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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, 1999
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: (612) 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 2, 1999, BASED ON THE CLOSING PRICE OF $77.6875, AS
REPORTED ON THE NEW YORK STOCK EXCHANGE: $45.11 BILLION.
SHARES OF COMMON STOCK OUTSTANDING ON JULY 2, 1999: 586,763,987
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S 1999 ANNUAL REPORT ARE INCORPORATED BY REFERENCE INTO
PARTS I, II AND IV; PORTIONS OF REGISTRANT'S PROXY STATEMENT FOR ITS 1999 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") was founded in 1949 and incorporated as a Minnesota corporation
in 1957. Medtronic is the world's leading medical technology company, pioneering
device-based therapies that restore health, extend life and alleviate pain.
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, and neurodegenerative disorders.
Medtronic operates its business in one reportable segment, that of
manufacturing and selling device-based medical therapies. The company does
business in more than 120 countries. The company's product lines include cardiac
rhythm management, neurological and spinal, vascular and cardiac surgery.
In addition to its internal research and development, Medtronic has
augmented its product lines through various acquisitions in fiscal 1999
including, but not limited to, those listed below.
On September 30, 1998, Medtronic, Inc. acquired all of the outstanding
stock of Physio-Control International Corporation through a merger of a newly
created subsidiary of Medtronic, Inc., into Physio-Control. Pursuant to the
merger, the shareholders of Physio-Control received approximately 8.6 million
shares of Medtronic common stock. Medtronic Physio-Control designs,
manufactures, markets and services an integrated line of noninvasive emergency
cardiac defibrillator and vital sign assessment devices, disposable electrodes
and data management software.
On October 16, 1998, Medtronic, Inc. acquired all of the assets and certain
liabilities of Midas Rex, L.P., of Fort Worth, Texas, for approximately $230.0
million in cash. Midas Rex manufactures and markets 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.
On January 27, 1999, Medtronic, Inc. acquired all of the outstanding stock
of Sofamor Danek Group, Inc. through a merger of a newly created subsidiary of
Medtronic, Inc. with Sofamor Danek. Pursuant to the merger, the shareholders of
Sofamor Danek received approximately 45.0 million shares of Medtronic common
stock. Medtronic Sofamor Danek develops, manufactures and markets devices,
instruments, computer-assisted visualization products and biomaterials used in
the treatment of spinal and cranial disorders.
On January 28, 1999, Medtronic, Inc. acquired all of the outstanding stock
of Arterial Vascular Engineering, Inc. ("AVE") through a merger of a newly
created subsidiary of Medtronic with AVE. Pursuant to the merger, the
shareholders of AVE received approximately 50.6 million shares of Medtronic
common stock. Medtronic Vascular designs, manufactures and markets minimally
invasive solutions for the treatment of coronary artery and peripheral vascular
disease. Its product offerings include stents, balloon catheters, guidewires and
guiding catheters.
On March 8, 1999, Medtronic, Inc. acquired all of the outstanding stock of
AVECOR Cardiovascular, Inc. through a merger of a newly created subsidiary of
Medtronic, Inc. into AVECOR. Pursuant to the merger, the shareholders of AVECOR
received approximately 1.3 million shares of Medtronic common stock. Medtronic
AVECOR develops, manufactures and markets specialty medical devices for
cardiopulmonary support during heart bypass surgery and for long-term
respiratory support.
Of the five acquisitions described above, the acquisitions of
Physio-Control, Sofamor Danek and AVE have been accounted for as
poolings-of-interests and, accordingly, the company's consolidated financial
statements for fiscal 1999 and for prior years have been restated to include the
results of operations, financial positions, and cash flows of Physio-Control,
Sofamor Danek and AVE. References in this Form 10-K to financial information of
the company have been adjusted to reflect the restated financial statements.
