UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 1, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1-7707
MEDTRONIC, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0793183
(State of incorporation) (I.R.S. Employer
Identification No.)
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(Address of principal executive offices)
Telephone number: (612) 574-4000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
Shares of common stock, $.10 par value, outstanding on August 29, 1997:
469,017,270 (Adjusted for Stock Split)
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MEDTRONIC, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three months ended
-----------------------
August 1, August 2,
1997 1996
--------- ---------
(in thousands, except
per share data)
Net sales $ 646,279 $ 600,870
Costs and expenses:
Cost of products sold 160,161 155,581
Research and development expense 70,687 65,671
Selling, general, and administrative expense 194,903 191,710
Interest expense 1,950 2,023
Interest income (5,068) (8,658)
--------- ---------
Total costs and expenses 422,633 406,327
--------- ---------
Earnings before income taxes 223,646 194,543
Provision for income taxes 77,158 67,117
--------- ---------
Net earnings $ 146,488 $ 127,426
========= =========
Weighted average shares outstanding (Adjusted
for stock split - See Note 2) 468,402 478,857
Earnings per share $ 0.31 $ 0.27
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
August 1, April 30,
1997 1997
----------- -----------
ASSETS (in thousands)
------
Current assets:
Cash and cash equivalents $ 280,227 $ 197,388
Short-term investments 20,321 53,181
Accounts receivable, less allowance for
doubtful accounts of $12,876 and $13,673 513,081 516,984
Inventories:
Finished goods 135,199 123,282
Work in process 65,232 68,034
Raw materials 99,794 91,235
----------- -----------
Total inventories 300,225 282,551
Prepaid expenses and other current assets 209,970 187,805
----------- -----------
Total current assets 1,323,824 1,237,909
Property, plant, and equipment 972,807 965,002
Accumulated depreciation (492,222) (477,786)
----------- -----------
Net property, plant, and equipment 480,585 487,216
Goodwill and other intangible assets, net 490,815 490,968
Long-term investments 143,168 125,847
Other assets 77,317 67,270
----------- -----------
Total assets $ 2,515,709 $ 2,409,210
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings $ 95,050 $ 106,375
Accounts payable 70,887 110,337
Accrued liabilities 351,596 301,979
----------- -----------
Total current liabilities 517,533 518,691
Long-term debt 18,939 13,980
Other long-term liabilities 132,218 128,155
Deferred tax liabilities 6,259 2,163
Shareholders' equity:
Common stock--par value $.10 46,866 46,762
Retained earnings 1,892,482 1,784,319
Cumulative translation adjustment (70,688) (56,960)
----------- -----------
1,868,660 1,774,121
Receivable from Employee Stock Ownership Plan (27,900) (27,900)
----------- -----------
Total shareholders' equity 1,840,760 1,746,221
----------- -----------
Total liabilities and shareholders' equity $ 2,515,709 $ 2,409,210
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MEDTRONIC, INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
Three months ended
-----------------------
Aug. 1, Aug. 2,
1997 1996
--------- ---------
(in thousands)
OPERATING ACTIVITIES:
Net earnings $ 146,488 $ 127,426
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 33,962 38,839
Change in assets and liabilities:
Increase in accounts receivable (3,381) (10,747)
Increase in inventories (25,755) (3,246)
Increase (decrease) in accounts payable and
accrued liabilities 19,315 (62,816)
Changes in other operating assets and
liabilities (18,502) (25,148)
--------- ---------
Net cash provided by operating activities 152,127 64,308
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (21,450) (39,003)
Purchases of marketable securities 0 (185,780)
Sales and maturities of marketable securities 32,760 164,568
Other investing activities (net) (24,489) (2,828)
--------- ---------
Net cash used in investing activities (13,179) (63,043)
FINANCING ACTIVITIES:
Decrease in short-term borrowings (net) (11,433) (15,649)
Increase in long-term debt (net) 4,959 3,610
Dividends to shareholders (25,729) (22,664)
Repurchases of common stock (40,066) 0
Issuance of common stock 18,310 1,393
--------- ---------
Net cash used in financing activities (53,959) (33,310)
Effect of exchange rate changes on cash and
cash equivalents (2,150) 2,085
--------- ---------
Net change in cash and cash equivalents 82,839 (29,960)
Cash and cash equivalents at beginning of period 197,388 151,050
--------- ---------
Cash and cash equivalents at end of period $ 280,227 $ 121,090
========= =========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
Note 1 - Basis of Presentation
- ------------------------------
The unaudited condensed consolidated financial statements include the accounts
of Medtronic, Inc. and all of its subsidiaries, after elimination of all
significant intercompany transactions and accounts. In the opinion of
management, all adjustments necessary for a fair presentation of operating
results have been made. All such adjustments are of a normal recurring nature.
Operating results for interim periods are not necessarily indicative of results
that may be expected for the year as a whole.
Note 2 - Stock Split
- --------------------
On July 10, 1997, the Board of Directors approved a two-for-one common stock
split to be effected in the form of a 100 percent stock dividend. This stock
split was effective for shareholders of record at the close of business on
August 29, 1997 and distribution is expected to be made on September 12, 1997.
