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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED APRIL 30, 2000
COMMISSION FILE NO. 1-7707
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[LOGO]
MEDTRONIC
WHEN LIFE DEPENDS ON MEDICAL TECHNOLOGY
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: (763) 514-4000
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
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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, 2000, BASED ON THE CLOSING PRICE OF $50.0625, AS
REPORTED ON THE NEW YORK STOCK EXCHANGE: $60 BILLION.
SHARES OF COMMON STOCK OUTSTANDING ON JULY 7, 2000: 1,198,275,563
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S 2000 ANNUAL REPORT ARE INCORPORATED BY REFERENCE INTO
PARTS I, II AND IV; PORTIONS OF REGISTRANT'S PROXY STATEMENT FOR ITS 2000 ANNUAL
MEETING ARE INCORPORATED BY REFERENCE INTO PART III.
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PART I
ITEM 1. BUSINESS
GENERAL. Medtronic, Inc. (together with its subsidiaries, "Medtronic" or
the "company") is the world's leading medical technology company, providing
lifelong solutions for people with chronic disease. Medtronic was founded in
1949 and incorporated as a Minnesota corporation in 1957. Primary products
include those for bradycardia pacing, tachyarrhythmia management, atrial
fibrillation management, heart failure management, coronary and peripheral
vascular disease, heart valve replacement, extracorporeal cardiac support,
minimally invasive cardiac surgery, malignant and non-malignant pain, movement
disorders, spinal and neurosurgery, neurodegenerative disorders, and ear, nose
and throat (ENT) surgery.
Medtronic operates its business in four operating business units, which are
aggregated into one reportable segment, that of manufacturing and selling
device-based medical therapies. The company does business in more than 120
countries. The company's operating business units include cardiac rhythm
management; vascular; cardiac surgery; and neurological, spinal and ENT.
In addition to its internal research and development, in fiscal 2000
Medtronic augmented its product lines through various acquisitions including,
but not limited to, the acquisition of Xomed Surgical Products, Inc. ("Xomed").
On November 5, 1999, Medtronic, Inc. acquired all of the outstanding stock of
Xomed through a merger of a newly created subsidiary of Medtronic, Inc., into
Xomed. Pursuant to the merger, the shareholders of Xomed received approximately
21.4 million shares of Medtronic common stock. Medtronic Xomed is the world's
leading provider of surgical devices used by ENT physicians. Medtronic Xomed's
products are used to treat sinus and rhinology conditions, otological
conditions, and various other head and neck conditions.
The acquisition of Xomed has been accounted for as a pooling-of-interests
and, accordingly, the company's consolidated financial statements for fiscal
2000 and for prior years have been restated to include the results of
operations, financial positions, and cash flows of Xomed. References in this
Form 10-K to financial information of the company have been adjusted to reflect
the restated financial statements.
In January 2000, Medtronic introduced Vision 2010, the company's strategic
initiative to provide patients and the medical community with comprehensive,
lifelong solutions for the management of chronic disease. In the next decade,
the company anticipates that the internet, technology advancements and the
empowered patient will transform the nature of healthcare services. This
convergence will result in better care at lower cost to the healthcare system
and greater quality of life and convenience to the patient. In fiscal 2000,
Medtronic introduced several important e-business initiatives toward this goal,
including those listed below.
In January 2000, Medtronic announced the formation of a new Patient
Management Business within Cardiac Rhythm Management involving collaborations
with information technology leaders including Microsoft Corporation and
International Business Machines Corp. (IBM). This new Patient Management
Business will seek to leverage the convergence of biomedical and information
technologies to provide new computer-based systems to help physicians manage
patients with chronic cardiovascular disease. Collaborative efforts will be
directed toward development of systems enabling patients to have direct
connectivity to specialty care teams of physicians anywhere in the world, at any
time, via internet-based programs.
In January 2000, Medtronic and Healtheon/WebMD announced the formation of a
global partnership to provide health care information on the internet and other
communications media to both consumers and physicians. Medtronic has entered
into an agreement committing up to $50 million to Healtheon/WebMD over a
four-year period for extensive initiatives reaching both consumers and
physicians, including developing internet applications to provide information on
medical products and treatments, as well as creating dedicated online health
information channels for disease-focused communities. Healtheon/WebMD's web
site, Webmd.com, will also support Medtronic's Patient Management Business by
linking users to WebMD content and services. Medtronic also plans to invest in
WebMD Europe, a company to be formed by the global joint venture between News
Corporation and Healtheon/WebMD.
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In March 2000, Johnson & Johnson, GE Medical Systems, Baxter International,
Inc., Medtronic and Abbott Laboratories announced the creation of a global
health care exchange that will be an independent internet-based company. Other
suppliers have since joined the exchange. The creation of this global health
care exchange will help healthcare providers make quicker, more efficient
purchasing decisions and simplify business processes by providing a single
source for ordering healthcare purchases. The privately held, independent,
on-line enterprise will facilitate the exchange of information related to
ordering medical equipment, devices and healthcare products and services
worldwide, and also provide access to extensive clinical content. It will
provide equal access to all healthcare manufacturers, suppliers, distributors,
providers, group purchasing organizations and other healthcare trading partners.
CARDIAC RHYTHM MANAGEMENT. Cardiac Rhythm Management products consist
primarily of products for bradycardia pacing, tachyarrhythmia management,
external defibrillation and ablation, as well as products for treating atrial
fibrillation and congestive heart failure.
Bradycardia pacing systems, which treat patients with slow or irregular
heartbeats, 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. The company's Model 9790 programmer can
be used interchangeably with all of the company's bradycardia pacemakers as well
as with its tachyarrhythmia management devices.
Advances in bradycardia pacing in fiscal 2000 include the U.S. commercial
release of the Medtronic.Sigma(TM) family of pacemakers in August 1999. The
Medtronic.Sigma pacing systems offer a number of enhanced patient therapies and
patient management tools, including collection of comprehensive, accessible
diagnostic information, which are not typically found in the standard and basic
pacing market segments. The Medtronic.Sigma pacing line complements Medtronic's
advanced pacing systems, the Medtronic.Kappa(TM) 400 and 700 Series which are
market-released worldwide. The Medtronic.Kappa 700 series features a highly
adaptive pacing system that provides continuous customized therapy while
streamlining clinical care. The Medtronic.Kappa 400 series offers dual sensor
automated rate responsive pacing and data collection for enhanced diagnostic
capabilities. In general, the Kappa(R) pacemakers are designed to adjust heart
rate to match patient activity without requiring a hospital or clinic visit. In
December 1999, Medtronic launched Today's Kappa(R), the next generation pacing
software for its Medtronic Kappa(R) family of pacemakers. Today's Kappa allows
physicians to most efficiently apply the benefits of the Kappa's advanced pacing
diagnostic and therapeutic technologies to deliver optimal patient care.
Medtronic also markets the CapSure(R) Z and CapSureFix(R) steroid-eluting
leads, which deliver more concentrated levels of electrical energy that extend
device life. The CapSureFix NOVUS(TM), a new pacing lead with smaller size for
increased maneuverability during implant, is in clinical investigation. In
September 1999, Medtronic received FDA clearance for the U.S. commercial release
of a new pacemaker lead designed for the youngest and smallest heart patients,
the Medtronic CapSure(TM) Epi bipolar lead. This is the first bipolar,
steroid-eluting epicardial lead on the market and it provides the benefit of
steroid for reduced pacing thresholds.
