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Proc-Type: 2001,MIC-CLEAR
Originator-Name: [email protected]
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<SEC-DOCUMENT>/in/edgar/work/20000721/0000897101-00-000720/0000897101-00-000720.txt : 20000920
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ACCESSION NUMBER: 0000897101-00-000720
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 17
CONFORMED PERIOD OF REPORT: 20000430
FILED AS OF DATE: 20000721
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MEDTRONIC INC
CENTRAL INDEX KEY: 0000064670
STANDARD INDUSTRIAL CLASSIFICATION: [3845
] IRS NUMBER: 410793183
STATE OF INCORPORATION: MN
FISCAL YEAR END: 0430
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-07707
FILM NUMBER: 676401
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 7000 CENTRAL AVE NE
STREET 2: MS 316
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55432
BUSINESS PHONE: 6125744000
</BUSINESS-ADDRESS>
</FILER>
</SEC-HEADER>
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<TYPE>10-K
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<TEXT>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
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
----------------------
[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
----------------------
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.
================================================================================
<PAGE>
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.
1
<PAGE>
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
2
<PAGE>
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
<PAGE>
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.
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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,
5
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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
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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.
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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
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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
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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.
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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
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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.
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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
<PAGE>
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
<PAGE>
*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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
================================================================================
<PAGE>
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.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>1994 STOCK AWARD PLAN
<TEXT>
EXHIBIT 10.1
1994 STOCK AWARD PLAN
(AMENDED AND RESTATED AS OF APRIL 30, 2000)
1. PURPOSE. The purpose of this 1994 Stock Award Plan (the "Plan") is
to motivate key personnel to produce a superior return to the shareholders of
Medtronic, Inc. (the "Company") and its Affiliates by offering such individuals
an opportunity to realize Stock appreciation, by facilitating Stock ownership,
and by rewarding them for achieving a high level of corporate performance. This
Plan is also intended to facilitate recruiting and retaining key personnel of
outstanding ability.
2. DEFINITIONS. The capitalized terms used in this Plan have the
meanings set forth below.
(a) "Affiliate" means any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in Sections
424(e) and (f) of the Code, or any successor provision, and, for purposes other
than the grant of Incentive Stock Options, any joint venture in which the
Company or any such "parent corporation" or "subsidiary corporation" owns an
equity interest.
(b) "Agreement" means the agreement, whether in written or electronic
form, between the Company or an Affiliate and a Participant containing the terms
and conditions of an Award (not inconsistent with this Plan), together with all
amendments to such agreement, which amendments may be unilaterally made by the
Company unless such amendments are deemed by the Committee to be materially
adverse to the Participant or are not required as a matter of law. The Agreement
and any amendments thereto shall be deemed accepted and agreed upon by the
Participant upon receipt, without the necessity of obtaining the Participant's
signature.
(c) "Award" means a grant made under this Plan in the form of Options,
Stock Appreciation Rights, Restricted Stock, Performance Shares or any Other
Stock-Based Award.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means:
(i) acquisition by any individual, entity or group (within the
meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of
either (A) the then outstanding Shares of Stock (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any acquisition by the Company or any
Subsidiary, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary or (D) any acquisition
by any corporation with respect to which, following such acquisition, more than
55% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such acquisition in substantially
the same proportions as their ownership, immediately prior to such acquisition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
<PAGE>
(ii) individuals who, as of the effective date of this Plan
provided in Section 14(a) of this Plan, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents; or
(iii) approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of Outstanding
Company Voting Securities, in each case, with respect to which all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger,
consolidation or exchange do not, following such reorganization, merger,
consolidation or exchange, beneficially own, directly or indirectly, more than
55% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger, consolidation or exchange in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger, consolidation or exchange of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be; or
(iv) approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation with respect to which, following such sale or other disposition,
more than 55% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
Notwithstanding the foregoing provisions of this definition, a Change
of Control shall not be deemed to occur with respect to a Participant if the
acquisition of the 30% or greater interest referred to in subparagraph (i) of
this definition is by a group, acting in concert, that includes the Participant
or if at least 40% of the then outstanding common stock or combined voting power
of the then outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring all or
substantially all of the assets of the Company shall be beneficially owned,
directly or indirectly, immediately after a reorganization, merger,
consolidation, statutory share exchange or disposition of assets referred to in
subparagraph (iii) or (iv) of this definition by a group, acting in concert,
that includes that Participant.
(f) "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor statute.
(g) "Committee" means the persons designated by the Board to administer
this Plan under Section 3 hereof. The Committee shall consist of not less than
three members of the Board and, except as otherwise determined by the Board,
such persons shall be "non-employee directors" under Exchange Act Rule 16b-3 and
"outside directors" under Section 162(m) of the Code.
(h) "Company" means Medtronic, Inc., a Minnesota corporation, or any
successor to all or substantially all of its businesses by merger,
consolidation, purchase of assets or otherwise.
(i) "Disability" means the disability of a Participant such that the
Participant is considered disabled under any retirement plan of the Company
which is qualified under Section 401 of the Code, or,
2
<PAGE>
in the case of a Participant employed by a non-U.S. Affiliate or in a non-U.S.
location, under any retirement plan or long-term disability plan of the Company
or such Affiliate applicable to such Participant, or as otherwise determined by
the Committee.
(j) "Employee" means any full-time or part-time regular employee
(including officers) of the Company or an Affiliate. For purposes of this Plan,
a regular employee is an employee who is on the regular payroll of the Company
or an Affiliate and who is identified in the personnel records of the Company or
an Affiliate as being an employee. Except with respect to grants of Incentive
Stock Options, "Employee" shall also include other individuals who are not
regular employees of the Company or an Affiliate but who provide services to the
Company or an Affiliate in the capacity of an independent contractor and to whom
the Company specifically chooses to grant an Award and therefore treat as a
Participant. References in this Plan to "employment" and related terms shall
include the providing of services in any such capacity.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended; "Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act as in effect with
respect to the Company or any successor regulation.
(l) "Fair Market Value" as of any date means, unless otherwise
expressly provided in this Plan:
(i) the closing sale price of a Share (A) on the composite tape for
New York Stock Exchange ("NYSE") listed shares, or (B) if the Shares are not
quoted on the NYSE composite tape, on the principal United States securities
exchange registered under the Exchange Act on which the Shares are listed, or
(C) if the Shares are not listed on any such exchange, on the National
Association of Securities Dealers, Inc. Automated Quotation System National
Market System, on that date, or, if no sale of Shares shall have occurred on
that date, on the next preceding day on which a sale of Shares occurred, or
(ii) if clause (i) is not applicable, what the Committee determines
in good faith to be 100% of the fair market value of a Share on that date. In
the case of an Incentive Stock Option, if such determination of Fair Market
Value is not consistent with the then current regulations of the Secretary of
the Treasury, Fair Market Value shall be determined in accordance with said
regulations. The determination of Fair Market Value shall be subject to
adjustment as provided in Section 14(f) hereof.
(m) "Fundamental Change" means a dissolution or liquidation of the
Company, a sale of substantially all of the assets of the Company, a merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, or a statutory share exchange
involving capital stock of the Company.
(n) "Incentive Stock Option" means any Option designated as such and
granted in accordance with the requirements of Section 422 of the Code or any
successor to such section.
(o) "Non-Employee Director" means a member of the Board who is not an
employee of the Company or any Affiliate.
(p) "Non-Qualified Stock Option" means an Option other than an
Incentive Stock Option.
(q) "Other Stock-Based Award" means an Award of Stock or an Award based
on Stock other than Options, Stock Appreciation Rights, Restricted Stock or
Performance Shares.
(r) "Option" means a right to purchase Stock, including both
Non-Qualified Stock Options and Incentive Stock Options.
(s) "Participant" means an Employee to whom an Award is made.
(t) "Performance Period" means the period of time as specified in an
Agreement over which Performance Shares are to be earned.
3
<PAGE>
(u) "Performance Shares" means a contingent award of a specified number
of Performance Shares, with each Performance Share equivalent to one Share, a
variable percentage of which may vest depending upon the extent of achievement
of specified performance objectives during the applicable Performance Period.
(v) "Plan" means this 1994 Stock Award Plan, as amended and in effect
from time to time.
(w) "Restricted Stock" means Stock granted under Section 10 hereof so
long as such Stock remains subject to one or more restrictions.
(x) "Retirement" means retirement of an Employee as defined under any
retirement plan of the Company which is qualified under Section 401 of the Code
(which currently provides for retirement on or after age 55, provided the
Employee has been employed by the Company and/or one or more Affiliates for at
least ten years, or retirement on or after age 62), or under any retirement plan
of the Company or any Affiliate applicable to the Employee due to employment by
a non-U.S. Affiliate or employment in a non-U.S. location, or as otherwise
determined by the Committee.
(y) "Share" means a share of Stock.
(z) "Stock" means the common stock, $.10 par value per share (as such
par value may be adjusted from time to time), of the Company.
(aa) "Stock Appreciation Right" means a right, the value of which is
determined relative to appreciation in value of Shares pursuant to an Award
granted under Section 8 hereof.
(bb) "Subsidiary" means a "subsidiary corporation," as that term is
defined in Section 424(f) of the Code, or any successor provision.
(cc) "Successor" with respect to a Participant means the legal
representative of an incompetent Participant or, if the Participant is deceased,
the legal representative of the estate of the Participant or the person or
persons who may, by bequest or inheritance, or valid beneficiary designation
under Section 14(i) hereof, acquire the right to exercise an Option or Stock
Appreciation Right or receive cash and/or Shares issuable in satisfaction of an
Award in the event of a Participant's death.
(dd) "Term" means the period during which an Option or Stock
Appreciation Right is outstanding or the period during which the restrictions
placed on Restricted Stock or any other Award are in effect.
Except when otherwise indicated by the context, reference to the
masculine gender shall include, when used, the feminine gender and any term used
in the singular shall also include the plural.
3. ADMINISTRATION.
(a) AUTHORITY OF COMMITTEE. The Committee shall administer this Plan.
The Committee shall have exclusive power to make Awards and to determine when
and to whom Awards will be granted, and the form, amount and other terms and
conditions of each Award, subject to the provisions of this Plan. The Committee
may determine whether, to what extent and under what circumstances Awards may be
settled, paid or exercised in cash, Shares or other Awards or other property, or
cancelled, forfeited or suspended. The Committee shall have the authority to
interpret this Plan and any Award or Agreement made under this Plan, to
establish, amend, waive and rescind any rules and regulations relating to the
administration of this Plan, to determine the terms and provisions of any
Agreements entered into hereunder (not inconsistent with this Plan), and to make
all other determinations necessary or advisable for the administration of this
Plan. The Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent it
shall deem desirable. The determinations of the Committee in the administration
of this Plan, as described herein, shall be final, binding and conclusive.
4
<PAGE>
(b) DELEGATION OF AUTHORITY. The Committee may delegate all or any part
of its authority under this Plan to (i) one or more subcommittees which may
consist solely of "non-employee directors" under Exchange Act Rule 16b-3 and
"outside directors" under Section 162(m) of the Code and (ii) persons who are
not non-employee directors for purposes of determining and administering Awards
solely to Employees who are not then subject to the reporting requirements of
Section 16 of the Exchange Act.
(c) RULE 16b-3. It is the intent that this Plan and all Awards granted
pursuant to it shall be administered by the Committee (or a subcommittee
thereof) so as to permit this Plan and Awards to comply with Exchange Act Rule
16b-3. If any provision of this Plan or of any Award would otherwise frustrate
or conflict with the intent expressed in this Section 3(c), that provision to
the extent possible shall be interpreted and deemed amended in the manner
determined by the Committee so as to avoid such conflict.
(d) INDEMNIFICATION. To the full extent permitted by law, each member
and former member of the Committee and each person to whom the Committee
delegates or has delegated authority under this Plan shall be entitled to
indemnification by the Company against and from any loss, liability, judgment,
damages, cost and reasonable expense incurred by such member, former member or
other person by reason of any action taken, failure to act or determination made
in good faith under or with respect to this Plan.
4. SHARES AVAILABLE; MAXIMUM PAYOUTS.
(a) SHARES AVAILABLE. The number of additional Shares available for
distribution under this Plan as of April 30, 2000 is 58,000,000 (which brings
the total number of shares authorized for distribution under this Plan since
inception to 102,800,000, as adjusted to date pursuant to Section 14(f)). All
shares are subject to adjustment under Section 14(f) hereof.
(b) SHARES AGAIN AVAILABLE. Any Shares subject to the terms and
conditions of an Award under this Plan which are not used because the terms and
conditions of the Award are not met may again be used for an Award under this
Plan.
(c) UNEXERCISED AWARDS. Any unexercised or undistributed portion of any
terminated, expired, exchanged, or forfeited Award or any Award settled in cash
in lieu of Shares shall be available for further Awards.
(d) NO FRACTIONAL SHARES. No fractional Shares may be issued under this
Plan. Fractional Shares will be rounded to the nearest whole Share.
(e) MAXIMUM PAYOUTS. No more than 35% of all Shares subject to this
Plan may be granted in the aggregate pursuant to Restricted Stock, Performance
Share and Other Stock-Based Awards. No Participant may be granted Options, Stock
Appreciation Rights, Performance Shares or any combination thereof relating to
more than 2,000,000 Shares over a one-year period under this Plan.
5. ELIGIBILITY. Awards may be granted under this Plan to any Employee
at the discretion of the Committee.
6. GENERAL TERMS OF AWARDS.
(a) AWARDS. Awards under this Plan may consist of Options (either
Incentive Stock Options or Non-Qualified Stock Options), Stock Appreciation
Rights, Performance Shares, Restricted Stock and Other Stock-Based Awards.
Awards of Restricted Stock may, in the discretion of the Committee, provide the
Participant with dividends or dividend equivalents and voting rights prior to
vesting (whether vesting is based on a period of time during which employment
must continue or on attainment of specified performance conditions).
(b) AMOUNT OF AWARDS. Each Agreement shall set forth the number of
Shares of Restricted Stock, Stock or Performance Shares subject to such
Agreement, or the number of Shares to which the
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Option applies or with respect to which payment upon the exercise of the Stock
Appreciation Right is to be determined, as the case may be, as determined by the
Committee in its sole discretion.
(c) TERM. Each Agreement, other than those relating solely to Awards of
Stock without restrictions, shall set forth the Term of the Award and any
applicable Performance Period for Performance Shares, as the case may be, but in
no event shall the Term of an Award (other than Awards granted in lieu of cash
compensation) or the Performance Period be longer than ten years after the date
of grant. An Agreement with a Participant may permit acceleration of vesting and
of the expiration of the applicable Term upon such terms and conditions as shall
be set forth in the Agreement, which may, but need not, include, without
limitation, acceleration resulting from the occurrence of a Change in Control, a
Fundamental Change, or the Participant's death, Disability or Retirement.
Acceleration of the Performance Period of Performance Shares shall be subject to
Section 9(b) hereof.
(d) AGREEMENTS. Each Award under this Plan shall be evidenced by an
Agreement setting forth the terms and conditions, as determined by the
Committee, which shall apply to such Award in addition to the terms and
conditions specified in this Plan. All provisions of the Plan which by their
terms apply to an Award shall apply regardless of whether such terms are
expressly set forth in the Award Agreement, except to the extent that the
Agreement for that Award expressly provides otherwise.
(e) TRANSFERABILITY. During the lifetime of a Participant to whom an
Award is granted, only such Participant (or such Participant's legal
representative or, if so provided in the applicable Agreement in the case of a
Non-Qualified Stock Option, a permitted transferee as hereafter described) may
exercise an Option or Stock Appreciation Right or receive payment with respect
to Performance Shares or any other Award. No Award of Restricted Stock (prior to
the expiration of the restrictions), Options, Stock Appreciation Rights,
Performance Shares or other Award (other than an award of Stock without
restrictions) may be sold, assigned, transferred, exchanged, or otherwise
encumbered, and any attempt to do so shall be of no effect. Notwithstanding the
immediately preceding sentence, (i) an Award shall be transferable to a
Successor in the event of a Participant's legal incompetency or death and (ii)
an Agreement may provide that a Non-Qualified Stock Option shall be transferable
to any member of a Participant's "immediate family" (as such term is defined in
Rule 16a-1(e) promulgated under the Exchange Act, or any successor rule or
regulation) or to one or more trusts whose beneficiaries are members of such
Participant's "immediate family" or partnerships in which such family members
are the only partners; provided, however, that (1) the Participant receives no
consideration for the transfer and (2) such transferred Non-Qualified Stock
Option shall continue to be subject to the same terms and conditions as were
applicable to such Non-Qualified Stock Option immediately prior to its transfer.
(f) TERMINATION OF EMPLOYMENT. Except as otherwise determined by the
Committee or provided by the Committee in an applicable Agreement, in case of
termination of employment, the following provisions shall apply:
(1) OPTIONS AND STOCK APPRECIATION RIGHTS.
(i) DEATH. If a Participant who has been granted an Option or
Stock Appreciation Rights shall die before such Option or Stock Appreciation
Rights have expired, the Option or Stock Appreciation Rights shall become
exercisable in full, and may be exercised by the Participant's Successor at any
time, or from time to time, within three years after the date of the
Participant's death, in the case of an Option or Stock Appreciation Right
granted before April 30, 2000 and within five years after the date of the
Participant's death in the case of an Option or Stock Appreciation Right granted
on or after April 30, 2000.
(ii) DISABILITY OR RETIREMENT. If a Participant's employment
terminates because of Disability or Retirement, the Option or Stock Appreciation
Rights shall become exercisable in full, and the Participant may exercise his or
her Options or Stock Appreciation Rights at any time, or from time to time,
within three years after the date of such termination, in the case of an Option
or Stock Appreciation Right granted before April 30, 2000, and within five years
after the date of such termination in the case of an Option or Stock
Appreciation Right granted on or after April 30, 2000.
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(iii) REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT. If a
Participant's employment terminates for any reason other than death, Disability
or Retirement, the unvested or unexercised portion of any Award held by such
Participant shall terminate (a) on the date of termination of employment for
Awards granted before April 30, 2000, and (b) at the close of business on the
date 30 days after the date of termination of employment for Awards granted on
or after April 30, 2000, provided, however, that no further vesting shall occur
after the date of termination of employment.
(iv) EXPIRATION OF TERM. Notwithstanding the foregoing
paragraphs (i)-(iii), in no event shall an Option or a Stock Appreciation Right
be exercisable after expiration of the Term of such Award.
(2) PERFORMANCE SHARES. If a Participant's employment with the
Company or any of its Affiliates terminates during a Performance Period because
of death, Disability or Retirement, or under other circumstances provided by the
Committee in its discretion in the applicable Agreement, the Participant shall
be entitled to a payment of Performance Shares at the end of the Performance
Period based upon the extent to which achievement of performance targets was
satisfied at the end of such period (as determined at the end of the Performance
Period) and prorated for the portion of the Performance Period during which the
Participant was employed by the Company or any Affiliate. Except as provided in
this Section 6(f)(2) or in the applicable Agreement, if a Participant's
employment terminates with the Company or any of its Affiliates during a
Performance Period, then such Participant shall not be entitled to any payment
with respect to that Performance Period.
(3) RESTRICTED STOCK. In case of a Participant's death, Disability
or Retirement, the Participant shall be entitled to receive that number of
shares of Restricted Stock under outstanding Awards which has been pro rated for
the portion of the Term of the Awards during which the Participant was employed
by the Company or any Affiliate, and with respect to such Shares all
restrictions shall lapse. Upon termination of employment for any reason other
than death, Disability or Retirement, any shares of Restricted Stock whose
restrictions have not lapsed will automatically be forfeited in full and
cancelled by the Company upon such termination of employment.
(g) RIGHTS AS SHAREHOLDER. A Participant shall have no rights as a
shareholder with respect to any securities covered by an Award until the date
the Participant becomes the holder of record.
7. STOCK OPTIONS.
(a) TERMS AND EXERCISABILITY OF ALL OPTIONS. Each Option shall be
granted pursuant to an Agreement as either an Incentive Stock Option or a
Non-Qualified Stock Option. Only Non-Qualified Stock Options may be granted to
Employees who are not regular employees of the Company or an Affiliate. The
purchase price of each Share subject to an Option shall be determined by the
Committee and set forth in the Agreement, but shall not be less than 100% of the
Fair Market Value of a Share on the date the Option is granted. The Agreement
shall specify a vesting schedule under which the Option becomes available to
exercise. Only the vested portion of an Option may be exercised. When exercising
an Option, the purchase price of the Shares shall be paid in full at the time of
exercise, provided that, to the extent permitted by law, Participants may
simultaneously exercise Options and sell the Shares thereby acquired pursuant to
a brokerage or similar relationship and use the proceeds from such sale to pay
the purchase price of such Shares. The purchase price may be paid in cash, or by
delivery of cash proceeds of such a simultaneous exercise and sale or by
delivery to the Company, physically or by attestation, of Shares already owned
by such Participant, provided that any such Shares not acquired on the open
market shall have been owned for at least 6 months (with such Shares having a
total fair market value as of the date the Option is exercised equal to the
total exercise cost of the Shares being purchased pursuant to the Option), or a
combination thereof, unless otherwise provided in the Agreement. Each Option
shall be exercisable in whole or in part on the terms provided in the Agreement.
In no event shall any Option be exercisable at any time after its Term. When an
Option is no longer exercisable, it shall be deemed to have lapsed or
terminated.
(b) INCENTIVE STOCK OPTIONS. In addition to the other terms and
conditions applicable to all Options:
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(i) the aggregate Fair Market Value (determined as of the date the
Option is granted) of the Shares with respect to which Incentive Stock Options
held by an individual first become exercisable in any calendar year (under this
Plan and all other incentive stock option plans of the Company and its
Affiliates) shall not exceed $100,000 (or such other limit as may be required by
the Code), if such limitation is necessary to qualify the Option as an Incentive
Stock Option, and to the extent an Option or Options granted to a Participant
exceed such limit, such Option or Options shall be treated as a Non-Qualified
Stock Option;
(ii) an Incentive Stock Option shall not be exercisable and the
Term of the Award shall not be more than ten years after the date of grant (or
such other limit as may be required by the Code) if such limitation is necessary
to qualify the Option as an Incentive Stock Option;
(iii) the Agreement covering an Incentive Stock Option shall
contain such other terms and provisions which the Committee determines necessary
to qualify such Option as an Incentive Stock Option; and
(iv) notwithstanding any other provision of this Plan to the
contrary, no Participant may receive an Incentive Stock Option under this Plan
if, at the time the Award is granted, the Participant owns (after application of
the rules contained in Section 424(d) of the Code, or its successor provision)
Shares possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or its subsidiaries, unless (A) the option
price for such Incentive Stock Option is at least 110% of the Fair Market Value
of the Shares subject to such Incentive Stock Option on the date of grant and
(B) such Option is not exercisable after the date five years from the date such
Incentive Stock Option is granted.
8. STOCK APPRECIATION RIGHTS. An Award of a Stock Appreciation Right
shall entitle the Participant, subject to terms and conditions determined by the
Committee, to receive upon exercise of the Stock Appreciation Right all or a
portion of the excess of (i) the Fair Market Value of a specified number of
Shares on the date of exercise of the Stock Appreciation Right over (ii) a
specified price which shall not be less than 100% of the Fair Market Value of
such Shares on the date of grant of the Stock Appreciation Right. A Stock
Appreciation Right may be granted in connection with a previously or
contemporaneously granted Option, or independent of any Option. If issued in
connection with an Option, the Committee may impose a condition that exercise of
a Stock Appreciation Right cancels the Option with which it is connected and
exercise of the connected Option cancels the Stock Appreciation Right. Each
Stock Appreciation Right may be exercisable in whole or in part on the terms
provided in the Agreement. No Stock Appreciation Right shall be exercisable at
any time after its Term. When a Stock Appreciation Right is no longer
exercisable, it shall be deemed to have lapsed or terminated. Except as
otherwise provided in the applicable Agreement, upon exercise of a Stock
Appreciation Right, payment to the Participant (or to his or her Successor)
shall be made in the form of cash, Stock or a combination of cash and Stock as
promptly as practicable after such exercise. The Agreement may provide for a
limitation upon the amount or percentage of the total appreciation on which
payment (whether in cash and/or Stock) may be made in the event of the exercise
of a Stock Appreciation Right.
9. PERFORMANCE SHARES.
(a) INITIAL AWARD. An Award of Performance Shares shall entitle a
Participant (or a Successor) to future payments based upon the achievement of
performance targets established in writing by the Committee. Payment shall be
made in Stock, or a combination of cash and Stock, as determined by the
Committee, provided that at least 25% of the value of the vested Performance
Shares shall be distributed in the form of Stock. With respect to those
Participants who are "covered employees" within the meaning of Section 162(m) of
the Code and the regulations thereunder, such performance targets shall consist
of one or any combination of two or more of revenue, revenue per employee,
earnings before income tax (profit before taxes), earnings before interest and
income tax, net earnings (profits after tax), earnings per employee, tangible,
controllable or total asset turnover, earnings per share, operating income,
total shareholder return, market share, return on equity, before- or after-tax
return on net assets, distribution expense, inventory turnover, or economic
value added (economic profit), and any such targets may relate to one or any
combination of two or more of corporate, group, unit, division, Affiliate or
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individual performance. The Agreement may establish that a portion of the
maximum amount of a Participant's Award will be paid for performance which
exceeds the minimum target but falls below the maximum target applicable to such
Award. The Agreement shall also provide for the timing of such payment. The
Committee shall determine the extent to which (i) performance targets have been
attained, (ii) any other terms and conditions with respect to an Award relating
to such Performance Period have been satisfied, and (iii) payment is due with
respect to a Performance Share Award.
(b) ACCELERATION AND ADJUSTMENT. The Agreement may permit an
acceleration of the Performance Period and an adjustment of performance targets
and payments with respect to some or all of the Performance Shares awarded to a
Participant, upon such terms and conditions as shall be set forth in the
Agreement, upon the occurrence of certain events, which may, but need not,
include without limitation a Change in Control, a Fundamental Change, the
Participant's death, Disability or Retirement, a change in accounting practices
of the Company or its Affiliates, or, with respect to payments in Stock for
Performance Share Awards, a reclassification, stock dividend, stock split or
stock combination as provided in Section 14(f) hereof.
(c) VALUATION. Each Performance Share earned after conclusion of a
Performance Period shall have a value equal to the average of the Fair Market
Values of a Share for the 20 consecutive business days ending on and including
the last day of such Performance Period.
10. RESTRICTED STOCK. Restricted Stock may be granted in the form of
Shares registered in the name of the Participant but held by the Company until
the end of the Term of the Award. Any employment conditions, performance
conditions and the Term of the Award shall be established by the Committee in
its discretion and included in the applicable Agreement. The Committee may
provide in the applicable Agreement for the lapse or waiver of any such
restriction or condition based on such factors or criteria as the Committee, in
its sole discretion, may determine. No Award of Restricted Stock may vest
earlier than one year from the date of grant, except as provided in the
applicable Agreement.
11. OTHER STOCK-BASED AWARDS. The Committee may from time to time grant
Awards of Stock, and other Awards under this Plan (collectively herein defined
as "Other Stock-Based Awards"), including without limitation those Awards
pursuant to which Shares may be acquired in the future, such as Awards
denominated in Stock units, securities convertible into Stock and phantom
securities. The Committee, in its sole discretion, shall determine the terms and
conditions of such Awards provided that such Awards shall not be inconsistent
with the terms and purposes of this Plan. The Committee may, in its sole
discretion, direct the Company to issue Shares subject to restrictive legends
and/or stop transfer instructions which are consistent with the terms and
conditions of the Award to which such Shares relate.
12. PRIOR AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. The provisions of
Section 12 of the Plan as in effect prior to April 30, 2000 shall be applicable
to automatic grants of Non-Qualified Stock Options (and related Limited Rights)
made prior to March 5, 1998 to Non-Employee Directors.
13. PRIOR ELECTIVE GRANTS TO NON-EMPLOYEE DIRECTORS. The provisions of
Section 13 of the Plan as in effect prior to April 30, 2000 shall be applicable
to grants of Restricted Stock made prior to March 5, 1998 to Non-Employee
Directors pursuant to their elections to receive such grants in lieu of all or a
portion of their annual fees for their services as Non-Employee Directors.
14. GENERAL PROVISIONS.
(a) EFFECTIVE DATE OF THIS PLAN. This Plan shall become effective as of
April 29, 1994, provided that this Plan is approved and ratified by the
affirmative vote of the holders of a majority of the outstanding Shares of Stock
present or represented and entitled to vote in person or by proxy at a meeting
of the shareholders of the Company no later than August 31, 1994. This Plan, as
amended and restated, is effective as of April 30, 2000.
(b) DURATION OF THIS PLAN. This Plan shall remain in effect until all
Stock subject to it shall be distributed or all Awards have expired or lapsed,
whichever is latest to occur, or this Plan is terminated pursuant to Section
14(e) hereof. No Award of an Incentive Stock Option shall be made more than ten
years after the effective date provided in the second sentence of Section 14(a)
hereof (or such other limit
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as may be required by the Code) if such limitation is necessary to qualify the
Option as an Incentive Stock Option. The date and time of approval by the
Committee of the granting of an Award shall be considered the date and time at
which such Award is made or granted, notwithstanding the date of any Agreement
with respect to such Award; provided, however, that the Committee may grant
Awards other than Incentive Stock Options to be effective and deemed to be
granted on the occurrence of certain specified contingencies.