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CARDIAC RHYTHM MANAGEMENT. Cardiac Rhythm Management products consist
primarily of products for bradycardia pacing, tachyarrhythmia management,
external defibrillation and ablation, as well as 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 1999 include the commercial
release of the Medtronic.Kappa(TM) 700 series of pacemakers in the U.S. in
January 1999 and the commercial release of the new Medtronic.Sigma(TM) family of
pacemakers in markets outside the U.S. in February 1999. 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 was commercially introduced in the U.S. in February 1998 and 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. The Medtronic.Sigma family of pacemakers offers 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. 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, is
in clinical investigation. About 30% of Medtronic's revenues are generated from
the sale of implantable cardiac pacemaker systems for treatment of bradycardia.
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, which reduces patient trauma, hospitalization time and costs. The
Gem DR(TM) is the company's first commercially available device from its new
generation of Gem products intended to meet the needs of patients with multiple
heart rhythm problems. The Gem DR features an advanced dual chamber rate
responsive pacing capability as well as advanced detection and diagnostic tools.
The Gem DR was commercially released in Europe and certain markets outside the
U.S. in June 1998 and in the U.S. in October 1998. The Gem single chamber
defibrillator, also commercially introduced in the U.S. in October 1998, is
designed to provide rate responsive pacing in the lower chamber of the heart.
In June 1999, the company commercially released the Gem II DR(TM), the next
generation in the Gem family of devices, in the U.S. The Gem II DR offers
patient benefits comparable to the Gem DR but in a 35% smaller size.
The company also markets the Jewel(R) line of devices, including the Micro
Jewel(R) II implantable defibrillator, which offers expanded diagnostic
capabilities in a small size device. The Jewel AF, which shares with the Gem DR
the ability to provide rate responsive treatment of arrhythmias in both the
atrium and the ventricle, was commercially released in Europe and other
international markets in June 1998. The Jewel AF is awaiting regulatory
clearance in the U.S. The company also 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 also offers an implantable device, the Reveal(R) insertable loop
recorder, to diagnose complex arrhythmias.
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
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having noninvasive pacing, shock advisory, pulse oximetry and 12 lead ECG
diagnostic capability. In May 1999, the company received FDA clearance for
commercial release of a biphasic version of its LIFEPAK 500 automated
defibrillator, which is targeted for use by early responders to cardiac arrest.
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.
In fiscal 1999, Medtronic commercially introduced two products, and
continued development of others, 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
August 1998, Medtronic began initial human clinical studies of the Chronicle(TM)
implantable hemodynamic monitor, a pacemaker-like monitor which is implanted in
the pectoral region of the body and is connected to the heart via an intravenous
lead. The Chronicle records and stores several heart performance parameters for
prolonged periods and permits retrieval of this data via telemetry.
The company's Cardiac Rhythm Management products accounted for 51.3% of
Medtronic's net sales during the fiscal year ended April 30, 1999 ("fiscal
1999"), 56.3% of net sales in fiscal 1998 and 60.9% of net sales in fiscal 1997.
NEUROLOGICAL AND SPINAL. Neurological and Spinal products consist primarily
of implantable neurostimulation devices, drug administration systems, spinal
products, neurosurgery products and functional diagnostic systems. Medtronic's
acquisitions of Midas Rex in October 1998 and Sofamor Danek in January 1999
significantly added to the products offered. Medtronic Sofamor Danek produces
devices, instruments, computer-assisted visualization products and biomaterials
used in the treatment of disorders of the cranium and spine, including a wide
range of sophisticated internal fixation devices, such as interbody fusion
systems, and services for the distribution of autologous bone dowels, 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. 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.
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, which features a
patient-operated control unit, and the Mattrix(R) stimulator, which offers a
dual stimulation mode for more effective pain management. The new 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 is in clinical trials in the U.S. The
Activa system allows neurostimulation levels to be adjusted noninvasively after
implant according to the needs of each patient.
In April 1999, Medtronic received FDA clearance for U.S. commercial
introduction of the InterStim(R) Therapy for Urinary Control for the treatment
of 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 drug delivery systems that are used in treating chronic intractable
pain and cerebral and spinal spasticity, including the
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SynchroMed(R) and SynchroMed EL (Extended Life) 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
which will increase the average time between replacement surgeries from four
years for the SynchroMed to seven years for the SynchroMed EL. The company is
collaborating with several biotechnology companies to develop therapies for
neurodegenerative disorders such as Parkinson's disease, amyotrophic lateral
sclerosis or Lou Gehrig's disease, and epilepsy. Compounds for treating these
diseases, called neurotrophic factors, are still in development by these
companies. Once they are proven to be safe and effective, Medtronic believes its
drug delivery technology could be effective in administering these agents
directly to their site of action in precise doses. The company also manufactures
and distributes cerebrospinal fluid shunts and neurosurgical implants, and is a
world leader in computer-supported systems to diagnose urological, digestive and
neurological disorders.