In September 1999, the Vitatron organization of Medtronic released for
commercial sale in the U.S. seven pacemakers from its Collection(TM) II and
Vita(TM) families, five of which incorporate the first new rate responsive
sensor technology to be offered in the U.S. market in nearly 10 years. The new
Vitatron(R) pacing systems feature two proven rate responsive sensors -- the Q-T
sensor and the Activity sensor -- which enable the devices to automatically
adjust pacing impulses to the circulatory needs of the patient's body. The
Collection II pacemaker family features the Diamond(R)II DDDR, the Ruby(TM)II
DDD, the Topaz(TM)II SSIR and the Jade(TM)II SSI; the Vita family of pacemakers
includes the Vita DR, Vita D and Vita SR models.
In fiscal 2000, Vitatron also announced the commercial release outside the
U.S. of three new products targeting atrial fibrillation, the world's most
common heart rhythm disorder. In May 2000, Vitatron commercially released the
Vitatron PreventAF(TM), the Vitatron DiagnoseAF(TM) and Vitatron Selection(R)
AF2.0 software atrial fibrillation products. The Vitatron PreventAF is the
world's first device to feature four pacing functions designed to prevent atrial
fibrillation and incorporates an advanced
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dual-chamber, rate responsive pacemaker with beat-to-beat mode switching and
dual sensor technology. The Vitatron DiagnoseAF system combines state-of-the art
pacemaker functions, including fast mode switching and dual-sensor rate response
technology, with atrial fibrillation-focused diagnostic capabilities. The
Vitatron Selection AF2.0 software is a non-invasive upgrade for patients who
have the Vitatron Selection 900 implantable pacemaker which gives them the same
algorithms and protection against atrial fibrillation as those patients with the
new PreventAF system. These devices are in clinical evaluation in the U.S.
Tachyarrhythmia management products include implantable devices and
transvenous lead systems for treating ventricular tachyarrhythmias, which are
abnormally fast, and sometimes fatal, heart rhythms. The systems offer a tiered
therapy of pacing, cardioversion and defibrillation, and may be implanted in the
upper chest using endocardial leads, which reduces patient trauma,
hospitalization time and costs. Medtronic's Gem(R) family of implantable
defibrillators is intended to meet the needs of patients with multiple heart
rhythm problems. The Gem single chamber defibrillator is designed to provide
rate responsive pacing in the lower chamber of the heart, while the Gem DR(TM)
features an advanced dual chamber rate responsive pacing capability as well as
advanced detection and diagnostic tools.
In June and July 1999, Medtronic released for commercial sale in the U.S.
the next generation in the Gem(R) family of devices, the Gem II DR and the Gem
II VR. The Gem II DR offers patient benefits comparable to the Gem DR but in a
35% smaller size. The GEM II VR defibrillator is the single chamber counterpart
to the GEM II DR. The Gem II products are technologically-advanced, implantable
defibrillators for treating complex heart rhythm problems.
Medtronic also markets the Jewel(R) line of devices, including the Micro
Jewel(R) II implantable defibrillator, which offers expanded diagnostic
capabilities. The Jewel(R) AF shares with the Gem DR the ability to provide rate
responsive treatment of arrhythmias in both the atrium and the ventricle. The
Jewel AF was commercially released in Europe and other international markets in
June 1998 and approved by the FDA for commercial use in the U.S. in June 2000.
Medtronic markets a full line of active and passive steroid-eluting
defibrillator leads. The entire line of tachyarrhythmia devices, like the
bradycardia pacemakers, are programmed with the Model 9790 programmer.
The company offers an implantable device, the Reveal(R) Plus Insertable
Loop Recorder (ILR), to diagnose complex arrhythmias or other chronic perplexing
heart problems. Once implanted, the Reveal Plus recorder continuously monitors
the heart's electrical activity and records electrocardiogram information in up
to a 42 minute loop. The monitor can be programmed to automatically capture the
ECG when a heart rhythm problem occurs. The information is stored and can be
non-invasively retrieved by the physician. The successor to the Reveal(R) ILR,
the Reveal Plus ILR, was commercially released in the U.S. in February 2000 and
in Europe in March 2000.
Medtronic commercially markets two products that monitor and treat
congestive heart failure, a seriously debilitating condition in which the heart
does not pump enough blood to meet the body's demands. In August 1998, Medtronic
introduced in European markets the InSync(TM) cardiac stimulator designed to
assist heart failure patients by improving the contraction sequence of up to
three chambers of the heart to optimize cardiac function and cardiovascular
circulation. In June 2000, the InSync(R) ICD, which offers defibrillation as
well as resynchronization capabilities, was commercially released in Europe and
certain Asian markets. The InSync and InSync ICD systems are used with
Medtronic's Attain(TM) Side-Wire lead system designed to provide lower left
heart chamber pacing in varied patient anatomies. The InSync, InSync ICD and
Attain Side-Wire leads are in clinical evaluation in the U.S.
By acquiring Physio-Control International Corporation in September 1998,
Medtronic added to its Cardiac Rhythm Management products an integrated line of
noninvasive emergency cardiac defibrillator and vital sign assessment devices,
disposable electrodes and data management software. Medtronic Physio-Control
products are used in both out-of-hospital and hospital settings for the early
detection and treatment of life threatening events including trauma, heart
attack, ventricular fibrillation, tachyarrhythmia and bradycardia. Current
defibrillator products include the LIFEPAK(R) series of products, all of which
are noninvasive external defibrillator and vital sign assessment devices, some
having noninvasive pacing, shock advisory, pulse oximetry and 12 lead ECG
diagnostic capability.
3
In fiscal 2000, Medtronic Physio-Control received FDA clearance for U.S.
commercial release of biphasic versions of its LIFEPAK 12 defibrillator/monitor
series and its LIFEPAK 500 automated external defibrillator. Other products
include the QUIK-COMBO(TM) electrodes which are multiple function electrodes
permitting the LIFEPAK products to pace, defibrillate and monitor
electrocardiograms through a single pair of electrodes. The CODE-STAT(TM) and
CODE-STAT suite data management systems are Windows(R) based software programs
that allow users to conduct post-event review and data analysis.
The company's Cardiac Rhythm Management products accounted for 49.9% of
Medtronic's net sales during the fiscal year ended April 30, 2000 ("fiscal
2000"), 50.1% of net sales in fiscal 1999 and 55.0% of net sales in fiscal 1998.
VASCULAR. The Vascular product line supports the interventional treatment
of diseased coronary and peripheral blood vessels. Medtronic's primary
involvement in the vascular area had historically been in coronary angioplasty.
Medtronic's acquisition of AVE in January 1999 significantly expanded the
company's portfolio of coronary stent systems, balloon catheters, guidewires and
guiding catheters.