(c) RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any
Agreement shall confer upon any Participant who is an Employee the right to
continue in the employment of the Company or any Affiliate or affect any right
which the Company or any Affiliate may have to terminate or modify the
employment of the Participant with or without cause.
(d) TAX WITHHOLDING. The Company may withhold from any payment of cash
or Stock to a Participant or other person under this Plan an amount sufficient
to cover any required withholding taxes, including the Participant's social
security and medicare taxes (FICA) and federal, state and local income tax with
respect to income arising from payment of the Award. The Company shall have the
right to require the payment of any such taxes before issuing any Stock pursuant
to the Award. In lieu of all or any part of a cash payment from a person
receiving Stock under this Plan, the individual may elect to cover all or any
part of the minimum statutory FICA, federal, state and local income tax
withholdings required under the applicable tax laws through a reduction of the
number of Shares delivered to such individual, with such Shares valued in the
same manner as used in computing such minimum withholding taxes.
(e) AMENDMENT, MODIFICATION AND TERMINATION OF THIS PLAN. Except as
provided in this Section 14(e), the Board may at any time amend, modify,
terminate or suspend this Plan. Except as provided in this Section 14(e), the
Committee may at any time alter or amend any or all Agreements under this Plan
to the extent permitted by law. Plan amendments are subject to approval of the
shareholders of the Company only if such approval is necessary to maintain this
Plan in compliance with the requirements of Exchange Act Rule 16b-3, Section 422
of the Code, their successor provisions, or any other applicable law or
regulation. No termination, suspension or modification of this Plan may
materially and adversely affect any right acquired by any Participant (or a
Participant's legal representative) or any Successor under an Award granted
before the date of termination, suspension or modification, unless otherwise
agreed by the Participant in the Agreement or otherwise or required as a matter
of law. It is conclusively presumed that any adjustment for changes in
capitalization provided for in Section 9(b) or 14(f) hereof does not adversely
affect any right of a Participant under an Award.
(f) ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate adjustments
in the aggregate number and type of Shares available for Awards under this Plan,
in the limitations on the number and type of Shares that may be issued to an
individual Participant, in the number and type of Shares and amount of cash
subject to Awards then outstanding, in the Option exercise price as to any
outstanding Options and, subject to Section 9(b) hereof, in outstanding
Performance Shares and payments with respect to outstanding Performance Shares
may be made by the Committee in its sole discretion to give effect to
adjustments made in the number or type of Shares through a Fundamental Change
(subject to Section 14(g) hereof), recapitalization, reclassification, stock
dividend, stock split, stock combination, or other relevant change, provided
that fractional Shares shall be rounded to the nearest whole Share.
(g) FUNDAMENTAL CHANGE. In the event of a proposed Fundamental Change:
(a) involving a merger, consolidation or statutory share exchange, unless
appropriate provision shall be made (which the Committee may, but shall not be
obligated to, make) for the protection of the outstanding Options and Stock
Appreciation Rights by the substitution of options, stock appreciation rights
and appropriate voting common stock of the corporation surviving any such merger
or consolidation or, if appropriate, the parent corporation of the Company or
such surviving corporation, to be issuable upon the exercise of options or used
to calculate payments upon the exercise of stock appreciation rights in lieu of
Options, Stock Appreciation Rights and capital stock of the Company, or (b)
involving the dissolution or liquidation of the Company, the Committee may, but
shall not be obligated to, declare, at least twenty days prior to the occurrence
of the Fundamental Change, and provide written notice to each holder of an
Option or Stock Appreciation Right of the declaration, that each outstanding
Option and Stock Appreciation Right, whether or not then exercisable, shall be
cancelled at the time of, or immediately prior to the occurrence of, the
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Fundamental Change in exchange for payment to each holder of an Option or Stock
Appreciation Right, within 20 days after the Fundamental Change, of cash equal
to (i) for each Share covered by the cancelled Option, the amount, if any, by
which the Fair Market Value (as defined in this Section 14(g)) per Share exceeds
the exercise price per Share covered by such Option or (ii) for each Stock
Appreciation Right, the price determined pursuant to Section 8 hereof, except
that Fair Market Value of the Shares as of the date of exercise of the Stock
Appreciation Right, as used in clause (i) of Section 8, shall be deemed to mean
Fair Market Value for each Share with respect to which the Stock Appreciation
Right is calculated determined in the manner hereinafter referred to in this
Section 14(g). At the time of the declaration provided for in the immediately
preceding sentence, each Stock Appreciation Right and each Option shall
immediately become exercisable in full and each person holding an Option or a
Stock Appreciation Right shall have the right, during the period preceding the
time of cancellation of the Option or Stock Appreciation Right, to exercise the
Option as to all or any part of the Shares covered thereby or the Stock
Appreciation Right in whole or in part, as the case may be. In the event of a
declaration pursuant to this Section 14(g), each outstanding Option and Stock
Appreciation Right that shall not have been exercised prior to the Fundamental
Change shall be cancelled at the time of, or immediately prior to, the
Fundamental Change, as provided in the declaration. Notwithstanding the
foregoing, no person holding an Option or Stock Appreciation Right shall be
entitled to the payment provided for in this Section 14(g) if such Option or
Stock Appreciation Right shall have expired or terminated. For purposes of this
Section 14(g) only, "Fair Market Value" per Share means the cash plus the fair
market value, as determined in good faith by the Committee, of the non-cash
consideration to be received per Share by the shareholders of the Company upon
the occurrence of the Fundamental Change, notwithstanding anything to the
contrary provided in this Plan.
(h) OTHER BENEFIT AND COMPENSATION PROGRAMS. Payments and other
benefits received by a Participant under an Award shall not be deemed a part of
a Participant's regular, recurring compensation for purposes of any termination,
indemnity or severance pay laws and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan,
contract or similar arrangement provided by the Company or an Affiliate, unless
expressly so provided by such other plan, contract or arrangement or the
Committee determines that an Award or portion of an Award should be included to
reflect competitive compensation practices or to recognize that an Award has
been made in lieu of a portion of competitive cash compensation.
(i) BENEFICIARY UPON PARTICIPANT'S DEATH. A Participant may designate a
beneficiary to succeed to the Participant's Awards under the Plan in the event
of the Participant's death by filing a beneficiary form with the Company and,
upon the death of the Participant, such beneficiary shall succeed to the rights
of the Participant to the extent permitted by law and the terms of this Plan and
the applicable Agreement. In the absence of a validly designated beneficiary who
is living at the time of the Participant's death, the Participant's executor or
administrator of the Participant's estate shall succeed to the Awards, which
shall be transferable by will or pursuant to laws of descent and distribution.
(j) FORFEITURES. In the event an Employee has received or been entitled
to payment of cash, delivery of Stock or a combination thereof pursuant to an
Award within the period beginning six months prior to the Employee's termination
of employment with the Company and its Affiliates and ending when the Award
terminates or is cancelled, the Company, in its sole discretion, may require the
Employee to return or forfeit the cash and/or Stock received with respect to the
Award (or its economic value as of (i) the date of the exercise of Options or
Stock Appreciation Rights, (ii) the date of, and immediately following, the
lapse of restrictions on Restricted Stock or the receipt of Stock without
restrictions, or (iii) the date on which the right of the Employee to payment
with respect to Performance Shares vests, as the case may be) in the event of
any of the following occurrences: performing services for or on behalf of a
competitor of, or otherwise competing with, the Company or any Affiliate,
unauthorized disclosure of material proprietary information of the Company or
any Affiliate, a violation of applicable business ethics policies or business
policies of the Company or any Affiliate, or any other occurrence specified in
the related Agreement. The Company's right to require forfeiture must be
exercised not later than 90 days after discovery of such an occurrence but in no
event later than 15 months after the Employee's termination of employment with
the Company and its Affiliates. Such right shall be deemed to be exercised upon
the Company's mailing written notice to the Employee of such exercise, at the
Employee's most recent home address as shown on the personnel records of the
Company. In addition to requiring forfeiture as described herein, the Company
may exercise its rights under this Section 14(j) by preventing
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or terminating the exercise of any Awards or the acquisition of Shares or cash
thereunder. In the event an Employee fails or refuses to forfeit the cash and/or
Shares demanded by the Company (adjusted for any intervening stock splits), the
Employee shall be liable to the Company for damages equal to the number of
Shares demanded times the highest closing price per share of the Stock during
the period between the applicable date specified in (i) through (iii) above and
the date of any judgment or award to the Company, together with all costs and
attorneys' fees incurred by the Company to enforce this provision.
(k) UNFUNDED PLAN. This Plan shall be unfunded and the Company shall
not be required to segregate any assets that may at any time be represented by
Awards under this Plan. Neither the Company, its Affiliates, the Committee, nor
the Board shall be deemed to be a trustee of any amounts to be paid under this
Plan nor shall anything contained in this Plan or any action taken pursuant to
its provisions create or be construed to create a fiduciary relationship between
the Company and/or its Affiliates, and a Participant or Successor. To the extent
any person acquires a right to receive an Award under this Plan, such right
shall be no greater than the right of an unsecured general creditor of the
Company.
(l) LIMITS OF LIABILITY.
(i) Any liability of the Company to any Participant with respect to
an Award shall be based solely upon contractual obligations created by this Plan
and the Agreement.
(ii) Except as may be required by law, neither the Company nor any
member or former member of the Board or of the Committee, nor any other person
participating (including participation pursuant to a delegation of authority
under Section 3(b) hereof) in any determination of any question under this Plan,
or in the interpretation, administration or application of this Plan, shall have
any liability to any party for any action taken, or not taken, in good faith
under this Plan.
(m) COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS. No certificate for
Shares distributable pursuant to this Plan shall be issued and delivered unless
the issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended and in effect from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Company's Shares may, at the time, be listed.
(n) DEFERRALS AND SETTLEMENTS. The Committee may require or permit
Participants to elect to defer the issuance of Shares or the settlement of
Awards in cash under such rules and procedures as it may establish under this
Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts. Participants who are eligible to
participate in the Medtronic, Inc. Capital Accumulation Plan Deferral Program
("CAP") shall be entitled to defer some or all of the cash portion of any
Performance Shares granted to them hereunder in accordance with the terms of the
CAP.
15. GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken pursuant to
this Plan shall be governed by the laws of Minnesota, without giving effect to
conflicts of law provisions, and construed accordingly.
16. SEVERABILITY. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of this Plan, and this Plan shall be construed and enforced
as if the illegal or invalid provision had not been included.
17. TERMINATION OF PRIOR PLANS. Effective upon the approval of this
Plan by the Company's shareholders as provided by Section 14(a) hereof, no
further grants of options, performance shares or restricted stock or any other
awards shall be made under the Company's 1979 Restricted Stock and Performance
Share Award Plan, 1979 Nonqualified Stock Option Plan, 1989 Phantom Stock Award
Plan or 1991 Restricted Stock Plan for Non-Employee Directors (the "Prior
Plans"). Thereafter, all grants and awards made under the Prior Plans prior to
such approval by the shareholders shall continue in accordance with the terms of
the Prior Plans.
12
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>MANAGEMENT INCENTIVE PLAN
<TEXT>
EXHIBIT 10.2
MEDTRONIC, INC.
MANAGEMENT INCENTIVE PLAN
(AS AMENDED THROUGH AUGUST 25, 1999)
I. PURPOSES
This Medtronic, Inc. Management Incentive Plan, as amended through
August 25, 1999 (the "Plan"), was amended and restated in its entirety effective
April 29, 1994 from the existing Restated Medtronic, Inc. Management Incentive
Plan originally adopted May 1, 1977. The Plan is designed to motivate officers
and other key employees to achieve the Company's operating goals by providing
the opportunity for incentive compensation in addition to annual salaries. The
Plan is also designed to promote the accomplishment of management's primary
annual objectives as reflected in the Company's annual operating plan, in the
various business unit annual operating plans, and in the objectives established
by management for employees, and to recognize the achievement of management's
objectives through the payment of incentive compensation.
It is not the purpose of this Plan to reward employees for consistent
performance of primary job responsibilities, nor to assure the payment of fixed
salaries comparable in amount to those paid by similar companies, nor to
recognize achievements related to successful daily performance on the job, all
of which are intended to be identified, recognized, and rewarded through the
Company's ongoing administration of base salaries.
The Company intends that all amounts paid to Covered Employees under
this Plan should qualify as deductible "performance-based compensation" under
Section 162(m) of the Code, and the Plan shall be interpreted in accordance with
this intent.
II. DEFINITIONS
2.01 DEFINITIONS. As used in the Plan:
(a) "Affiliate" shall mean any corporation that is a "parent
corporation" or "subsidiary corporation" of the Company, as those terms are
defined in Sections 424(e) and (f) of the Code, or any successor provision, and
any joint venture in which the Company or any such "parent corporation" or
subsidiary corporation" owns an equity interest.
(b) "Board of Directors" or "Board" shall mean the Board of
Directors of the Company.
(c) "Chief Executive Officer" shall mean the person duly elected by
the Board to the office of Chief Executive Officer of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
and in effect from time to time, or any successor statute.
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(e) "Committee" shall mean the Compensation Committee of the Board
of Directors, which shall consist of members of the Board who are not employees
and who are not eligible for participation in this Plan.
(f) "Company" shall mean Medtronic, Inc., its Affiliates and their
successors and assigns.
(g) "Covered Employee" shall mean any Employee who is a "covered
employee" as defined in section 162(m) of the Code.
(h) "Employee" shall mean any employee of the Company, whether or
not an officer or member of the Board, but excluding any temporary employee and
any person serving the Company only in the capacity of a member of the Board.
(i) "Participant" shall mean an Employee who has been selected in
accordance with the Plan's terms by the Committee or the Chief Executive Officer
for participation in this Plan.
(j) "Participation Categories" shall mean those categories which
specify the range of plan awards, one of which categories will be assigned to
each Plan Participant. The Participation Categories may be redesignated or
revised (such as by establishing more or fewer categories or by changing the
percentages of salary ranges applicable to a category) from time to time at or
prior to the commencement of an applicable Plan Year by the Committee or, except
as otherwise provided in Sections 3.02 and 3.03, by the Chief Executive Officer
if such administrative responsibility has been delegated to such officer by the
Committee.
(k) "Performance Categories" shall mean those financial and
management objective-based categories for performance measurement specified in
Section 4.05 hereof.
(l) "Plan Year" shall mean the applicable fiscal year of the
Company.
(m) "Salary" shall mean the direct gross (as opposed to taxable)
compensation earned by a Participant as base salary during the Plan Year,
excluding any and all commissions, bonuses, incentive payments for the current
Plan Year or prior Plan Years and other similar payments.
(n) "Subsidiary" means a "subsidiary corporation," as that term is
defined in Section 424(f) of the Code, or any successor provision.
Certain other terms used in the Plan shall have the meanings ascribed
to such terms in the text of the Plan.
III. ADMINISTRATION OF THE PLAN
3.01 COMMITTEE OVERSIGHT. The Committee will administer the Plan by
majority vote. The Committee may establish such rules and regulations as it
deems necessary for the Plan and its interpretation. In addition, the Committee
may make such determinations and take such actions in connection with the Plan
as it deems necessary. Each determination made by the Committee in
2
<PAGE>
accordance with the provisions of the Plan will be final, binding and
conclusive. The Committee may rely on the financial statements certified by the
Company's independent public accountants.
3.02 CHIEF EXECUTIVE OFFICER'S OVERSIGHT. Except as provided in Section
3.03, the Committee may delegate some or all of its administrative powers and
responsibilities under the Plan to the Chief Executive Officer for Employees
other than any Covered Employee. The Chief Executive Officer may make such
determinations and take such actions within the scope of such delegation and as
otherwise provided in the Plan as he deems necessary. Each such determination
made by the Chief Executive Officer will be final, binding and conclusive. The
Chief Executive Officer may rely on the financial statements certified by the
Company's independent public accountants. Unless the Committee determines
otherwise, the Committee shall be treated as delegating its authority to the
Chief Executive Officer to the full extent permitted hereunder.
3.03 FURTHER APPROVAL NECESSARY. The Committee in its sole discretion
may modify, suspend, terminate or reinstate the Plan; provided, however, that
the Committee must receive prior approval of the Board of Directors (a) to
render nonemployees, whether or not members of the Board of Directors, eligible
to participate in the Plan, or (b) to increase the maximum awards (expressed as
a percentage of salary) for a Participation Category beyond the maximum award
which has been previously approved by the Board for such Participation Category.
IV. ELIGIBILITY AND PARTICIPATION
4.01 CERTAIN PARTICIPANTS SELECTED BY COMMITTEE. At the beginning of
each Plan Year (or at such other time as is consistent with the requirements
under Section 162(m) of the Code), the Committee will assign each Covered
Employee to a Participation Category.
4.02 OTHER PARTICIPANTS. Employees eligible to participate in the Plan
shall include executives, heads of key staff functions, heads of operating
business units and other major contributors to business unit or corporate
results. At the beginning of each Plan Year, the Chief Executive Officer will
select Participants in the Plan (other than those Participants who are to be
assigned to Participation Categories by the Committee pursuant to Section 4.01
hereof) from among such eligible employees. In addition, the Chief Executive
Officer may select other employees (other than Covered Employees) to participate
in the Plan when the Chief Executive Officer, in his sole discretion, deems such
participation appropriate.
4.03 FUTURE PARTICIPATION. Participation in the Plan during one Plan
Year does not guarantee participation during any other Plan Year.
4.04 PARTICIPATION CATEGORY. The Chief Executive Officer shall
designate for each Participant in the Plan (other than Covered Employees) a
Participation Category for purposes of determining the Participant's award. The
Participation Categories and relative awards for such category for each Plan
Year shall be set forth in writing. The range of potential awards to
Participants under the Plan is stated for each Participation Category as
percentages of each Participant's Salary and, if minimum performance objectives
are met or exceeded, actual awards will fall within a scale ranging from
designated minimum awards to designated target awards to designated maximum
awards. The designated target award for each respective Participation Category
is sometimes referred to herein as the "Target Award Percentage."
Notwithstanding any contrary provisions of this Plan, the final award granted to
any Participant under this Plan shall not
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<PAGE>
be permitted to exceed the maximum award as a percentage of Salary for such
Participant's Participation Category.
4.05 PERFORMANCE CATEGORY. Each Participant's entitlement to an award
under the Plan will be based on one or more of the weighted combinations of the
performance of the Participant individually, as part of a team or as a member of
management ("Management" performance), the Participant's division or other
business unit ("Unit Financial" performance) and the Company as a whole
("Corporate Financial" performance). The Chief Executive Officer shall designate
for each Participant in the Plan (except for Covered Employees) a Performance
Category for purposes of establishing such weighted combination from the
Participant's Performance Categories. The Committee shall designate Performance
Categories for all Covered Employees; provided however, that for Covered
Employees such Performance Categories shall be based only on one or any
combination of two or more of the following criteria: revenue, revenue per
employee, earnings before income tax (profit before taxes), earnings before
interest and income tax, net earnings (profit after taxes), earnings per
employee, tangible, controllable or total asset turnover, earnings per share,
operating income, total shareholder return, market share, return on equity,
before- or after-tax return on net assets, distribution expense, inventory
turnover, economic value added (economic profit). For Covered Employees, such
targets may relate to one or any combination of two or more of corporate, group,
unit, division, Affiliate, or individual performance, and such designated
targets will be treated as Corporate Financial objectives, Unit Financial
objectives, or Management objectives as appropriate.
V. PERFORMANCE OBJECTIVES
5.01 CORPORATE FINANCIAL OBJECTIVES. Subject to Section 4.05 hereof, at
the beginning of each Plan Year, or, with respect to Covered Employees, at such
other time as is consistent with the requirements under Section 162(m) of the
Code, the Committee will establish the Corporate Financial objectives by which
the Company's financial performance during the Plan Year will be measured. Each
Corporate Financial objective shall have a stated performance target. In the
event that more than one Corporate Financial objective is used, the multiple
Corporate Financial objectives shall be appropriately weighted by percentage in
accordance with their importance (with the aggregate weighted objectives
totaling 100%) at the time the objectives are established. At the end of each
Plan Year the degree of achievement of each stated Corporate Financial objective
shall be expressed as a percentage of the Corporate Financial performance target
for each such objective. When one objective is used, such percentage shall
constitute the "Corporate Financial Score" as such term is used herein. (When
more than one objective is used, the determined percentage achievement of each
objective's target must be multiplied by the percentage weight (out of 100%)
assigned to each such specific objective, and the resulting percentages for the
various objectives must then be added and such sum shall constitute the
Corporate Financial Score.) The relationship between Corporate Financial
performance and awards hereunder will be distributed to all Participants at the
beginning of each Plan Year.
5.02 OVERRIDING MINIMUM THRESHOLD. At the beginning of each Plan Year
(or at such other time as is consistent with the requirements under Section
162(m) of the Code), the Committee will designate a minimum threshold level of
Corporate Financial performance objective(s) which the Company must achieve for
there to be any award made under the Plan. If such minimum threshold is not met
or exceeded, no awards will be paid to Participants regardless
4
<PAGE>
of whether other Corporate Financial objectives, Unit Financial objectives or
Management objectives have been met.
5.03 UNIT FINANCIAL OBJECTIVES. Subject to Section 4.05 hereof, at the
beginning of each Plan Year (or at such other time as is consistent with the
requirements under Section 162(m) of the Code), the Vice President or other unit
head responsible for each business unit of the Company will recommend and the
Chief Executive Officer will adopt the Unit Financial objectives by which the
business Unit's Financial performance will be measured. The Unit Financial
objective(s) will be based on financial goals reflected in the respective
business unit's fiscal year operating plan. Each Unit Financial objective shall
have a stated performance target. In the event that more than one Unit Financial
objective is used, the multiple Unit Financial objectives shall be appropriately
weighted in accordance with their importance (with the aggregate weighted
objectives totaling 100%). At the end of each Plan Year the degree of
achievement of each stated Unit Financial objective shall be expressed as a
percentage of the Unit Financial performance target for each objective. When one
objective is used, such percentage shall constitute the "Unit Financial Score"
as such term is used herein. When more than one objective is used, the
determined percentage achievement of each objective's target must be multiplied
by the percentage weight (out of 100%) assigned to each such specific objective,
and the resulting percentages for the various objectives must then be added and
such sum shall constitute the Unit Financial Score. The relationship between
Unit Financial performance and awards hereunder shall be distributed at the
beginning of each Plan Year to all Participants to which it applies. For all
Participants other than Covered Employees, at the beginning of each Plan Year
each business unit Vice President or other unit head may recommend and the Chief
Executive Officer may adopt, in the Chief Executive Officer's sole discretion, a
minimum threshold level of the business unit's most significant financial
objective which the business unit must achieve for there to be any award based
on such business unit's financial and management performance. If such minimum is
established for any Participant (other than a Covered Employee) and is not met
or exceeded, no award will be paid for one or both of the Unit Financial and
Management portions, as determined by the Chief Executive Officer, under the
Performance Category of each Participant in the business unit. The Committee
shall determine whether a minimum threshold level shall apply in the case of a
Covered Employee and the consequences of the failure to attain such minimum
threshold level.
5.04 MANAGEMENT OBJECTIVES. Subject to Section 4.05 hereof, at the
beginning of each Plan Year (or, with respect to Covered Employees, at such
other time as is consistent with the requirements under Section 162(m) of the
Code), the manager of each Participant will recommend and the Chief Executive
Officer will adopt the Management objectives by which the individual
Participant's performance will be measured. Management objectives shall relate
to objectives in the business unit's annual operating plan and/or long-range
plan. Each Management objective shall have a stated performance target. In the
event that more than one Management objective is used, the multiple Management
objectives shall be appropriately weighted by percentage, at the time they are
established, in accordance with their importance (with the aggregate weighted
objectives totaling 100%). At the end of each Plan Year the degree of
achievement of each stated Management objective shall be expressed as a
percentage of the Management performance target for each such objective. When
one objective is used, such percentage shall constitute the "Management Score"
as such term is used herein. When more than one objective is used, the
determined percentage achievement of each objective's target must be multiplied
by the percentage weight (out of 100%) assigned to each such specific
5
<PAGE>
objective, and the resulting percentages for the various objectives must then be
added and such sum shall constitute the Management Score. The relationship
between individual performance and awards hereunder will be distributed at the
beginning of each Plan Year to all Participants to which it applies.
5.05 FINAL AWARD FUNDING. At the end of each Plan Year, the Chief
Executive Officer will submit to the Committee a statement of the proposed final
award to be granted to each Participant (including Covered Employees) under the
terms of the Plan. The Committee shall determine and certify that the
performance goals were satisfied and shall make the final award for each such
Participant; provided that no Covered Employee may receive an award under this
Plan in excess of $3 million during any Plan Year. The Chief Executive Officer
shall make the final award for each Participant, other than Covered Employees,
subject, however, to having first received the Committee's approval of the
aggregate amount of the awards to be paid to all of such Participants.
VI. CALCULATION AND PAYMENT OF AWARDS
6.01 CALCULATION OF AWARDS. Each Participant's final award shall be
equal to the sum of the following:
(a) CORPORATE FINANCIAL PORTION. The Corporate Financial portion
of each Participant's award will be the product of (i) the Participant's Salary,
(ii) the Target Award Percentage for the Participant's applicable Participation
Category, (iii) the Corporate Financial percentage under the Participant's
Performance Category and (iv) the Corporate Performance Score;
(b) UNIT FINANCIAL PORTION. The Unit Financial portion of each
Participant's award will be the product of (i) the Participant's Salary, (ii)
the Target Award Percentage for the Participant's applicable Participation
Category, (iii) the Unit Financial percentage under the Participant's
Performance Category and (iv) the Unit Financial Score; and
(c) MANAGEMENT PORTION. The Management portion of each
Participant's award will be the product of (i) the Participant's Salary, (ii)
the Target Award Percentage for the Participant's applicable Participation
Category, (iii) the Management percentage under the Participant's Performance
Category and (iv) the individual's Management Score; provided, however, that for
Covered Employees subsection (i) of (a), (b) and (c) above shall be equal to
such Participant's annual Salary in effect on the first day of the Plan Year, if
required to comply with Section 162(m) of the Code.
6.02 PAYMENT OF AWARDS. Final awards shall be paid to each Participant
in cash within 90 days after the end of the Plan Year. Notwithstanding the
preceding sentence: (1) a Participant who is eligible to participate in the
Medtronic, Inc. Capital Accumulation Plan Deferral Program ("CAP") shall be
entitled to defer any part or all of the award granted to him or her hereunder
in accordance with the terms of the CAP, and (2) if the Committee in its
discretion permits, a Participant may elect to receive stock options granted
under the Company's 1994 Stock Award Plan in lieu of any part or all of the cash
award to which the Participant would otherwise be entitled hereunder, in
accordance with rules established by the Committee for such purpose.
6
<PAGE>
VII. EMPLOYMENT PROVISIONS
7.01 PROMOTIONS AND NEW EMPLOYEES. Except as to Covered Employees (as
to whom such determinations must be made by the Committee), Employees who are
newly hired or promoted into positions eligible for participation in the Plan
will participate in the degree deemed appropriate, if at all, by the Chief
Executive Officer and at the sole discretion of the Chief Executive Officer.
7.02 TERMINATION OF EMPLOYMENT.
(a) DEATH, DISABILITY OR RETIREMENT. Following termination of
employment (which shall be deemed to occur on the date on which the Participant
ceases working for the Company) during a Plan Year by reason of death,
disability or normal or early retirement, a Participant will be eligible to
receive a pro rata award equal to the portion of the final award, otherwise
determined in accordance with Section 6.01, represented by the percentage equal
to the number of full months of employment during the Plan Year divided by 12.
Such pro rata award will be paid in accordance with Section 6.02.
(b) OTHER TERMINATION. Following a termination of employment
(which shall be deemed to occur on the date on which the Participant ceases
working for the Company) during a Plan Year for any reason other than death,
disability or normal or early retirement, a Participant's eligibility to receive
an award for that Plan Year will be determined solely at the discretion of the
Chief Executive Officer, or, in the case of a Covered Employee, solely at the
discretion of the Committee. No such award may exceed a pro rata portion of the
amount that normally would be available under the Plan, with such pro rata
portion to be determined as in Section 7.02(a).
If a Participant's employment is terminated for "Cause," the time at
which such employee ceases to be an employee for purposes of this subparagraph
shall mean the time at which such employee is instructed or notified to cease
performing his or her job responsibilities for the Company or any Affiliate,
whether or not for other reasons such as payroll, benefits or compliance with
legal procedures or requirements that he or she may still have other attributes
of an employee. For purposes of this subparagraph, "Cause" shall mean (i)
failure to comply with any material policies and procedures of the Company, (ii)
conduct reflecting dishonesty or disloyalty to the Company, or which may have a
negative impact on the reputation of the Company, (iii) commission of a felony,
theft or fraud, or violations of law involving moral turpitude or (iv) failure
to perform the material duties of his or her employment.
7.03 NO EMPLOYMENT CONTRACT. Nothing contained in the Plan shall create
any right in any employee to continued employment or otherwise affect his or her
status as an employee-at-will.
VIII. MISCELLANEOUS PROVISIONS
8.01 NONASSIGNABILITY OF BENEFITS. No Participant, nor his or her legal
representative, shall have any right to assign, transfer, appropriate, encumber
or anticipate any interest in the Plan or any payments hereunder. Participants
have only the right to receive payments under this
7
<PAGE>
Plan if, as and when such payments are due and payable under the terms and
conditions of the Plan.