The Neurological and Spinal products accounted for 21.8% of net sales for
fiscal 1999, 20.3% of net sales for fiscal 1998 and 18.3% of net sales for
fiscal 1997.
VASCULAR. The Vascular product line supports the treatment of diseased and
damaged coronary and peripheral blood vessels and other bodily passageways.
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 tubular coronary stent systems.
Modular stent systems include the GFX(TM)2, which was commercially released in
June 1998 in selected markets outside the U.S. and received FDA clearance for
commercial release in the U.S. in April 1999. The GFX 2 is an advanced coronary
stent system designed to provide a 25% lower crossing profile and utilize a new
delivery system capable of higher balloon pressures than its predecessor, the
GFX. In addition, in April 1999 the company received clearance in Europe for
commercial sale of the S670(TM) stent system, a next generation stent system, as
well as the S540(TM) stent system for small diameter vessels. The S670 stent
system represents the company's sixth-generation stent technology and offers
greater stent flexibility, enhanced scaffolding efficiency, and a reduced
crossing profile. The S540 stent system received FDA clearance in June 1999, and
application has been made to gain FDA clearance for the S670. The company's
tubular stent system, the BeStent Brava(TM), which incorporates a new
high-performance delivery system, received clearance for commercial release in
Europe in May 1999. The company's line of coronary balloon catheters in
the-over-the-wire category includes the Achiever(TM) balloon catheter, with a
next generation product, the D114S, in development. In the rapid exchange
segment of the market, the XIS balloon catheter was introduced in Europe in May
1999 and the LTX2 catheter was released in Japan in April 1999. The company also
offers enhanced coronary guide catheters, including the new Zuma(TM) line, and
the newly developed GT-1(TM) family of guidewires.
The coronary vascular product line is supported by a wide range of
peripheral products, including the AneuRx and Talent(TM) stent grafts for
minimally invasive abdominal aortic aneurysm repair therapy. These products are
commercially available in Europe and certain other markets outside the U.S. and
are in clinical trials in the U.S. The company's balloon expandable peripheral
vascular stent systems are available in markets outside the United States, and
in December 1998 the company received FDA clearance to market a balloon
expandable biliary stent system. The company is also developing a line of
self-expanding peripheral and neuro-radiology stents.
The company's Vascular products accounted for 17.4% of net sales in fiscal
1999, 12.1% of net sales in fiscal 1998 and 8.3% of net sales in fiscal 1997.
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. In November 1997, the Freestyle(R) stentless aortic
tissue heart valve was commercially released in the U.S., featuring advanced
tissue technology for improved
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blood flow and increased durability. 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 is also pursuing
enabling technologies in minimally invasive cardiac surgery, such as the new
Octopus2(TM) and the EndoOctopus(TM) tissue stabilizing systems, which are used
to stabilize sites on the beating heart to enable the surgeon to complete bypass
grafts. Both the Octopus2 and the EndoOctopus are commercially available.
The company's Cardiac Surgery products accounted for 9.5% of Medtronic's
net sales during fiscal 1999, 11.3% of net sales in fiscal 1998 and 12.5% of net
sales in fiscal 1997.
GOVERNMENT REGULATION AND OTHER MATTERS. Government and private sector
initiatives to limit the growth of health care costs, including price regulation
and competitive pricing, are continuing in 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 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.
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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.
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,
leads and spinal systems. 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. Within the past two
years, United States District Courts in Arkansas, California, Florida, Kentucky,
Ohio and Pennsylvania have refused to certify class actions in cases brought
against the company. This is consistent with the trend in class action law as it
applies to the medical device industry generally. 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
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. Sales by these
representatives accounted for approximately 92% of Medtronic's U.S. sales and
approximately 67% of its non-U.S. sales in fiscal 1999. The remaining sales were
made through independent distributors.
