-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IS9EldHk56yQGdpX92XeGRSiIpdJtHmwjHTT73txXtEPXtp3fzvtm1Pzjp4SNBtn rW7oEKDyjSogmmBJgk1O8Q== 0000897101-96-001075.txt : 19961217 0000897101-96-001075.hdr.sgml : 19961217 ACCESSION NUMBER: 0000897101-96-001075 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961101 FILED AS OF DATE: 19961216 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDTRONIC INC CENTRAL INDEX KEY: 0000064670 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 410793183 STATE OF INCORPORATION: MN FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07707 FILM NUMBER: 96680974 BUSINESS ADDRESS: STREET 1: 7000 CENTRAL AVE NE STREET 2: MS 316 CITY: MINNEAPOLIS STATE: MN ZIP: 55432 BUSINESS PHONE: 6125744000 10-Q 1 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 November 1, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number 1-7707 MEDTRONIC, INC. (Exact name of registrant as specified in its charter) Minnesota 41-0793183 (State of incorporation) (I.R.S. Employer Identification No.) 7000 Central Avenue N.E. Minneapolis, Minnesota 55432 (Address of principal executive offices) Telephone number: (612) 574-4000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Shares of common stock, $.10 par value, outstanding on December 2, 1996: 240,031,835 PART I--FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS MEDTRONIC, INC. CONSOLIDATED STATEMENT OF EARNINGS (Unaudited) Three months ended Six months ended ------------------ ---------------- Nov. 1, Oct. 27, Nov. 1, Oct. 27, 1996 1995 1996 1995 ---- ---- ---- ---- (in thousands, except per share data) Net sales $598,152 $519,980 $1,199,022 $1,044,923 Costs and expenses: Cost of products sold 151,060 146,023 306,641 297,070 Research and development expense 68,257 55,946 133,928 109,720 Selling, general, and administrative expense 188,964 166,245 380,674 341,438 Interest expense 2,588 2,243 4,611 4,008 Interest income (8,663) (8,166) (17,321) (14,575) --------- --------- --------- ---------- Total costs and expenses 402,206 362,291 808,533 737,661 --------- --------- --------- --------- Earnings before income taxes 195,946 157,689 390,489 307,262 Provision for income taxes 67,602 54,881 134,719 107,133 --------- --------- --------- --------- Net earnings $128,344 $102,808 $255,770 $ 200,129 ========= ========= ========= ========= Weighted average shares outstanding 239,742 236,682 239,590 236,066 Earnings per share $ 0.54 $ 0.43 $ 1.07 $ 0.85 ========= ========= ========= ========= See accompanying notes to condensed consolidated financial statements. MEDTRONIC, INC. CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) November 1, April 30, 1996 1996 --------- --------- ASSETS (in thousands) ------ Current assets: Cash and cash equivalents $ 88,952 $ 151,050 Short-term investments 393,376 355,741 Accounts receivable, less allowance for doubtful accounts of $18,106 and $18,094 493,028 458,090 Inventories: Finished goods 131,424 118,952 Work in process 70,906 61,000 Raw materials 83,200 77,526 --------- --------- Total inventories 285,530 257,478 Prepaid expenses and other current assets 206,364 168,914 --------- --------- Total current assets 1,467,250 1,391,273 Property, plant, and equipment 916,848 835,739 Accumulated depreciation (460,332) (418,826) --------- --------- Net property, plant, and equipment 456,516 416,913 Goodwill and other intangible assets, net 495,374 473,027 Long-term investments 197,989 219,964 Other assets 55,359 53,523 --------- --------- Total assets $2,672,488 $2,554,700 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Short-term borrowings $ 78,433 $ 60,690 Accounts payable 76,516 100,149 Accrued liabilities 316,114 368,309 --------- --------- Total current liabilities 471,063 529,148 Long-term debt 20,400 15,336 Other long-term liabilities 135,548 128,181 Deferred tax liabilities 25,750 45,744 Shareholders' equity: Common stock--par value $.10 23,993 23,931 Retained earnings 2,025,100 1,843,707 Cumulative translation adjustment (694) (2,675) --------- --------- 2,048,399 1,864,963 Receivable from Employee Stock Ownership Plan (28,672) (28,672) --------- --------- Total shareholders' equity 2,019,727 1,836,291 --------- --------- Total liabilities and shareholders' equity $2,672,488 $2,554,700 ========== ========== See accompanying notes to condensed consolidated financial statements. MEDTRONIC, INC. CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited) Six months ended ---------------- Nov. 1, Oct. 27, 1996 1995 -------- -------- (in thousands) OPERATING ACTIVITIES: Net earnings $255,770 $200,129 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 70,435 65,655 Change in assets and liabilities: Increase in accounts receivable (33,452) (8,743) Increase in inventories (28,074) (8,681) Decrease in accounts payable and accrued liabilities (73,354) (49,805) Changes in other operating assets and liabilities (32,792) (24,360) -------- -------- Net cash provided by operating activities 158,533 174,195 INVESTING ACTIVITIES: Additions to property, plant, and