Vascular products include both modular and laser-cut stent systems. In
fiscal 2000, Medtronic obtained FDA clearance for U.S. commercial sales of
several modular stent systems. The S670(TM) With Discrete Technology(TM) Stent
Systems in both over-the-wire and rapid exchange perfusion platforms were
commercially released in the U.S. in late 1999. The S670 incorporates advanced
stent design, offering greater stent flexibility, superior deliverability,
enhanced scaffolding efficiency, and a reduced crossing profile. Discrete
Technology(TM) refers to the precise alignment of the stent on the balloon,
thereby ensuring complete stent expansion while minimizing balloon overhang and
potentially reducing the likelihood of arterial damage. In fiscal 2000,
Medtronic also received clearance to market the S670 With Discrete Technology in
Japan. The S670 has been commercially available in Europe since April 1999. In
May 2000, Medtronic also introduced in the U.S. a stent specifically designed
for smaller vessels, the S660 With Discrete Technology(TM). Available in both
over-the-wire and rapid exchange perfusion versions in the U.S., the S660 is one
of the lowest profile stents available on the market.
The BeStent(TM)2 With Discrete Technology(TM) Rapid Exchange Coronary Stent
Delivery System received clearance for commercial release in Europe in May 2000.
The BeStent2 is currently in clinical evaluation in the U.S.
The company's line of coronary dilation catheters in the over-the-wire
category include the D114S(TM) balloon catheter for angioplasty which received
FDA clearance for U.S. commercial release in August 1999. In the rapid exchange
segment of the market, the XIS(TM) balloon catheter was introduced in Europe in
May 1999 and the LTX2(TM) catheter was released in Japan in April 1999. The
company also offers enhanced coronary guide catheters, including the Z2(TM)
line, and the Fusion(TM) family of guidewires.
The coronary vascular product line is complemented by a wide range of
peripheral vascular products, including the AneuRx(TM) and Talent(TM) stent
grafts for minimally invasive abdominal aortic aneurysm repair therapy. These
products are commercially available in Europe and the AneuRx stent graft system
is available in the U.S., having received FDA clearance in September 1999. In
April 2000, the company announced the launch of two additional components for
its AneuRx(TM) Stent Graft System. Available in select geographies outside the
U.S., the AneuRx(TM) Descending Thoracic Aorta (DTA) Stent Graft System adapts
the technologies of the original AneuRx system for use in the endovascular
treatment of aneurysms above the abdomen in the descending thoracic aorta. The
AneuRx IDS Delivery System is designed to make stent graft delivery a one-step
process for abdominal aortic aneurysms and is available in the U.S., Europe,
Australia and certain countries in Asia. The company also offers
balloon-expandable biliary stents in the U.S and balloon-expandable peripheral
vascular stent systems in markets outside the United States, and a biliary and
renal stent in selected countries outside the U.S. The company is also
developing a line of stents for use in interventional neuroradiology
applications.
In October 1999, Medtronic announced the signing of a three-year supply
agreement with Premier Purchasing Partners, Inc., for coronary stents as well as
dilatation catheters, coronary guidewires, guide catheters and diagnostic
products. These products, all of which are produced, marketed and sold through
the Vascular organization, will be made available to Premier's membership of
approximately 1,800 hospitals and other health care organizations in all 50 U.S.
states.
4
The company's Vascular products accounted for 15.8% of net sales in fiscal
2000, 17.0% of net sales in fiscal 1999 and 11.8% of net sales in fiscal 1998.
CARDIAC SURGERY. Cardiac Surgery products consist of heart valves,
perfusion systems, cannulae and surgical accessories. The heart valve product
line includes tissue and mechanical valves and repair products for damaged or
diseased heart valves. The Freestyle(R) stentless aortic tissue heart valve,
available in the U.S. since 1997, features advanced tissue technology for
improved blood flow and increased durability. In September 1999, Medtronic
received FDA clearance for U.S. commercial release of its Hancock(R) II tissue
valve, available in both aortic and mitral models. Through a series of strategic
acquisitions over the past decade, including the acquisition of AVECOR
Cardiovascular, Inc. in March 1999, Medtronic now markets a complete line of
blood-handling products that form the extracorporeal life-support circuit for
maintaining and monitoring blood circulation and coagulation status, oxygen
supply and body temperature while the patient is undergoing open-heart surgery.
The company also markets enabling technologies in beating heart bypass
surgery, including the Medtronic Octopus(R) family of tissue stabilization
systems: the Octopus(R), Octopus2(R), the Octopus(R)2+ and the Octopus(R)3
tissue stabilizing systems. These systems are used to stabilize sites on the
beating heart to enable the surgeon to complete bypass grafts. The Octopus 2+
system was introduced commercially beginning in October 1999 and the Octopus 3
was launched on a worldwide basis in May 2000. Accompanying the launch of the
Octopus 3 were three other new cardiac surgery products: the ClearView(R)
Intracoronary Shunt, the QuickFlow DPS(TM) Distal Perfusion System and the
ClearView(R) Blower/Mister system. These new products are designed to provide
surgeons with added flexibility, visibility and access to the surgical site.
The company's Cardiac Surgery products accounted for 9.3% of Medtronic's
net sales during fiscal 2000, 9.3% of net sales in fiscal 1999 and 11.1% of net
sales in fiscal 1998.
NEUROLOGICAL, SPINAL AND ENT. Neurological, Spinal and ENT products consist
primarily of implantable neurostimulation devices, drug administration systems,
spinal products, neurosurgery products, functional diagnostic systems and
surgical products used by ENT physicians. Medtronic's acquisitions of Sofamor
Danek and Midas Rex in fiscal 1999 significantly added to the products offered.
Medtronic Sofamor Danek produces devices, instruments, computer-assisted
visualization products and biomaterials used by orthopedic surgeons and
neurosurgeons in the treatment of disorders of the cranium and spine, including
a wide range of sophisticated internal fixation devices, such as interbody
fusion systems, the Med(TM) MicroEndoscopic Discectomy System used for the
surgical removal of vertebral discs and the StealthStation(R) System, an
advanced computer-assisted, image guided surgery system which provides surgeons
with the capability to plan, navigate and precisely position surgical tools and
devices during cranial and spinal procedures. In May 1999, Medtronic Sofamor
Danek received FDA clearance for U.S. commercial introduction of the INTER
FIX(TM) threaded Spinal Fusion Device, which is designed to treat severe back
pain caused by degenerative disc disease. In May 2000, Medtronic Sofamor Danek's
INTER FIX(TM) RP (Reduced Profile) Threaded Spinal Fusion Device received
clearance from the FDA for U.S. commercial introduction.
Through Medtronic PS Medical, the company also manufactures and distributes
cerebrospinal fluid shunts and neurosurgical implants. With Midas Rex, Medtronic
acquired high speed neurological powered instruments, including pneumatic
instrumentation for surgical dissection of bones, biometals, bioceramics and
bioplastics. Other instruments manufactured by Midas Rex assist in orthopedic,
otolaryngological, maxillofacial and craniofacial procedures, as well as plastic
surgery. Medtronic's acquisition of Xomed, Inc. in November 1999 established
Medtronic Xomed as the global leader in providing surgical products used by ENT
surgeons.
In October 1999, Medtronic, Inc. and Novation, the foremost supply chain
management company in healthcare, announced that they had signed three
agreements under which Medtronic will supply spinal and cardiac care products to
the more than 2,000 health care organizations that purchase supplies through
Novation.