RAW MATERIALS AND PRODUCTION. Medtronic generally has vertically integrated
manufacturing operations, and 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 are planning to 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 at this time.
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
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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.
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 tissue
heart valves and two other companies are major competitors in mechanical 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 $429.2 million on research and
development (10.4% of sales) in fiscal 1999, $367.9 million (11.0% of sales) in
fiscal 1998 and $325.5 million (11.1% of net sales) in fiscal 1997. 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
7
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, 1999, Medtronic and its subsidiaries employed
19,334 people on a regular, full-time basis and, including temporary and
part-time employees, a total of 21,794 employees on a full-time equivalent
basis.
U.S. AND NON-U.S. OPERATIONS AND EXPORT SALES. Medtronic sells products in
more than 120 countries. For financial reporting purposes, revenues and
long-lived assets attributable to significant geographic areas are presented in
Note 14 to the consolidated financial statements, incorporated herein by
reference to Medtronic's 1999 Annual Report -- Financial Review on page 23.
U.S. export sales to unaffiliated customers comprised less than two percent of
Medtronic's consolidated sales in each of fiscal 1999, 1998 and 1997.
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, incorporated herein by reference to Medtronic's 1999
Annual Report-Financial Review on page 5. 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 1999 Annual Report -- Financial Review,
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
8
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
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 56, 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 51, 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 62, 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.
BILL K. ERICKSON, age 55, has been Senior Vice President and President,
Americas, since January 1994. From May 1992 to January 1994, Mr. Erickson was
Senior Vice President and President, U.S. Cardiovascular Sales and Marketing.
Mr. Erickson was Senior Vice President, U.S. Cardiovascular, from January 1990
to May 1992 and was Vice President, U.S. Cardiovascular Distribution, from
January 1982 to December 1989. Mr. Erickson has been with the company for 28
years and served in various general management positions prior to 1982.
JANET S. FIOLA, age 57, 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.
9
PHILIP M. LAUGHLIN, age 52, has been Senior Vice President and President,
Cardiac Surgery, since July 1995. Prior to that he served with Clintec Nutrition
company (worldwide joint venture of Baxter International and Nestle S.A. in the
field of clinical nutrition) as President, North America, from 1994 through July
1995 and as President, United States, from 1989 to 1993. From 1976 to 1989, he
held numerous general management positions at Baxter International in Europe and
the Far East, and was most recently Vice President, Operations, Global Business
Group.
RONALD E. LUND, age 64, has been Senior Vice President since November 1990
and Secretary since July 1992. He served as General Counsel from February 1989
through April 1999 and was Vice President from February 1989 to November 1990.
Prior to joining the company, Mr. Lund served as Vice President and Associate
General Counsel of The Pillsbury Company from 1984 to 1989. Mr. Lund will retire
from the company at the end of 1999.
STEPHEN H. MAHLE, age 53, 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 26 years and served in various general management positions
prior to 1990.
JOHN A. MESLOW, age 60, has been Senior Vice President and President,
Neurological and Spinal, since March 1994. He was Vice President and President,
Neurological, from March 1991 to March 1994, and was Vice President,
Neurological, from March 1985 to March 1991. Mr. Meslow has been with the
company for 30 years and served in various general management positions prior to
1991.
ROBERT L. RYAN, age 56, 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 46, has been Senior Vice President and General Counsel
since joining the company in May 1999. 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.
SCOTT J. SOLANO, age 42, has been Senior Vice President since May 1999 and
President, Vascular, since January 1999. Mr. Solano joined the company after its
January 1999 acquisition of Arterial Vascular Engineering, Inc. ("AVE"), where
he was President and Chief Executive Officer since August 1997 and Chairman of
the Board since January 1998, after serving as Chief Operating Officer from
February 1997 to August 1997. Prior to that, Mr. Solano was Vice President of
Research and Development at the Ohmeda medical device division of The BOC Group
from February 1995 to February 1997. He was employed by Medtronic Vascular as
Vice President, New Product Development and Operations, from September 1994 to
February 1995 and Director, New Product Development, from March 1991 to
September 1994.