equipment (86,453) (58,544) Purchases of marketable securities (309,384) (169,105) Sales and maturities of marketable securities 248,333 107,688 Acquisition of subsidiary, net of cash acquired (18,873) 0 Other investing activities (net) (39,838) 4,480 -------- -------- Net cash used in investing activities (206,215) (115,481) FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings (net) 17,444 (7,459) Increase (decrease) in long-term debt (net) 5,821 (720) Proceeds from stock offering of acquired subsidiary 0 41,538 Dividends to shareholders (45,365) (29,990) Repurchases of common stock 0 (3,674) Issuance of common stock 8,238 4,436 -------- ------- Net cash provided by (used in) financing activities (13,862) 4,131 Effect of exchange rate changes on cash and cash equivalents (554) (484) -------- ------- Net increase (decrease) in cash and cash equivalents (62,098) 62,361 Cash and cash equivalents at beginning of period 151,050 98,292 -------- ------- Cash and cash equivalents at end of period $ 88,952 $160,653 ========= ======== See accompanying notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except per share data) Note 1 - Basis of Presentation - ------------------------------ The unaudited condensed consolidated financial statements include the accounts of Medtronic, Inc. and all of its subsidiaries, after elimination of all significant intercompany transactions and accounts. In the opinion of management, all adjustments necessary for a fair presentation of operating results have been made. All such adjustments are of a normal recurring nature. Operating results for interim periods are not necessarily indicative of results that may be expected for the year as a whole. The fiscal year 1996 amounts have been restated to reflect the May and June 1996 acquisitions of AneuRx, Inc. and InStent Inc. which were accounted for as poolings of interests. Note 2 - Acquisition - -------------------- On August 29, 1996, the company acquired substantially all of the assets and liabilities of Avalon Laboratories, Inc. (Avalon) for approximately $19.0 million in cash. This acquisition has been accounted for as a purchase and, accordingly, the results of operations have been included in the consolidated financial statements since the date of acquisition. Avalon develops, manufactures and sells cannulae and other surgical products. Pro forma financial information is not presented as the results of the acquisition, assuming that the transaction was consummated at the beginning of each year presented, would not be materially different from the results reported. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- Net Earnings - ------------ Net earnings for the second quarter ended November 1, 1996 were $128.3 million, or $0.54 per share. Earnings per share reflect an increase of 25.6 percent over the $0.43 per share reported on earnings of $102.8 million for the second quarter last year. Net earnings increased 27.8 percent to $255.8 million for the six-month period ended November 1, 1996, compared to $200.1 million for the same period last year. Earnings per share for the six-month period ended November 1, 1996 were $1.07, an increase of 25.9 percent over the $0.85 reported in the prior year. Sales - ----- Sales for the quarter and six-month period ended November 1, 1996 increased 15.0 percent and 14.7 percent, respectively, compared to the same periods last year. Exclusive of the effects of foreign currency translation, sales for the quarter and six-month period ended November 1, 1996 increased 16.5 percent and 17.6 percent, respectively, over the comparable periods last year. Sales growth in the quarter and six-month period was negatively impacted by $7.8 million and $29.9 million, respectively, of unfavorable exchange rate movements caused primarily by the strengthening of the U.S. dollar versus major European currencies and the Japanese Yen. The growth over last year was led by strong contributions from the Pacing business, which consists primarily of Bradycardia Pacing and Tachyarrhythmia Management. After removing the impact of foreign exchange rate fluctuations, worldwide sales of the Pacing business grew 12.9 percent and 13.0 percent during the quarter and six-month period ended November 1, 1996, respectively, compared to the same periods a year ago. Bradycardia sales continued to reflect strong growth in both U.S. and non-U.S. markets, as its Thera(R) and Thera(R) i-series(TM) pacemakers, combined with CapSure(R) leads, continued to capture worldwide market share. Pacemakers of the new Medtronic.Kappa(TM) generation entered clinical evaluation in Europe in August 1996. Tachyarrthymia management's Jewel(R) and Jewel Plus(TM) Active Can(TM) implantable cardioverter-defibrillator devices, and the Micro Jewel(TM) device, which received U.S. Food and Drug Administration (FDA) approval in July 1996, continue to hold a strong market share position in the highly competitive defibrillator marketplace. Subsequent to quarter end, the FDA cleared for commercial marketing the