8.02 WITHHOLDING TAXES. The Company will deduct from all payments under
the Plan any taxes required to be withheld by the federal or any state or local
government and will pay over such taxes to such government for the account of
such Participant.
8.03 EXPENSES OF THE PLAN. The Company will bear all of the expenses of
administering the Plan and will not charge such expenses against amounts payable
hereunder.
8.04 APPLICABLE LAW. This Plan, all determinations made hereunder, and
all actions taken pursuant hereto will be governed by the laws of the state of
Minnesota.
IX. CHANGE IN CONTROL
9.01 CALCULATION OF AWARDS. Notwithstanding any other provisions of
this Plan, including without limitation the minimum threshold requirements of
Sections 5.02 and 5.03 and the provisions of Section 7.02(b) which shall not
apply, Participants shall be entitled to a final award calculated in accordance
with Section 6.01 of the Plan during any Plan Year in which there is a Change in
Control, as defined in Section 9.03 hereof; provided, however, that for purposes
hereof the amount of the final award shall be the product of (i) the amount of
the Participant's Salary that the Participant would have earned if paid through
the end of the Plan Year at the Participant's base salary in effect at the time
of the Change in Control and (ii) the greater of (A) the target award as a
percentage of salary for the Participant's Participation Category or (B) if the
Change in Control occurs after the first quarter of a Plan Year, the award as a
percentage of salary that the Participant would have received if (1) no Change
in Control had occurred during such Plan Year, (2) Participant's employment did
not terminate during such Plan Year and (3) the applicable Management
performance, Unit Financial performance and Corporate Financial performance (or
if less than all such performance categories are to be taken into consideration
in determining the achievement of performance objectives of the Participant,
such categories as are to be taken into consideration in determining the
achievement of such performance objectives) had equaled the performance most
recently projected by the Company prior to the Change in Control with respect to
such performance categories for such Plan Year (adjusted to exclude (a) all
legal, accounting, investment banking and other costs and expenses incurred or
projected by the Company in connection with, or in opposition to, the events
resulting in the Change in Control and (b) the projected effect of the Change in
Control upon Management performance, Unit Financial performance and Corporate
Financial performance). The Company shall compute such projections for the Plan
Year at or about the end of each quarter, except the last quarter, of each Plan
Year.
9.02 PAYMENT OF AWARDS. Final awards shall be paid under this Article
IX within 90 days following the occurrence of the earliest Change in Control
described in Section 9.03. Notwithstanding the preceding sentence, a Participant
who is eligible to participate in the CAP shall be entitled to defer any part or
all of the award granted to him or her hereunder in accordance with the terms of
the CAP.
9.03 CHANGE IN CONTROL. For purposes of this Article IX, a "Change in
Control" shall mean:
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<PAGE>
(i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (A) the
then outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any acquisition by the Company or any
Subsidiary, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary or (D) any acquisition
by any corporation with respect to which, following such acquisition, more than
55% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such acquisition in substantially
the same proportions as their ownership, immediately prior to such acquisition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(ii) individuals who, as of the effective date of this Plan,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents;
or
(iii) approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of Outstanding
Company Voting Securities in each case, with respect to which all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger,
consolidation or exchange do not, following such reorganization, merger,
consolidation or exchange, beneficially own, directly or indirectly, more than
55% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger, consolidation or exchange in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger, consolidation or exchange of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be; or
(iv) approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation with respect to which, following such sale or other disposition,
more than 55% of, respectively, the then outstanding shares of common stock
9
<PAGE>
of such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
Notwithstanding the foregoing provisions of this definition, a Change
of Control shall not be deemed to occur with respect to a Participant if the
acquisition of the 30% or greater interest referred to in subparagraph (i) of
this definition is by a group, acting in concert, that includes the Participant
or if at least 40% of the then outstanding common stock or combined voting power
of the then outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring all or
substantially all of the assets of the Company shall be beneficially owned,
directly or indirectly, immediately after a reorganization, merger,
consolidation, statutory share exchange or disposition of assets referred to in
subparagraph (iii) or (iv) of this definition by a group, acting in concert,
that includes that Participant.
10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>CAPITAL ACCUMULATION PLAN
<TEXT>
EXHIBIT 10.7
MEDTRONIC, INC.
CAPITAL ACCUMULATION PLAN
DEFERRAL PROGRAM, AS RESTATED EFFECTIVE
JANUARY 1, 1994
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFERRED COMPENSATION ACCOUNT.......................................1
Section 1.1. Establishment of Account......................................1
Section 1.2. Property of Committee.........................................1
ARTICLE 2. DEFINITIONS, GENDER, AND NUMBER....................................2
Section 2.1. Definitions...................................................2
Section 2.2. Gender and Number.............................................7
ARTICLE 3. PARTICIPATION.......................................................8
Section 3.1. Who May Participate...........................................8
Section 3.2. Time and Conditions of Participation..........................8
Section 3.3. Termination of Participation..................................8
Section 3.4. Missing Persons...............................................9
Section 3.5. Relationship to Other Plans...................................9
ARTICLE 4. ENTRIES TO THE ACCOUNT..............................................9
Section 4.1. Contributions.................................................9
Section 4.2. Crediting Rate...............................................10
ARTICLE 4A. DEFERRAL OF RECEIPT OF COMMON STOCK UNDER STOCK OPTION
AGREEMENTS........................................................10
Section 4A.1. Purpose of Article..........................................10
Section 4A.2. Definitions.................................................10
Section 4A.3. Deferral Election...........................................11
Section 4A.4. Accounting for Deferrals....................................12
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Section 4A.5. Distributions...............................................12
Section 4A.6. Adjustment to Deferred Stock Unit Accounts..................15
ARTICLE 5. DISTRIBUTION OF BENEFITS...........................................15
Section 5.1. Distributions Pursuant to Deferral Election..................15
Section 5.2. Distribution of Benefits Upon Termination of Employment......15
Section 5.3. Death Benefits...............................................17
Section 5.4. Minimum Amount and Frequency of Payments.....................18
Section 5.5. Acceleration of Distributions................................18
Section 5.6. Withdrawals..................................................19
Section 5.7. Distributions on Plan Termination............................20
Section 5.8. Claims Procedure.............................................20
ARTICLE 6. FUNDING............................................................21
Section 6.1. Source of Benefits...........................................21
Section 6.2 No Claim on Specific Assets..................................21
ARTICLE 7. ADMINISTRATION AND FINANCES........................................21
Section 7.1. Administration...............................................21
Section 7.2. Powers of Committee..........................................21
Section 7.3. Actions of the Committee.....................................22
Section 7.4. Delegation...................................................22
Section 7.5. Reports and Records..........................................22
ARTICLE 8. AMENDMENTS AND TERMINATION.........................................23
Section 8.1. Amendments...................................................23
Section 8.2. Termination..................................................23
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ARTICLE 9. TRANSFERS..........................................................23
ARTICLE 10. CHANGE IN CONTROL PROVISIONS......................................24
Section 10.1. Application of Article 10...................................24
Section 10.2. Payments to and by the Trust................................24
Section 10.3. Legal Fees and Expenses.....................................25
Section 10.4. No Reduction in Crediting Rate..............................25
Section 10.5. Late Payment and Additional Payment Provisions..............25
ARTICLE 11. MISCELLANEOUS.....................................................27
Section 11.1. No Guarantee of Employment..................................27
Section 11.2. Release.....................................................27
Section 11.3. Notices.....................................................27
Section 11.4. Nonalienation...............................................27
Section 11.5. Tax Liability...............................................27
Section 11.6. Captions....................................................28
Section 11.7. Applicable Law..............................................28
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MEDTRONIC, INC.
CAPITAL ACCUMULATION PLAN
DEFERRAL PROGRAM, AS RESTATED EFFECTIVE
JANUARY 1, 1994
Medtronic, Inc. (the "Company") established, effective January 1, 1989,
a nonqualified deferred compensation plan for the benefit of Executives of the
Company and of certain of the Company's Affiliates. This plan is known as the
Medtronic, Inc. Capital Accumulation Plan Deferral Program (the "Plan"). The
Plan was restated, effective January 1, 1992. The Company hereby restates the
Plan, effective January 1, 1994, as set forth herein.
Except as specifically provided herein, this restatement shall apply to
Permissible Deferrals first effective for Plan Years commencing on or after
January 1, 1994, and the provisions of the Plan, as in effect prior to this
restatement, shall apply to Permissible Deferrals first effective for Plan Years
prior to January 1, 1994.
The Plan is intended to be an unfunded plan maintained primarily for
the purpose of providing deferred compensation for a select group of management
or highly compensated employees as described in Sections 201(2), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974 ("ERISA").
ARTICLE 1. DEFERRED COMPENSATION ACCOUNT.
----------------------------------------
Section 1.1. Establishment of Account. The Company shall establish an
account ("Account") for each Participant which shall be utilized solely as a
device to measure and determine the amount of deferred compensation to be paid
under the Plan.
Section 1.2. Property of Company. Any amounts so set aside for benefits
payable under the Plan are the property of the Company, except, and to the
extent, provided in the Trust.
<PAGE>
ARTICLE 2. DEFINITIONS, GENDER, AND NUMBER.
------------------------------------------
Section 2.1. Definitions. Whenever used in the Plan, the following
words and phrases shall have the meanings set forth below unless the context
plainly requires a different meaning, and when a defined meaning is intended,
the term is capitalized.
2.1.1. "Account" means the device used to measure and
determine the amount of deferred compensation to be paid to a
Participant or Beneficiary under the Plan, and may refer to the
separate Accounts that represent amounts deferred by a Participant
under separate Permissible Deferral elections pursuant to Section
4.1.1, by the Company pursuant to Section 4.1.2, or as a transfer from
the Medtronic, Inc. Compensation Deferral Plan for Officers and Key
Employees pursuant to Article 9.
2.1.2. "Affiliates" or "Affiliate" means a group of entities,
including the Company, which constitutes a controlled group of
corporations (as defined in section 414(b) of the Code), a group of
trades or businesses (whether or not incorporated) under common control
(as defined in section 414(c) of the Code), and members of an
affiliated service group (within the meaning of section 414(m) of the
Code.)
2.1.3. "Age" of a Participant means the number of whole
calendar years that have elapsed since the date of the Participant's
birth.
2.1.4. "Base Salary" of a Participant for any Plan Year means
the total annual salary and wages paid by all Affiliates to such
individual for such Plan Year, including any amount which would be
included in the definition of Base Salary, but for the individual's
election to defer some of his or her salary pursuant to this Plan or
some other deferred compensation plan established by an Affiliate; but
excluding any other remuneration paid by Affiliates, such as overtime,
incentive compensation, stock options, distributions of compensation
previously deferred, restricted stock, allowances for expenses
(including moving, travel
2
<PAGE>
expenses, and automobile allowances), and fringe benefits whether
payable in cash or in a form other than cash. In the case of an
individual who is a participant in a plan sponsored by an Affiliate
which is described in Section 401(k) or 125 of the Code, the term Base
Salary shall include any amount which would be included in the
definition of Base Salary but for the individual's election to reduce
his salary and have the amount of the reduction contributed to or used
to purchase benefits under such plan.
2.1.5. "Beneficiary" or "Beneficiaries" means the persons or
trusts designated by a Participant in writing pursuant to Section 5.3.4
of the Plan as being entitled to receive any benefit payable under the
Plan by reason of the death of a Participant, or, in the absence of
such designation, the persons specified in Section 5.3.5 of the Plan.
2.1.6. "Board" means the Board of Directors of the Company as
constituted at the relevant time.
2.1.7. "Code" means the Internal Revenue Code of 1986, as
amended from time to time and any successor statute. References to a
Code section shall be deemed to be to that section or to any successor
to that section.
2.1.8. "Committee" means the Committee appointed by the
Company's Board, or any person or entity designated by the Committee to
administer the Plan pursuant to Section 7.4.
2.1.9. "Company" means Medtronic, Inc.
2.1.10. "Compensation" with respect to a Participant for any
period means the sum of such Participant's Base Salary and Incentive
Compensation for such period.
2.1.11. "Crediting Rate" with respect to any Plan Year means
the rate set forth on Schedule B, hereto, which schedule may be revised
from time to time by the Company's Chief Executive Officer, in his
discretion. In general, the
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<PAGE>
Crediting Rate in effect with respect to a Plan Year shall apply to all
deferrals made in such Plan Year; however, if the Chief Executive
Officer subsequently makes other rates ("alternative rates") available,
a Participant may elect to have an alternate rate apply to such
deferrals in accordance with rules established by the Company.
2.1.12. "Disabled" or "Disability" with respect to a
Participant shall have the same definition as in the Company's then
existing long term group disability insurance program.
2.1.13. "Early Retirement Date" of a Participant means the
last day of the calendar month in which the Participant has (a) reached
Age 55 while in the employ of an Affiliate and has completed at least
ten (10) Years of Service, or (b) reached the Age of 62 while in the
employ of an Affiliate.
2.1.14. "Effective Date" means the date on which this Plan
became effective, i.e., January 1, 1989.
2.1.15. "Executive" means any United States employee who is
(a) an Officer or a Vice President of the Company, (b) a member of the
Sales Force of a Participating Affiliate whose Compensation for the
Participating Affiliate's fiscal year ending immediately prior to the
date on which he first enters into a Permissible Deferral election
equals or exceeds the dollar amount set forth on Schedule A, hereto,
which schedule may be revised from time to time by the Company's Chief
Executive Officer in his discretion, or (c) any individual designated
as eligible to participate in the Plan by the Company's Chief Executive
Officer.
2.1.16. "Incentive Compensation" of a Participant for any Plan
Year means the total remuneration paid under the various incentive
compensation programs maintained by Affiliates to such individual for
that Plan Year including any amount which would be included in the
definition of Incentive Compensation,
4
<PAGE>
but for the individual's election to defer some or all of his or her
Incentive Compensation pursuant to this Plan or some other deferred
compensation plan established by an Affiliate; but excluding long-term
incentive awards (other than the cash portion of the Performance Share
Plan) and any other remuneration paid by Affiliates, such as Base
Salary, overtime, net commissions, stock options, distributions of
compensation previously deferred, restricted stock, allowances for
expenses (including moving, travel expenses, and automobile
allowances), and fringe benefits whether payable in cash or in a form
other than cash.
2.1.17. "Maximum Annual Deferral" with respect to a
Participant for a Plan Year means the sum of (a) 50% of such
Participant's Base Salary and (b) 100% of the cash portion of such
Participant's Incentive Compensation for such Plan Year. Initially,
Participants described in Section 2.1.15(b) may defer from Incentive
Compensation only. The Committee may, in its discretion, adopt a policy
to permit such Participants to also defer from Base Salary.
2.1.18. "Normal Retirement Date" of a Participant means the
last day of the calendar month in which the Participant has reached the
Age of 65 while in the employ of an Affiliate.
2.1.19. "Officer or Vice President" means an employee who is
either elected by the Board or appointed by the Company's Chief
Executive Officer to such position.
2.1.20. "Participant" means an individual who is eligible to
participate in the Plan and has elected to participate in the Plan.
2.1.21. "Participating Affiliate" or "Participating
Affiliates" means the Company and such Affiliates as may be designated
by the Chief Executive Officer of the Company, or his designee, from
time to time.
5
<PAGE>
2.1.22. "Performance Share Plan" means the Medtronic, Inc.
1979 Restricted Stock and Performance Share Award Plan, as may be
amended from time to time.
2.1.23. "Permissible Deferral" means one of the following
options as selected by the Participant:
(a) A deferral from Base Salary for one (1) Plan Year
which is not less than $3,000 nor more than the Maximum Annual
Deferral.
(b) A deferral from Incentive Compensation for one
(1) Plan Year which is not less than $3,000 nor more than the
Maximum Annual Deferral.
Initially, Participants described in Section 2.1.15(b) may
make deferrals pursuant to paragraph (b) of this Section only. The
Committee may, in its discretion, adopt a policy to permit such
Participants to also make deferrals pursuant to paragraph (a) of this
Section. Participants other than those described in Section 2.1.15(b)
may make deferrals pursuant to paragraph (a) or (b) of this Section, or
a combination of both, but in no event may any deferrals exceed the
Maximum Annual Deferral for any Plan Year.
Elections to defer from Base Salary or Incentive Compensation
shall be made annually at a date to be determined by the Committee, but
no later than December 30th of the calendar year immediately preceding
the Plan Year during which the Base Salary or Incentive Compensation
would otherwise have been paid to the Participant. All deferral
elections must specify either the percentages (stated as integers) or
dollar amounts, or combination of percentages and dollar amounts, as
determined by the Committee in its discretion, of the deferrals that
are intended to be deducted from Base Salary or Incentive Compensation,
respectively. Each installment of a deferral shall be rounded to the
nearest whole
6
<PAGE>
dollar amount. Only the cash portion of an award under the Performance
Share Plan may be deferred.
No Permissible Deferral election for a deferral from Incentive
Compensation payable under the Performance Share Plan or the Medtronic,
Inc. Management Incentive Plan shall be effective for any Plan Year
unless the cash amount payable to the Participant under such plan for
the Plan Year (but for the election) is sufficient to satisfy such
election.
Deferrals from Incentive Compensation for Participants
described in Section 2.1.14(b) shall be made in periodic installments,
as determined by the Committee in its discretion.
All deferrals must be completed by the end of the Plan Year in
which the Participant attains Age 70.
2.1.25. "Plan" means the "Medtronic, Inc. Capital Accumulation
Plan Deferral Program" as set forth herein and as amended or restated
from time to time.
2.1.26. "Plan Year" means January 1 through December 31.
2.1.27. "Premature Distribution" means a distribution to a
Participant at his or her request prior to the time otherwise permitted
under the Plan, subject to certain penalties, as described in Section
5.6.2.
2.1.28. "Sales Force" means employees of Participating
Affiliates whose primary employment responsibilities involve selling
the products manufactured by Participating Affiliates.
2.1.29. "Trust" means the Medtronic, Inc. Compensation Trust
Agreement Number One, as may be amended from time to time.
Section 2.2. Gender and Number. Except as otherwise indicated by
context, masculine terminology used herein also includes the feminine and
neuter, and terms used in the singular may also include the plural.
7
<PAGE>
ARTICLE 3. PARTICIPATION.
------------------------
Section 3.1. Who May Participate. Participation in the Plan is limited
to Executives.
Section 3.2. Time and Conditions of Participation. An eligible
Executive shall become a Participant only upon (a) the individual's completion
of a Permissible Deferral election form for the succeeding Plan Year, and (b)
compliance with such terms and conditions as the Committee may from time to time
establish for the implementation of the Plan, including, but not limited to, any
condition the Committee may deem necessary or appropriate for the Company to
meet its obligations under the Plan. To enable the Company to meet its financial
commitment under the Plan, the Company may purchase insurance on the lives of
each Participant. Consequently, participation in the Plan is contingent upon an
individual's insurability. The Committee may, in its sole discretion, accept or
reject for participation in the Plan individuals who are rated as uninsurable.
If the Committee accepts such an individual for participation in the Plan, such
individual's Account under the Plan may be credited with interest at a lesser
rate than provided in Section 4.2.
An individual may make a Permissible Deferral election for any Plan
Year provided that the Participant's remaining Compensation, after all
deferrals, is sufficient to enable the Company to withhold from the
Participant's Compensation (a) any amounts necessary to satisfy withholding
requirements under applicable tax law; and (b) the amount of any contributions
which the employee may be required to make or may have elected to make under the
Company's various benefit plans.
Section 3.3. Termination of Participation. Once an individual has
become a Participant in the Plan, participation shall continue until the first
to occur of (a) payment in full of all benefits to which the Participant or
Beneficiary is entitled under the Plan, or (b) the occurrence of an event
specified in Section 3.4 which results in loss of benefits. Except as otherwise
specified in the Plan, the Company may not terminate an individual's
participation in the Plan; provided, however, that if the Committee, in its
discretion, determines that it is likely that a Participant would not be
considered to be a member of a select group of
8
<PAGE>
management or highly compensated employees, within the meaning of Sections
201(2), 301(a)(3) and 401(a)(1) of ERISA, for any period, the Committee may
require that no contributions be made to the Plan by or on behalf of such
Participant during such period.
Section 3.4. Missing Persons. If the Company is unable to locate the
Participant or his Beneficiary for purposes of making a distribution, the amount
of a Participant's benefits under the Plan that would otherwise be considered as
nonforfeitable shall be forfeited effective four (4) years after (a) the last
date a payment of said benefit was made, if at least one such payment was made,
or (b) the first date a payment of said benefit was directed to be made by the
Company pursuant to the terms of the Plan, if no payments have been made. If
such person is located after the date of such forfeiture, the benefits for such
Participant or Beneficiary shall not be reinstated hereunder.
Section 3.5. Relationship to Other Plans. Participation in the Plan
shall not preclude participation of the Participant in any other fringe benefit
program or plan sponsored by an Affiliate for which such Participant would
otherwise be eligible.
ARTICLE 4. ENTRIES TO THE ACCOUNT.
---------------------------------
Section 4.1. Contributions.
Section 4.1.1. Deferrals. During each Plan Year, the Company
shall post to the Account of each Participant the amount of Base Salary
and Incentive Compensation to be deferred as designated by the
Participant's Permissible Deferral election in effect for that Plan
Year.
Section 4.1.2. Company Contributions. The Company may, in its
discretion, make contributions to the Plan from time to time on behalf
of a Participant equal to all or a portion of amounts which would have
been contributed on behalf of the Participant under other benefit plans
of the Company if the Participant had not made a Permissible Deferral
election under the Plan.
Section 4.1.3. Disability. If a Participant becomes Disabled,
deferrals and Company contributions shall continue to be posted as
described in Sections 4.1.1
9
<PAGE>
and 4.1.2 during the period in which the Participant is entitled to
receive Base Salary from the Company. If a Participant continues to be
Disabled after such period, deferrals and Company contributions will
cease.
Section 4.2. Crediting Rate. Except as otherwise provided in Sections
3.2, 5.2.2 and 8.2, a Participant's Account will be credited with interest at
the Crediting Rate as described in Section 2.1.11.
ARTICLE 4A. DEFERRAL OF RECEIPT OF COMMON STOCK UNDER STOCK OPTION
AGREEMENTS.
------------------------------------------------------------------
Section 4A.1 Purpose of Article This Article establishes special
procedures for deferring the delivery and receipt of Common Stock which the
Participants identified in Section 4A.3 may receive from the exercise of a
nonqualified stock option granted to the Participant by the Company. The stock
options are governed by the stock option plan under which they are granted. No
stock options or shares of Common Stock are authorized to be issued under the
Plan. Participants who elect to defer receipt of Common Stock issuable upon the
exercise of stock options will have no rights as stock holders of the Company
with respect to allocations made to their Deferred Stock Unit Accounts except
the right to receive dividend equivalent allocations as hereafter described.
Section 4A.2. Definitions. Whenever used in this Article 4A the
following words and phrases shall have the meanings set forth below unless the
context plainly requires a different meaning, and when a defined meaning is
intended, the term is capitalized. All other capitalized terms shall have the
meaning ascribed to them in Section 2.1.
4A.2.1 "Common Stock" means the Company's common stock. $.10
par value per share (as such par value may be adjusted from time to
time).
10
<PAGE>
4A.2.2 "Deferred Stock Unit Account" means the notational
account established to record the Net Shares deferred by the
participant and the dividend equivalents with respect to such Net
Shares.
4A.2.3 "Net Shares" means the difference between the number of
shares of Common Stock subject to the stock option exercise and the
number of shares of Common Stock delivered to satisfy the stock option
exercise price less any shares used to satisfy FICA or any other taxes
due upon the stock option exercise as may be elected by the Participant
pursuant to Section 4A.3.
4A.2.4 "Stock Unit" means a notational unit representing the
right to receive one share of Common Stock.
Section 4A.3. Deferral Election. A Participant at the level of Vice
President or above (or any other Participant designated by the Senior Vice
President, Human Resources) can elect to defer receipt of Net Shares of Common
Stock resulting from a stock-for-stock exercise of an exercisable stock option
issued to the Participant by completing and submitting to the Company an
irrevocable stock option deferral election by a date which is at least twelve
months in advance of the date of exercise of the stock option and in the
calendar year prior to the date of the exercise of the stock option. The stock
option exercise must occur on or prior to the expiration date of the stock
option and must be accomplished by delivering by the attestation method, on or
prior to the exercise date, shares of Common Stock which have been personally
owned by the Participant for at least six months prior to the exercise date and
have not been used in a stock swap in the prior six months. At the time of the
deferral election the Participant may designate that some of the shares subject
to the stock option shall be used to satisfy FICA or any other taxes due upon
the stock option exercise. A Participant's deferral election shall not be
effective if the stock option
11
<PAGE>
as to which the Participant has made the deferral election terminates prior to
the exercise date selected by the Participant. If the Participant dies or fails
to deliver shares of Common Stock which have been personally owned by the
Participant at least six months prior to the exercise date (and have not been
used in a stock swap in the prior six months) in payment of the exercise price,
then the deferral election shall not be effective.
Section 4A.4 Accounting for Deferrals. A Deferred Stock Unit Account
will be established for each Participant with respect to each deferral election
made pursuant to this Article 4A. For each Net Share deferred, a Stock Unit will
be credited as of the date of the stock option exercise to the Deferred Stock
Unit Account so established. The Committee shall adjust the Deferred Stock Unit
Account of each Participant to reflect dividends payable with respect to the
Company's Common Stock from time to time. The Committee shall determine the
manner in which any such adjustment shall be made. Each Participant will receive
a periodic statement of the number of whole and fractional units in his or her
Deferred Stock Unit Account.
Section 4A.5 Distributions. At the time of the Participant's deferral
election, a Participant must also elect to begin receiving distributions of the
Deferred Stock Unit Accounts with respect to the deferral election at either (a)
the Participant's termination from employment, or (b) a distribution date which
shall be at least two years after the exercise date of the stock option to which
the deferral election applies.
If the Participant elects to defer pursuant to (a) above, the timing
and manner of distribution shall be determined in accordance with Sections
4A.5.1 and 4A.5.2. If a Participant elects to defer pursuant to (b) above,
distributions shall commence at the time designated by the Participant in his or
her election and shall be made in the form of a lump sum (unless the Participant
terminates employment or dies before such date, in which case Section 4A.5.1,
12
<PAGE>
4A.5.2, 4A.5.3, as the case may be, shall apply). All distributions shall be
made in the form of Common Stock.
The Participant shall receive a distribution equivalent to the Stock
Units, rounded up to the nearest whole number, credited to the Participant's
Deferred Stock Unit Account as soon as administratively practicable after the
specified distribution date.
In the case of any installment delivery, the precise number of shares
delivered in each installment shall be determined in such a manner as to cause
each installment to be essentially equal based on the Stock Units credited to
the Participant's Deferred Stock Unit Account as of the date of the first
installment together with any divided equivalents credited thereon. Installment
distributions shall be in whole shares of Common Stock. Any fractional Stock
Units remaining at the time of the final installment distribution shall be
rounded up to the nearest full Stock Unit.
Notwithstanding a Participant's deferral election or the other
provisions of this Section 4A.5, all of a Participant's Deferred Stock Units
shall be distributed to the Participant or the Participant's Beneficiary (in the
event of the Participant's death) as soon as administratively feasible
following: (a) the occurrence of an event of change of control (as defined in
Article 10), or (b) the termination of the Plan.
4A.5.1. Benefits Upon Retirement. If a Participant terminates
employment with all Affiliates on or after the Participant's Early
Retirement Date or Normal Retirement Date, the Participant shall
receive the balance in his or her Deferred Stock Unit Account in
monthly installments over a period of fifteen (15) years. Payments
pursuant to Section 4A.5.1 shall commence within an administratively
practicable period of time following the date on which the Participant
terminates employment.
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<PAGE>
4A.5.2. Benefits Upon Resignation or Discharge. If a
Participant terminates employment with all Affiliates before the
Participant's Early Retirement Date or Normal Retirement Date for
reasons other than death, the Participant shall receive the balance in
his or her Deferred Stock Unit Account in a lump sum payment within an
administratively practicable period of time following the date on which
the Participant terminates employment.
4A.5.3. Death Benefits. In the event a Participant dies after
benefits have commenced pursuant to Section 4A.5.1, the Participant's
remaining benefits, if any, shall be paid to the Participant's
Beneficiary in the same manner as such benefits would have been paid to
the Participant had the Participant survived. In the event a
Participant dies prior to the date on which benefits commence, the
Participant's Deferred Stock Unit Account shall be paid to the
Participant's Beneficiary in a lump sum within an administratively
practicable time following the Participant's death.
4A.5.4. Hardship Withdrawals. A Participant shall be entitled
to make withdrawals from his or her Deferred Stock Unit Accounts in
accordance with Section 5.6 of the Plan. Distributions pursuant to such
withdrawals shall be in the form of Common Stock.
4A.5.5. Effect on Other Provisions. The provisions of Article
5 shall not apply to amounts deferred pursuant to this Article 4A,
except for the withdrawal provisions described in the previous
paragraph, the provisions applicable to the marital deduction and
designating a Beneficiary at Sections 5.3.4 and 5.3.5, the acceleration
provision of Section 5.5 and the claims procedure at Section 5.8.
Likewise the second paragraph of Section 8.2 shall not apply to amounts
deferred pursuant to this Article 4A.
14
<PAGE>
4A.6 Adjustment to Deferred Stock Unit Accounts. In the event that the
Compensation Committee of the Company's Board of Directors determines that any
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of Common
Stock or other securities of the Company, issuance of warrants or other rights
to purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event affects the Common Stock, an appropriate
adjustment to the Participant's Deferred Stock Units shall be made to prevent
reduction or enlargement of the Participants' benefits under the Plan.
