> 540,080
<TOTAL-COSTS> 540,080
<OTHER-EXPENSES> 765,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,007
<INCOME-PRETAX> 442,105
<INCOME-TAX> 148,105
<INCOME-CONTINUING> 294,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294,000
<EPS-PRIMARY> 2.55
<EPS-DILUTED> 0
</TABLE>