successor product, the Micro Jewel(TM) II, the world's smallest and lightest defibrillator. Sales within the Other Cardiovascular business, (consisting of balloon and guiding catheters, stents, ablation systems, interventional neuroradiology, heart valves, perfusion and blood management systems, cannulae and surgical accessories) increased 7.4 percent and 12.3 percent, respectively, on a comparable operations basis for the quarter and six-month periods ended November 1, 1996. This increase was primarily attributable to continued gains made by the Medtronic Wiktor(R) coronary stent in Europe and Japan, and by the Wiktor(R)-i coronary stent which was released in Europe and other world markets outside the U.S. in October 1996. Subsequent to quarter end, the beStent(TM) was released in Europe and other world markets outside the U.S. Also contributing to the revenue growth were strong sales gains in ablation systems and devices for interventional neuroradiology. The Millenia(TM) high-pressure balloon catheter received FDA approval in October 1996. Unit sales of balloon and guiding catheters remain solid, however, continued downward pricing pressures for balloon catheters more than offset the unit growth. Solid revenue contributions were also made by surgical cannulae and heart valves during the quarter. Sales of perfusion and blood management systems were flat compared to last year's comparable quarter. Exclusive of the effects of foreign currency translation, sales of the Neurological and Other Businesses, primarily consisting of implantable neurostimulation devices, drug administration systems, neurosurgery and developing businesses, grew 72.7 percent and 74.5 percent, respectively, for the quarter and six-month periods ended November 1, 1996 compared to the same periods last year. A strong contributing growth factor was rapid sales growth in Europe of neurostimulation therapy for control of essential tremor and tremor associated with Parkinson's disease. This therapy is currently in clinical evaluation in the U.S. Another therapy, delivery of Lioresal(R) (baclofen, USP) Intrathecal by the SynchroMed(R) drug infusion system for spasticity of cerebral origin, continues to gain increasing worldwide acceptance. In addition, the Mattrix(R) and Itrel(R) 3 spinal cord stimulation systems continue to hold strong market share positions. Also, PS Medical and Synectics, which were acquired in November 1995 and April 1996, respectively, contributed to the strong growth. Costs of Products Sold - ---------------------- Cost of products sold as a percent of sales for the quarter and six-month periods ended November 1, 1996 was 25.3 percent and 25.6 percent, respectively, compared to 28.1 percent and 28.4 percent for the comparative periods last year. The decrease in the cost of products sold as a percent of sales resulted from increased productivity, the impact of favorable product and geographic mixes combined with substantially increased volumes. Research and Development Expense - -------------------------------- Research and development expense was $68.3 million for the quarter and $133.9 million for the six-month period ended November 1, 1996, an increase of 22.0 percent and 22.1 percent, respectively, over the comparable periods 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 minimally invasive and new technologies to address unmet patient needs and to help reduce procedural cost and length of hospital stay. Selling, General, and Administrative Expense (SG&A) - --------------------------------------------------- SG&A expense for the quarter ended November 1, 1996, was $189.0 million compared to $166.2 million for the comparable period last year. SG&A as a percent of sales decreased from 32.0 percent a year ago to 31.6 percent for the current quarter. The decrease in SG&A as a percent of sales is attributable to accelerated revenue growth combined with continued overall cost efficiencies. Interest - -------- Interest expense of $2.6 million for the quarter was slightly higher than the $2.2 million for the same period last year. Interest income of $8.7 million for the quarter increased 6.1 percent from the $8.2 million for the same period last year, and was primarily the result of increased average investment balances over the prior year. Income Taxes - ------------ The estimated effective tax rate for the company's current fiscal year is 34.5 percent compared to an effective rate of 35.0 percent, after restatement for the acquisitions of AneuRx and InStent, for the fiscal year ended April 30, 1996. However, the company continues to experience upward pressure on the tax rate, resulting from recent tax legislation which reduces U.S. tax benefits derived from operations in Puerto Rico. Management believes that the adverse impact can be minimized by other tax planning initiatives. Liquidity and Capital Resources - ------------------------------- Operating activities provided $158.5 million of cash and cash equivalents for the six-month period ended November 1, 1996 compared to $174.2 