The company also produces implantable systems for spinal cord and brain
stimulation to treat pain and movement disorders. Neurostimulation products
include the Itrel(R) 3 spinal cord stimulation system,
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which features a patient-operated control unit, and the Mattrix(R) stimulator,
which offers a dual stimulation mode for more effective pain management. In
November 1999, Medtronic announced that its Synergy(R) Neurostimulation System,
the first and only totally implantable dual channel therapy designed to aid in
the management of chronic intractable pain of the trunk or limbs, had received
approval from the FDA. The Activa(R) therapy for essential tremor and tremor
associated with Parkinson's disease was commercially released in the U.S. in
fiscal 1998. Activa Parkinson's Control Therapy for other major symptoms of
Parkinson's disease was commercially released in Europe in fiscal 1998 and has
received the FDA's advisory panel recommendation for approval of commercial
release in the U.S. The Activa system allows neurostimulation levels to be
adjusted noninvasively after implant according to the needs of each patient.
Medtronic began commercial sales of the Medtronic Kinetra(TM) neurostimulator
throughout Europe and Canada in October 1999. The Medtronic Kinetra simplifies
the delivery of therapy for the debilitating symptoms of both Parkinson's
disease and Essential Tremor through a single device. The Kinetra
neurostimulator and its new hand-held Access(TM) Therapy Controller are used to
deliver Activa Parkinson's Control Therapy and Tremor Control Therapy. The
Kinetra neurostimulator and the Access Therapy Controller are awaiting FDA
clearance in the U.S.
Medtronic also received approval of a humanitarian device exemption (HDE)
from the FDA for an implantable therapy using electrical stimulation of the
stomach to treat patients with a severe, often life threatening, form of
gastroparesis. The therapy, Medtronic Enterra(TM) Therapy, uses an implanted
neurostimulator to deliver electrical pulses to nerves in the stomach.
In April 1999, Medtronic received FDA clearance for U.S. commercial
introduction of the InterStim(R) Therapy for additional urinary control
indications including urinary retention and symptoms of urgency/frequency.
InterStim Therapy uses neurostimulation from a stopwatch-sized neurostimulator
placed under the skin to send mild electrical pulses to the sacral nerves in the
lower back that control bladder function.
The drug delivery product line consists primarily of implantable
programmable and fixed rate drug delivery systems that are used in treating
chronic intractable pain and cerebral and spinal spasticity, including the
SynchroMed(R), SynchroMed(R) EL (Extended Life) and IsoMed(TM) drug delivery
systems. The SynchroMed and SynchroMed EL drug delivery systems consist of a
small device implanted in the abdominal region and a catheter that delivers
medication to the fluid surrounding the spinal cord or other specific sites
within the body. The system bypasses the digestive system and the blood brain
barrier, an achievement essential for drug delivery to the central nervous
system. The SynchroMed EL, which was released in the U.S. market in May 1999,
offers extended battery life that increases the average time between replacement
surgeries. The IsoMed pump is commercially available in Europe and is in
clinical investigation in the U.S.
The company also is a world leader in computer-supported systems to
diagnose urological, digestive and neurological disorders.
The Neurological, Spinal and ENT products accounted for 25.0% of net sales
for fiscal 2000, 23.6% of net sales for fiscal 1999 and 22.1% of net sales for
fiscal 1998.
GOVERNMENT REGULATION AND OTHER MATTERS. Government and private sector
initiatives to limit the growth of health care costs, including price
regulation, competitive pricing, coverage and payment policies and managed-care
arrangements, are continuing in many 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
precludes the company from predicting the impact these changes may have on
future operating results.
In keeping with the increased emphasis on cost-effectiveness in health care
delivery, the current trend among hospitals and other customers of medical
device manufacturers is to consolidate into larger purchasing groups to enhance
purchasing power. The medical device industry has also experienced some
consolidation, partly in order to offer a broader range of products to large
purchasers. As a result, transactions with customers are more significant, more
complex and tend to involve more long-term
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contracts than in the past. This enhanced purchasing power may also increase the
pressure on product pricing, although management is unable to estimate the
potential impact at this time.
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, including laboratory and manufacturing practices, labeling
and recordkeeping for medical devices, and review of 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. Moreover, the FDA administers certain controls over the export
of such devices from the United States. Many of the devices that Medtronic
develops and markets are in a category for which the FDA has implemented
stringent clinical investigation and pre-market clearance requirements. Any
delay or acceleration experienced by the company in obtaining regulatory
approvals to conduct clinical trials or in obtaining required market clearances
(especially with respect to significant products in the regulatory process that
have been discussed in the company's announcements) may affect the company's
operations or the market's expectations for the timing of such events and,
consequently, the market price for the company's common stock.
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 are increasing.
In the early 1990's the review time by the FDA to clear medical devices for
commercial release lengthened and the number of clearances, both of 510(k)
submissions and pre-market approval applications, decreased. In response to
public and congressional concern, the FDA Modernization Act of 1997 was adopted
with the intent of bringing better definition to the clearance process. While
FDA review times have improved since passage of the 1997 Act, there can be no
assurance that the FDA review process will not involve delays or that clearances
will be granted on a timely basis.
The company operates in an industry characterized by extensive patent
litigation. Patent litigation can result in significant damage awards and
injunctions that could prevent the manufacture and sale of affected products or
result in significant royalty payments in order to continue producing the
products. At any given time, the company is generally involved as both a
plaintiff and a defendant in several patent infringement actions. While the
company believes that the patent litigation incident to its business will
generally not have a material adverse impact on the company's financial position
or liquidity, it could possibly be material to the consolidated results of
operations of any one period.
The company also 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,
leads and spinal systems. These claims may be brought by individuals seeking
relief for themselves or, increasingly, by groups seeking to represent a class.
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.
The company is also subject to various environmental laws and regulations
both within and outside the United States. 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, results of
operations or liquidity.
In 1994, governmental authorities in Germany began an investigation into
certain business and accounting practices by medical device manufacturers. As
part of this investigation, documents were
7
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 did 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.
SALES, MARKETS AND DISTRIBUTION METHODS. The primary markets for
Medtronic's products are hospitals, other medical institutions and physicians in
the United States and other countries around the world.
Medtronic sells most of its products and services directly through its
staff of trained, full-time sales representatives in the United States and
through a combination of direct sales representatives and independent
distributors in international markets. The main markets for products are the
United States, Western Europe and Japan.
RAW MATERIALS AND PRODUCTION. Medtronic generally has vertically integrated
manufacturing operations and, as appropriate, makes its own microprocessors,
lithium batteries, feedthroughs, integrated and hybrid circuits, 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 materials such as adhesives, polymers,
elastomers and resins; certain integrated circuits and other
electrical/electronic/mechanical components; power sources, battery anodes,
pyrolytic carbon discs, pharmaceutical preparations such as Lioresal(R)
(baclofen, USP) Intrathecal (registered trademark of Novartis Pharmaceutical
Corporation), and computer and other peripheral equipment.
Certain of the raw materials and components used in Medtronic products are
available only from a sole supplier. Materials are purchased from single sources
for reasons of quality assurance, sole source availability or 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 may terminate sales of certain materials and parts to companies
that manufacture implantable medical devices. The Biomaterials Access Assurance
Act was adopted in 1998 to help ensure availability of raw materials and
component parts essential to the manufacture of medical devices. Management
cannot estimate the impact of this law on supplier arrangements.