KEITH E. WILLIAMS, age 46, 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 55, 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.
10
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, Indiana, Massachusetts, Michigan,
Minnesota, Tennessee, Utah, Washington, Puerto Rico, Canada, China, France,
Denmark, Germany, India, Ireland, Japan, 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
Beginning in 1994, Medtronic's newly acquired subsidiary, Medtronic Sofamor
Danek, Inc. ("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 that plaintiffs were injured by spinal implants
manufactured by Sofamor Danek and other device manufacturers. To date, all
efforts to obtain class certification have been denied or 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 July 1999, over 1,200 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.
In 1993, AcroMed Corporation commenced a patent infringement lawsuit
against Sofamor Danek in 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 infringe these two patents and rendered a
damage verdict against Sofamor Danek in the amount of $33 million. The company
intends to appeal the verdict to the Court of Appeals for the Federal Circuit,
Washington, D.C. and believes that meritorious bases exist for reversing any
finding of liability and damages. 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 stent industry is currently characterized by extensive patent
litigation and Medtronic's newly acquired subsidiary, Medtronic AVE, Inc., is
both a plaintiff and a defendant in lawsuits with Johnson & Johnson, Guidant
Corporation, and Boston Scientific Corporation over their respective patents,
with plaintiffs in each case alleging patent infringement and seeking injunctive
relief and monetary damages. In November 1997, Medtronic filed suit against
Guidant Corporation in U.S. District Court in Minneapolis claiming that
Guidant's ACS RX Multi-Link(R) coronary stent infringes Medtronic's Wiktor(R)
stent patent. Medtronic is seeking injunctive relief and monetary damages, and
discovery is proceeding. In May 1999, Medtronic filed suit against Boston
Scientific Corp. in U.S. District Court in Minneapolis claiming that Boston
Scientific's Nir(R) Stent infringes the Wiktor stent patent. Medtronic is
seeking injunctive relief and monetary damages.
Note 12 to the consolidated financial statements appearing on pages 22 and
23 of Medtronic's 1999 Annual Report -- Financial Review is incorporated herein
by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
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 27 of Medtronic's 1999 Annual Report --
Financial Review is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information for the fiscal years 1995 through 1999 on page 26 of
Medtronic's 1999 Annual Report -- Financial Review is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information on pages 2 through 7 of Medtronic's 1999 Annual Report --
Financial Review is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information on page 5 of Medtronic's 1999 Annual Report -- Financial
Review 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 27, 1999 appearing on pages 8 through 23 of
Medtronic's 1999 Annual Report -- Financial Review, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MEDTRONIC
The information on pages 1 through 7 of Medtronic's Proxy Statement for its
1999 Annual Shareholders' Meeting and on page 9 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 9 and 10 hereof.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Election of Directors -- Director Compensation" and
"Executive Compensation" on pages 7 and 8 , and 13 through 18, respectively, of
Medtronic's Proxy Statement for its 1999 Annual Shareholders' Meeting are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Shareholdings of Certain Owners and Management" on page 9 of Medtronic's
Proxy Statement for its 1999 Annual Shareholders' Meeting is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 8 of Medtronic's Proxy Statement for its 1999
Annual Shareholders' Meeting concerning services provided to the company by
directors and executive officers in fiscal 1999 is incorporated herein by
reference.