The stock split resulted in the issuance of approximately 234,509 additional
shares and the reclass of $23,451 from retained earnings to common stock,
representing the par value of the shares issued. All references in the financial
statements to average number of shares outstanding and earnings per share
amounts for the current and prior year have been restated to reflect the split.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Net Earnings
- ------------
Net earnings for the first quarter ended August 1, 1997 were $146.5 million, or
$0.31 per share after adjusting for the stock split (See Note 2). Earnings per
share reflects an increase of 14.8 percent over the $0.27 per share reported on
earnings of $127.4 million for the first quarter last year.
Sales
- -----
Sales for the quarter ended August 1, 1997 increased 7.6 percent compared to the
same period last year. Exclusive of the effects of foreign currency translation,
sales for the quarter increased 11.5 percent over the comparable period last
year. Sales growth in the quarter was negatively impacted by $23.7 million of
unfavorable exchange rate movements caused primarily by the strengthening of the
U.S. dollar versus major European currencies and the Japanese Yen.
<PAGE>
Net sales of the Pacing Business, which consists primarily of Bradycardia Pacing
and Tachyarrhythmia Management, increased 8.9 percent during the quarter after
removing the impact of foreign exchange rate fluctuations, compared to the same
period a year ago. This growth was lead by strong contributions from
Tachyarrhythmia Management's Micro Jewel II implantable
cardioverter-defibrillator, which continues to hold a strong market share
position in the highly competitive defibrillator marketplace. Bradycardia sales
remained solid as the Medtronic.Kappa(TM)400 series pacemakers, which were
released in Europe in January 1997, continue to gain market acceptance. The
Medtronic.Kappa(TM)400 series of pacemakers is currently in clinical evaluation
in the U.S. During the quarter, U.S. clinical evaluation began on the Medtronic
Jewel(R) AF arrhythmia management device, an "all-in-one" implantable
defibrillator designed for patients with complex heart rhythm diseases requiring
defibrillation in the upper or lower chambers of the heart along with dual
chamber bradycardia pacing.
Sales within the Other Cardiovascular Business, (consisting of balloon and
guiding catheters, stents, interventional neuroradiology products, heart valves,
perfusion and blood management systems, cannulae and surgical accessories)
increased 7.6 percent over the same period a year ago after excluding the
effects of foreign currency translation. This growth was attributable in
significant part to increased sales growth of coronary stents. The Wiktor(R)
Prime coronary stent, which received U.S. Food and Drug Administration (FDA)
clearance in late June 1997, has been well received by the U.S. market since its
launch in July. Strong sales growth was also achieved by the Wiktor-i and
beStent coronary stents in international markets. Also contributing to the
growth was strong sales of surgical cannulae and tissue heart valves. Downward
pricing pressures as a result of price competition for balloon catheters
continued during the quarter. Sales of perfusion and blood management systems
were nearly flat compared to last year's comparable quarter.
Exclusive of the effects of foreign currency translation, sales of the
Neurological and Diversified Businesses, consisting primarily of implantable
neurostimulation devices, drug administration systems, neurosurgery products,
diagnostic systems and developing businesses, grew 34.2 percent for the quarter
compared to the same period last year. Particularly strong sales growth was
achieved in the drug delivery business as a result of continued increased demand
for the SynchroMed(R) drug infusion system for delivery of Lioresal(R)
(baclofen, USP) Intrathecal for treatment of cerebral and spinal spasticity.
Another strong growth factor was the continued rapid sales growth in Europe of
Medtronic Activa(TM) neurostimulation therapy for control of essential tremor
and tremor associated with Parkinson's disease. Subsequent to quarter end,
Medtronic Activa(TM) neurostimulation therapy received U.S. clearance from the
FDA. Also, the Mattrix(R) and Itrel(R) 3 spinal cord stimulation systems
continue to hold strong market share positions. In addition, neurosurgery (PS
Medical) and diagnostic systems (Synectics), contributed to the strong growth.
Costs of Products Sold
- ----------------------
Cost of products sold as a percent of sales was 24.8 percent for the quarter
compared to 25.9 percent for the same quarter a year ago. The decrease in the
cost of products sold as a percent of sales resulted from the impact of
favorable product and geographic mixes combined with increased volumes, and the
favorable impact of foreign exchange rate fluctuations, partially offset by
pricing pressures on certain products and costs related to new product
introductions.
<PAGE>
Research and Development Expense
- --------------------------------
Research and development expense was $70.7 million for the quarter, an increase
of 7.6 percent over the comparable period last year. This increase reflects the
company's continued financial commitment and strategy to grow revenue and market
share by developing technological enhancements and new indications for existing
products as well as developing less invasive and new technologies to address
unmet patient needs.
Selling, General, and Administrative Expense (SG&A)
- ---------------------------------------------------
SG&A expense for the quarter ended August 1, 1997, was $194.9 million compared
to $191.7 million for the comparable period last year. SG&A as a percent of
sales decreased from 31.9 percent a year ago to 30.2 percent for the current
quarter. The decrease in SG&A as a percent of sales is attributable to continued
overall cost efficiencies and an increase in the dollar amount of gains
recognized in the current quarter from hedging activities as compared to the
comparative period last year.