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 and diagnostic
medical devices in the United States and around the world. In the product lines
in which Medtronic competes, the company faces a mixture of competitors ranging
from large multi-line manufacturers to smaller manufacturers that offer a
limited selection of products. In addition, the company faces competition from
providers of alternative medical therapies such as pharmaceutical companies.
Important factors to Medtronic's customers include product reliability and
performance, product technology that provides for improved patient benefits,
breadth of product lines and related product services provided by the
manufacturer, and product price. Major shifts in industry market share have
occurred in connection with product problems, physician advisories and safety
alerts, reflecting the importance of product quality in the medical device
industry. In the current environment of managed care, economically motivated
buyers, consolidation among health care providers, increased competition and
declining reimbursement rates, Medtronic has been increasingly required to
compete on the basis of price. Medtronic believes that its continued competitive
success will depend upon its continued ability to create or acquire
scientifically advanced technology, apply its technology cost-effectively across
product lines and markets, develop or acquire proprietary products, attract and
retain skilled development personnel, obtain approvals, and manufacture and
successfully market its products.
8
Medtronic is the leading manufacturer and supplier of implantable cardiac
rhythm management devices in both the U.S. and non-U.S. markets. Worldwide,
approximately eight manufacturers compete in the pacemaker industry. In the
U.S., Medtronic and two other manufacturers account for most pacemaker sales.
Medtronic and four other manufacturers account for most of the non-U.S.
pacemaker sales. Medtronic and two other manufacturers based in the U.S. account
for most sales of implantable defibrillators within and outside the U.S. At
least four other companies have devices in various stages of development and
clinical evaluation. Like Medtronic, the company's primary competitors offer a
full range of cardiac rhythm management products, including pacemakers,
defibrillators, leads and catheters.
In the vascular market, which includes implantable stents and integrated
stent delivery systems, balloon and guiding catheters and guidewires, there are
numerous competitors worldwide. Medtronic and four other manufacturers account
for most coronary balloon and guiding catheter sales. In coronary stents,
Medtronic and three other competitors account for most sales in the U.S., while
multiple competitors participate outside the U.S. Several new competitors are
emerging, particularly in newer markets such as stent grafts for abdominal
aortic aneurysms and neurovascular devices.
In neurological devices, Medtronic is the leading manufacturer and supplier
of implantable neurostimulation and drug delivery systems, and of shunts for the
treatment of hydrocephalus. Medtronic and two competitors account for most sales
worldwide. In spinal and neurosurgery devices, Medtronic is the leading
manufacturer and supplier of instruments and biomaterials used in the treatment
of spinal and cranial disorders. Medtronic and four competitors account for most
sales worldwide. Medtronic and several other manufacturers account for a
significant portion of the diagnostic testing market for urology,
gastroenterology and neuromuscular disorders.
In the extracorporeal circulation market, there are approximately seven
companies that account for a significant portion of the U.S. and non-U.S.
markets. Medtronic is the market leader in cannulae products. Medtronic and
three 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.
Medtronic is the third largest manufacturer and supplier of prosthetic
heart valves (consisting of tissue and mechanical heart valves) within and
outside the U.S. One large manufacturer is the leading competitor in mechanical
heart valves and two other companies are major competitors in tissue heart
valves. These three companies and Medtronic are the primary manufacturers and
suppliers of heart valves within the U.S. These three companies plus a few other
competitors account for most of the worldwide heart valve sales.
RESEARCH AND DEVELOPMENT. Medtronic spent the following amounts on research
and development: $479.7 million in fiscal 2000 (9.6% of sales), $434.2 million
in fiscal 1999 (10.3% of sales) and $372.2 million in fiscal 1998 (10.9% of net
sales). These 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; products for the heart/lung
bypass circuit; emergency defibrillation and vital sign assessment; implantable
drug delivery systems for pain, spasticity and other neurological applications;
muscle and neurological stimulators; spinal fusion products, biological products
to induce bone growth, prosthetic discs and visualization technology to aid
surgeons; therapeutic angioplasty catheters; coronary and peripheral stents and
stented grafts, and treatments for restenosis; implantable physiologic sensors;
treatments for heart failure; 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, 2000, Medtronic and its subsidiaries employed
21,490 people on a regular, full-time basis and, including temporary and
part-time employees, a total of 24,890 employees on a full-time equivalent
basis.
U.S. AND NON-U.S. OPERATIONS. Medtronic sells products in more than 120
countries. For financial reporting purposes, revenues and long-lived assets
attributable to significant geographic areas are
9
presented in Note 14 to the consolidated financial statements, incorporated
herein by reference to Medtronic's 2000 Annual Report on page 45.
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. See the "Market
Risk" section of Management's Discussion and Analysis of Results of Operations
and Financial Condition and Note 4 to the consolidated financial statements,
incorporated herein by reference to Medtronic's 2000 Annual Report on pages 25
and 37, respectively. 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 issues requiring sophisticated analysis to meet the
company's financial objectives.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS. Certain statements
contained in this Annual Report on Form 10-K and other written and oral
statements made from time to time by the company do not relate strictly to
historical or current facts. As such, they are considered "forward-looking
statements" which provide current expectations or forecasts of future events.
Such statements can be identified by the use of terminology such as
"anticipate," "believe," "estimate," "expect," "intend," "may," "could,"
"possible," "plan," "project," "should", "will," "forecast" and similar words or
expressions. The company's forward-looking statements generally relate to its
growth strategies, financial results, product development and regulatory
approval programs, and sales efforts. One must carefully consider
forward-looking statements and understand that such statements involve a variety
of risks and uncertainties, known and unknown, and may be affected by inaccurate
assumptions. Consequently, no forward-looking statement can be guaranteed and
actual results may vary materially. It is not possible to foresee or identify
all factors affecting the company's forward-looking statements and investors
therefore should not consider any list of such factors to be an exhaustive
statement of all risks, uncertainties or potentially inaccurate assumptions. The
company undertakes no obligation to update any forward-looking statement.
Although it is not possible to create a comprehensive list of all factors
that may cause actual results to differ from the company's forward-looking
statements, the factors include those noted in the preceding sections of this
Annual Report on Form 10-K and in the section entitled "Management's Discussion
and Analysis of Results of Operations and Financial Condition" incorporated
herein by reference from the company's 2000 Annual Report, as well as (i) trends
toward managed care, health care cost containment, and other changes in
government and private sector initiatives, in the United States and other
countries in which the company does business, that are placing increased
emphasis on the delivery of more cost-effective medical therapies; (ii) the
trend of consolidation in the medical device industry as well as among customers
of medical device manufacturers, resulting in more significant, complex, and
long-term contracts than in the past and potentially greater pricing pressures;
(iii) the difficulties and uncertainties associated with the lengthy and costly
new product development and regulatory clearance processes, which may result in
lost market opportunities or preclude product commercialization; (iv) efficacy
or safety concerns with respect to marketed products, whether scientifically
justified or not, that may lead to product recalls, withdrawals, or declining
sales; (v) changes in governmental laws, regulations, and accounting standards
and the enforcement thereof that may be adverse to the company; (vi) increased
public interest in recent years in product liability claims for implanted
medical devices, including pacemakers, leads and spinal systems, and adverse
developments in litigation involving the company; (vii) other legal factors
including environmental concerns and patent disputes with competitors; (viii)
agency or government actions or investigations affecting the industry in general
or the company in particular; (ix) the development of new products or
technologies by competitors, technological obsolescence, and other changes in
competitive factors; (x) risks associated with maintaining and expanding
international operations; (xi) business acquisitions, dispositions,
discontinuations or restructurings by the company; (xii) the integration of
businesses acquired by the company; (xiii) the price and volume fluctuations in
the stock markets and their effect on the market
10
prices of technology and health care companies; and (xiv) economic factors over
which the company has no control, including changes in inflation, foreign
currency rates, and interest rates.