12
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
8 of Medtronic's 1999 Annual Report -- Financial Review)
Statement of Consolidated Earnings -- years ended April 30, 1999, 1998, and
1997 (incorporated herein by reference to page 9 of Medtronic's 1999 Annual
Report -- Financial Review)
Consolidated Balance Sheet -- April 30, 1999 and 1998 (incorporated herein
by reference to page 10 of Medtronic's 1999 Annual Report -- Financial
Review)
Statement of Consolidated Shareholders' Equity -- years ended April 30,
1999, 1998, and 1997 (incorporated herein by reference to page 11 of
Medtronic's 1999 Annual Report -- Financial Review)
Statement of Consolidated Cash Flows -- years ended April 30, 1999, 1998,
and 1997 (incorporated herein by reference to page 12 of Medtronic's 1999
Annual Report -- Financial Review)
Notes to Consolidated Financial Statements (incorporated herein by
reference to pages 13 through 23 of Medtronic's 1999 Annual Report --
Financial Review)
2. FINANCIAL STATEMENT SCHEDULES
Schedule II. Valuation and Qualifying Accounts -- years ended April 30,
1999, 1998, and 1997
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
2.1 Agreement and Plan of Merger, dated June 27, 1998, by and among
Medtronic, Inc., Physio-Control International Corporation, and PC
Merger Corp., including the Exhibits thereto (Exhibit 2.1).(a)
2.2 Agreement and Plan of Merger, dated November 1, 1998, by and
among Medtronic, Inc., Sofamor Danek Group, Inc., and MSD Merger
Corp., including the Exhibits thereto (Exhibit 2.3).(b)
2.3 Agreement and Plan of Merger, dated November 29, 1998, by and
among Medtronic, Inc., AVE Group, Inc., and MAV Merger Corp.,
including the Exhibits thereto (Exhibit 2.4).(c)
3.1 Medtronic Restated Articles of Incorporation, as amended to date
(Exhibit 3.1).(d)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(e)
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).(f)
*10.1 1994 Stock Award Plan, as amended (Exhibit 10.1).(j)
*10.2 Management Incentive Plan (Appendix B).(g)
*10.3 1979 Restricted Stock and Performance Share Award Plan, as
amended to date (Exhibit 10.3).(j)
*10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit
10.4).(e)
*10.5 Form of Employment Agreement for Medtronic executive officers
(Exhibit 10.5).(h)
*10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit
10.6).(e)
*10.7 Capital Accumulation Plan Deferral Program (Exhibit 10.7).(e)
13
*10.8 Executive Nonqualified Supplemental Benefit Plan (Restated May 1,
1997). (Exhibit 10.10).(f)
*10.9 Stock Option Replacement Program (Exhibit 10.11).(j)
*10.10 1998 Outside Director Stock Compensation Plan (Exhibit 10.12).(j)
*10.11 Agreement with Officer (Exhibit 10).(i)
*10.12 Amendment effective March 5, 1998 to the 1979 Nonqualified Stock
Option Plan (Exhibit 10.14).(j)
*10.13 Amendment effective April 30, 1999 to Stock Award and
Compensatory Plans.
13 Those portions of Medtronic's 1999 Annual Shareholders 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
16 of this report).
24 Powers of Attorney.
27 Financial Data Schedule.
- --------------------
(a) Incorporated herein by reference to Exhibit 2 in Medtronic's Registration
Statement on Form S-4 (Registration No. 333-59725) filed with the
Commission on July 23, 1998.
(b) Incorporated herein by reference to Exhibit 2 in Medtronic's Registration
Statement on Form S-4 (Registration No. 333-68677), filed with the
Commission on December 10, 1998.
(c) Incorporated herein by reference to Exhibit 2 in Medtronic's Registration
Statement on Form S-4 (Registration No. 333-69271), filed with the
Commission on December 18, 1998.
(d) Incorporated herein by reference to the cited exhibit in Medtronic's
Quarterly Report on Form 10-Q for the quarter ended July 28, 1995, filed
with the Commission on September 8, 1995.
(e) 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.
(f) 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.
(g) Incorporated herein by reference to the cited appendix in Medtronic's Proxy
Statement for its 1994 Annual Meeting of Shareholders, filed with the
Commission on July 27, 1994.
(h) 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.
(i) 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.
(j) 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.
* 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
During the quarter ended April 30, 1999, Medtronic filed (i) a Report on
Form 8-K dated January 28, 1999 reporting under Item 2 the completion of the
previously announced transaction with Arterial Vascular Engineering, Inc. and
(ii) a Report on Form 8-K dated March 8, 1999 reporting under Item 5 the
previously announced transaction with AVECOR Cardiovascular, Inc.
14
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, 1999
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, 1999 BY: /s/ William W. George
-------------------------------------
WILLIAM W. GEORGE
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Dated: July 20, 1999 BY: /s/ Robert L. 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
RICHARD A. SWALIN, PH.D.