ARTICLE 5. DISTRIBUTION OF BENEFITS.
-----------------------------------
Section 5.1. Distributions Pursuant to Deferral Election. The
Participant shall, as part of his or her Permissible Deferral election, elect to
begin receiving distributions with respect to a Permissible Deferral at either
(a) the Participant's retirement; or (b) a date specified by the Participant in
the election, which is at least five (5) years after the Plan Year to which the
Permissible Deferral applies. If the Participant elects to defer distribution
pursuant to (a), above, the timing and manner of distribution shall be
determined in accordance with Sections 5.2 and 5.3. If a Participant elects to
defer distributions pursuant to (b), above, distributions shall commence at the
time designated by the Participant in his or her election and shall be made in
the form of a lump sum (unless the Participant terminates employment or dies
before such date, in which case Section 5.2 or 5.3, as the case may be, shall
apply).
Section 5.2. Distribution of Benefits Upon Termination of Employment.
If a Participant terminates employment for any reason, except death, prior to
distribution of the Participant's Account, the Participant's Account balance,
determined as of the first day of the first month
15
<PAGE>
following the date of such termination, shall be distributed at the time and in
the manner set forth in this Section 5.2.
5.2.1. Benefits Upon Retirement. If a Participant terminates
employment with all Affiliates on or after Early Retirement Date or
Normal Retirement Date, the Participant shall receive the balance in
his Account in monthly installments over a period of fifteen (15)
years. The monthly benefit amount shall be a level amount for each
twelve-month period calculated using the balance in the Account at the
beginning of the twelve-month period and dividing it by the total
periods remaining in the entire payment period. The benefit payment
shall be adjusted each subsequent twelve-month period to reflect the
Account as of that time. The Participant's Account shall be credited
during the payment period with interest at the Crediting Rate.
Payments pursuant to this Section 5.2.1 shall commence within
an administratively practicable period of time following the date on
which the Participant terminates employment.
5.2.2. Benefits Upon Resignation or Discharge. If a
Participant terminates employment with all Affiliates before Early
Retirement Date or Normal Retirement Date for reasons other than death,
the Participant shall receive the balance in his Account in the form of
monthly installments over a five-year period. The monthly benefit
amount shall be a level amount for each twelve-month period calculated
using the balance in the Account at the beginning of the twelve-month
period and dividing it by the total periods remaining in the entire
payment period. The benefit payment shall be adjusted each subsequent
twelve-month period to reflect the Account as of that time. The rate at
which the Account has been credited with interest shall be reduced
retroactively to 90% of
16
<PAGE>
the Crediting Rate. The Account shall continue to be credited with
interest at this reduced rate during the payment period.
Payments pursuant to this Section 5.2.2 shall commence within
an administratively practicable period of time following the date on
which the Participant terminates employment.
Section 5.3. Death Benefits.
5.3.1. Death After Benefit Commencement. In the event a
Participant dies after benefits have commenced pursuant to Section
5.2.1 or 5.2.2, the Participant's remaining benefits, if any, shall be
paid to the Participant's Beneficiary in the same manner such benefits
would have been paid to the Participant had the Participant survived.
5.3.2. Death Prior to Benefit Commencement. In the event a
Participant dies prior to the date on which benefits commence pursuant
to Sections 5.2.1 or 5.2.2, the Participant's Account balance shall be
paid to the Participant's Beneficiary in a lump sum within an
administratively practicable time following the Participant's death.
Notwithstanding anything in the Plan to the contrary, the provisions of
this Section 5.3.2 shall apply to the Participant's entire Account
balance as of the date of his or her death, including any portion of
the Participant's Account which may be attributable to Permissible
Deferral elections first effective for Plan Years prior to 1994.
5.3.3. Marital Deduction. If any benefits are payable under
the Plan to the surviving spouse of deceased Participant, the estate of
the Participant's spouse shall be entitled to all remaining benefits,
if any, at his or her death, unless specifically directed to the
contrary by an effective beneficiary designation.
5.3.4. Designation by Participant. Each Participant has the
right to designate primary and contingent Beneficiaries for death
benefits payable under the Plan. Such Beneficiaries may be individuals
or trusts for the benefit of
17
<PAGE>
individuals. A Beneficiary designation by a Participant shall be in
writing on a form acceptable to the Committee and shall only be
effective upon delivery to the Company. A Beneficiary designation may
be revoked by a Participant at any time by delivering to the Company
either written notice of revocation or a new Beneficiary designation
form. The Beneficiary designation form last delivered to the Company
prior to the death of a Participant shall control.
5.3.5. Failure to Designate Beneficiary. In the event there is
no Beneficiary designation on file with the Company, or all
Beneficiaries designated by a Participant have predeceased the
Participant, the benefits payable by reason of the death of the
Participant shall be paid to the Participant's spouse, if living; if
the Participant does not leave a surviving spouse, to the Participant's
issue by right of representation; or, if there are no such issue then
living, to the Participant's estate. In the event there are benefits
remaining unpaid at the death of a sole Beneficiary and no successor
Beneficiary has been designated, the remaining balance of such benefit
shall be paid to the deceased Beneficiary's estate. If there are
benefits remaining unpaid at the death of a Beneficiary who is one of
multiple concurrent Beneficiaries, such remaining benefits shall be
paid proportionally to the surviving Beneficiaries.
Section 5.4. Minimum Amount and Frequency of Payments. The Committee
may adjust the length of the distribution period under this Article 5 in order
to assure that each monthly installment in not less than $1,000. The Committee
may also, if it so elects, distribute benefits in installments on a basis which
is more or less frequently than monthly.
Section 5.5. Acceleration of Distributions. The Committee may, in its
discretion, accelerate the distribution of, or alter the method of payment of,
benefits payable to a Participant under the Plan. If the Internal Revenue
Service determines that a Participant or Beneficiary has received an economic
benefit or is in constructive receipt of a benefit under the Plan and has made a
final assessment of an income tax deficiency with respect to such
18
<PAGE>
benefit or if a final judicial determination has been entered that an income tax
deficiency exists, the Committee shall distribute to such Participant an amount
equal to the taxable income recognized.
Section 5.6. Withdrawals.
5.6.1. Hardship Withdrawal. Upon the application of any
Participant, the Committee, in accordance with its uniform,
nondiscriminatory policy, may permit such Participant to terminate
future deferrals or to withdraw some or all of his or her Account. A
Participant must give a written petition of the termination of his or
her deferral election at least thirty (30) days (or such shorter period
of time as permitted by the Committee in its discretion) prior to the
next deferral. A Participant must give a written petition of the intent
to withdraw from his or her Account at least sixty (60) days (or such
shorter time as permitted by the Committee in its discretion) prior to
the date of withdrawal. No termination or withdrawal shall be made
under the provisions of this Section except for the purpose of enabling
a Participant to meet immediate needs created by a financial hardship
for which the Participant does not have other reasonably available
sources of funds as determined by the Committee in accordance with
uniform rules. The term "financial hardship" shall include the need for
funds to: meet uninsured medical expenses for the Participant or his
dependents, meet a significant uninsured casualty loss for the
Participant or his dependents, and meet other catastrophes of a "sudden
and serious nature."
If a withdrawal is permitted, the amount of the withdrawal shall be
distributed to the Participant in a single sum as soon as is administratively
practicable. If a termination of deferrals or a withdrawal is made under this
Section 5.6, the Participant may not enter into a new deferral election for two
(2) complete Plan Years from the date of the termination or withdrawal.
5.6.2 Premature Distributions. Upon the application of any
Participant, the Committee shall permit such Participant to receive a
distribution of his or her entire Account prior to the
19
<PAGE>
time otherwise specified in the Plan for reasons other than financial
hardship. A Participant must give a written petition of his or her
intent to receive such a distribution at lease sixty (60) days (or such
shorter time as permitted by the Committee in its discretion) prior to
the date of the distribution. If a Participant elects to receive such a
distribution: (a) a penalty shall be imposed such that the value of the
Participant's Account, determined immediately prior to the
distribution, shall be reduced by 10%; and (b) the Participant may not
enter into a new deferral election for two (2) complete Plan Years
following the date of the distribution.
5.7. Distributions on Plan Termination Notwithstanding anything in this
Article 5 to the contrary, if the Plan is terminated, distributions shall be
made in accordance with Section 8.2.
5.8. Claims Procedure Except as otherwise provided in Section 5.4(c) of
the Trust, the following shall apply with respect tot he claims of Participants
for benefits under the Plan. The Committee shall notify a Participant in writing
within ninety (90) days of the Participant's written application for benefits of
his eligibility or noneligibility for benefits under the Plan. If the Committee
determines that a Participant is not eligible for benefits or full benefits, the
notice shall set forth (a) the specific reasons for such denial, (b) a specific
reference to the provision of the Plan on which the denial is based, (c) a
description of any additional information or material necessary for the claimant
to perfect his claim, and a description of why it is needed, and (d) an
explanation of the Plan's claims review procedure and other appropriate
information as to the steps to be taken if the Participant wishes to have his
claim reviewed. If the Committee determines that there are special circumstances
requiring additional time to make a decision, the Committee shall notify the
Participant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional 90-day
period. If a Participant is determined by the Committee to be not eligible for
benefits, or if the Participant believes that he is entitled to greater or
different benefits, he shall have the opportunity to have his claim reviewed by
the Committee by filing a petition for review with the Committee within sixty
(60) days after receipt by him of the notice issued by the Committee. Said
petition shall state the specific
20
<PAGE>
reasons the Participant believes he is entitled to benefits or greater or
different benefits. Within sixty (60) days after receipt by the Committee of
said petition, the Committee shall afford the Participant (and his counsel, if
any) an opportunity to present his position to the Committee orally or in
writing, and said Participant (or his counsel) shall have the right to review
the pertinent documents, and the Committee shall notify the Participant of its
decision in writing within said sixty (60) day period, stating specifically the
basis of said decision written in a manner calculated to be understood by the
Participant and the specific provisions of the Plan on which the decision is
based. If, because of the need for a hearing, the sixty (60) day period is not
sufficient, the decision may be deferred for up to another sixty (60) day period
at the election of the Committee, but notice of this deferral shall be given to
the Participant.
ARTICLE 6. FUNDING.
------------------
Section 6.1. Source of Benefits. All benefits under the Plan shall be
paid when due by the Company out of its assets or from the Trust.
Section 6.2. No Claim on Specific Assets. No Participant shall be
deemed to have, by virtue of being a Participant in the Plan, any claim on any
specific assets of the Company such that the Participant would be subject to
income taxation on his or her benefits under the Plan prior to distribution and
the rights of Participants and Beneficiaries to benefits to which they are
otherwise entitled under the Plan shall be those of an unsecured general
creditor of the Company.
ARTICLE 7. ADMINISTRATION AND FINANCES.
--------------------------------------
Section 7.1. Administration. The Plan shall be administered by the
Committee. The Company shall bear all administrative costs of the Plan other
than those specifically charged to a Participant or Beneficiary.
Section 7.2. Powers of Committee. In addition to the other powers
granted under the Plan, the Committee shall have all powers necessary to
administer the Plan, including, without limitation, powers:
(a) to interpret the provisions of the Plan;
21
<PAGE>
(b) to establish and revise the method of accounting for the
Plan and to maintain the Accounts; and
(c) to establish rules for the administration of the Plan and
to prescribe any forms required to administer the Plan.
Section 7.3. Actions of the Committee. Except as modified by the Board,
the Committee (including any person or entity to whom the Committee has
delegated duties, responsibilities or authority, to the extent of such
delegation) has total and complete discretionary authority to determine
conclusively for all parties all questions arising in the administration of the
Plan, to interpret and construe the terms of the Plan, and to determine all
questions of eligibility and status of employees, Participants and Beneficiaries
under the Plan and their respective interests. Subject to the claims procedures
of Section 5.9, all determinations, interpretations, rules and decisions of the
Committee (including those made or established by any person or entity to whom
the Committee has delegated duties, responsibilities or authority, if made or
established pursuant to such delegation) are conclusive and binding upon all
persons having or claiming to have any interest or right under the Plan.
Section 7.4. Delegation. The Committee, or any officer designated by
the Committee, shall have the power to delegate specific duties and
responsibilities to officers or other employees of the Company or other
individuals or entities. Any delegation may be rescinded by the Committee at any
time. Each person or entity to whom a duty or responsibility has been delegated
shall be responsible for the exercise of such duty or responsibility and shall
not be responsible for any act or failure to act of any other person or entity.
Section 7.5. Reports and Records. The Committee, and those to whom the
Committee has delegated duties under the Plan, shall keep records of all their
proceedings and actions and shall maintain books of account, records, and other
data as shall be necessary for the proper administration of the Plan and for
compliance with applicable law.
22
<PAGE>
ARTICLE 8. AMENDMENTS AND TERMINATION.
-------------------------------------
Section 8.1. Amendments. The Company, by action of the Compensation
Committee of the Board, or the Chief Executive Officer of the Company, to the
extent authorized by the Compensation Committee of the Board, may amend the
Plan, in whole or in part, at any time and from time to time. Any such amendment
shall be filed with the Plan documents. No amendment, however, may be effective
to eliminate or reduce the benefits of any retired Participant or the
Beneficiary of any deceased Participant then eligible for benefits or the
benefits in any active Participant's Account immediately before the date of such
amendment.
Section 8.2. Termination. The Company expects the Plan to be permanent,
but necessarily must, and hereby does, reserve the right to terminate the Plan
at any time by action of the Board. Upon termination of the Plan, all deferrals,
transfers and Company contributions will cease and no future deferrals,
transfers or Company contributions will be made. Termination of the Plan shall
not operate to eliminate or reduce benefits of any retired Participant or the
Beneficiary of any deceased Participant then eligible for benefits or the
benefits in any active Participant's Account.
If the Plan is terminated, payments from the Accounts of all
Participants and Beneficiaries shall be made as soon as administratively
convenient in the form of monthly payments over a three-year period, credited
with interest at 90% of the Crediting Rate during the payment period; however,
the Committee in its sole discretion may pay benefits in a lump sum.
ARTICLE 9. TRANSFERS. A Participant may transfer to the Plan amounts
--------------------
credited to the Participant under the Medtronic, Inc. Compensation Deferral Plan
for Officers and Key Employees. Any such transfer shall be in accordance with
procedures established by the Committee. Amounts transferred to the Plan
pursuant to this Article 9 shall be credited with interest in accordance with
Section 4.2. Distributions from the Account established pursuant to this Article
9 shall be made at the time and in the manner specified in Sections 5.2 through
5.8.
23
<PAGE>
ARTICLE 10. CHANGE IN CONTROL PROVISIONS.
----------------------------------------
Section 10.1. Application of Article 10. To the extent applicable, the
provisions of this Article 10 relating to an Event of change in control of the
Company shall control, notwithstanding any other provisions of the Plan to the
contrary, and shall supersede any other provisions of the Plan to the extent
inconsistent with the provisions of this Article 10. For purposes of this
Article 10, an "Event" refers to an event of change in control of the Company as
described in Section 3.1(b)(1) through (3) of the Trust.
Section 10.2. Payments to and by the Trust. If the Company determines
that it is probable that an Event may occur within the six-month period
immediately following the date of determination, or if an Event in fact occurs
in those situations where the Company has not otherwise made such a
determination, the Company shall make a contribution to the Trust (if in
existence at the date of determination or the date of the Event, as the case may
be) in accordance with the provisions of the Trust. Solely for purposes of
determining the amount of such contribution (but in no way in limitation of the
Company's liability under the Plan as determined under other provisions of the
Plan), the Company's total liability under the Plan shall be equal to the value
of the current credit balances under all Accounts established under the Plan,
including any interest credited to such Accounts under the terms of the Plan,
which remain unpaid by the Company as of the date of determination or the date
of the Event, as the case may be, whether or not amounts are otherwise currently
payable to Participants or Beneficiaries under the Plan. All such contributions
shall be made as soon as possible after the date of determination or of the
Event, as the case may be, and shall be made in cash or property valued at fair
market value. Further, the Company may, in its discretion, make other
contributions to the Trust from time to time for purposes of providing benefits
hereunder, whether or not an Event has occurred or may occur.
Notwithstanding the foregoing, any contributions to the Trust, as well
as any income or gains thereon, shall be at all times subject to the provisions
of the Trust, including but not
24
<PAGE>
limited to the provisions permitting a return of such contributions and income
or gains thereon to the Company in certain circumstances.
Payments of amounts credited to Accounts under the Plan with respect to
those Participants and their Beneficiaries for whom Trust contributions are made
shall be made first from the Trust in accordance with the terms of the Trust,
but, to the extent not paid by the Trust, shall be paid by the Company.
Section 10.3. Legal Fees and Expenses. The Company shall reimburse any
Participant or his or her Beneficiary for all reasonable legal fees and expenses
incurred by such Participant or Beneficiary after the date of any Event in
seeking to obtain any right or benefit provided by the Plan.
Section 10.4. No Reduction in Crediting Rate. If the Company determines
that it is probable that an Event may occur within the six-month period
immediately following the date of determination, or if an Event in fact occurs
in those situations where the Company has not otherwise made such a
determination, the Company shall not from and after the date of the
determination or the date of the Event, as the case may be, amend the Plan to
cause a reduction in the crediting rate applicable to a Participant's Account
under the Plan.
Section 10.5. Late Payment and Additional Payment Provisions. If, after
the date of an Event, there is a delay in the payment of any amounts credited to
an Account under the Plan beyond the final date for payment under the Plan, the
amounts otherwise payable to any Participant or Beneficiary shall be increased
by an amount equal to the stated interest which shall be credited to such
amounts from the final date for payment of such amounts through the date that
payment of such amounts (plus such credited interest) is actually made to the
Participant or Beneficiary, compounded quarterly on a calendar year basis. The
amount of stated interest to be so credited shall be equal to the lesser of (i)
the prime rate plus five (5) percentage points, or (ii) the prime rate
multiplied by two. For purposes hereof, the prime rate shall be the prime rate
of interest quoted by Norwest Bank Minnesota, N.A., as its prime rate,
determined each calendar quarter as the average of the daily prime rates in
effect throughout such calendar quarter,
25
<PAGE>
averaged for the number of days for which the prime rates are quoted during such
calendar quarter. In the event that stated interest is to be credited for some
period less than a full calendar quarter, however, the stated interest shall be
determined and compounded for the fractional quarter, with the prime rate
determined as the average of the daily prime rates in effect throughout such
fractional calendar quarter averaged for the number of days during such
fractional calendar quarter for which prime rates are quoted.
The increase in amounts otherwise payable under the Plan by the
crediting of such stated interest represents a late payment penalty for the
delay in payment.
For purposes hereof, the final date for payment under the Plan shall be
determined with reference to the otherwise applicable provisions of the Plan,
provided, however, that the final date for commencement of benefit payments
pursuant to Sections 5.2 and 5.3 shall be a date which is not later than
forty-five (45) days after the earliest to occur of the Participant's
retirement, resignation, discharge or death. In the event that payment of
benefits has commenced to a Participant or Beneficiary prior to the date of an
Event, then the final date for payment shall be determined with reference to the
payment provision which was in effect prior to the date of the Event. No
adjustment may be made to any payment form which was in effect prior to the date
of an Event with respect to any Account which would have the effect of delaying
payments otherwise to be made under the payment form or otherwise increasing the
period of time over which payments are to be made.
Any payment of benefits by the Company after the final date for payment
of benefits as hereinabove determined shall be applied first against the first
due of such payment of benefits (with application first against any applicable
late payment penalty and next against the benefit amount itself) until fully
paid, and next against the next due of such payments in the same manner, and so
forth, for purposes of calculating the late payment penalties hereunder.
Participants and their Beneficiaries shall be entitled to the payment
of amounts credited to their Accounts plus the late payment penalty referred to
hereinabove first from the Trust and secondarily from the Company, as otherwise
provided in Section 10.2.
26
<PAGE>
ARTICLE 11. MISCELLANEOUS.
-------------------------
Section 11.1. No Guarantee of Employment. Neither the adoption and
maintenance of the Plan nor the execution by the Company of a Permissible
Deferral agreement with any Participant shall be deemed to be a contract of
employment between an Affiliate and any Participant. Nothing contained herein
shall give any Participant the right to be retained in the employ of an
Affiliate or to interfere with the right of an Affiliate to discharge any
Participant at any time, nor shall it give an Affiliate the right to require any
Participant to remain in its employ or to interfere with the Participant's right
to terminate his employment at any time.
Section 11.2. Release. Any payment of benefits to or for the benefit of
a Participant or a Participant's Beneficiaries that is made in good faith by the
Company in accordance with the Company's interpretation of its obligations
hereunder, shall be in full satisfaction of all claims against the Company for
benefits under this Plan to the extent of such payment.
Section 11.3. Notices. Any notice permitted or required under the Plan
shall be in writing and shall be hand delivered or sent, postage prepaid, by
first class mail, or by certified or registered mail with return receipt
requested, to the principal office of the Company, if to the Company, or to the
address last shown on the records of the Company, if to a Participant or
Beneficiary. Any such notice shall be effective as of the date of hand delivery
or mailing.
Section 11.4. Nonalienation. No benefit payable at any time under this
Plan shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, levy, attachment, or encumbrance of any kind by any Participant or
Beneficiary.
Section 11.5. Tax Liability. The Company may withhold or direct the
trustee of the Trust to withhold from any payment of benefits such amounts as
the Company determines are reasonably necessary to pay any taxes (and interest
thereon) required to be withheld or for which the trustee of the Trust may
become liable under applicable law. The Company may also forward or direct the
trustee of the Trust to forward to the appropriate taxing authority any amounts
required to be paid by the Company or the Trust under the preceding sentence.
27
<PAGE>
Section 11.6. Captions. Article and section headings and captions are
provided for purposes of reference and convenience only and shall not be relied
upon in any way to construe, define, modify, limit, or extend the scope of any
provision of the Plan.
Section 11.7. Applicable Law. The Plan and all rights hereunder shall
be governed by and construed according to the laws of the State of Minnesota,
except to the extent such laws are preempted by the laws of the United States of
America.
28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>STOCK OPTION REPLACEMENT PROGRAM
<TEXT>
EXHIBIT 10.9
STOCK OPTION REPLACEMENT PROGRAM
In keeping with the company's philosophy of encouraging stock ownership by
officers and employees, the company offers several programs which allow officers
and key employees to elect to receive stock options in lieu of some or all of
the compensation earned as base salary, sales commissions or under certain
incentive plans. By foregoing such compensation for stock options, the variable
"at risk" component of each officer's or employee's compensation package is
increased, motivating them to perform to enhance shareholder value over the long
term. Under the program, the amount of the stock option grants are determined by
the Compensation Committee of the Board of Directors and to date have primarily
been on the basis of $4 in fair market value of stock options for each $1 of
compensation foregone.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN
<TEXT>
EXHIBIT 10.10
MEDTRONIC, INC.
1998 OUTSIDE DIRECTOR STOCK COMPENSATION PLAN
(AS AMENDED THROUGH OCTOBER 28, 1999)
1. PURPOSE. The purpose of this Plan is to facilitate recruiting and
retaining non-employee directors of outstanding ability.
2. DEFINITIONS. The capitalized terms used in this Plan have the
meanings set forth below.
(a) "Account" means a bookkeeping account maintained for a Participant
to which Deferred Stock Units are credited pursuant to Section 6.
(b) "Affiliate" means any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in Sections
424(e) and (f) of the Code, or any successor provision, and any joint venture in
which the Company or any such "parent corporation" or "subsidiary corporation"
owns an equity interest.
(c) "Agreement" means a written contract entered into between the
Company or an Affiliate and a Participant containing the terms and conditions of
an Option granted hereunder (not inconsistent with this Plan).
(d) "Annual Option" means an Option granted pursuant to Section 5(c) of
this Plan.
(e) "Annual Retainer" of a Participant means the fixed annual fee for
such Participant in effect on the first day of the year for which such Annual
Retainer is payable for services to be rendered as a Non-Employee Director of
the Company, including any committee chair fee.
(f) "Award" means an Option granted pursuant to Section 5 of this Plan
or a credit of Deferred Stock Units pursuant to Section 6 of this Plan.
(g) "Board" means the Board of Directors of the Company.
(h) "Change in Control" means:
(i) acquisition by any individual, entity or group (within the
meaning of Section 13(d) (3) or 14(d) (2) of the Exchange Act) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 30% or more of either (A) the then outstanding Shares of Stock (the
"Outstanding Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a
1
<PAGE>
Change of Control: (A) any acquisition directly from the Company, (B) any
acquisition by the Company or any Subsidiary, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any Subsidiary or (D) any acquisition by any corporation with respect to
which, following such acquisition, more than 55% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
acquisition in substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be; or
(ii) individuals who, as of the effective date of this Plan
provided in Section 7(a) of this Plan, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents; or
(iii) approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of Outstanding
Company Voting Securities, in each case, with respect to which all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger,
consolidation or exchange do not, following such reorganization, merger,
consolidation or exchange, beneficially own, directly or indirectly, more than
55% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger, consolidation or exchange in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger, consolidation or exchange of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be; or
(iv) approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation with respect to which, following such sale or other
disposition, more than 55% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power
2
<PAGE>
of the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be.
Notwithstanding the foregoing provisions of this definition, a Change
of Control shall not be deemed to occur with respect to a Participant if the
acquisition of the 30% or greater interest referred to in subparagraph (i) of
this definition is by a group, acting in concert, that includes the Participant
or if at least 40% of the then outstanding common stock or combined voting power
of the then outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring all or
substantially all of the assets of the Company shall be beneficially owned,
directly or indirectly, immediately after a reorganization, merger,
consolidation, statutory share exchange or disposition of assets referred to in
subparagraph (iii) or (iv) of this definition by a group, acting in concert,
that includes that Participant.
(i) "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor statute.
(j) "Committee" means any committee of the Board designated by the
Board to administer this Plan under Section 3 hereof, of which shall be composed
of not less than two members, each of whom shall be a "non-employee director" as
defined in Exchange Act Rule 16b-3.
(k) "Company" means Medtronic, Inc., a Minnesota corporation, or any
successor to all or substantially all of its businesses by merger,
consolidation, purchase of assets or otherwise.
(l) "Deferred Stock Unit" means the right to receive one Share pursuant
to Section 6 of this Plan.
(m) "Disability" means the disability of a Participant such that the
Participant would, if an employee, be considered disabled under any retirement
plan of the Company which is qualified under Section 401 of the Code.
(n) "Discretionary Option" means an Option granted pursuant to Section
5(f).
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended; "Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act as in effect with
respect to the Company or any successor regulation.
3
<PAGE>
(p) "Fair Market Value" as of any date means, unless otherwise
expressly provided in this Plan:
(i) the closing sale price of a Share (A) on the composite
tape for New York Stock Exchange ("NYSE") listed shares, or (B) if the Shares
are not quoted on the NYSE composite tape, on the principal United States
securities exchange registered under the Exchange Act on which the Shares are
listed, or (C) if the Shares are not listed on any such exchange, on the
National Association of Securities Dealers, Inc. Automated Quotation System
National Market System, in any case on the date immediately preceding that date,
or, if no sale of Shares shall have occurred on that date, on the next preceding
day on which a sale of Shares occurred, or
(ii) if clause (i) is not applicable, what the Committee
determines in good faith to be 100% of the fair market value of a Share on that
date. However, if the applicable securities exchange or system has closed for
the day at the time the event occurs that triggers a determination of Fair
Market Value, all references in this paragraph to the "date immediately
preceding that date" shall be deemed to be references to "that date." The
determination of Fair Market Value shall be subject to adjustment as provided in
Section 7(e) hereof. For purposes of this definition, each Option granted and
each Deferred Stock Unit credited pursuant to this Plan shall be deemed
conclusively to have been granted or credited, as applicable, prior to the close
of the applicable securities exchange or system on the date of grant or credit,
as applicable.
(q) "Fundamental Change" means a dissolution or liquidation of the
Company, a sale of substantially all of the assets of the Company, a merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, or a statutory share exchange
involving capital stock of the Company.
(r) "Initial Option" means an Option granted pursuant to Section 5(b).
(s) "Initial Plan Year" means the period from March 5, 1998 through
August 31, 1998.
(t) "Meeting" means a regular or special meeting of the Board or of a
committee of the Board on which a particular Participant serves that is actually
held.
(u) "Non-Employee Director" means a member of the Board who is not an
employee of the Company or any Affiliate.
(v) "Option" means a right to purchase Stock.
(w) "Participant" means any Non-employee Director to whom an Award is
made.
(x) "Plan" means this 1998 Outside Director Stock Compensation Plan, as
amended and in effect from time to time.
4
<PAGE>
(y) "Plan Year" means the Initial Plan Year, or the period from
September 1 of 1998 or any subsequent year, through the following August 31.
(z) "Pro-Ration Factor" means: (A) in the case of a Participant who is
a Non-Employee Director for the entire Plan Year in question and attends at
least 75 percent of the Meetings that occur during such Plan Year (such
Meetings, the "Plan Year Meetings"), 100 percent; (B) in the case of a
Participant who is a Non-Employee Director for only a portion of a Plan Year and
attends at least 75 percent of the Meetings that occur during that portion of a
Plan Year (such meetings, the "Applicable Meetings"), a percentage determined by
dividing the number of Applicable Meetings by the total number of Plan Year
Meetings for that Plan Year; and (C) in the case of a Non-Employee Director who
fails to satisfy the Meeting attendance requirement of clause (A) or (B), as
applicable, 75 percent of the percentage specified in clause (A) or (B), as
applicable.