The company notes these factors as permitted by the Private Securities
Litigation Reform Act of 1995.
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 among 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 57, has been Chairman and Chief Executive Officer
since August 1996, was President and Chief Executive Officer from May 1991 to
August 1996, and was President and Chief Operating Officer from March 1989 to
April 1991. He 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.
ARTHUR D. COLLINS, Jr., age 52, has been President and Chief Operating
Officer since August 1996, was Chief Operating Officer from January 1994 to
August 1996 and from June 1992 to January 1994 was Executive Vice President and
President of Medtronic International. He has been a director since August 1994.
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.
GLEN D. NELSON, M.D., age 63, has been Vice Chairman since July 1988, and
has been a director since 1980. From August 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.
JANET S. FIOLA, age 58, 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, Corporate Human Resources, from February
1988 to February 1993.
ROBERT M. GUEZURAGA, age 51, has been Senior Vice President and President,
Cardiac Surgery, since August 1999, and served as Vice President and General
Manager of Medtronic Physio-Control International, Inc., from September 1998 to
August 1999. Mr. Guezuraga joined the company after its acquisition of
Physio-Control International, Inc. in September 1998, where he had served as
President and Chief Operating Officer since August 1994. Prior to that, Mr.
Guezuraga served as President and CEO of Positron Corporation from 1987 to 1994
and held various management positions within General Electric Corporation,
including GE's Medical Systems division.
STEVEN B. KELMAR, age 47, has been Senior Vice President, External
Relations, since April 2000, and served as Vice President, Corporate Relations
and Government Affairs, from June 1997 to April 2000, and as Vice President,
Government Affairs, since joining the company in March 1994. Prior to joining
the company, Mr. Kelmar was Vice President of Strategic Management Association
from 1992 to 1994 and spent 14 years in public service, including as Assistant
Secretary for Legislation in the U.S. Department of Health and Human Services.
STEPHEN H. MAHLE, age 54, has been Senior Vice President and President,
Cardiac Rhythm Management, since January 1998. Prior to that, he was President,
Brady Pacing, from May 1995 to December 1997 and Vice President and General
Manager, Brady Pacing, from January 1990 to May 1995. Mr. Mahle has been with
the company for 28 years and served in various general management positions
prior to 1990.
11
ANDREW P. RASDAL, age 42, has been Senior Vice President and President,
Vascular since May 2000. Mr. Rasdal joined the company after its January 1999
acquisition of Arterial Vascular Engineering, Inc. ("AVE"), where he served as
Vice President and General Manager, Coronary Vascular, since February 1999.
Prior to that, he served as Vice President of Marketing for AVE since March 1998
and as Director of Marketing since February 1997. Prior to joining the company,
Mr. Rasdal held sales and marketing positions for EP Technologies, a division of
Boston Scientific Corporation, from March 1993 to February 1997. From 1990 to
1993, Mr. Rasdal served as a sales representative for SCIMED Lifesystems, Inc.
and as a sales representative and a business analyst for ACS (now Guidant
Corporation).
ROBERT L. RYAN, age 57, 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.
DAVID J. SCOTT, age 47, has been Senior Vice President and General Counsel
since joining the company in May 1999 and Secretary since January 2000. Prior to
that, Mr. Scott was General Counsel of London-based United Distillers & Vintners
from December 1997 to April 1999, General Counsel of London-based International
Distillers & Vintners ("IDV") from April 1996 to November 1997, and Senior Vice
President and General Counsel of IDV's operating companies in North and South
America from January 1993 to March 1996.
KEITH E. WILLIAMS, age 47, has been Senior Vice President and President,
Asia/Pacific since May 1999. He joined the company in April 1997 as President,
Asia/Pacific, and Chairman, Medtronic Japan. Prior to that he held various
sales, marketing and general management positions with General Electric Medical
Systems for 23 years, including President, GE Medical Systems China from 1993 to
1996.
BARRY W. WILSON, age 56, has been Senior Vice President since September
1997 and President, Europe, Middle East and Africa since joining the company in
April 1995. Prior to that, Mr. Wilson was President of the Lederle Division of
American Cyanamid/American Home Products from 1993 to 1995 and President, Europe
of Bristol-Myers Squibb from 1991 to 1993, where he also served internationally
in various general management positions from 1980 to 1991.
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, Connecticut, Florida, Indiana,
Massachusetts, Michigan, Minnesota, Tennessee, Utah, Washington, Puerto Rico,
Canada, China, Denmark, France, Germany, India, Ireland, Japan, Mexico, the
Netherlands, Sweden, Switzerland, and the United Kingdom. The company's total
manufacturing and research space is approximately 2.2 million square feet, of
which approximately 75% is owned by the company and the balance is leased.
Medtronic also maintains sales and administrative offices in the United
States at 110 locations in 30 states or jurisdictions and outside the United
States at 112 locations in 37 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
In October 1997, Cordis Corporation ("Cordis"), a subsidiary of Johnson &
Johnson, filed suit against Arterial Vascular Engineering, Inc., which was
acquired by the company in January 1999 ("AVE"), in federal court in the
District Court of Delaware alleging that AVE's modular stents infringe certain
patents for which Cordis claims to be the exclusive licensee. Boston Scientific
Corporation is also a defendant in this suit. The complaint seeks injunctive
relief and damages from all defendants. The trial is currently scheduled to
begin in November 2000.
In December 1999, Advanced Cardiovascular Systems, Inc. ("ACS"), a
subsidiary of Guidant Corporation, sued Medtronic and AVE in federal court in
the Northern District Court of California alleging that the S670 rapid exchange
perfusion stent delivery system infringes a patent held by ACS. The
12
complaint seeks injunctive relief and monetary damages. ACS filed a demand for
arbitration with the American Arbitration Association in Chicago simultaneously
with the lawsuit. AVE has filed a counterclaim denying infringement based on its
license to the patent for perfusion catheters as part of the assets acquired
from C.R. Bard in 1998 and has asserted that the license agreement requires
disputes to be resolved through arbitration. The parties have agreed to
arbitrate all claims against AVE. Litigation against Medtronic has been stayed
pending the arbitration decision. Discovery is proceeding and a decision is
expected in the first half of 2001.
In March 2000, Boston Scientific Corporation sued AVE in federal court in
the Northern District of California alleging that the S670 rapid exchange
perfusion stent delivery system infringes a patent held by Boston Scientific.
The complaint seeks injunctive relief and monetary damages. AVE has filed a
counterclaim denying infringement based on its license to the patent for
perfusion catheters as part of the assets acquired from C.R. Bard in 1998 and
has asserted that the license agreement requires disputes to be resolved through
arbitration. A hearing on the motion to compel arbitration is scheduled for July
2000.