Interest
- --------
Interest expense of $2.0 million for the quarter was consistent to that for the
same period last year. Due to decreased average investment balances over the
prior year as a result of significant repurchases of common stock during the
third and fourth quarters of fiscal 1997, interest income decreased to $5.1
million for the quarter as compared to $8.7 million for the same period a year
ago.
Income Taxes
- ------------
The estimated effective tax rate for the company's current fiscal year is 34.5
percent which is consistent with the effective tax rate for the fiscal year
ended April 30, 1997. The company continues to experience upward pressure on the
tax rate resulting from recent tax legislation which reduces U.S. tax benefits
derived from the company's operations in Puerto Rico. Management believes that
further adverse impact can be minimized by other tax planning initiatives.
Liquidity and Capital Resources
- -------------------------------
Operating activities provided $152.1 million of cash and cash equivalents for
the quarter ended August 1, 1997 compared to $64.3 million for the same period a
year ago. Working capital was $806.3 million at August 1, 1997, an increase of
$87.1 million over the $719.2 million at April 30, 1997. The current ratio
increased to 2.6:1 at August 1, 1997, compared to 2.4:1 at April 30, 1997. Cash
and cash equivalents increased $82.8 million during the quarter. Significant
uses of cash during the quarter included purchases of property, plant and
equipment, repurchases of common stock and dividends paid to shareholders.
<PAGE>
PART II -- OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the company's 1997 Annual Meeting of Shareholders held on August 27, 1997,
the shareholders approved the following:
(a) A proposal to set the size of the Board of Directors at 11 and to
elect four Class II directors of the company to serve for three-year
terms ending in 2000, as follows:
Director Votes For Votes Withheld
- -------- --------- --------------
William W. George 192,531,757 1,404,740
Bernadine P. Healy, M.D. 192,523,493 1,413,004
Richard L. Schall 192,516,481 1,420,015
Gordon M. Sprenger 190,776,326 3,160,171
There were no broker non-votes. In addition, the terms of the following
directors continued after the meeting: Class III directors for a term ending in
1998-Arthur D. Collins, Jr., Antonio M. Gotto, Jr., M.D. and Thomas E. Holloran;
and Class I directors for a term ending in 1999-Glen D. Nelson, M.D., Jack W.
Schuler, Gerald W. Simonson and Richard A. Swalin, PH.D.
(b) A proposal to ratify the appointment of Price Waterhouse LLP to serve
as independent auditors of the company for the fiscal year ending
April 30, 1998. The proposal received 192,882,057 votes for, and
282,402 against, ratification. There were 772,038 abstentions and no
broker non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement on computation of per share earnings
27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
No report on Form 8-K was filed by the company during the quarter
ended August 1, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Medtronic, Inc.
(Registrant)
Date: September 12, 1997 /S/ WILLIAM W. GEORGE
---------------------------------------
William W. George
Chairman
and Chief Executive Officer
Date: September 12, 1997 /S/ ROBERT L. RYAN
---------------------------------------
Robert L. Ryan
Senior Vice President
and Chief Financial Officer
EXHIBIT 11
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
MEDTRONIC, INC.
(Unaudited)
(in thousands)
Three months ended
------------------
Aug. 1, Aug. 2,
1997 1996
------- -------
PRIMARY
- -------------------------------
Shares outstanding:
Weighted average outstanding 468,402 478,857
Share equivalents (1)(2) 7,513 9,020
------- -------
Adjusted shares outstanding (2) 475,915 487,877
======= =======
FULLY DILUTED
- -------------------------------
Shares outstanding:
Weighted average outstanding 468,402 478,857
Share equivalents (1)(2) 8,146 9,350
------- -------
Adjusted shares outstanding (2) 476,548 488,207
======= =======
- ---------------------
(1) Share equivalents consist primarily of nonqualified stock options.
(2) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND CONDENSED CONSOLIDATED BALANCE SHEET FOR
THE QUARTERLY PERIOD ENDED AUGUST 1, 1997 FILED WITH THE SEC ON FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> AUG-01-1997
<CASH> 280,227
<SECURITIES> 0
<RECEIVABLES> 525,957
<ALLOWANCES> (12,876)
<INVENTORY> 300,225
<CURRENT-ASSETS> 1,323,824
<PP&E> 972,807
<DEPRECIATION> (492,222)
<TOTAL-ASSETS> 2,515,709
<CURRENT-LIABILITIES> 517,533
<BONDS> 0
0
0
<COMMON> 46,866
<OTHER-SE> 1,793,894
<TOTAL-LIABILITY-AND-EQUITY> 2,515,709
<SALES> 646,279
<TOTAL-REVENUES> 646,279
<CGS> 160,161
<TOTAL-COSTS> 160,161
<OTHER-EXPENSES> 260,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,950
<INCOME-PRETAX> 223,646
<INCOME-TAX> 77,158
<INCOME-CONTINUING> 146,488
<DISCONTINUED> 0
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<NET-INCOME> 146,488
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