(aa) "Replacement Factor" is defined in Section 5(d)(ii).
(bb) "Replacement Option" means an Option granted pursuant to Section
5(d) of this Plan.
(cc) "Retirement Option" means an Option granted pursuant to Section
5(e) of this Plan.
(dd) "Share" means a share of Stock.
(ee) "Stock" means the common stock, $.10 par value per share (as such
par value may be adjusted from time to time), of the Company.
(ff) "Subsidiary" means a "subsidiary corporation," as that term is
defined in Section 424(f) of the Code, or any successor provision.
(gg) "Successor" with respect to a Participant means the legal
representative of an incompetent Participant and, if the Participant is
deceased, the legal representative of the estate of the Participant or the
person or persons who may, by bequest or inheritance, or pursuant to a transfer
permitted under Section 5(i) of this Plan, acquire the right to exercise an
Option or receive Shares issuable in satisfaction of Deferred Stock Units in the
event of the Participant's death.
(hh) "Term" means the period during which an Option may be exercised.
Except when otherwise indicated by the context, reference to the
masculine gender shall include, when used, the feminine gender and any term used
in the singular shall also include the plural.
3. ADMINISTRATION.
(a) AUTHORITY OF COMMITTEE. The Committee or its delegee shall
administer this Plan. The Committee shall have the authority to interpret this
Plan and any Award or Agreement made under this Plan, to establish, amend, waive
and rescind any rules and
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<PAGE>
regulations relating to the administration of this Plan (including without
limitation the manner in which Participants shall make elections provided for
herein), to determine the terms and provisions of any Agreements entered into
hereunder (not inconsistent with this Plan), and to make all other
determinations necessary or advisable for the administration of this Plan. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent it
shall deem desirable. The determinations of the Committee in the administration
of this Plan, as described herein, shall be final, binding and conclusive.
(b) INDEMNIFICATION. To the full extent permitted by law, each member
and former member of the Committee and each person to whom the Committee
delegates or has delegated authority under this Plan shall be entitled to
indemnification by the Company against and from any loss, liability, judgment,
damage, cost and reasonable expense incurred by such member, former member or
other person by reason of any action taken, failure to act or determination made
in good faith under or with respect to this Plan.
4. IN GENERAL.
(a) SHARES AVAILABLE. The number of Shares available for distribution
under this Plan is 3,000,000 (subject to adjustment under Section 7(e) hereof).
Any Shares subject to the terms and conditions of an Award under this Plan which
are not used because the terms and conditions of the Award are not met may again
be used for an Award under this Plan. Any unexercised or undistributed portion
of any terminated, expired, exchanged, or forfeited Award or any Award settled
in cash in lieu of Shares shall be available for further Awards.
(b) NO FRACTIONAL SHARES. No fractional Shares may be issued under this
Plan; fractional Shares will be rounded to the nearest whole Share.
(c) RIGHTS AS SHAREHOLDER. A Participant shall have no rights as a
shareholder with respect to any securities covered by an Award until the date
the Participant becomes the holder of record.
5. OPTIONS.
(a) AGREEMENTS. Each Option granted under this Plan shall be evidenced
by an Agreement setting forth the terms and conditions thereof.
(b) INITIAL OPTION GRANTS. Each Non-Employee Director first elected or
appointed to the Board on or after January 15, 1998 shall automatically be
granted, on the later of (i) the date such director first becomes a director and
(ii) March 5, 1998, an Option (an "Initial Option") to purchase that number of
Shares determined by dividing (i) two times the amount of the Annual Retainer as
in effect immediately following such election or appointment by (ii) the Fair
Market Value of a Share on the date of grant. No increase in the Annual Retainer
of the Non-Employee Directors after a person becomes a Non-Employee Director
shall increase the number of Shares subject to the Initial Option
6
<PAGE>
granted to such Non-Employee Director. An employee of the Company or an
Affiliate who terminates such employment and thereafter becomes a Non-Employee
Director is not entitled to receive an Initial Option but will be entitled to
receive Annual Options and Replacement Options. A Non-Employee Director is not
entitled to receive more than one Initial Option during his or her lifetime.
(c) ANNUAL OPTION GRANTS. On the first day of each Plan Year other than
the Initial Plan Year, each Non-employee Director shall automatically be granted
an Option (the "Annual Option") to purchase that number of Shares equal to (i)
the amount of the Annual Retainer in effect as of such day, divided by (ii) the
Fair Market Value of a Share on the date of the grant. If there is an increase
in the Annual Retainer after the Annual Option is granted in a given year, each
Non-Employee Director shall automatically be granted, as of the date such
increase is approved, a supplemental Annual Option to purchase that number of
Shares equal to (i) the amount of the increase in such Annual Retainer divided
by (ii) the Fair Market Value of a Share on the date of the grant.
(d) REPLACEMENT OPTION GRANT. (i) Each Non-Employee Director shall be
provided with the opportunity to elect, in advance of the first day of each Plan
Year (or upon becoming a Non-Employee Director, if later), to receive the Annual
Retainer for such Plan Year in the form of a grant of an Option (a "Replacement
Option") under this Section 5(d) rather than in cash. Each Non-Employee Director
who makes such an election who remains a member of the Board on the last day of
the relevant Plan Year shall automatically be granted on such day an Option (the
"Replacement Option") to purchase that number of Shares equal to (A) the
Replacement Factor (as defined below) times the Eligible Retainer Amount (as
defined below) for the Participant for the Plan Year times the Pro-Ration
Factor, divided by (B) the Fair Market Value of a Share on the date of grant. A
Non-Employee Director who elects to receive a Replacement Option for a Plan Year
but retires from the Board prior to the last day of such Plan Year shall
automatically be granted on the date of retirement a Replacement Option to
purchase that number of Shares equal to (C) the Replacement Factor times the
Eligible Retainer Amount for the Participant for the Plan Year times the
Pro-Ration Factor divided by (D) the Fair Market Value of the Shares on the date
of grant.
(ii) The "Replacement Factor" means four, or such other number
as the Board may designate before the beginning of any Plan Year.
(iii) The "Eligible Retainer Amount" means the amount of the
Annual Retainer for the Participant as in effect as of the beginning of the Plan
Year, less, in the case of the Initial Plan Year only, any portion thereof
earned by the Participant before March 5, 1998.
(e) RETIREMENT OPTIONS. Each Participant who has elected, in connection
with the termination of the Medtronic, Inc. Directors' Retirement Plan (the
"Retirement Plan"), to receive Options pursuant to this Section 5(e) shall be
granted as of March 5, 1998, an Option (a "Retirement Option") to purchase that
number of Shares equal to (i) four times
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<PAGE>
the amount of such Participant's accrued benefit under the Retirement Plan as of
March 5, 1998, divided by (ii) the Fair Market Value of a Share on the date of
grant.
(f) DISCRETIONARY OPTIONS. The Board or the Committee may, in its
discretion, at any time or from time to time grant to any Non-Employee Director
additional Options ("Discretionary Options") to purchase such number of Shares,
on such terms and conditions, as it shall determine.
(g) PURCHASE PRICE; TERM AND EXERCISABILITY OF OPTIONS. The purchase
price of each Share subject to an Option shall be the Fair Market Value of a
Share as of the date the Option is granted. Options granted to a Non-Employee
Director under this Section 5 shall vest and be exercisable in full on the date
of grant, except to the extent the Board provides otherwise with respect to
Discretionary Options; provided, however, that in no event shall a Non-Employee
Director initially appointed by the Board be entitled to exercise an Option
unless, and until such time as, such director shall have been elected to the
Board by the shareholders of the Company. Notwithstanding the foregoing, except
as otherwise provided by the Board with respect to Discretionary Options,
vesting of an Option granted to a Non-Employee Director who shall have been
elected by the shareholders of the Company shall accelerate and the Option shall
become immediately exercisable in full upon the occurrence of a Change in
Control or in the event that the Non-Employee Director ceases to serve as a
director of the Company due to death, Disability, resignation or retirement
under the policies of the Company then in effect. Options shall expire on the
ten-year anniversary date of the Option's grant; provided, that Initial Options
and Annual Options (but not Replacement Options or Retirement Options) shall
expire on the five-year anniversary date of the date the Non-Employee Director
ceases to be a director of the Company for any reason, if earlier than the
ten-year anniversary date of the Option's grant; and provided, further, that the
Initial Option granted to a Non-Employee Director initially appointed by the
Board shall expire on the date such director ceases to be a director of the
Company unless such director shall have been elected by the shareholders
subsequent to the grant of the Initial Option to such director.
(h) PAYMENT OF OPTION PRICE. The purchase price of the Shares with
respect to which an Option is exercised shall be payable in full at the time of
exercise; provided, that to the extent permitted by law, Participants may
simultaneously exercise Options and sell the Shares thereby acquired pursuant to
a brokerage or similar relationship and use the proceeds from such sale to pay
the purchase price of such Shares. The purchase price may also be paid in cash,
or through a reduction of the number of Shares delivered to the Participant upon
exercise of the Option or by delivery to the Company of Shares held by such
Participant for at least six months before such exercise (in each case, such
Shares having a Fair Market Value as of the date the Option is exercised equal
to the purchase price of the Shares being purchased pursuant to the Option), or
a combination thereof, in the discretion of the Participant. In no event shall
any Option be exercisable at any time after its Term. When an Option is no
longer exercisable, it shall be deemed to have lapsed or terminated.
8
<PAGE>
(i) TRANSFERABILITY. A Non-Employee Director may transfer an Option
granted pursuant to this Section 5 to any member of such Non-Employee Director's
"immediate family" (as such term is defined in Rule 16a-1(e) promulgated under
the Exchange Act, or any successor rule or regulation) or to one or more trusts
whose beneficiaries are members of such Non-Employee Director's "immediate
family" or partnerships in which such family members are the only partners;
provided, that (i) the transferor receives no consideration for the transfer and
(ii) such transferred Option shall continue to be subject to the same terms and
conditions as were applicable to such Option immediately prior to its transfer.
Unless an Option granted pursuant to this Section 5 shall have expired, in the
event of a Non-Employee Director's death, an Option granted to such Non-Employee
Director pursuant to this Section 5 shall be transferable to the beneficiary, if
any, designated by the Non-Employee Director in writing to the Company prior to
the Non-Employee Director's death and such beneficiary shall succeed to the
rights of the Non-Employee Director to the extent permitted by law. If no such
designation of a beneficiary has been made, the Non-Employee Director's legal
representative shall succeed to such Option, which shall be transferable by will
or pursuant to the laws of descent and distribution.
6. DEFERRED STOCK UNITS.
(a) ANNUAL CREDIT. As of the last day of each Plan Year, there shall be
credited to the Account of each Participant who is a Non-Employee Director on
such day a number of Deferred Stock Units (each representing the right to
receive a Share) equal to (i) one-half of the Annual Retainer in effect as of
such day, times the Pro-Ration Factor, divided by (ii) the average of the Fair
Market Value of a Share on each of the last 20 trading days during such Plan
Year determined in accordance with clause (i) of Section 2(p) or, if clause (i)
of Section 2(p) is inapplicable, the Fair Market Value of a Share as of the last
day of such Plan Year determined in accordance with clause (ii) of Section 2(p).
There shall be credited to the Account of any Non-Employee Director who retires
from the Board prior to the last day of the Plan Year, as of the retirement
date, a number of Deferred Stock Units equal to (i) one-half of the Annual
Retainer in effect as of such date, times the Pro-Ration Factor, divided by (ii)
the average of the Fair Market Value of a Share on each of the last 20 trading
days during such Plan Year determined in accordance with Section 2(p).
(b) RETIREMENT PLAN CREDIT. The Account of each Participant who has
elected, in connection with the termination of the Retirement Plan, to be
credited with Deferred Stock Units pursuant to this Section 6(b) shall be
credited, as of March 5, 1998, with a number of Deferred Stock Units (each
representing the right to receive a Share) equal to (i) the amount of such
Participant's accrued benefit under the Retirement Plan as of March 5, 1998,
divided by (ii) the average of the Fair Market Value of a Share on each of the
last 20 trading days ending with March 5, 1998 determined in accordance with
clause (i) of Section 2(p) or, if clause (i) of Section 2(p) is inapplicable,
the Fair Market Value of a Share as of the last day of such Plan Year determined
in accordance with clause (ii) of Section 2(p).
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<PAGE>
(c) DISCRETIONARY CREDITS. The Board or the Committee may, in its
discretion, at any time and from time to time, cause additional Deferred Stock
Units (each representing the right to receive a Share) to be credited to the
account of any Non-Employee Director.
(d) CREDITS OF DIVIDEND EQUIVALENTS; MAINTENANCE OF ACCOUNTS. The
Company shall maintain an Account for each Participant to which the credits
provided for in Sections 6(a), (b) and (c) above shall be made. Each
Participant's Account shall be credited from time to time with additional
Deferred Stock Units to reflect deemed reinvestment of any amounts that would
have been paid as cash dividends with respect to the Deferred Stock Units held
in such Account if they were Shares. Subject to the provisions of Section 6(e)
regarding delivery of Shares, Accounts may be credited with fractional Deferred
Stock Units pursuant to this Section 6(d) and Sections 6(a), (b) and (c).
(e) DELIVERY OF SHARES FROM ACCOUNTS.
(i) Each Participant shall be provided the opportunity to
elect, in accordance with procedures established by the Committee, whether to
receive the balance in his or her account in a single lump sum or in five annual
installments. Once made, such an election may be changed, but no such changed
election shall take effect until six months after the date the election is made,
and in any event such changed election shall not take effect unless it is (A)
made at least six months before deliveries pursuant to Section 6(e)(ii) begin
and (B) approved by the Board or a committee of the Board if the Committee
determines that such approval is necessary or appropriate in light of Exchange
Act Rule 16b-3.
(ii) The balance in a Participant's Account shall be delivered
to the Participant or the Participant's Successor in the form of Shares as soon
as practicable after, or beginning as soon as practicable after, the date on
which the Participant ceases for any reason to be a member of the Board (the
"Termination Date"). If a Participant has elected a lump sum delivery, or if a
Participant dies while a member of the Board, the Participant or the
Participant's Successor, as applicable, shall receive a number of Shares equal
to the total number of Deferred Stock Units in the Participant's Account as of
the Termination Date in full satisfaction of all of the Participant's interest
in the Account; provided, that any fractional Deferred Stock Units shall be
rounded to the nearest higher whole number of Shares. If a Participant has
elected installment delivery and ceases to be a member of the Board for any
reason other than the death of the Participant, then the Participant shall
receive the balance in such Participant's Account in the form of five annual
deliveries of Shares (and if a Participant dies after ceasing to be a Board
member, any remaining annual deliveries shall be made to the Participant's
Successor). The precise number of shares delivered in each installment shall be
determined in such a manner as to cause each such delivery to represent
approximately one-fifth of the Deferred Stock Units held in such Account as of
the Termination Date together with any dividend equivalents credited thereon.
Notwithstanding the foregoing, no such installment shall be delivered unless and
until the Board or the Committee shall have
10
<PAGE>
approved the delivery (unless such approval is not necessary under Exchange Act
Rule 16b-3).
(iii) Notwithstanding the foregoing, the balance in all
Participants' Accounts shall be delivered to the Participants in a single lump
sum delivery of Shares upon the occurrence of a Change of Control.
7. GENERAL PROVISIONS.
(a) EFFECTIVE DATE OF THIS PLAN. This Plan shall become effective as of
March 5, 1998.
(b) DURATION OF THIS PLAN. This Plan shall remain in effect until it is
terminated pursuant to Section 7(d) hereof.
(c) NO RIGHT TO BOARD MEMBERSHIP. Nothing in this Plan or in any
Agreement shall confer upon any Participant the right to continue as a member of
the Board.
(d) AMENDMENT, MODIFICATION AND TERMINATION OF THIS PLAN. Except as
provided in this Section 7(d), the Board may at any time amend, modify,
terminate or suspend this Plan or any or all Agreements under this Plan to the
extent permitted by law. No termination, suspension or modification of this Plan
may materially and adversely affect any right acquired by any Participant (or a
Participant's legal representative) or any Successor under an Award granted
before the date of termination, suspension or modification, unless otherwise
agreed by the Participant in the Agreement or otherwise or required as a matter
of law. It is conclusively presumed that any adjustment for changes in
capitalization provided for in Section 7(e) hereof does not adversely affect any
right of a Participant under an Award.
(e) ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate adjustments
in the aggregate number and type of Shares available for Awards under this Plan,
in the number and type of Shares subject to Awards then outstanding and in the
Option exercise price as to any outstanding Options and in the number of Defined
Stock Units in the Accounts, may be made by the Committee in its sole discretion
to give effect to adjustments made in the number or type of Shares through a
Fundamental Change, recapitalization, reclassification, stock dividend, stock
split, stock combination, or other relevant change, provided that fractional
Shares shall be rounded to the nearest whole Share.
(f) FUNDAMENTAL CHANGE. In the event of a proposed Fundamental Change:
(a) involving a merger, consolidation or statutory share exchange, unless
appropriate provision shall be made (which the Board may, but shall not be
obligated to, make) for the protection of the outstanding Options by the
substitution of appropriate voting common stock of the corporation surviving any
such merger or consolidation or, if appropriate, the parent corporation of the
Company or such surviving corporation, to be issuable upon the exercise of
Options, or (b) involving the dissolution or liquidation of the Company, the
Board may, but shall not be obligated to, declare, at least twenty days prior to
the
11
<PAGE>
occurrence of the Fundamental Change, and provide written notice to each holder
of an Option of the declaration, that each outstanding Option, whether or not
then exercisable, shall be canceled at the time of, or immediately prior to the
occurrence of, the Fundamental Change in exchange for payment to each holder of
an Option, within 20 days after the Fundamental Change, of cash for each Share
covered by the canceled Option equal to the amount, if any, by which the Fair
Market Value (as defined in this Section 7(f)) per Share exceeds the exercise
price per Share covered by such Option. At the time of the declaration provided
for in the immediately preceding sentence, each Option shall immediately become
exercisable in full and each person holding an Option shall have the right,
during the period preceding the time of cancellation of the Option, to exercise
the Option as to all or any part of the Shares covered thereby. In the event of
a declaration pursuant to this Section 7(f), each outstanding Option that shall
not have been exercised prior to the Fundamental Change shall be canceled at the
time of, or immediately prior to, the Fundamental Change, as provided in the
declaration. Notwithstanding the foregoing, no person holding an Option shall be
entitled to the payment provided for in this Section 7(f) if such Option shall
have previously expired. For purposes of this Section 7(f) only, "Fair Market
Value" per Share means the cash plus the fair market value, as determined in
good faith by the Board, of the non-cash consideration to be received per Share
by the shareholders of the Company upon the occurrence of the Fundamental
Change, notwithstanding anything to the contrary provided in this Plan.
(g) LIMITS OF LIABILITY.
(i) Any liability of the Company to any Participant with
respect to an Award shall be based solely upon contractual obligations created
by this Plan and the Agreement.
(ii) Except as may be required by law, neither the Company nor
any member or former member of the Board or of the Committee, nor any other
person participating (including participation pursuant to a delegation of
authority under Section 3(a) hereof) in any determination of any question under
this Plan, or in the interpretation, administration or application of this Plan,
shall have any liability to any party for any action taken, or not taken, in
good faith under this Plan.
(h) COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS. No certificate for
Shares distributable pursuant to this Plan shall be issued and delivered unless
the issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended and in effect from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Company's Shares may, at the time, be listed.
(i) REMOVAL FOR CAUSE. Notwithstanding any other provision of this
Plan, this Section 7(i) shall apply in the event a Participant is removed from
the Board for cause before a Change of Control. In such event: (i) all of the
Participant's Options shall immediately expire and be forfeited, and (ii) unless
the Board or the Committee
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<PAGE>
specifically determines otherwise in connection with or after such removal, the
balance in such Participant's Account shall be delivered to the Participant in a
single lump sum delivery of Shares after the expiration of six months from the
date of such removal. In addition, if the Participant has received or been
entitled to delivery of Shares pursuant to the exercise of an Option within six
months before such removal, the Board or the Committee, in its sole discretion,
may require the Participant to return or forfeit all or a portion of such Shares
and receive back the exercise price (if any) paid therefor, or may require the
Participant to pay to the Company the economic value of such Shares less such
exercise price, determined as of the date of the exercise of Options in the
event of any of the following occurrences (whether before or after such
removal): competition with the Company or any Affiliate, unauthorized disclosure
of material proprietary information of the Company or any Affiliate, a violation
of applicable business ethics policies or business policies of the Company or
any Affiliate, or any other action or event that the Board may determine
warrants such a requirement. The Board's or Committee's right to require such
return or forfeiture must be exercised within 90 days after the later of the
date of such removal or the discovery of such an occurrence, but in no event
later than 15 months after such removal.
8. GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken pursuant to
this Plan shall be governed by the laws of Minnesota and construed accordingly.
9. SEVERABILITY. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of this Plan, and this Plan shall be construed and enforced
as if the illegal or invalid provision had not been included.
10. EFFECT OF PRIOR PLAN. From and after the Effective Date of this
Plan, no further awards shall be made to Non-Employee Directors under the
Company's 1994 Stock Award Plan (the "Prior Plan"). Thereafter, all grants and
awards made under the Prior Plan prior to such Effective Date shall continue in
accordance with the terms of the Prior Plan.
13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>PORTIONS OF MEDTRONIC'S 2000 ANNUAL REPORT
<TEXT>
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY
Medtronic is the world's leading medical technology company,
providing lifelong solutions for people with chronic disease. Primary products
include those for bradycardia pacing, tachy arrhythmia 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.
Fiscal 2000 marked the 15th consecutive year of revenue growth. Net sales of
$5,014.6 million represent an 18.5% increase over the $4,232.4 million in fiscal
1999 after restatement to reflect the fiscal 2000 merger with Xomed Surgical
Products, Inc. (Xomed). Net sales excluding the effects of foreign currency
translation increased 19.3% compared to increases of 24.0% in fiscal 1999 and
17.6% in fiscal 1998. The growth during fiscal 2000 was led by strong and
balanced results across all businesses, highlighting the successful outcome of
the mergers and acquisitions completed in fiscal years 1999 and 2000.
Fiscal 2000 was a year of significant accomplishments for Medtronic. The Company
successfully integrated the fiscal 1999 mergers and acquisitions and launched
major new products in all businesses. The Company has also substantially
completed all restructuring initiatives announced in fiscal 1999 and has
strengthened its competitive position in the global health care market. In
November of 1999 the Company merged with Xomed, a leading developer,
manufacturer and marketer of products for use by ENT physicians. The merger with
Xomed was accounted for as a pooling of interests.
Net earnings and diluted earnings per share for fiscal 2000 were $1,098.5
million and $0.90, compared to $476.3 million and $0.39 for fiscal 1999 and
$594.6 million and $0.51 in fiscal 1998. In connection with the merger with
Xomed and the settlement of certain litigation and other restructuring
initiatives during fiscal 2000, the Company recorded $38.7 million of pre-tax
non recurring charges. In connection with the substantial completion of all
initiatives related to the restructuring of its vascular, spinal surgery and
cardiac surgery organizations, the Company identified and reversed $24.9 million
of previously recorded restructuring reserves no longer considered necessary.
Excluding the effects of the pre-tax non-recurring charges and credits in fiscal
2000, the $554.1 million charge related to the mergers in fiscal 1999 and the
$205.3 million pre-tax non-recurring charges in fiscal 1998, diluted earnings
per share would have been $0.91, $0.76 and $0.62, respectively, representing an
increase of 19.7% in fiscal 2000 and 22.6% in fiscal 1999.
NET SALES
Sales in the United States in fiscal 2000 increased 19.2% over the prior year,
compared to 30.0% in fiscal 1999. Sales outside the United States increased
19.4% in fiscal 2000 on a constant currency basis compared to 14.5% in fiscal
1999. Fiscal 2000 sales in non-U.S. markets accounted for 34.6% of worldwide net
sales, compared with 35.3% in fiscal 1999 and 38.4% in fiscal 1998. Foreign
exchange rate movements had an unfavorable year-to-year impact on international
net sales of $33.5 million, $11.7 million, and $119.7 million in fiscal years
2000, 1999 and 1998, respectively. These exchange rate movements are caused
primarily by fluctuations in the value of the U.S. dollar versus major European
currencies and the Japanese yen. The impact of foreign currency fluctuations on
net sales is not necessarily indicative of the impact on net earnings due to the
offsetting foreign currency impact on operating costs and expenses and the
Company's hedging activities (see also Market Risk and Note 4 to the
consolidated financial statements for further details on foreign currency
instruments and the Company's risk management strategies with respect thereto).
The Company's business units include Cardiac Rhythm Manage ment; Neurological,
Spinal and ENT; Vascular; and Cardiac Surgery. Net sales by business unit were
as follows (in millions):
--------------------------------------------------
Year ended April 30, 2000 1999 1998
- --------------------------------------------------------------------------------
Cardiac Rhythm Management $2,504.7 $2,121.6 $1,881.4
Neurological, Spinal and ENT 1,252.4 998.0 760.4
Vascular 790.8 718.8 403.0
Cardiac Surgery 466.7 394.0 378.3
- --------------------------------------------------------------------------------
$5,014.6 $4,232.4 $3,423.1
- --------------------------------------------------------------------------------
Net sales of Cardiac Rhythm Management products, which consist primarily of
products for bradycardia pacing, tachyarrhythmia management, external
defibrillation, and ablation, increased 19.0% in fiscal 2000 versus 13.1% in
fiscal 1999, after removing the impact of foreign exchange rate fluctuations.
This growth was led by strong worldwide market share gains in tachyarrhythmia
management, above market growth in bradycardia pacing sales, and solid growth in
external defibrillators. Tachyarrhythmia management revenues, led by sales of
the Gem and Gem II families of implantable cardioverter defibrillators, grew by
38.4% as physicians continued to recognize the superior detection capabilities
of the PR Logic algorithm and the advanced diagnostics included in all Gem
products. Sales of bradycardia products achieved a 9.8% growth during fiscal
2000. Bradycardia sales reflect accelerating growth in both U.S. and non-U.S.
markets and market share gains resulting from the Company offering best-in-class
products with unique feature sets and multiple price points. External
defibrillator sales grew 20.9% over the comparable period last year reflecting
the benefit of a surge in sales of automatic external defibrillators.
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<PAGE>
Net sales of Neurological, Spinal and ENT products, consisting primarily of
implantable neurostimulation devices, drug administration systems, spinal
products, neurosurgery products, functional diagnostics and surgical products
used by ENT physicians, continued to experience significant growth. Exclusive of
the effects of foreign currency translation, net sales grew 26.0% over the
previous year compared to growth of 32.8% in fiscal 1999. Sales of neurosurgery
and spinal product lines increased 28.8% from the prior year, benefiting from
the breadth of the product line, including engineered bone dowels, bone wedges
and spinal cages. Sales of core neurological product lines (consisting of
neurostimulation, drug administration systems, and functional diagnostics)
increased 20.4% from the prior year comparative period. During fiscal 2000 the
Company launched the SynchroMed EL pump and Synergy dual channel stimulation
device in the United States and the Medtronic Kinetra stimulator for treatment
of symptoms of advanced Parkinson's disease outside the United States. The
Medtronic Kinetra is currently awaiting clearance by the Food and Drug Adminis
tration (FDA) in the U.S. ENT product sales increased 33.5% over the prior year,
benefiting from the acquisition of certain ophthalmology product lines and solid
performance across all product offerings. The acquisition of Midas Rex in
October 1998, which was accounted for as a purchase, contributed to the sales
growth in fiscal 1999.
Net sales of Vascular products, consisting of stents, balloon and guiding
catheters and peripheral vascular products, increased 10.6% and 78.3% in fiscal
2000 and fiscal 1999, respectively, after excluding the effects of foreign
currency translation. The stent market continues to be very competitive and the
Company's vascular revenues declined during the first and second quarter of
fiscal 2000 primarily as a result of launches of competitor stents. The Company
received U.S. regulatory clearance of its S670 coronary stent during the third
quarter of the fiscal year, propelling a dramatic growth rate during the fourth
quarter of the fiscal year, when revenues rose nearly 70% over the prior year
comparative period. In May of 2000, the Company announced the launch of the
BeStent 2 in Europe and the worldwide introduction of the S660 for small
diameter vessels. During fiscal 2000 the Company also launched in the United
States the AneuRx endovascular stent-graft system for minimally invasive
treatment of abdominal aortic aneurysms.
Net sales of Cardiac Surgery product lines, consisting of heart valves,
perfusion systems, cannulae, and surgical accessories, increased 19.8% and 4.6%
in fiscal 2000 and fiscal 1999, respectively, after excluding the effects of
foreign currency translation. The March 1999 purchase of AVECOR Cardiovascular,
Inc. (AVECOR), which was accounted for as a purchase, accounted for a
significant portion of the growth during fiscal 2000. The strong performance of
the Hancock II tissue valve and the Octopus 2+ tissue stabilization system, both
released during the second and third quarters of the fiscal year, also
contributed to the growth. Continuous improvements to the Octopus tissue
stabilization system, which facilitates precision suturing on a beating heart
during bypass procedures, has sustained market leadership in the technology that
the Company pioneered to support minimally invasive procedures.