In December 1997, ACS sued AVE in federal court in the Northern District of
California alleging that AVE's modular stents infringe certain patents held by
ACS and is seeking injunctive relief and monetary damages. AVE denied
infringement and in February 1998 AVE sued ACS in federal court in the District
Court of Delaware alleging infringement of certain of its stent patents, for
which AVE is seeking injunctive relief and monetary damages. The cases have been
consolidated in Delaware with a trial date set for April 2001.
In 1993, AcroMed Corporation commenced a patent infringement lawsuit
against Sofamor Danek Group, Inc., which was acquired by the company in January
1999 ("Sofamor Danek"), in the U.S. District Court in Cleveland, Ohio. Sofamor
Danek obtained summary judgment as to two of four patents and tried claims with
respect to the remaining two patents in May 1999. The jury found that certain
Sofamor Danek spinal fixation products infringed these two patents and an
injunction was issued by the court in December 1999. The court also imposed
damages, including pre-judgment interest, in the amount of $48 million. The
company has appealed the judgment to the Court of Appeals for the Federal
Circuit, Washington, D.C. and believes that meritorious bases exist for its
reversal. The litigation focuses on a relatively minor portion of Sofamor
Danek's products, many of which have been superseded by newer designs, and will
not have a material impact on the company's financial position, results of
operations or liquidity.
The company believes that it has meritorious defenses against the above
infringement claims and intends to vigorously contest them. While it is not
possible to predict the outcome of these actions, the company believes that
costs associated with them will not have a material adverse impact on the
company's financial position or liquidity, but could possibly be material to the
consolidated results of operations of any one period.
In 1997 and 1999, the company sued Guidant Corporation and Boston
Scientific Corp., respectively, in U.S. District Court in Minneapolis claiming
that Guidant's ACS RX Multi-Link(R) coronary stent and Boston Scientific's
Nir(R) stent infringed the company's Wiktor(R) stent patent. Following a patent
claims construction ruling in late 1999 in favor of Guidant and Boston
Scientific, the company consented to entry of judgment and has filed an appeal
with the Court of Appeals for the Federal Circuit in Washington, D.C.
Beginning in 1994, Sofamor Danek was named as a defendant in approximately
3,200 product liability lawsuits brought in various federal and state courts
around the country. The lawsuits allege the plaintiffs were injured by spinal
implants manufactured by Sofamor Danek and other manufacturers. All efforts to
obtain class certification have been denied or subsequently withdrawn. In
essence, the plaintiffs claim that they have suffered a variety of injuries
resulting from use of a spinal system for pedicle fixation and that the company
and other manufacturers have conspired to promote such implant systems in
violation of law. As of April 30, 2000, a substantial number of the suits have
been dismissed or resolved in favor of the company. The remaining cases are in
discovery, subject to motions for summary judgment or progressing to trial. The
company believes these claims are without merit and will continue to defend
against them vigorously.
13
In 1996, two former shareholders of Endovascular Support Systems, Inc.
("ESS") filed a lawsuit in Dallas District Court for the State of Texas against
AVE and several former officers, directors and shareholders of AVE. The lawsuit
alleges that AVE's acquisition of ESS assets was based on fraud and breach of
fiduciary duty and that plaintiffs were given insufficient value when they
exchanged their stock in ESS for AVE stock in several transactions that occurred
from 1993 to 1995. AVE has asserted counterclaims including breach of contract,
breach of covenant of good faith and fair dealing, business disparagement and
fraud, and has agreed to indemnify the individual defendants. The Court has
ruled that the individual defendants owed a fiduciary duty to plaintiffs. The
company believes the defendants have meritorious defenses and counterclaims
against the plaintiffs and will continue to defend the actions vigorously.
Note 12 to the consolidated financial statements appearing on pages 43 and
44 of Medtronic's 2000 Annual Report is 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 47 of Medtronic's 2000 Annual Report is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information for the fiscal years 1996 through 2000 on page 46 of
Medtronic's 2000 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information on pages 22 through 26 of Medtronic's 2000 Annual Report is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information on page 25 of Medtronic's 2000 Annual Report is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
independent accountants dated May 24, 2000 appearing on pages 27 through 45 of
Medtronic's 2000 Annual 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 3 through 6 of Medtronic's Proxy Statement for its
2000 Annual Shareholders' Meeting and on page 10 of such Proxy Statement under
the heading "Section 16(a) Beneficial Ownership Reporting Compliance" is
incorporated herein by reference. See also "Executive Officers of Medtronic" on
pages 11 and 12 hereof.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Proposal 1 -- Election of Directors -- Director
Compensation" and "Executive Compensation" on pages 8 and 9, and 14 through 19,
respectively, of Medtronic's Proxy Statement for its 2000 Annual Shareholders'
Meeting are incorporated herein by reference.
14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Share Ownership Information" on page 10 of Medtronic's Proxy Statement for
its 2000 Annual Shareholders' Meeting is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Proposal 1 -- Election of Directors -- Certain
Transactions" on page 9 of Medtronic's Proxy Statement for its 2000 Annual
Shareholders' Meeting 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
27 of Medtronic's 2000 Annual Report) Statement of Consolidated Earnings --
years ended April 30, 2000, 1999, and 1998 (incorporated herein by
reference to page 28 of Medtronic's 2000 Annual Report)
Consolidated Balance Sheet -- April 30, 2000 and 1999 (incorporated herein
by reference to page 29 of Medtronic's 2000 Annual Report)
Statement of Consolidated Shareholders' Equity -- years ended April 30,
2000, 1999, and 1998 (incorporated herein by reference to page 30 of
Medtronic's 2000 Annual Report)
Statement of Consolidated Cash Flows -- years ended April 30, 2000, 1999,
and 1998 (incorporated herein by reference to page 31 of Medtronic's 2000
Annual Report)
Notes to Consolidated Financial Statements (incorporated herein by
reference to pages 32 through 45 of Medtronic's 2000 Annual Report)
2. FINANCIAL STATEMENT SCHEDULES
Schedule II. Valuation and Qualifying Accounts -- years ended April 30,
2000, 1999, and 1998 (set forth on page 19 of this report)
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
2 Agreement and Plan of Merger, dated August 26, 1999, by and among
Medtronic, Inc., Xomed Surgical Products, Inc., and MXS Merger
Corp., including the Exhibits thereto (Exhibit 2.1).(a)
3.1 Medtronic Restated Articles of Incorporation, as amended to date
(Exhibit 3.1).(b)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(c)
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. (Exhibit 4).(d)
*10.1 1994 Stock Award Plan.
*10.2 Management Incentive Plan.
*10.3 1979 Restricted Stock and Performance Share Award Plan (Exhibit
10.3).(g)
*10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit
10.4).(c)
*10.5 Form of Employment Agreement for Medtronic executive officers
(Exhibit 10.5).(e)
*10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit
10.6).(c)
*10.7 Capital Accumulation Plan Deferral Program.
15
*10.8 Executive Nonqualified Supplemental Benefit Plan (Restated May 1,
1997). (Exhibit 10.10).(d)
*10.9 Stock Option Replacement Program.
*10.10 1998 Outside Director Stock Compensation Plan.