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, 1999
BY: /s/ David J. Scott
-------------------------------------
DAVID J. SCOTT
ATTORNEY-IN-FACT
15
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 27, 1999 appearing in the Medtronic, Inc. 1999 Annual Report --
Financial Review (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 27, 1999
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 and 333-75819) of
Medtronic, Inc. of our report dated May 27, 1999 relating to the financial
statements, which appears in the Annual Report -- Financial Review, 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, 1999
16
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 4/30/99 ............... $ 24.1 $ 13.2 $ (4.7)(a) $ 32.3
(0.3)(b)
Year ended 4/30/98 ............... 16.7 9.6 (1.8)(a) 24.1
(0.4)(b)
Year ended 4/30/97 ............... 20.6 (0.6) (2.3)(a) 16.7
(1.0)(b)
- ------------------
(a) Uncollectible accounts written off, less recoveries.
(b) Reflects primarily the effects of foreign currency fluctuations.
17
Commission File Number 1-7707
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
EXHIBITS INDEX
2.1 Agreement and Plan of Merger, dated June 27, 1998, by and among
Medtronic, Inc., Physio-Control International Corporation, and PC
Merger Corp., including the Exhibits thereto (Exhibit 2.1).(a)
2.2 Agreement and Plan of Merger, dated November 1, 1998, by and
among Medtronic, Inc., Sofamor Danek Group, Inc., and MSD Merger
Corp., including the Exhibits thereto (Exhibit 2.3).(b)
2.3 Agreement and Plan of Merger, dated November 29, 1998, by and
among Medtronic, Inc., AVE Group, Inc., and MAV Merger Corp.,
including the Exhibits thereto (Exhibit 2.4).(c)
3.1 Medtronic Restated Articles of Incorporation, as amended to date
(Exhibit 3.1).(d)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(e)
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).(f)
*10.1 1994 Stock Award Plan, as amended (Exhibit 10.1).(j)
*10.2 Management Incentive Plan (Appendix B).(g)
*10.3 1979 Restricted Stock and Performance Share Award Plan, as
amended to date (Exhibit 10.3).(j)
*10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit
10.4).(e)
*10.5 Form of Employment Agreement for Medtronic executive officers
(Exhibit 10.5).(h)
*10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit
10.6).(e)
*10.7 Capital Accumulation Plan Deferral Program (Exhibit 10.7).(e)
*10.8 Executive Nonqualified Supplemental Benefit Plan (Restated May 1,
1997). (Exhibit 10.10).(f)
*10.9 Stock Option Replacement Program (Exhibit 10.11).(j)
*10.10 1998 Outside Director Stock Compensation Plan (Exhibit 10.12).(j)
*10.11 Agreement with Officer (Exhibit 10).(i)
*10.12 Amendment effective March 5, 1998 to the 1979 Nonqualified Stock
Option Plan (Exhibit 10.14).(j)
*10.13 Amendment effective April 30, 1999 to Stock Award and
Compensatory Plans.
13 Those portions of Medtronic's 1999 Annual Shareholders 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
16 of this report).
24 Powers of Attorney.
27 Financial Data Schedule.
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(a) Incorporated herein by reference to Exhibit 2 in Medtronic's Registration
Statement on Form S-4 (Registration No. 333-59725) filed with the
Commission on July 23, 1998.
(b) Incorporated herein by reference to Exhibit 2 in Medtronic's Registration
Statement on Form S-4 (Registration No. 333-68677), filed with the
Commission on December 10, 1998.
(c) Incorporated herein by reference to Exhibit 2 in Medtronic's Registration
Statement on Form S-4 (Registration No. 333-69271), filed with the
Commission on December 18, 1998.
(d) Incorporated herein by reference to the cited exhibit in Medtronic's
Quarterly Report on Form 10-Q for the quarter ended July 28, 1995, filed
with the Commission on September 8, 1995.
(e) 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.
(f) 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.
(g) Incorporated herein by reference to the cited appendix in Medtronic's Proxy
Statement for its 1994 Annual Meeting of Shareholders, filed with the
Commission on July 27, 1994.
(h) 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.
(i) 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.
(j) 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.
* 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.