COSTS AND EXPENSES
The following is a summary of major costs and expenses as a percentage of net
sales:
----------------------------------------
Year ended April 30, 2000 1999 1998
- --------------------------------------------------------------------------------
Cost of Products Sold 26.3% 27.0% 26.5%
Research & Development 9.6 10.3 10.9
Selling, General & Administrative 31.7 31.2 30.7
Non-recurring Charges 0.3 12.4 5.6
- --------------------------------------------------------------------------------
Cost of products sold as a percentage of net sales decreased in
fiscal 2000 as compared to fiscal 1999 as a result of $29.0 million of charges
included in fiscal 1999 related primarily to inventory rationalization in the
vascular and cardiac surgery product lines following the acquisitions of
Arterial Vascular Engineering Inc. (AVE) and AVECOR. Without this charge, cost
of products sold as a percentage of net sales in fiscal 1999 would have been
26.3%. Fiscal 1998 cost of sales percentage includes a $12.9 million charge for
obsolescence on certain vascular inventories. Without this charge, cost of
products sold as a percentage of net sales would have been 26.1%. Future gross
margins will continue to be impacted by competitive pricing pressures, new
product introductions, the mix of products both within and among product lines
and geographies, and the effects of foreign currency fluctuations.
The Company remains committed to spending aggressively on research and
development (R&D) to develop technological enhancements and new indications for
existing products, as well as to develop less invasive and new technologies to
address unmet patient needs and to help reduce patient care costs and length of
hospital stay. R&D expense was $479.7 million in fiscal 2000, $434.2 million in
fiscal 1999 and $372.2 million in fiscal 1998. The decline in R&D expense as a
percentage of sales in fiscal 2000 is attributable to efficiencies achieved from
the fiscal 1999 mergers and acquisitions, primarily in the Vascular business.
The increase in selling, general, and administrative expense (SG&A) as a percent
of sales from fiscal 1999 to fiscal 2000 was primarily attributable to higher
sales and marketing expenses associated with increased field sales coverage, new
product launches and litigation expenses, partially offset by foreign currency
gains. The increase from fiscal 1998 to fiscal 1999 was primarily attributable
to increased marketing and distribution spending to support new product launches
and by a decrease in the dollar amount of gains from hedging activities
recognized in fiscal 1999 as compared to fiscal 1998, partially offset by an
increase in gains recognized from the sale of certain available-for-sale equity
securities.
23
<PAGE>
As discussed in Note 3 to the consolidated financial statements, the Company
recorded pre-tax charges totaling $38.7 million, $554.1 million and $205.3
million during fiscal years 2000, 1999 and 1998, respectively. During fiscal
2000, and in connection with the completion of certain restructuring activities,
the Company reversed $24.9 million of previously recorded reserves. The charges
taken in 1999 include $152.0 million of purchased in-process research and
development costs primarily related to the AVE acquisitions of World Medical
Manufacturing Corporation and the coronary catheter lab of C.R. Bard. AVE merged
with the Company in January 1999.
Interest expense for the year was $13.6 million as compared to $29.1 million and
$15.5 million for fiscal years 1999 and 1998. The decrease in fiscal year 2000
is the result of the Company immediately paying off debt of pooled entities.
Interest income for fiscal 2000 was $29.0 million as compared to $51.9 million
and $27.6 million for fiscal 1999 and 1998. Interest income increased in fiscal
1999 as the result of higher average investment balances resulting from the
September 1998 secondary stock offering. The proceeds of the secondary stock
offering were used to pay off debt of pooled entities and to fund purchase
business combinations.
INCOME TAXES
The Company's effective income tax rate was 32.6%, 42.9% and 34.8% for fiscal
years 2000, 1999 and 1998, respectively. Excluding non-recurring charges in
fiscal years 2000, 1999 and 1998, the effective income tax rate would have been
32.4%, 34.1% and 34.5%, respectively. The reduction in the fiscal 2000 effective
income tax rate is the result of proportionally higher profits generated in low
tax jurisdictions and tax planning initiatives.
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY
The Company continued to strengthen its financial position in fiscal 2000. At
April 30, 2000, working capital, the excess of current assets over current
liabilities, totaled $2,021.9 million compared to $1,438.6 million at April 30,
1999. The current ratio at April 30, 2000, was 3.0:1 compared with 2.4:1 at
April 30, 1999. The Company's net cash position, defined as the sum of cash,
cash equivalents, and short-term investments less short-term borrowings and
long-term debt was $227.7 million at April 30, 2000, compared to $119.7 million
at April 30, 1999.
During fiscal 2000, the Company entered into an agreement that expires in 2003,
to sell, at its discretion, specific pools of its Japanese trade receivables. At
April 30, 2000, the Company had sold approximately $64.0 million of its trade
receivables to a financial institution. The discount cost related to the sale
was immaterial and was recorded as interest expense in the accompanying
consolidated financial statements.
CASH FLOW
Cash provided by operating activities was $1,042.0 million in fiscal 2000
compared to $465.2 million in fiscal 1999 and $693.1 million in fiscal 1998.
Fiscal 2000 operating cash flows increased significantly over fiscal 1999 as a
result of earnings growth and a high level of transaction costs related to the
mergers as well as restructuring spending in fiscal 1999. Repurchases of common
stock totaled $497.4 million in fiscal 2000, compared to $377.2 million and
$168.2 million in fiscal 1999 and fiscal 1998, respectively. The increase in
amounts spent on repurchases of common stock under the Company's systematic
share repurchase program is the result of higher share prices and increased
repurchase levels to offset the dilutive effect of employee stock award
programs. The systematic share repurchase program was discontinued in the fourth
quarter of fiscal 2000. Additions to property, plant, and equipment totaled
$342.1 million in fiscal 2000, compared to $234.9 million and $204.7 million in
fiscal 1999 and 1998, respectively. The Company expects future growth in capital
spending to support increased manufacturing capacity and operational
requirements. This spending will be financed primarily by funds from operations.
Dividends paid to shareholders totaled $189.5 million, $131.9 million and $102.9
million for fiscal years 2000, 1999 and 1998, respectively. Consistent with the
Company's financial objectives, the Company expects to continue paying dividends
at a rate of approximately 20% of the previous year's net earnings.
Significant uses of cash during fiscal 2000 included purchases of property,
plant, and equipment, purchases of marketable securities, repurchases of common
stock under the Company's systematic stock repurchase plan, and dividends paid
to shareholders.
DEBT AND CAPITAL
The Company had a systematic stock repurchase program that was discontinued
during the fourth quarter of fiscal 2000. Shares repurchased and average price
per share were as follows: 13.0 million shares at an average price of $38.39 per
share during fiscal 2000, 11.2 million shares at an average price of $33.80 per
share during fiscal 1999 and 7.0 million shares at an average price of $23.95
per share during fiscal 1998. In addition to the repurchase of shares to offset
dilution resulting from the issuance of stock under the employee stock purchase
and award plans, the Company repurchased shares issued in conjunction with the
AVECOR purchase in fiscal 1999.
The Company's capital structure consists of equity and interest-bearing debt.
Interest-bearing debt as a percent of total capital was 6.9% at April 30, 2000
compared to 6.5% at April 30, 1999.
One of the Company's key financial objectives is achieving an annual return on
equity (ROE) of at least 20%. ROE compares net earnings to average shareholders'
equity and is a key measure of management's ability to utilize the shareholders'
investment in the Company effectively. In fiscal 2000 ROE was 26.6% compared to
14.6% in fiscal 1999 and 24.2% in fiscal 1998. Excluding the
24
<PAGE>
effects of the $13.8 million, $554.1 million and $205.3 million pre-tax charges
taken in fiscal 2000, fiscal 1999 and fiscal 1998, ROE would have been 25.5%,
25.8% and 28.8%, respectively. In each of the preceding twelve years, ROE has
exceeded 20%.
MARKET RISK
Due to the global nature of its operations, the Company is subject to the
exposures that arise from foreign exchange rate fluctuations. Such exposures
arise from transactions denominated in foreign currencies, primarily from
translation of results of operations from outside the United States,
intercompany loans, and intercompany purchases of inventory.
The Company's objective in managing its exposure to foreign currency
fluctuations is to minimize earnings and cash flow volatility associated with
foreign exchange rate changes. The Company enters into various contracts,
principally forward contracts that change in value as foreign exchange rates
change, to protect the value of its existing foreign currency assets,
liabilities, commitments, and anticipated foreign currency operating results.
The principal currencies hedged are the Japanese yen and major European
currencies. The gains and losses on these contracts offset changes in the value
of the related exposures. It is the Company's policy to enter into foreign
currency transactions only to the extent true exposures exist. The Company does
not enter into foreign currency transactions for speculative purposes. The
Company's risk management activities for fiscal 2000 were successful in
minimizing the net earnings impact of currency fluctuations despite volatile
market conditions.
The Company had forward exchange contracts outstanding in the notional amounts
of $537.2 and $361.0 million at April 30, 2000 and 1999, respectively. The fair
value of all foreign currency derivative contracts outstanding at April 30, 2000
was $71.5 million, which does not represent the Company's annual exposure. A
sensitivity analysis of changes of the fair value of all derivative foreign
exchange contracts outstanding at April 30, 2000 indicates that, if the U.S.
dollar uniformly weakened by 10% against all currencies, the fair value of these
contracts would decrease by $41.1 million. Conversely, if the U.S. dollar
uniformly strengthened by 10% against all major currencies, the fair value of
these contracts would increase by $44.2 million. Any gains and losses on the
fair value of derivative contracts would be largely offset by losses and gains
on the underlying transactions or anticipated transactions. These offsetting
gains and losses are not reflected in the above analysis.
The Company is also exposed to interest rate changes affecting principally its
investments in interest rate sensitive instruments. An analysis of the impact on
the Company's interest rate sensitive financial instruments of a hypothetical
10% change in short-term interest rates compared to interest rates at April 30,
2000 indicates that it would not have a significant impact on expected fiscal
2001 earnings.
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 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.
25
<PAGE>
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 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.
CAUTIONARY FACTORS THAT MAY AFFECT
FUTURE RESULTS
Certain statements contained in this Annual Report 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, including, among others, those discussed in the previous section
entitled "Government Regulation and Other Matters" and in Item 1 of the
Company's Annual Report on Form 10-K under the heading "Cautionary Factors That
May Affect Future Results." Consequently, no forward-looking statement can be
guaranteed and actual results may vary materially.
The Company undertakes no obligation to update any forward-looking statement,
but investors are advised to consult any further disclosures by the Company on
this subject in its filings with the Securities and Exchange Commission,
especially on Forms 10-K, 10-Q, and 8-K (if any), in which the Company discusses
in more detail various important factors that could cause actual results to
differ from expected or historic results. The Company notes these factors as
permitted by the Private Securities Litigation Reform Act of 1995. It is not
possible to foresee or identify all such factors. As such, investors should not
consider any list of such factors to be an exhaustive statement of all risks,
uncertainties or potentially inaccurate assumptions.
26
<PAGE>
REPORT OF MANAGEMENT
The management of Medtronic, Inc., is responsible for the integrity of the
financial information presented in this Annual Report. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles. Where necessary, they reflect estimates based on
management's judgment.
Management relies upon established accounting procedures and related systems of
internal control for meeting its responsibilities to maintain reliable financial
records. These systems are designed to provide reasonable assurance that assets
are safeguarded and that transactions are properly recorded and executed in
accordance with management's intentions. Internal auditors periodically review
the accounting and control systems, and these systems are revised if and when
weaknesses or deficiencies are found.
The Audit Committee of the Board of Directors, composed of directors from
outside the Company, meets regularly with management, the Company's internal
auditors, and its independent accountants to discuss audit scope and results,
internal control evaluations, and other accounting, reporting, and financial
matters. The independent accountants and internal auditors have access to the
Audit Committee without management's presence.
/s/ Bill George
William W. George
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ Arthur D. Collins, Jr.
Arthur D. Collins, Jr.
PRESIDENT AND CHIEF OPERATING OFFICER
/s/ Robert L. Ryan
Robert L. Ryan
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of Medtronic, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
statements of consolidated earnings, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Medtronic, Inc., and
its subsidiaries at April 30, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
2000, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
May 24, 2000
27
<PAGE>
MEDTRONIC, INC.
STATEMENT OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
---------------------------------------------
Year ended April 30, 2000 1999 1998
=================================================================================================================
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales $ 5,014.6 $ 4,232.4 $ 3,423.1
COSTS AND EXPENSES:
Cost of products sold 1,319.6 1,140.8 906.8
Research and development expense 479.7 434.2 372.2
Selling, general, and administrative expense 1,587.9 1,320.4 1,052.4
Non-recurring charges 13.8 373.1 156.4
Purchased in-process research and development -- 152.0 --
Foundation commitment -- -- 36.0
Interest expense 13.6 29.1 15.5
Interest income (29.0) (51.9) (27.6)
- -----------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,385.6 3,397.7 2,511.7
- -----------------------------------------------------------------------------------------------------------------
Earnings before income taxes 1,629.0 834.7 911.4
Provision for income taxes 530.5 358.4 316.8
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ 1,098.5 $ 476.3 $ 594.6
=================================================================================================================
EARNINGS PER SHARE
Basic $ 0.92 $ 0.40 $ 0.52
- -----------------------------------------------------------------------------------------------------------------
Diluted $ 0.90 $ 0.39 $ 0.51
=================================================================================================================
Weighted average shares outstanding
Basic 1,194.7 1,177.1 1,150.2
- -----------------------------------------------------------------------------------------------------------------
Diluted 1,220.8 1,207.6 1,177.1
=================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
<PAGE>
MEDTRONIC, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
---------------------------
April 30, 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 448.4 $ 228.5
Short-term investments 109.7 153.8
Accounts receivable, less allowance for doubtful accounts of $30.2 and $33.2 1,210.1 1,024.8
Inventories 690.6 575.3
Deferred tax assets 160.5 256.0
Prepaid expenses and other current assets 394.1 206.4
- ---------------------------------------------------------------------------------------------------------------
Total Current Assets 3,013.4 2,444.8
Property, Plant, and Equipment, net 946.5 772.3
Goodwill and Other Intangible Assets, net 1,361.4 1,374.2
Long-Term Investments 210.1 212.7
Other Assets 138.0 204.4
- ---------------------------------------------------------------------------------------------------------------
Total Assets $5,669.4 $5,008.4
===============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 316.3 $ 239.2
Accounts payable 200.0 158.8
Accrued compensation 236.2 183.9
Accrued income taxes -- 49.5
Other accrued expenses 239.0 374.8
- ---------------------------------------------------------------------------------------------------------------
Total Current Liabilities 991.5 1,006.2
Long-Term Debt 14.1 23.4
Deferred Tax Liabilities 15.2 30.8
Other Long-Term Liabilities 157.1 177.2
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities 1,177.9 1,237.6
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Preferred stock--par value $1.00; 2,500,000 shares authorized, -- --
None outstanding
Common Stock--par value $.10; 1.6 billion shares authorized,
1,197,698,035 and 1,191,896,614 shares issued and outstanding 119.8 119.1
Retained earnings 4,543.1 3,773.0
Accumulated other non-owner changes in equity (151.9) (95.1)
- ---------------------------------------------------------------------------------------------------------------
4,511.0 3,797.0
Receivable from Employee Stock Ownership Plan (19.5) (26.2)
- ---------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 4,491.5 3,770.8
Total Liabilities and Shareholders' Equity $5,669.4 $5,008.4
===============================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE>
MEDTRONIC, INC.
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other Non- Receivable Total
Common Retained Owner Changes from Shareholders'
(IN MILLIONS OF DOLLARS) Stock Earnings in Equity ESOP Equity
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance April 30, 1997 $ 115.1 $2,140.9 $ (61.1) $ (27.9) $2,167.0
Net earnings -- 594.6 -- -- 594.6
Other non-owner changes in equity:
Change in unrealized gain on investment,
net of $11.8 tax expense -- -- 21.8 -- 21.8
Translation adjustment -- -- (14.4) -- (14.4)
Minimum pension liability -- -- (1.2) -- (1.2)
--------
Total comprehensive income -- -- -- -- $ 600.8
--------
Dividends paid -- (102.9) -- -- (102.9)
Issuance of common stock of acquired subsidiary 0.2 3.9 -- -- 4.1
Issuance of common stock under employee benefits and
incentive plans 1.6 178.9 -- -- 180.5
Repurchases of common stock (0.8) (167.4) -- -- (168.2)
Income tax benefit from restricted stock and nonstatutory
stock options -- 57.6 -- -- 57.6
Repayments from ESOP -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1998 $ 116.1 $2,705.6 $ (54.9) $ (27.9) $2,738.9
Net earnings -- 476.3 -- -- 476.3
Other non-owner changes in equity:
Change in unrealized loss on investment,
net of $5.9 tax benefit -- -- (10.9) -- (10.9)
Translation adjustment -- -- (26.2) -- (26.2)
Minimum pension liability -- -- (3.1) -- (3.1)
--------
Total comprehensive income -- -- -- -- $ 436.1
--------
Adjustment for poolings of interests -- 19.4 -- -- 19.4
Dividends paid -- (131.9) -- -- (131.9)
Issuance of common stock from secondary offering 2.2 710.4 -- -- 712.6
Issuance of common stock under employee benefits and
incentive plans 0.2 56.0 -- -- 56.2
Issuance of common stock for acquisition of subsidiaries 1.8 251.5 -- -- 253.3
Repurchases of common stock (1.2) (376.0) -- -- (377.2)
Income tax benefit from restricted stock and nonstatutory
stock options -- 61.7 -- -- 61.7
Repayments from ESOP -- -- -- 1.7 1.7
- ------------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1999 $ 119.1 $3,773.0 $ (95.1) $ (26.2) $3,770.8
Net earnings -- 1,098.5 -- -- 1,098.5
Other non-owner changes in equity:
Change in unrealized loss on investment,
net of $8.3 tax benefit -- -- (15.6) -- (15.6)
Translation adjustment -- -- (38.7) -- (38.7)
Minimum pension liability -- -- (2.5) -- (2.5)
--------
Total comprehensive income -- -- -- -- $1,041.7
--------
Adjustment for pooling of interests -- 0.6 -- -- 0.6
Dividends paid -- (189.5) -- -- (189.5)
Issuance of common stock under employee benefits and
incentive plans 2.0 192.0 -- -- 194.0
Repurchases of common stock (1.3) (496.1) -- -- (497.4)
Income tax benefit from restricted stock and nonstatutory
stock options -- 164.6 -- -- 164.6
Repayments from ESOP -- -- -- 6.7 6.7
- ------------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 2000 $ 119.8 $4,543.1 $ (151.9) $ (19.5) $4,491.5
==============================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
<PAGE>
MEDTRONIC, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------
Year ended April 30, 2000 1999 1998
====================================================================================================================
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $1,098.5 $ 476.3 $ 594.6
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 243.3 218.3 166.5
Non-recurring charges, net 8.5 179.6 125.5
Deferred income taxes 71.1 (35.5) 19.0
Changes in operating assets and liabilities:
Accounts receivable (192.7) (184.4) (150.8)
Inventories (119.1) (91.1) (79.4)
Prepaid expenses and other assets (117.5) (127.4) (71.5)
Accounts payable and accrued liabilities 248.4 82.1 46.6
Accrued income taxes (178.8) (56.0) 43.3
Other long-term liabilities (19.7) 3.3 (.7)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,042.0 465.2 693.1
INVESTING ACTIVITIES
Additions to property, plant, and equipment (342.1) (234.9) (204.7)
Acquisitions, net of cash acquired -- (1,017.4) (3.4)
Sales and maturities of marketable securities 268.9 659.0 84.8
Purchases of marketable securities (258.4) (701.6) (86.7)
Other investing activities (45.0) (46.2) (65.4)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (376.6) (1,341.1) (275.4)
FINANCING ACTIVITIES
Increase in short-term borrowings 58.4 113.5 30.9
Payments on long-term debt (8.6) (615.2) (163.7)
Issuance of long-term debt 0.6 571.6 93.6
Proceeds from stock offering of acquired subsidiary -- -- 4.1
Dividends to shareholders (189.5) (131.9) (102.9)
Repurchases of common stock (497.4) (377.2) (168.2)
Issuance of common stock 194.0 1,022.1 180.5
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (442.5) 582.9 (125.7)
Effect of exchange rate changes on cash and cash equivalents (3.0) (1.9) 1.3
Net Change in Cash and Cash Equivalents 219.9 (294.9) 293.3
Cash and cash equivalents at beginning of year 228.5 523.4 230.1
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 448.4 228.5 $ 523.4
====================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 401.8 $ 376.2 $ 265.4
Interest 13.8 29.0 16.0
- --------------------------------------------------------------------------------------------------------------------
Supplemental Noncash Investing and Financing Activities
Issuance of common stock for acquisition of subsidiary,
net of cash acquired $ -- $ 164.3 $ --
====================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
31
<PAGE>
MEDTRONIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Medtronic is the world's leading medical technology
company, providing lifelong solutions for people with chronic disease. The
Company provides innovative products and therapies for the health care needs of
medical professionals and their patients. Headquartered in Minneapolis,
Minnesota, operations are primarily focused on providing therapeutic,
diagnostic, and monitoring systems for the cardiac rhythm management,
cardiovascular, neurological, spinal, and ear, nose and throat (ENT) markets.
The Company generally markets its products through a direct sales force in the
United States and 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.
Principles of Consolidation. The consolidated financial statements include the
accounts of Medtronic, Inc., and all of its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Use of Estimates. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents. The Company considers highly liquid investments with
maturities of three months or less from the date of purchase to be cash
equivalents. These investments are valued at cost, which approximates fair
value.
Investments. Investments in debt and equity securities that have readily
determinable fair values are classified and accounted for as available-for-sale
or held-to-maturity. Held-to-maturity investments consist principally of U.S.
government and corporate debt securities that the Company has the positive
intent and ability to hold until maturity. These securities are recorded at
amortized cost in short- and long-term investments. Available-for-sale
securities consist of equity securities that are recorded at fair value in
short- and long-term investments, with the change in fair value recorded, net of
taxes, as a component of accumulated other non-owner changes in equity. Realized
gains and losses are recorded as a component of selling, general, and
administrative expense, and are calculated based on the specific identification
method. Management determines the appropriate classification of its investments
in debt and equity securities at the time of purchase and reevaluates such
determinations at each balance sheet date.
Revenue Recognition. The Company recognizes revenue from product sales when the
goods are shipped to its customers. For certain products, the Company maintains
consigned inventory at customer locations. For these products, revenue is
recognized at the time the Company is notified that the device has been used by
the customer.
Inventories. Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out basis. Inventory balances were as follows:
------------------------------
April 30, 2000 1999
- --------------------------------------------------------------------------------
Finished goods $374.4 $314.6
Work in process 129.5 105.6
Raw materials 186.7 155.1
- --------------------------------------------------------------------------------
Total $690.6 $575.3
================================================================================
Property, Plant, and Equipment. Property, plant, and equipment is stated at
cost. Additions and improvements that extend the lives of the assets are
capitalized while expenditures for repairs and maintenance are expensed as
incurred. Depreciation is provided using the straight-line method over the
estimated useful lives of the various assets. Property, plant and equipment
balances and corresponding lives were as follows:
-----------------------------------------------
April 30, 2000 1999 Lives
================================================================================
Land and land
improvements $ 57.7 $ 48.2 20 years
Buildings and leasehold
improvements 393.4 372.3 up to 40 years
Equipment 1,044.7 895.0 3-7 years
Construction in progress 181.8 129.0 --
- --------------------------------------------------------------------------------
1,677.6 1,444.5
Less: Accumulated
depreciation (731.1) (672.2)
================================================================================
Property, Plant, and
Equipment, net $ 946.5 $ 772.3
================================================================================
Goodwill, Other Intangible Assets, and Long-Lived Assets. Good will represents
the excess of cost over net assets of businesses acquired, while other
intangible assets consist primarily of purchased technology and patents.
Goodwill and other intangible assets are being amortized using the straight-line
method over their estimated useful lives, ranging from 5 to 35 years. The
Company periodically reviews its goodwill and other long-lived assets for
impairment and assesses whether significant events or changes in business
circumstances indicate that the carrying value of the assets may not be
recoverable. Balances were as follows:
---------------------------
April 30, 2000 1999
================================================================================
Goodwill $ 1,250.3 $ 1,258.9
Less: Accumulated amortization (200.5) (147.9)
- --------------------------------------------------------------------------------
1,049.8 1,111.0
- --------------------------------------------------------------------------------
Other intangible assets 428.7 355.9
Less: Accumulated amortization (117.1) (92.7)
- --------------------------------------------------------------------------------
311.6 263.2
================================================================================
Goodwill and other intangible assets, net $ 1,361.4 $ 1,374.2
================================================================================
Research and Development. Research and development costs are expensed when
incurred.
32
<PAGE>
Stock-Based Compensation. The Company accounts for stock-based compensation
using the intrinsic value method as prescribed under Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations.
Foreign Currency Translation. Essentially all assets and liabilities are
translated to U.S. dollars at year-end exchange rates, while elements of the
income statement are translated at average exchange rates in effect during the
year. Foreign currency transaction gains and losses are included in the
statement of consolidated earnings as selling, general, and administrative
expense. Gains and losses arising from the translation of net assets located
outside the United States are recorded as a component of other non-owner changes
in equity.
Foreign Exchange Contracts. The Company manages its exposure to fluctuations in
foreign currency exchange rates by entering into various contracts that change
in value as foreign exchange rates change. The Company designates and assigns
certain financial instruments as hedges for specific assets, liabilities or
anticipated transactions. When hedged assets or liabilities are sold or
extinguished or the anticipated transactions being hedged are no longer expected
to occur, the Company recognizes the gain or loss on the designated hedging
financial instruments. The Company classifies its derivative financial
instruments as held or issued for purposes other than trading. Gains and losses
from hedges of firm commitments are classified in the income statement
consistent with the accounting treatment of the items being hedged. Unrealized
gains on forward contracts are recorded in the balance sheet as other assets
while unrealized losses on forward contracts are included in accrued
liabilities.
Royalty Income. Income earned from royalty and license agreements is recorded as
a reduction of selling, general, and administrative expense.
Earnings Per Share. Basic earnings per share is computed based
on the weighted average number of common shares outstanding, while diluted
earnings per share is computed based on the weighted average number of common
shares outstanding adjusted by the number of additional shares that would have
been outstanding had the potentially dilutive common shares been issued.
Potentially dilutive shares of common stock include stock options and other
stock-based awards granted under stock-based compensation plans and shares
committed to be purchased under the employee stock purchase plan.
New Accounting Standards. In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted for fiscal years beginning after
June 15, 2000, although earlier application is permitted as of the beginning of
any fiscal quarter. This statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company is in the process of determining what effect
the adoption of SFAS No. 133 will have on the Company's results of operations,
cash flows, or financial position.
2 ACQUISITIONS
Pooling-of-Interests Method. On November 5, 1999, the Company issued
approximately 21.4 million shares of its common stock in exchange for all of the
outstanding capital stock of Xomed Surgical Products, Inc. (Xomed) in a
transaction valued at approximately $850.0, including $25.0 of assumed debt.
Xomed is a leading developer, manufacturer and marketer of surgical products for
use by ear, nose and throat physicians. Xomed offers a broad line of products
that include powered tissue-removal systems, nerve monitoring systems,
disposable fluid-control products, image guided surgery systems, and
bioabsorbable products.
On January 28, 1999, the Company issued approximately 101.2 million shares of
its common stock for all of the outstanding capital stock of Arterial Vascular
Engineering, Inc. (AVE) in a transaction valued at approximately $4,200.0
including $550.0 of assumed debt. AVE designs and manufactures minimally
invasive solutions for the treatment of coronary artery and peripheral vascular
disease. AVE's product offerings include coronary stents, balloon catheters,
guidewires, and guiding catheters.
On January 27, 1999, the Company issued approximately 90.0 million shares of its
common stock for all of the outstanding capital stock of Sofamor Danek Group,
Inc. (Sofamor Danek) in a transaction valued at approximately $3,300.0. Sofamor
Danek is primarily involved in developing, manufacturing, and marketing devices,
instruments, computer-assisted visualization products, and biomaterials used in
the treatment of spinal and cranial disorders.
On September 30, 1998, the Company issued approximately 17.2 million shares of
its common stock for all of the outstanding capital stock of Physio-Control
International Corporation (Physio-Control) in a transaction valued at
approximately $550.0. 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.
33
<PAGE>
The acquisitions of Xomed, AVE, Sofamor Danek, and Physio-Control have been
accounted for as poolings-of-interests, and, accordingly, the Company's
consolidated financial statements for 1999 and 1998 have been restated to
include the results of Xomed, AVE, Sofamor Danek, and Physio-Control. Net sales
and net earnings for the individual entities were as follows:
-------------------------------------------
Year ended April 30, 1999 Net Sales Net Earnings
================================================================================
Medtronic (as previously reported) $4,134.1 $468.4
Xomed 98.3 7.9
- --------------------------------------------------------------------------------
Combined $4,232.4 $476.3
================================================================================
-------------------------------------------
Year ended April 30, 1998 Net Sales Net Earnings
================================================================================
Medtronic (as previously reported) $2,604.8 $457.4
AVE 228.0 60.4
Sofamor Danek 331.6 60.5
Physio-Control 178.6 9.5
Xomed 80.1 6.8
- --------------------------------------------------------------------------------
Combined $3,423.1 $594.6
================================================================================
The combined results for the fiscal year ended April 30, 1999 represent the
previously reported results of Medtronic for the fiscal year ended April 30,
1999 combined with the historical results of Xomed for the twelve months ended
March 31, 1999. Effective May 1, 1999, Xomed's fiscal year end has been changed
from December 31 to April 30 to conform to the Company's fiscal year end.