*10.11 Agreement with Officer (Exhibit 10).(f)
*10.12 Amendment effective March 5, 1998 to the 1979 Nonqualified Stock
Option Plan (Exhibit 10.14).(g)
*10.13 Amendment effective April 30, 1999 to Stock Award and
Compensatory Plans (Exhibit 10.13).(h)
13 Those portions of Medtronic's 2000 Annual Report expressly
incorporated by reference herein, which shall be deemed filed
with the Commission.
21 List of Subsidiaries.
23 Consent and Report of Independent Accountants (set forth on page
18 of this report).
24 Powers of Attorney.
27 Financial Data Schedule for fiscal 2000 and Restated Financial
Data Schedules for fiscal 1998, fiscal 1999 and interim periods,
and quarters ended July 30, 1999 and October 29, 1999.
- ------------------------
(a) Incorporated herein by reference to Exhibit 2 in Medtronic's Registration
Statement on Form S-4 (Registration No. 333- 87439) filed with the
Commission on September 21, 1999.
(b) Incorporated herein by reference to the cited exhibit in Medtronic's
Quarterly Report on Form 10-Q for the quarter ended October 29, 1999, filed
with the Commission on December 10, 1999.
(c) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1996, filed with the
Commission on July 24, 1996.
(d) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1997, filed with the
Commission on July 23, 1997.
(e) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1995, filed with the
Commission on July 25, 1995.
(f) Incorporated herein by reference to the cited exhibit in Medtronic's
Quarterly Report on Form 10-Q for the quarter ended January 30, 1998, filed
with the Commission on March 13, 1998.
(g) Incorporated hereby by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1998, filed with the
Commission on July 21, 1998.
(h) Incorporated hereby by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1999, filed with the
Commission on July 21, 1999.
*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, 2000.
16
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 20, 2000
BY: /S/ WILLIAM W. GEORGE
-------------------------------------
WILLIAM W. GEORGE
CHAIRMAN 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 20, 2000
BY: /S/ WILLIAM W. GEORGE
-------------------------------------
WILLIAM W. GEORGE
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Dated: July 20, 2000
BY: /S/ ROBERT RYAN
-------------------------------------
ROBERT L. RYAN
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
MICHAEL R. BONSIGNORE
WILLIAM R. BRODY, M.D., PH.D.
PAUL W. CHELLGREN
ARTHUR D. COLLINS, JR.
WILLIAM W. GEORGE
ANTONIO M. GOTTO, JR., M.D.
BERNADINE P. HEALY, M.D.
THOMAS E. HOLLORAN DIRECTORS
GLEN D. NELSON, M.D.
JEAN-PIERRE ROSSO
RICHARD L. SCHALL
JACK W. SCHULER
GERALD W. SIMONSON
GORDON M. SPRENGER
David J. Scott, 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 20, 2000
BY: /S/ DAVID J. SCOTT
-------------------------------------
DAVID J. SCOTT
ATTORNEY-IN-FACT
17
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Medtronic, Inc.
Our audits of the consolidated financial statements referred to in our
report dated May 24, 2000 appearing in the Medtronic, Inc. 2000 Annual Report
(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)2 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.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
May 24, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each Registration
Statement on Form S-8 (Registration Nos. 2-65157, 2-68408, 33-169, 33-36552,
2-65156, 33-24212, 33-37529, 33-44230, 33-55329, 33-63805, 33-64585, 333-04099,
333-07385, 333-65227, 333-71259, 333-71355, 333-74229, 333-75819 and 333-90381)
of Medtronic, Inc. of our report dated May 24, 2000 relating to the financial
statements, which appears in the Annual Report, which is incorporated 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.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
July 20, 2000
18
MEDTRONIC, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS OF DOLLARS)
OTHER
BALANCE AT CHARGES/ CHANGES BALANCE
BEGINNING (CREDITS) TO (DEBIT) AT END OF
OF PERIOD EARNINGS CREDIT PERIOD
- --------------------------------------------------------------------------------
Allowance for doubtful accounts:
Year ended 4/30/00 ............ $33.2 $ 6.7 $(10.4)(a) $30.2
0.7 (b)
Year ended 4/30/99 ............ 24.9 13.4 $ (4.7)(a) 33.2
(0.4)(b)
Year ended 4/30/98 ............ 16.7 10.4 (1.8)(a) 24.9
(0.4)(b)
- ------------------
(a) Uncollectible accounts written off, less recoveries.
(b) Reflects primarily the effects of foreign currency fluctuations.
19
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, 2000
------------------
[LOGO]
MEDTRONIC
WHEN LIFE DEPENDS ON MEDICAL TECHNOLOGY
Medtronic, Inc.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
Telephone: 763/514-4000
================================================================================
EXHIBITS INDEX
2 Agreement and Plan of Merger, dated August 26, 1999, by and among
Medtronic, Inc., Xomed Surgical Products, Inc., and MXS Merger
Corp., including the Exhibits thereto (Exhibit 2.1).(a)
3.1 Medtronic Restated Articles of Incorporation, as amended to date
(Exhibit 3.1).(b)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(c)
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. (Exhibit 4).(d)
*10.1 1994 Stock Award Plan.
*10.2 Management Incentive Plan.
*10.3 1979 Restricted Stock and Performance Share Award Plan (Exhibit
10.3).(g)
*10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit
10.4).(c)
*10.5 Form of Employment Agreement for Medtronic executive officers
(Exhibit 10.5).(e)
*10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit
10.6).(c)
*10.7 Capital Accumulation Plan Deferral Program.
*10.8 Executive Nonqualified Supplemental Benefit Plan (Restated May 1,
1997). (Exhibit 10.10).(d)
*10.9 Stock Option Replacement Program.
*10.10 1998 Outside Director Stock Compensation Plan.
*10.11 Agreement with Officer (Exhibit 10).(f)
*10.12 Amendment effective March 5, 1998 to the 1979 Nonqualified Stock
Option Plan (Exhibit 10.14).(g)
*10.13 Amendment effective April 30, 1999 to Stock Award and
Compensatory Plans (Exhibit 10.13).(h)
13 Those portions of Medtronic's 2000 Annual Report expressly
incorporated by reference herein, which shall be deemed filed
with the Commission.
21 List of Subsidiaries.
23 Consent and Report of Independent Accountants (set forth on page
18 of this report).
24 Powers of Attorney.
27 Financial Data Schedule for fiscal 2000 and restated Financial
Data Schedules for fiscal 1998, fiscal 1999 and interim periods,
and quarters ended July 30, 1999 and October 29, 1999.
- -------------------
(a) Incorporated herein by reference to Exhibit 2 in Medtronic's Registration
Statement on Form S-4 (Registration No. 333- 87439) filed with the
Commission on September 21, 1999.
(b) Incorporated herein by reference to the cited exhibit in Medtronic's
Quarterly Report on Form 10-Q for the quarter ended October 29, 1999, filed
with the Commission on December 10, 1999.
(c) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1996, filed with the
Commission on July 24, 1996.
(d) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1997, filed with the
Commission on July 23, 1997.
(e) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1995, filed with the
Commission on July 25, 1995.
(f) Incorporated herein by reference to the cited exhibit in Medtronic's
Quarterly Report on Form 10-Q for the quarter ended January 30, 1998, filed
with the Commission on March 13, 1998.
(g) Incorporated hereby by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1998, filed with the
Commission on July 21, 1998.
(h) Incorporated hereby by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1999, filed with the
Commission on July 21, 1999.
*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.