million for the same period a year ago. Working capital was $996.2 million at November 1, 1996, an increase of $134.1 million over the $862.1 million at April 30, 1996. The current ratio increased to 3.1:1 at November 1, 1996, compared to 2.6:1 at April 30, 1996. Cash and cash equivalents decreased $62.1 million during the six-month period ended November 1, 1996, compared with an increase of $62.4 million during the same period last year. The prior year comparative period includes $41.5 million of proceeds from the stock offering of a subsidiary which was acquired in June 1996, and accounted for as a pooling of interests. Significant uses of cash during the six-month period ended November 1, 1996 included the reduction of accounts payable and accrued liabilities, purchases of marketable securities, purchases of property, plant and equipment, and dividends paid to shareholders. Government Regulation and Other Matters - --------------------------------------- The company operates in an industry susceptible to significant product liability claims. In recent years, there has been an increased public interest in product liability claims for implanted medical devices, including pacemakers and leads. These claims may be brought by individuals seeking relief for themselves or, increasingly, by groups seeking to represent a class, and the company has experienced an increase in such claims. In June 1996, the company lost a case (Lohr v. Medtronic) before the U.S. Supreme Court to determine whether a device cleared by the FDA for commercial release can later be challenged as unsafe. While this outcome could potentially increase the cost to the company, and other medical device makers, to defend product liability claims, it is not expected to have a material adverse financial impact on the company. In addition, 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. In 1994, governmental authorities in Germany began an investigation into certain business and accounting practices by heart valve manufacturers. As part of this investigation, documents were seized from the Company and certain other manufacturers. Subsequently, the United States Securities and Exchange Commission (the "SEC") also began an inquiry into this matter. In August 1996, the SEC issued a formal non-public order of investigation to the Company, as it had to at least one other manufacturer. Based upon currently available information, the Company does not expect these investigations to have a materially adverse impact on the Company's financial position, results of operations or liquidity. PART II -- OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 - Statement on computation of per share earnings 27 - Financial Data Schedule (For SEC use only) (b) Reports on Form 8-K During the quarter ended November 1, 1996, the company filed a Report on Form 8-K dated August 19, 1996 reporting under Item 5 the announcement of financial results for the fiscal first quarter ended August 2, 1996. Subsequent to the quarter ended November 1, 1996, the company filed a Report on Form 8-K dated November 22, 1996 reporting under Item 5 the announcement of financial results for the fiscal second quarter ended November 1, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Medtronic, Inc. (Registrant) Date: December 16, 1996 /S/ WILLIAM W. GEORGE ------------------------------------ William W. George Chairman and Chief Executive Officer Date: December 16, 1996 /S/ ROBERT L. RYAN ------------------------------------ Robert L. Ryan Senior Vice President and Chief Financial Officer EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS MEDTRONIC, INC. (Unaudited) (in thousands) Three months ended Six months ended ------------------ ----------------- Nov. 1, Oct. 27, Nov. 1, Oct.27, 1996 1995 1996 1995 ------- -------- ------- ------- PRIMARY - ---------------------------------- Shares outstanding: Weighted average outstanding 239,742 236,682 239,590 236,066 Share equivalents (1)(2) 4,576 4,792 4,426 4,474 ------- ------- ------- ------- Adjusted shares outstanding (2) 244,318 241,474 244,016 240,540 ======= ======= ======= ======= FULLY DILUTED - ---------------------------------- Shares outstanding: Weighted average outstanding 239,742 236,682 239,590 236,066 Share equivalents (1)(2) 4,915 5,380 4,915 5,380 ------- ------- ------- ------- Adjusted shares outstanding (2) 244,657 242,062 244,505 241,446 ======= ======= ======= ======= - ----------------------- (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%. EX-27 3 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNINGS AND CONDENSED CONSOLIDATED BALANCE SHEET FOR THE QUARTERLY PERIOD ENDED NOVEMBER 1,1996 FILED WITH THE SEC ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS APR-30-1997 MAY-01-1996 NOV-01-1996 88,952 393,376 511,134 (18,106) 285,530 1,467,250 916,848 (460,332) 2,672,488 471,063 0 0 0 23,993 1,995,734 2,672,488 1,199,022 1,199,022 306,641 306,641 497,281 0 4,611 390,489 134,719 255,770 0 0 0 255,770 1.07 1.05
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