Accordingly, Xomed's results for the one-month period ended April 30, 1999 have
been excluded from the Company's combined results and have been reported as an
adjustment to May 1, 1999 retained earnings. Xomed's net sales and net earnings
for the one-month period ended April 30, 1999 were $8.3 and $0.6, respectively.
The combined results for the fiscal year ended April 30, 1998 represent the
historical results of Medtronic for the fiscal year ended April 30, 1998
combined with the historical results of Xomed, AVE, Sofamor Danek and
Physio-Control for the twelve months ended March 31, 1998. Effective May 1,
1998, Physio-Control's, Sofamor Danek's and AVE's fiscal year end has been
changed from December 31 for Physio-Control and Sofamor Danek and June 30 for
AVE, to April 30 to conform to the Company's fiscal year end. Accordingly,
Physio-Control's, Sofamor Danek's, and AVE's results for the one-month period
ended April 30, 1998 have been excluded from the Company's combined results and
have been reported as an adjustment to May 1, 1998 retained earnings. AVE's,
Sofamor Danek's, and Physio-Control's net sales and net earnings for the
one-month period ended April 30, 1998 were $174.0 and $19.4, respectively.
Purchase Method. On April 30, 1999, the Company acquired all of the outstanding
capital stock of Micro Motion Sciences (Micro Motion) for $9.8. Micro Motion
develops advanced lead and catheter placement technology.
On March 8, 1999, the Company acquired all of the outstanding capital stock of
AVECOR Cardiovascular Inc. (AVECOR) for approximately $96.1 in Medtronic common
stock and other consideration. AVECOR develops, manufactures, and markets
specialty medical devices for heart/lung bypass surgery and long-term
respiratory support. In March 1999, subsequent to the closing of this
transaction, the Company repurchased in the open market the equivalent number of
shares issued in the AVECOR acquisition.
Prior to the merger with the Company, AVE acquired all of the outstanding
capital stock of World Medical Manufacturing Corporation (World Medical) on
December 14, 1998 in exchange for approximately $70.8 in AVE common stock and
other consideration. World Medical develops, manufactures, and markets an
endovascular stented graft and delivery system for the treatment of abdominal
aortic aneurysms. In addition, on October 1, 1998, AVE acquired the coronary
catheter lab business of C.R. Bard, Inc. ("Bard cath lab") for a purchase price
of approximately $610.7. The Bard cath lab business includes a broad range of
catheter-based technologies including balloon catheters, guidewires, and
coronary stents.
On October 16, 1998, the Company acquired all of the assets and certain
liabilities of Midas Rex, L.P., of Fort Worth, Texas, for approximately $230.0
in cash. Midas Rex is the market leader in 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 acquisitions of Micro Motion, AVECOR, Midas Rex, World Medical and Bard cath
lab were accounted for as purchases. Accordingly, the results of operations of
the acquired entities have been included in the Company's consolidated financial
statements since the respective dates of acquisition. Acquired goodwill,
patents, trademarks, and other intangible assets associated with these
acquisitions are being amortized using the straight-line method over periods
ranging from 3 to 12 years for intangibles and up to 25 years for goodwill.
The purchase price allocation was as follows:
- --------------------------------------------------------------------------------
Net assets acquired $ 53.0
Goodwill 685.2
In-process R&D 150.9
Other intangibles 128.3
- --------------------------------------------------------------------------------
$1,017.4
================================================================================
Pro forma information has not been included as these acquisitions did not have a
material impact on the Company's results of operations.
34
<PAGE>
3 NON-RECURRING CHARGES
Fiscal 2000 Initiatives. In fiscal 2000, the Company recorded transaction
charges in connection with its merger with Xomed, charges related to a
litigation settlement, the conversion of certain direct sales operations in
Latin America to distributor arrangements and the termination of a distribution
relationship. In connection with these activities, the Company will terminate 78
employees, mostly in administrative positions. The Company expects to complete
all identified actions in fiscal 2001. Charges are summarized as follows:
------------------------------------------------------
Fiscal 2000 Utilized in Balance at
Charges Fiscal 2000 April 30, 2000
================================================================================
Transaction-
related costs $14.7 $(14.7) $ --
Facility reductions 0.9 -- 0.9
Severance and
related costs 1.4 -- 1.4
Asset write-downs 6.2 (6.2) --
Litigation 15.5 (15.5) --
- --------------------------------------------------------------------------------
$38.7 $(36.4) $2.3
================================================================================
Fiscal 1999 Initiatives. During fiscal 1999, the Company recorded pre-tax
transaction-related charges in connection with the Physio-Control, Sofamor
Danek, and AVE mergers. The Company also purchased AVECOR during the fourth
quarter of fiscal 1999. In connection with these transactions, management
identified areas where duplicate manufacturing, sales, and administrative
capacity existed and identified opportunities to leverage existing
infrastructure and achieve better economies of scale. During the third and
fourth quarter of the fiscal year, management announced certain initiatives to
restructure its new vascular, cardiac surgery, and spinal surgery organizations
and announced the closure of ten manufacturing facilities and the termination of
2,950 employees, 2,585 of which were in manufacturing positions. The Company
estimated that these actions would result in annual cost savings in excess of
$70.0. The Company has substantially completed these initiatives during fiscal
2000 and has achieved the cost savings originally estimated. As the Company
substantially completed these initiatives in the fourth quarter of fiscal 2000,
it identified and reversed $24.9 of reserves no longer considered necessary.
- --------------------------------------------------------------------------------
Fiscal 1999 charges are summarized as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Fiscal 1999 Utilized in Balance at Utilized in Change in Balance at
Charges Fiscal 1999 April 30, 1999 Fiscal 2000 Estimate April 30, 2000
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Transaction-related costs $149.3 $(136.5) $ 12.8 $(12.8) $ -- $ --
Purchased in-process R&D 152.0 (152.0) -- -- -- --
Facility reductions 10.9 (1.8) 9.1 (9.1) 3.8 3.8
Severance and related costs 68.6 (8.1) 60.5 (28.6) (21.2) 10.7
Asset write-downs 92.1 (92.1) -- 7.3 (7.3) --
Contractual obligations 51.2 (10.5) 40.7 (33.8) (0.2) 6.7
- ------------------------------------------------------------------------------------------------------------------
$524.1 $(401.0) $123.1 $(77.0) $(24.9) $ 21.2
==================================================================================================================
</TABLE>
During fiscal 1999 AVE acquired World Medical for consideration of $70.8 and
immediately expensed $45.8 of the purchase price upon consummation of the
acquisition for purchased in-process technology that had not yet reached
technological feasibility and had no alternative future use. The value assigned
to purchased in-process technology was based on a valuation prepared by an
independent third-party appraisal company and was determined by identifying
research projects in areas for which technological feasibility had not been
established, including the Talent System and two smaller programs. The value was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products and estimating the resulting net
cash flows back to their present value. The discount rate included a factor that
takes into account the uncertainty surrounding the successful development of the
purchased in-process technology. The Talent System is currently sold in Europe
and it is in U.S. clinical trials.
In October of 1998, AVE acquired Bard cath lab for $610.7 and immediately
expensed $95.3 of the purchase price upon consummation of the acquisition for
purchased in-process technology that had not yet reached technological
feasibility and had no alternative use. The value assigned to purchased
in-process technology was based on a valuation prepared by an independent
third-party appraisal company and was determined by identifying research
projects in areas for which technological feasibility had not been established,
including a rapid exchange perfusion catheter, a stent development program and
eight other minor product categories. The value was determined by estimating the
costs to develop the purchased in-process technology into commercially viable
products, estimating the resulting net cash flows back to their present value.
The discount rate included a factor that takes into account the uncertainty
surrounding the successful development of the purchased in-process technology.
In November 1999, the Company
35
<PAGE>
introduced its S670 rapid exchange perfusion coronary stent system in the U.S
and in May 2000, the Company launched the S660 With Discrete Technology coronary
stent system for smaller vessels using technology from the acquisition of Bard
cath lab. In May 2000, the Company launched the BeStent 2 coronary stent
delivery system in Europe, utilizing some of the technology acquired from Bard
cath lab. The BeStent 2 is in U.S. clinical trials awaiting approval from the
Food and Drug Administration (FDA).
In April 1999, the Company acquired certain advanced catheter delivery
technology from Micro Motion and immediately expensed $9.8 for the purchase of
in-process research and development. In addition, during fiscal 1999 Xomed wrote
off approximately $1.1 of the $13.0 purchase price it paid for the acquisition
of Etalissements Boutmy, S.A. for purchased in-process research and development
technology. The Company anticipates that other products developed from the
acquired in-process research and development related to the acquisitions of
World Medical, Bard cath lab and Micro Motion will be released in fiscal 2001 or
2002.
The Company expects that all the acquired in-process research and development
will reach technological feasibility, but there can be no assurance that the
commercial viability of these products will actually be achieved. If commercial
viability were not achieved, the Company would look to other alternatives to
provide these solutions.
Facility reduction and asset write-down charges were estimated as the difference
between the carrying value of the asset and its fair value less cost to sell and
including estimated subleasing proceeds. Asset write-down charges included $29.0
of charges to cost of sales for discontinued product lines in the vascular and
cardiac surgery business. Nine of the ten facilities identified for closure have
been closed and the remaining facility was closed in June 2000. Facility
reductions costs were higher than originally estimated due to an inability to
sub-lease two facilities as originally planned. Estimated asset write-downs were
favorably impacted by higher than planned sales proceeds.
As part of these initiatives, the Company will terminate 2,950 employees, of
which 2,685 had been terminated at April 30, 2000. In addition, the Company
continues to pay severance to terminated employees, particularly in Europe.
During the fourth quarter fiscal 2000 as the restructuring initiatives had been
substantially completed, the Company identified and reversed $21.2 of
severance-related charges no longer deemed necessary, including a one-time
pension curtailment gain of $4.4 (see Note 10). Original estimates were
favorably impacted by foreign exchange rate fluctuations and voluntary
departures.
Fiscal 1999 charges included $41.4 for non-cancelable contractual commitments
and other non-recurring expenses, $8.0 related to payments made by Sofamor Danek
under two devel opment and licensing agreements and $1.8 related to certain
restructuring initiatives of Xomed.
Fiscal 1998 Initiatives. The Company recorded pre-tax charges totaling $205.3 in
fiscal 1998 related to management's initiatives to reduce global infrastructure
by streamlining certain manufacturing and administrative operations within the
United States, Europe, and Japan. These actions, which were substantially
completed by the end of fiscal 1999, included the closure of seven facilities,
the elimination of 1,000 employees, and the rationalization of certain vascular
inventories totaling $12.9 which were charged to cost of sales. Included in the
fiscal 1998 charges was a commitment made by the Company to contribute $36.0 to
the Medtronic Foundation (see Note 12). In fiscal 1999, the Company revised its
severance charge estimates by $5.0 as a result of higher than anticipated
termination costs in Europe.
- --------------------------------------------------------------------------------
A summary of fiscal 1998 charges is follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Fiscal 1998 Utilized in Balance at Fiscal 1999 Utilized in Balance at Utilized in Balance at
Charges Fiscal 1998 April 30, 1998 Charges Fiscal 1999 April 30, 1999 Fiscal 2000 April 30, 2000
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Facility
reductions $ 7.6 $ (3.6) $ 4.0 $ -- $ (3.4) $ 0.6 $ (0.6) $ --
Severance and
related costs 58.4 (13.6) 44.8 5.0 (36.7) 13.1 (13.1) --
Asset
write-downs 81.7 (81.7) -- -- -- -- -- --
Contractual
obligations 57.6 (17.6) 40.0 -- (40.0) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$205.3 $(116.5) $ 88.8 $ 5.0 $(80.1) $ 13.7 $(13.7) $ --
====================================================================================================================================
</TABLE>
36
<PAGE>
Pre-1998 Initiatives. During fiscal 1997, Sofamor Danek recorded a special
product liability litigation charge of $50.0. This charge was recorded in order
to recognize the anticipated costs associated with the defense and conclusion of
certain product liability cases in which Sofamor Danek is named a defendant (see
Note 12). During fiscal 1999, the Company recorded an additional $25.0 reserve
necessary to conclude outstanding litigation. The Company utilized $1.2 of these
charges in fiscal 1997, $11.6 in fiscal 1998, $21.7 in fiscal 1999 and $12.4 in
fiscal 2000.
In addition, during fiscal 1997, Xomed announced initiatives to combine certain
operations in connection with its acquisition of TreBay Medical Corporation and
recorded charges of $2.5 for termination benefits and $0.6 for other exit costs.
Xomed utilized $2.1 of these charges in fiscal 1997 and the remaining $1.0 in
fiscal 1998.
- --------------------------------------------------------------------------------
A summary of all initiatives is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Balance at Fiscal Utilized Balance at Fiscal Utilized Balance at
April 30, 1998 in Fiscal April 30, 1999 in Fiscal April 30,
1997 Charges 1998 1998 Charges 1999 1999
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Transaction-
related costs $ -- $ -- $ -- $ -- $149.3 $(136.5) $ 12.8
Purchased
in-process R&D -- -- -- -- 152.0 (152.0) --
Facility reductions -- 7.6 (3.6) 4.0 10.9 (5.2) 9.7
Severance and
related costs 1.0 58.4 (14.6) 44.8 73.6 (44.8) 73.6
Asset write-downs -- 81.7 (81.7) -- 92.1 (92.1) --
Contractual
obligations -- 57.6 (17.6) 40.0 51.2 (50.5) 40.7
Litigation 48.8 -- (11.6) 37.2 25.0 (21.7) 40.5
- ------------------------------------------------------------------------------------------------------------------------------------
$ 49.8 $205.3 $(129.1) $126.0 $554.1 $(502.8) $177.3
====================================================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
------------------------------------------------------
Fiscal Utilized Changes Balance at
2000 in fiscal in April 30,
Charges 2000 Estimates 2000
================================================================================
<S> <C> <C> <C> <C>
Transaction-
related costs $ 14.7 $(27.5) $ -- $ --
Purchased
in-process R&D -- -- -- --
Facility reductions 0.9 (9.7) 3.8 4.7
Severance and
related costs 1.4 (41.7) (21.2) 12.1
Asset write-downs 6.2 1.1 (7.3) --
Contractual
obligations -- (33.8) (0.2) 6.7
Litigation 15.5 (27.9) -- 28.1
- --------------------------------------------------------------------------------
$ 38.7 $(139.5) $(24.9) $ 51.6
================================================================================
</TABLE>
Reserve balances at April 30, 2000, include amounts necessary for remaining
severance payouts, the closure of one additional manufacturing facility and the
conversion of certain direct sales operations in Latin America to distributor
arrangements, as well as amounts necessary to conclude cases related to the
Company's spinal system for pedicle fixation, as described in Note 12.
4 FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, receivables, and short-term debt
approximate their carrying value due to their short maturities. The carrying
amounts and estimated fair values of the Company's other financial instruments
were as follows:
---------------------------------------------------------
April 30, 2000 1999
================================================================================
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
ASSETS
Short-term investments $109.7 $109.7 $153.8 $153.8
Long-term investments 210.1 210.1 212.7 212.7
Forward exchange
contracts 71.5 71.5 -- --
LIABILITIES
Forward exchange
contracts -- -- 0.4 0.4
Long-term debt 14.1 14.3 23.4 23.8
================================================================================
The fair value of certain short-term and long-term investments was based on
their quoted market prices or those of similar investments. For long-term
investments that have no quoted market prices and are accounted for on a cost
basis, a reasonable estimate of fair value was made using available market and
financial information. The fair value of foreign currency instruments was
estimated based on quoted market prices at April 30, 2000 and 1999. The fair
value of long-term debt was based on the current rates offered to the Company
for debt of similar maturities. The estimates presented on long-term financial
instruments are not necessarily indicative of the amounts that would be realized
in a current market exchange.
Information regarding the Company's available-for-sale investments is as
follows:
-------------------------------------
April 30, 2000 1999 1998
================================================================================
Cost $144.0 $ 84.9 $66.9
Gross unrealized gains 6.2 33.2 32.7
Gross unrealized losses (16.3) (19.4) (2.0)
- --------------------------------------------------------------------------------
Fair value $133.9 $ 98.7 $97.6
- --------------------------------------------------------------------------------
Year ended April 30, 2000 1999 1998
================================================================================
Proceeds from sales $ 70.4 $ 38.4 $37.2
- --------------------------------------------------------------------------------
Net realized gains $ 22.4 $ 36.7 $25.5
================================================================================
37
<PAGE>
Held-to-maturity investments were recorded at amortized cost of $185.9 and
$200.2 at April 30, 2000 and 1999, respectively, which approximated fair value.
Foreign Exchange Risk Management. The Company uses operational and economic
hedges as well as derivative financial instruments to manage the impact of
foreign exchange rate changes on earnings and cash flows. In order to reduce the
uncertainty of foreign exchange rate movements, the Company enters into various
contracts with major international financial institutions that change in value
as foreign exchange rates change. These contracts, which typically expire within
two years, are designed to hedge anticipated foreign currency transactions. Such
transactions, primarily export intercompany sales, occur throughout the year and
are probable but not firmly committed. The principal currencies hedged are the
Japanese yen and major European currencies.
Notional amounts of contracts outstanding at April 30, 2000 and 1999 were $537.2
and $361.0, respectively. Aggregate foreign currency transaction gains and
(losses) were $30.8, $(2.5) and $17.1 in fiscal years 2000, 1999 and 1998,
respectively. These gains and losses, which were offset by the gains and losses
on related assets, liabilities, and transactions being hedged, were recorded in
selling, general, and administrative expense.
Concentrations of Credit Risk. Financial instruments, which potentially subject
the Company to significant concentrations of credit risk, consist principally of
interest-bearing investments, foreign currency exchange contracts, and trade
accounts receivable.
The Company maintains cash and cash equivalents, investments, and certain other
financial instruments with various major financial institutions. The Company
performs periodic evaluations of the relative credit standing of these financial
institutions and limits the amount of credit exposure with any one institution.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across many
geographic areas. The Company monitors the creditworthiness of its customers to
which it grants credit terms in the normal course of business. However, a
significant amount of trade receivables are with national health care systems in
many countries. Although the Company does not currently foresee a credit risk
associated with these receivables, repayment is dependent upon the financial
stability of those countries' national economies.
5 FINANCING ARRANGEMENTS
Debt consisted of the following at April 30:
Average
Interest
Short-Term Debt Rate 2000 1999
================================================================================
Bank borrowings 3.0% $314.1 $193.8
Current portion of
long-term debt 2.8% 2.2 45.4
- --------------------------------------------------------------------------------
Total short-term debt $316.3 $239.2
================================================================================
Average
Interest Maturity
Long-Term Debt Rate Date 2000 1999
================================================================================
Various notes 1.2% 2001-2004 $ 7.6 $ 16.3
Subordinated
convertible note 5.5% 2004 4.5 4.5
Capitalized lease
obligations 9.9% 2000-2009 2.0 2.6
- --------------------------------------------------------------------------------
Total long-term debt $ 14.1 $ 23.4
================================================================================
The Company borrows funds on a short-term basis primarily as a hedge against
foreign currency rate fluctuations, and in connection with certain tax
initiatives. The Company has existing lines of credit of $876.1 with various
banks, of which $562.0 was unused at April 30, 2000. During fiscal 2000, the
Company entered into an agreement, which expires in 2003, to sell, at its
discretion, specific pools of its Japanese trade receivables. At April 30, the
Company had sold approximately $64.0 of its trade receivables to a financial
institution. The discount cost related to the sale was immaterial and was
recorded as interest expense in the accompanying consolidated financial
statements.
Maturities of long-term debt for the next five fiscal years are as follows:
2001, $2.2; 2002, $1.5; 2003, $3.8; 2004, $7.6; 2005, $0.3; thereafter, $0.9.
6 SHAREHOLDERS' EQUITY
On August 25, 1999, the Company's shareholders approved an amendment to
Medtronic's Restated Articles of Incorporation to increase the number of
authorized shares of common stock from 800 million to 1.6 billion. On the same
date, the Board of Directors approved a two-for-one split of the Company's
common stock effective September 24, 1999, in the form of a 100% stock dividend
payable to shareholders of record at the close of business on September 10,
1999. The stock split resulted in the issuance of 587.4 million additional
shares and the reclassification of $58.7 from retained earnings to common stock,
representing the par value of the shares issued. All references in the financial
statements to earnings per share and average number of shares outstanding
amounts have been restated to reflect the stock split for all periods presented.
38
<PAGE>
A shareholder rights plan exists which provides for a dividend distribution of
one right to be attached to each share of common stock. The rights are currently
not exercisable or transferable apart from the common stock. The basic right
entitles the holder to purchase one thirty-two hundredth of a share of a new
series of participating preferred stock, which is substantially equivalent to
one share of common stock, at an exercise price of $18.75 per share. These
rights would become exercisable if a person or group acquires 15% or more of the
Company's common stock or announces a tender offer which would increase the
person's or group's beneficial ownership to 15% or more of the Company's common
stock, subject to certain exceptions. After the rights become exercisable, each
right entitles the holder (other than the 15% holder), instead, to purchase
common stock having a market price of two times the exercise price. If the
Company is acquired in a merger or other business combination transaction, each
exercisable right entitles the holder to purchase common stock of the acquiring
company or an affiliate having a market price of two times the exercise price of
the right. In certain events the Board of Directors may exchange rights for
common stock or equivalent securities having a market price equal to the
exercise price of the rights. Each right is redeemable at $0.0003125 any time
before a person or group triggers the 15% ownership threshold. The rights expire
on July 10, 2001.
7 EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan (ESOP) for eligible U.S.
employees. In December 1989, the ESOP borrowed $40.0 from the Company and used
the proceeds to purchase 18,932,928 shares of the Company's common stock. The
Company makes contributions to the plan that are used, in part, by the ESOP to
make loan and interest payments. ESOP expense is determined by debt service
requirements, offset by dividends received. Compensation and interest expense
recognized were as follows:
------------------------------------
Year ended April 30, 2000 1999 1998
================================================================================
Interest expense $ 2.0 $ 2.4 $ 2.5
Dividends paid (2.8) (2.4) (2.0)
- --------------------------------------------------------------------------------
Net interest expense (0.8) -- 0.5
Compensation expense 6.7 1.7 0.1
- --------------------------------------------------------------------------------
Total expense $ 5.9 $ 1.7 $ 0.6
================================================================================
Shares of common stock acquired by the plan are allocated to each employee in
amounts based on Company performance and the employee's annual compensation.
Allocations of 2.70%, 2.59% and 2.50% of qualified compensation were made to
plan participants' accounts in fiscal years 2000, 1999 and 1998, respectively.
During fiscal 2000, and in connection with the Company's 50th Anniversary, the
Company made a special allocation to participant's accounts of approximately 1.2
million shares. Beginning in fiscal 1999, the Company match on the supplemental
retirement plan is made in the form of an annual allocation of Medtronic stock
to the participants' employee stock ownership plan account. The expense to the
Company related to this Company match is included in the table above.
At April 30, 2000 and 1999, cumulative allocated shares remaining in the trust
were 9,325,427 and 7,791,328, respectively, and unallocated shares were
8,239,154 and 10,335,434, respectively, of which 1,004,076 and 1,068,410,
respectively, were committed-to-be allocated. Unallocated shares are released
based on the ratio of current debt service to total remaining principal and
interest. The loan from the Company to the ESOP is repayable over 20 years,
ending on April 30, 2010. Interest is payable annually at a rate of 9.0%. The
receivable from the ESOP is recorded as a reduction of the Company's
shareholders' equity, and allocated and unallocated shares of the ESOP are
treated as outstanding common stock in the computation of earnings per share.
8 STOCK PURCHASE AND AWARD PLANS
1994 Stock Award Plan. The 1994 stock award plan provides for the grant of
nonqualified and incentive stock options, stock appreciation rights, performance
shares, restricted stock and other stock-based awards. There were 7.6 million
shares available under this plan for future grants at April 30, 2000. A proposal
has been submitted to the Company's shareholders to authorize in August 2000 an
additional 58 million shares under this plan.
Under the provisions of the 1994 stock award plan, nonqualified stock options
and other stock awards are granted to officers and employees at prices not less
than fair market value at the date of grant.
In fiscal 1998, the Company adopted a new stock compensation plan for outside
directors which replaces the provisions in the 1994 stock award plan relating to
awards to outside directors. The table below includes awards granted under the
new plan, which at April 30, 2000 had 2.7 million shares available for future
grants.
39
<PAGE>
A summary of nonqualified option transactions is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
2000 1999 1998
=======================================================================================================
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Options Price Options Price Options Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance 24,149,624 $19.91 21,678,130 $13.97 24,154,200 $ 9.25
Granted 14,425,433 31.42 7,331,168 22.20 5,129,266 16.81
Exercised 3,278,166 9.88 4,134,732 7.45 7,224,004 5.53
Canceled 1,379,624 8.29 724,942 7.83 381,332 5.92
- -------------------------------------------------------------------------------------------------------
Outstanding at April 30 33,917,267 $24.77 24,149,624 $19.91 21,678,130 $13.97
- -------------------------------------------------------------------------------------------------------
Exercisable at April 30 17,194,774 $18.83 14,568,708 $17.93 13,443,644 $10.65
=======================================================================================================
</TABLE>
Stock options assumed as a result of mergers and acquisitions in fiscal years
1996, 1997, 1999 and 2000 remain outstanding, although no additional grants will
be made under these plans. A summary of fiscal 2000 transactions for stock
options assumed as a result of the mergers and acquisitions is as follows:
-----------------------------
Wtd. Avg.
Options Exercise Price
================================================================================
Outstanding at May 1, 1999 25,052,890 $14.73
Additional shares assumed 2,956,384 11.95
Exercised 15,414,684 10.23
Canceled 868,430 16.83
- --------------------------------------------------------------------------------
Outstanding at April 30, 2000 11,726,160 $15.49
- --------------------------------------------------------------------------------
Exercisable at April 30, 2000 9,281,399 $15.80
================================================================================
A summary of stock options outstanding as of April 30, 2000, including options
assumed as a result of acquisitions, is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------
Wtd. Avg.
Remaining
Range of Wtd. Avg. Contractual Wtd. Avg.
Exercise Prices Options Exercise Price Life(in years) Options Exercise Price
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.01-10.00 10,141,825 $ 5.52 4.72 9,095,065 $ 5.56
10.01-20.00 8,297,910 15.52 6.86 7,239,665 15.42
20.01-30.00 9,166,003 24.09 7.78 5,391,680 24.47
30.01-40.00 17,631,672 33.80 8.29 4,711,356 34.30
40.01-52.69 406,017 47.53 9.00 38,407 48.73
- ------------------------------------------------------------------------------------------
$ 0.01-52.69 45,643,427 $22.37 6.63 26,476,173 $17.29
==========================================================================================
</TABLE>
Nonqualified options are normally exercisable beginning one year from the date
of grant in cumulative yearly amounts of 25 percent of the shares under option
and generally have a contractual option term of 10 years. However, certain
nonqualified options granted are exercisable immediately.
Restricted stock, performance shares and other stock awards are dependent upon
continued employment and, in the case of performance shares, achievement of
certain performance objectives. These awards are expensed over their vesting
period, ranging from three to eight years. Total expense recognized for
restricted stock, performance share and other stock awards was $5.2, $8.2 and
$12.3 in fiscal years 2000, 1999 and 1998, respectively.
40
<PAGE>
If the Company had elected to recognize compensation expense for its stock-based
compensation plans based on the fair values at the grant dates consistent with
the methodology prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation," net income and earnings per share would have been reported as the
following pro forma amounts:
-------------------------------
Year ended April 30, 2000 1999 1998
================================================================================
Net Earnings As reported $1,098.5 $ 476.3 $ 594.6
Pro forma 1,023.4 437.5 555.5
- --------------------------------------------------------------------------------
Basic Earnings Per Share As reported $ 0.92 $ 0.40 $ 0.52
Pro forma 0.86 0.37 0.48
================================================================================
The fair value of options granted, $16.58 and $11.72 for fiscal years 2000 and
1999, respectively, was estimated using the Black-Scholes option-pricing model
using the following weighted average assumptions:
Assumptions 2000 1999
================================================================================
Risk-free interest rate 6.09% 5.06%
Expected dividend yield 0.47% 0.43%
Expected volatility factor 38.1% 27.1%
Expected option term 7 years 7 years
================================================================================
Stock Purchase Plan. The stock purchase plan enables employees to contribute up
to 10% of their wages toward purchase of the Company's common stock at 85% of
the market value. Employees purchased 1,370,143 shares at $27.63 per share in
fiscal 2000. As of April 30, 2000, plan participants have had approximately
$28.3 withheld to purchase shares at a price which is 85% of the market value of
the Company's common stock on the first or last day of the plan year ending
October 31, 2000, whichever is less.
9 INCOME TAXES
The provision for income taxes is based on earnings before income taxes reported
for financial statement purposes. The components of earnings before income taxes
were:
---------------------------------------
Year ended April 30, 2000 1999 1998
================================================================================
United States $1,436.0 $ 945.4 $855.1
Non-U.S. 193.0 (110.7) 56.3
- --------------------------------------------------------------------------------
Earnings before income taxes $1,629.0 $ 834.7 $911.4
================================================================================
The provision for income taxes consisted of:
---------------------------------------
Year ended April 30, 2000 1999 1998
================================================================================
Taxes currently payable:
U.S. federal $188.9 $243.3 $201.4
U.S. state and other 39.1 39.7 41.7
Non-U.S. 60.7 45.3 43.1
- --------------------------------------------------------------------------------
Total currently payable 288.7 328.3 286.2
Deferred tax (benefit) expense:
U.S. federal 94.7 (42.0) (26.3)
U.S. state and other (2.5) 2.6 3.0
Non-U.S. (14.1) 7.0 1.2
- --------------------------------------------------------------------------------
Net deferred tax (benefit) expense 78.1 (32.4) (22.1)
Tax expense credited directly to
shareholders' equity 163.7 62.5 52.7
- --------------------------------------------------------------------------------
Total provision $530.5 $358.4 $316.8
================================================================================
Deferred tax assets (liabilities) were comprised of the following:
--------------------------------
Year ended April 30, 2000 1999
================================================================================
Deferred tax assets:
Inventory (Intercompany profit in inventory
and excess of tax over book valuation) $108.3 $ 87.6
Accrued liabilities 72.4 141.8
Other 61.8 68.2
- --------------------------------------------------------------------------------
Total deferred tax assets 242.5 297.6
Deferred tax liabilities:
Intangible assets (19.3) (9.2)
Undistributed earnings of subsidiaries (2.0) (3.4)
Accumulated depreciation (15.4) (17.1)
Unrealized losses on investments 3.5 (4.8)
Other (64.0) (37.9)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (97.2) (72.4)
- --------------------------------------------------------------------------------
Net deferred tax assets $145.3 225.2
================================================================================
The Company's effective income tax rate varied from the U.S.
federal statutory tax rate as follows:
Year ended April 30, 2000 1999 1998
================================================================================
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax rate
resulting from:
U.S. state taxes, net of federal
tax benefit 1.4 1.9 1.9
Tax benefits from operations in
Puerto Rico (1.1) (2.4) (1.9)
Non-U.S. taxes (1.6) 5.5 2.3
Non-recurring charges (0.1) 7.7 --
Other, net (1.0) (4.8) (2.5)
- --------------------------------------------------------------------------------
Effective tax rate 32.6% 42.9% 34.8%
================================================================================
41
<PAGE>
Taxes are not provided on undistributed earnings of non-U.S. subsidiaries
because such earnings are either permanently reinvested or do not exceed
available foreign tax credits. Current U.S. tax regulations provide that
earnings of the Company's manufacturing subsidiaries in Puerto Rico may be
repatriated tax free; however, the Commonwealth of Puerto Rico will assess a tax
of up to 7% in the event of repatriation of earnings prior to liquidation. The
Company has provided for the anticipated tax attributable to earnings intended
for dividend repatriation. At April 30, 2000, earnings permanently reinvested in
subsidiaries outside the United States were $159.1.
At April 30, 2000, approximately $42.3 of non-U.S. tax losses were available for
carryforward. These carryforwards are subject to full valuation allowances and
generally expire within a period of one to five years.
10 RETIREMENT BENEFIT PLANS
The Company has various retirement benefit plans covering substantially all U.S.
employees and many employees outside the United States. The cost of these plans
was $32.4 in fiscal 2000, $23.1 in fiscal 1999 and $36.3 in fiscal 1998.
In the United States, the Company maintains a qualified pension plan designed to
provide guaranteed minimum retirement benefits to substantially all U.S.
employees. Pension coverage for non-U.S. employees of the Company is provided,
to the extent deemed appropriate, through separate plans. In addition, U.S. and
non-U.S. employees of the Company are also eligible to receive specified Company
paid health care and life insurance benefits.
The following table sets forth the change in benefit obligation and change in
plan assets for the Company's defined benefit retirement plans and other
post-retirement plans:
----------------------------------------------
Pension Benefits Other Benefits
================================================================================
2000 1999 2000 1999
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at
beginning of fiscal year $ 233.6 $ 189.2 $ 45.0 $ 37.4
Service cost 21.8 16.5 5.1 0.9
Interest cost 15.4 12.7 3.2 2.5
Actuarial (gain) loss (21.6) 21.1 (3.6) 4.7
Curtailment gain (see Note 3) (4.4) -- -- --
Benefits paid (6.8) (5.9) (0.5) (0.5)
- --------------------------------------------------------------------------------
Benefit obligation at April 30 $ 238.0 $ 233.6 $ 49.2 $ 45.0
================================================================================
-------------------------------------------
Pension Benefits Other Benefits
================================================================================
2000 1999 2000 1999
- -------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year $ 271.5 $ 214.1 $ 25.1 $ 18.0
Actual return on plan assets 25.6 49.6 2.5 3.3
Employer contributions 0.1 13.3 -- 4.1
Benefits paid (6.0) (5.5) (1.0) (0.3)
- -------------------------------------------------------------------------------
Fair value of plan assets at
April 30 $ 291.2 $ 271.5 $ 26.6 $ 25.1
- -------------------------------------------------------------------------------
Funded status $ 53.2 $ 37.9 $ (22.6) $ (19.9)
Unrecognized net actuarial
(loss) gain (40.2) (19.7) -- 3.2
Unrecognized prior
service cost (3.5) (0.3) -- --
- -------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 9.5 $ 17.9 $ (22.6) $ (16.7)
===============================================================================
Net periodic benefit cost of plans included the following components:
-------------------------------------------
Pension Benefits Other Benefits
===============================================================================
Year ended April 30, 2000 1999 2000 1999
- -------------------------------------------------------------------------------
Service cost $ 21.8 $ 16.5 $ 5.1 $ 0.9
Interest cost 15.4 12.7 3.2 2.5
Expected return on
plan assets (21.8) (15.6) (2.4) (1.6)
Amortization of prior
service cost 0.3 0.2 -- --
- -------------------------------------------------------------------------------
Net periodic benefit cost $ 15.7 $ 13.8 $ 5.9 $ 1.8
===============================================================================
Plan assets for the U.S. plan consist of a diversified portfolio of fixed-income
investments, debt and equity securities, and cash equivalents. Plan assets
include investments in the Company's common stock of $66.5 and $46.0 at April
30, 2000 and 1999, respectively.
Outside the U.S., the funding of pension plans is not a common practice in
certain countries as funding provides no economic benefit. Consequently, the
Company has certain non-U.S. plans that are unfunded. It is the Company's policy
to fund retirement costs within the limits of allowable tax deductions.
The actuarial assumptions were as follows:
------------------------------------------
Pension Benefits
================================================================================
April 30, 2000 1999
- --------------------------------------------------------------------------------
Discount rate 3.5%-7.75% 3.5%-7.0%
Expected return on plan assets 4.0%-9.50% 7.0%-9.25%
Rate of compensation increase 3.0%-6.5% 3.0%-6.5%
Health care cost trend rate N/A N/A
================================================================================
42
<PAGE>
------------------------------------------
Other Benefits
================================================================================
April 30, 2000 1999
- --------------------------------------------------------------------------------
Discount rate 7.75% 7.00%
Expected return on plan assets 9.50% 9.25%
Rate of compensation increase N/A N/A
Health care cost trend rate 8.00% 8.00%
================================================================================
In addition to the benefits provided under the qualified pension plan,
retirement benefits associated with wages in excess of the IRS allowable wages
are provided to certain employees under nonqualified plans. The net periodic
cost of nonqualified pension plans was $4.2 and $2.7 in fiscal 2000 and 1999,
respectively. The unfunded accrued pension cost related to these nonqualified
plans totaled $24.3 at April 30, 2000.
The health care cost trend rate is assumed to decrease gradually to 6% by fiscal
2002. Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
----------------------------------------------------
One-Percentage- One-Percentage-
Point Increase Point Decrease
- --------------------------------------------------------------------------------
Effect on postretirement
benefit cost in fiscal 2000 $1.1 $(0.9)
Effect on postretirement
benefit obligation as of
April 30, 2000 5.1 (4.3)
- --------------------------------------------------------------------------------
Defined Contribution Plans. The Company has defined contribution savings plans
that cover substantially all U.S. employees and certain non-U.S. employees. The
general purpose of these plans is to provide additional financial security
during retirement by providing employees with an incentive to make regular
savings. Beginning in fiscal 1999, the Company match on the supplemental
retirement plan for U.S. employees is made in the form of an annual allocation
of Medtronic stock to the participants ESOP account (see Note 7). Company
contributions to the plans are based on employee contributions and Company
performance. Fiscal expense under these plans was $3.4 in fiscal 2000, $3.2 in
fiscal 1999 and $16.9 in fiscal 1998.
11 LEASES
The Company leases office, manufacturing and research facilities, and
warehouses, as well as transportation, data processing, and other equipment
under capital and operating leases. A substantial number of these leases contain
options that allow the Company to renew at the then fair rental value.
Future minimum payments under capitalized leases and non-cancelable operating
leases at April 30, 2000 were:
----------------------------------------
Capitalized Operating
Leases Leases
- --------------------------------------------------------------------------------
2001 $ 0.6 $30.5
2002 0.5 23.4
2003 0.4 16.5
2004 0.3 11.1
2005 0.3 8.4
2006 and thereafter 1.0 4.3
- --------------------------------------------------------------------------------
Total minimum lease payments $ 3.1 $94.2
Less amounts representing interest (0.7)
- --------------------------------------------------------------------------------
Present value of net minimum
lease payments $ 2.4
- --------------------------------------------------------------------------------
Rent expense for all operating leases was $49.3, $47.1 and $40.6 in fiscal years
2000, 1999 and 1998, respectively.
12 COMMITMENTS AND CONTINGENCIES
The Medtronic Foundation (Foundation), funded entirely by the Company, was
established to maintain good corporate citizenship in its communities. In fiscal
1998, the Company made a commitment to contribute $36.0. This commitment is
expected to fund the Foundation through the end of fiscal 2001. In fiscal years
1999 and 1998, the Company funded this commitment through the donation of equity
securities with fair values of $25.5 and $10.5, respectively. Commitments to the
Foundation are expensed when authorized and approved by the Company's Board of
Directors.
In October 1997, Cordis Corporation ("Cordis"), a subsidiary of Johnson &
Johnson, filed suit against AVE, which was acquired by the Company in January
1999, 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 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
43
<PAGE>
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, which was acquired by the Company in January 1999, 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 $48.0. 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-Linkt coronary stent and Boston Scientific's Nirt stent
infringed the Company's Wiktort 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.
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.
44
<PAGE>
13 QUARTERLY FINANCIAL DATA
(UNAUDITED, IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
===================================================================================================================
<S> <C> <C> <C> <C> <C>
NET SALES
2000 $1,133.2 $1,190.3 $1,258.8 $1,432.3 $5,014.6
1999 1,014.6 1,006.4 1,064.8 1,146.6 4,232.4
GROSS PROFIT
2000 846.8 877.0 921.2 1,050.0 3,695.0
1999--Before charges 757.2 738.4 777.8 847.2 3,120.6
--After charges 757.2 738.4 760.0 836.0 3,091.6
NET EARNINGS (LOSS)
2000--Before charges 252.4 260.6 275.3 321.7 1,110.0
--After charges 252.4 260.6 263.2 322.3 1,098.5
1999--Before charges 235.9 217.1 215.9 246.2 915.1
--After charges 230.6 119.2 (34.1) 160.6 476.3
DILUTED EARNINGS (LOSS) PER SHARE
2000--Before charges 0.21 0.21 0.23 0.26 0.91
--After charges 0.21 0.21 0.22 0.26 0.90
1999--Before charges 0.20 0.18 0.18 0.20 0.76
--After charges 0.19 0.10 (0.03) 0.13 0.39
===================================================================================================================
</TABLE>
Quarterly and annual earnings per share are calculated independently based on
the weighted average number of shares outstanding during the period. As
discussed in Note 3, the Company recorded pre-tax non-recurring charges totaling
$13.8 and $554.1 during fiscal 2000 and 1999, respectively.
14 SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates its business in four operating business units, which are
aggregated into one reportable segment--the manufacture and sale of device-based
medical therapies. Each of the Company's businesses has similar economic
characteristics, technology, manufacturing processes, customers, distribution
and marketing strategies, a similar regulatory environment, and shared
infrastructures. Net sales by business were as follows:
-----------------------------
Year ended April 30, 2000 1999 1998
================================================================================
Cardiac Rhythm Management $2,504.7 $2,121.6 $1,881.4
Neurological, Spinal and ENT 1,252.4 998.0 760.4
Vascular 790.8 718.8 403.0
Cardiac Surgery 466.7 394.0 378.3
- --------------------------------------------------------------------------------
$5,014.6 $4,232.4 $3,423.1
================================================================================
Geographic Information. Net sales and long-lived assets by major geographical
area are summarized below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
United States Europe Asia Pacific Other Foreign Eliminations Consolidated
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
2000
Revenues from external customers $3,278.4 $1,050.2 $521.2 $164.8 $ -- $5,014.6
Intergeographic sales 736.8 159.1 -- 17.4 (913.3) --
- ------------------------------------------------------------------------------------------------------------------
Total sales $4,015.2 $1,209.3 $521.2 $182.2 $(913.3) $5,014.6
- ------------------------------------------------------------------------------------------------------------------
Long-lived assets $2,385.9 $ 206.2 $ 46.8 $ 17.1 $ -- $2,656.0
==================================================================================================================
1999
Revenues from external customers $2,750.0 $ 940.0 $408.3 $134.1 $ -- $4,232.4
Intergeographic sales 511.8 96.7 -- 11.4 (619.9) --
- ------------------------------------------------------------------------------------------------------------------
Total sales $3,261.8 $1,036.7 $408.3 $145.5 $(619.9) $4,232.4
- ------------------------------------------------------------------------------------------------------------------
Long-lived assets $2,278.1 $ 220.1 $ 45.5 $ 19.9 $ -- $2,563.6
- ------------------------------------------------------------------------------------------------------------------
1998
Revenues from external customers $2,153.9 $ 796.4 $367.1 $105.7 $ -- $3,423.1
Intergeographic sales 308.4 146.0 -- 13.8 (468.2) --
- ------------------------------------------------------------------------------------------------------------------
Total sales $2,462.3 $ 942.4 $367.1 $119.5 $(468.2) $3,423.1
- ------------------------------------------------------------------------------------------------------------------
Long-lived assets $1,331.5 $ 189.2 $ 30.1 $ 19.4 $ -- $1,570.2
==================================================================================================================
</TABLE>
Sales between geographic areas are made at prices that would approximate
transfers to unaffiliated distributors. No single customer represents over 10%
of the Company's consolidated sales.
45
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
----------------------------------------------------------------------
2000 1999 1998 1997 1996
===================================================================================================================================
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AND EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS FOR THE YEAR:
Net sales $ 5,014.6 $ 4,232.4 $ 3,423.1 $ 3,010.3 $ 2,570.0
Cost of products sold 1,319.6 1,140.8 906.8 786.7 715.2
Gross margin percentage 73.7% 73.0% 73.5% 73.9% 72.2%
Research and development expense 479.7 434.2 372.2 329.2 283.6
Selling, general, and administrative expense 1,601.7* 1,845.5* 1,244.8* 1,029.2* 846.9
Interest expense 13.6 29.1 15.5 17.6 13.9
Interest income (29.0) (51.9) (27.6) (38.8) (31.6)
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 1,629.0 834.7 911.4 886.4 742.0
Provision for income taxes 530.5 358.4 316.8 304.4 254.0
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 1,098.5 $ 476.3 $ 594.6 $ 582.0 $ 488.0
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings as a percent of net sales 21.9% 11.3% 17.4% 19.3% 19.0%
Net earnings as a percent of average shareholders' equity 26.6% 14.6% 24.2% 27.8% 27.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Basic earnings per share $ 0.92 $ 0.40 $ 0.52 $ 0.50 $ 0.47
Earnings per share assuming dilution 0.90 0.39 0.51 0.49 0.46
Cash dividends declared 0.16 0.13 0.11 0.10 0.07
FINANCIAL POSITION AT APRIL 30:
Working capital $ 2,021.9 $ 1,438.6 $ 1,400.9 $ 939.9 $ 1,000.8
Current ratio 3.0:1 2.4:1 2.8:1 2.4:1 2.6:1
Property, plant, and equipment, net 946.5 772.3 642.4 574.4 449.7
Total assets 5,669.4 5,008.4 3,745.0 3,082.1 2,881.1
Long-term debt 14.1 23.4 61.2 51.4 68.4
Long-term debt as a percent of shareholders' equity 0.3% 0.6% 2.2% 2.4% 3.4%
Shareholders' equity 4,491.5 3,770.8 2,738.9 2,167.0 2,026.0
Shareholders' equity per common share 3.75 3.16 2.35 1.88 3.55
ADDITIONAL INFORMATION:
Additions to property, plant, and equipment $ 342.1 $ 234.9 $ 204.7 $ 207.9 $ 190.5
Full-time employees at year-end 21,490 20,058 17,015 14,709 13,119
Full-time equivalent employees at year-end 24,890 22,518 18,503 16,706 14,952
===================================================================================================================================
</TABLE>
*CERTAIN COSTS AND INCOME SEPARATELY DISCLOSED ON THE STATEMENT OF CONSOLIDATED
EARNINGS ARE INCLUDED IN SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE.
Note: Results include the impact of $13.8, $554.1, $205.3 and $55.5 pre-tax
non-recurring charges taken during fiscal 2000, 1999, 1998 and 1997
(see Note 3).
PRICE RANGE OF MEDTRONIC STOCK
- -------------------------------------------------------------------
Fiscal Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- -------------------------------------------------------------------
2000 High $39.41 $40.72 $46.25 $57.19
2000 Low 31.31 32.25 33.56 45.00
1999 High 34.91 33.07 39.85 44.07
1999 Low 24.44 25.19 31.75 33.10
Prices are closing quotations. On July 7, 2000 there were 42,500 holders of
record of the Company's common stock. The regular quarterly cash dividend was
4.0 cents per share for 2000 and 3.25 cents per share for 1999.
46
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
EXHIBIT 21
MEDTRONIC, INC. AND SUBSIDIARIES
NAME OF COMPANY JURISDICTION OR
- --------------- ---------------
INCORPORATION
-------------
ABS Synectics Sarl France
Arterial Vascular Engineering AB Sweden
Arterial Vascular Engineering Australia Australia
Arterial Vascular Engineering B.V. Netherlands
Arterial Vascular Engineering b.v.b.a. Belgium
Arterial Vascular Engineering Canada, Inc. Canada
Arterial Vascular Engineering Espana, S.L. Spain
Arterial Vascular Engineering GmbH Germany
Arterial Vascular Engineering International Sales, Inc. Barbados
Arterial Vascular Engineering Italia, S.r.l. Italy
Arterial Vascular Engineering Manufacturing, Inc. California
Arterial Vascular Engineering Portugal S.A. Portugal
Arterial Vascular Engineering PTE. LTD. Singapore
Arterial Vascular Engineering SARL France
Arterial Vascular Engineering (Schweiz) AG Switzerland
Arterial Vascular Engineering UK Limited United Kingdom
AVE Cayman Islands, Ltd. Cayman Islands
AVE Galway Ireland
AVE Ireland Holdings ULC Ireland
AVE Ireland Limited Ireland
AVE Massachusetts, Inc. Delaware
AVECOR Cardiovascular Limited England, Wales
AVECOR Cardiovascular France S.A.R.L. France
Biotec France S.A. France
Bakken Research Center, B.V. Netherlands
Bard Connaught Ireland
Bard Japan Limited Japan
BV Medtronic FSC Netherlands
Cardiotron Medizintechnik G.m.b.H. Germany
CorMedica Corporation (20% owner) Delaware
Danek Capitol Corporation Delaware
Danek Medical, Inc. Tennessee
Dantec Electronique S.A. France
Dantec Elettronica Srl Italy
Dantec Medizinelektronik GmbH Germany
DMI Delaware Holdings, Inc. Delaware
DMI Tennessee Holdings, Inc. Tennessee
Electromedics Medizintechnik, GmbH Germany
Gastrosoft, Inc. (USA) New Jersey
India Biomedical Investment, Ltd. India
India Medtronic Private Limited India
InStent Europe B.V. Netherlands
Intellx, L.L.C. Delaware
Interamerica Medtronic, Inc. Illinois
International Finance C.V. (INFIN C.V.) Netherlands
Kobayashi Sofamor Danek K.K. Japan
Medical Education K.K. Japan
Medical Implant Portugal Portugal
Mednext, Inc. Florida
MEDTRNC Vingmed AB Sweden
Med Rel, Inc. Minnesota
Medtronic AB Sweden
Medtronic (Africa) (Proprietary) Limited South Africa
<PAGE>
NAME OF COMPANY JURISDICTION OR
- --------------- ---------------
INCORPORATION
-------------
Medtronic AneuRx, Inc. Minnesota
Medtronic Asia, Ltd. Minnesota
Medtronic Asset Managment, Inc. Minnesota
Medtronic Australasia Pty. Limited Austraila
Medtronic AVE, Inc. Delaware
Medtronic AVECOR Cardiovascular, Inc. Minnesota
Medtronic B.V. Netherlands
Medtronic Belgium, S.A. Belgium
Medtronic Bio-Medicus, Inc. Minnesota
Medtronic do Brasil Ltda. Brazil
Medtronic of Canada, Ltd. Canada
Medtronic Carbon Implants, Inc. Delaware
Medtronic China, Ltd. Minnesota
Medtronic Commercial Ltda. Brazil
Medtronic Dominicana C. por A. Dominican Republic
Medtronic Europe, N.V. Belgium
Medtronic Europe S.A. Switzerland
Medtronic Foundation (non-profit corporation) Minnesota
Medtronic France S.A. France
Medtronic Functional Diagnostics A/S Denmark
Medtronic Functional Diagnostics Asia Limited Hong Kong
Medtronic Functional Diagnostics SA/NV Belgium
Medtronic Functional Diagnostics Zinetics, Inc. Utah
Medtronic Functional Diagnostics, Inc. New Jersey
Medtronic G.m.b.H. Germany
Medtronic Heart Valves, Inc. Minnesota
Medtronic Hellas Medical Device S.A. Greece
Medtronic HemoTec, Inc. Colorado
Medtronic Iberica, S.A. Spain
Medtronic InStent (Israel), Inc. Israel
Medtronic International, Ltd. Delaware
Medtronic International Technology, A.B. Sweden
Medtronic International Technology, Inc. Minnesota
Medtronic Interventional Vascular, Inc. Delaware
Medtronic Interventional Vascular, Inc. Massachussetts
Medtronic Ireland Manufacturing Limited Ireland
Medtronic Ireland Limited Ireland
Medtronic Italia S.p.A. Italy
Medtronic Japan Co., Ltd. Japan
Medtronic Korea Co., Ltd. Korea
Medtronic Latin America, Inc. Minnesota
Medtronic Limited United Kingdom
Medtronic Medical Appliance Technology and Service
(Shanghai) Ltd. China
Medtronic Mediterranean SAL Lebanon
Medtronic Mexico S. de. R.L. de C.V. Mexico
Medtronic Micro Interventional Systems, Inc. Minnesota
Medtronic Micro Motion Sciences, Inc. Delaware
Medtronic Osterreich Ges.m.b.H. Austria
Medtronic OY Finland
Medtronic PS Medical, Inc. California
Medtronic Physio-Control Corp. Washington
Medtronic Physio-Control International, Inc. Washington
Medtronic Physio-Control Manufacturing Corp. Washington
Medtronic Puerto Rico, Inc. Minnesota
Medtronic S. de R.L. de C.V. Mexico
Medtronic S.A.I.C. Argentina
Medtronic (S) Pte., Ltd. Singapore
<PAGE>
NAME OF COMPANY JURISDICTION OR
- --------------- ---------------
INCORPORATION
-------------
Medtronic (Schweiz) A.G. Switzerland
Medtronic (Shanghai) Ltd. China
Medtronic Sofamor Danek, Inc. Indiana
Medtronic Sofamor Danek USA, Inc. Tennessee
Medtronic Synectics A.B. Sweden
Medtronic Technologies Holding B.V. Holland
Medtronic Technologies Holland, B.V. Netherlands
Medtronic Technologies, Inc. Minnesota
Medtronic Treasury International, Inc. Minnesota
Medtronic Treasury Management, Inc. Minnesota
Medtronic USA, Inc. Minnesota
Medtronic de Venezuela S.A. Venezuela
Medtronic-Vicare AS Denmark
Medtronic-Vingmed AS Norway
Medtronic World Trade Corporation (Israel) Minnesota
Medtronic Xomed Surgical Products, Inc. Delaware
Merocel Corporation Delaware
Merocel Foreign Sales Corp. Virgin Islands
Milu S.A. Luxembourg
Omikcron Ltd. Hungary
Physio-Control Canada Corporation Canada
Physio-Control GmbH Germany
Physio-Control Hungaria Kereskedelmi Kft. Hungary
Physio-Control Italia s.r.l. Italy
Physio-Control Medizintechnik Austria
Physio-Control Netherlands Services BV Netherlands
Physio-Control Poland Sp. zo.o Poland
Physio-Control UK Limited United Kingdom
Proprietary Extrusion Technologies, Inc. California
Richards SDA LLC Tennessee
SDGI Holdings, Inc. Delaware
Sentron Europe BV Netherlands
Sentron Incorporated Washington
Sofamor Danek (NZ) Limited New Zealand
Sofamor Danek (Puerto Rico), Inc. Puerto Rico
Sofamor Danek (UK) Limited England
Sofamor Danek Americas & Asia Pacific Corporation Tennessee
Sofamor Danek Asia Pacific Limited Hong Kong
Sofamor Danek Australia Pty. Ltd. Australia
Sofamor Danek Benelux, S.A. Luxembourg
Sofamor Danek China Limited China
Sofamor Danek GmbH Germany
Sofamor Danek Group, Inc. Indiana
Sofamor Danek Holdings, Inc. Delaware
Sofamor Danek Iberica S.A. Spain
Sofamor Danek Italia S.r.l. Italy
Sofamor Danek Korea Co., Ltd. Korea
Sofamor Danek L.P. Tennessee
Sofamor Danek Management, Inc. Tennessee
Sofamor Danek N.V. Belgium
Sofamor Danek Nederland B.V. Netherlands
Sofamor Danek Properties, Inc. Delaware
Sofamor Danek Singapore PTE, Ltd. Singapore
Sofamor Danek South Africa (Proprietary) Limited South Africa
Sofamor S.N.C. France
Somepic Technologie, S.A. France
Surgical Navigation Technologies, Inc. Delaware
Synectics Biotechnology AB Sweden
<PAGE>
NAME OF COMPANY JURISDICTION OR
- --------------- ---------------
INCORPORATION
-------------
Synectics IR SA (Luxemborg) Luxemborg
Synectics Leasing AB Sweden
Synectics Medical AB (parent) Sweden
Synectics Medical BV (Netherlands) Netherlands
Synectics Medical bvba (Belgium) Belgium
Synectics Medical Ldt (Portugal) Portugal
Synectics Medical Limited United Kingdom
Synectics Medical OY (Finland) Finland
Synectics Medical Poland Spolka Z.O.O. (Ltd.) Poland
Synectics Medical SA (Pty.) Ltd. South Africa
Synectics Medical Srl Italy
Telecardiocontrol, C.A. Venezuela
TreBay Medical Corporation Delaware
Vitafin N.V. Netherlands
Vitatron AG Switzerland Switzerland
Vitatron Austria GmbH Austria
Vitatron Beheersmaatschappij B.V. Netherlands
Vitatron Belgium N.V. Belgium
Vitatron G.m.b.H. Germany
Vitatron Japan Co., Ltd. Japan
Vitatron Medical B.V. Netherlands
Vitatron Medical Espana S.A. Spain
Vitatron Medical Italia S.r.l. Italy
Vitatron Nederland B.V. Netherlands
Vitatron N.V. Netherlands
Vitatron S.A.R.L. France
Vitatron Scientific B.V. Netherlands
Vitatron Sweden A.B. (Aktiebolag) Sweden
Vitatron U.K. Limited United Kingdom
Walleye Acquisitions Corporation Florida
Warsaw Orthopedic, Inc. Indiana
World Medical Manufacturing, Inc. Florida
X-Trode S.r.l. Italy
Xomed Australia PTY Limited Australia
Xomed Canada, Inc. Canada
Xomed Deutschland, GmbH Germany
Xomed France Holdings I, LLC Delaware
Xomed France Holdings II, LLC Delaware
Xomed France Holdings, SNC France
Xomed International, Inc. Delaware
Xomed Micro France S.A. France
Xomed U.K. Ltd. England
Xomed, Inc. Delaware
Zinetics Medical Technology Corporation Utah
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>POWERS OF ATTORNEY
<TEXT>
EXHIBIT 24
POWERS OF ATTORNEY
Each of the undersigned directors of Medtronic, Inc., a Minnesota
corporation, hereby constitute and appoint each of WILLIAM W. GEORGE and DAVID
J. SCOTT, acting individually or jointly, their true and lawful attorney-in-fact
and agent, with full power to act for them and in their name, place and stead,
in any and all capacities, to do any and all acts and things and execute any and
all instruments which either said attorney and agent may deem necessary or
desirable to enable Medtronic, Inc. to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing with said Commission of its annual report on Form 10-K for the fiscal
year ended April 30, 2000, including specifically, but without limiting the
generality of the foregoing, power and authority to sign the names of the
undersigned directors to the Form 10-K and to any instruments and documents
filed as part of or in connection with said Form 10-K or amendments thereto; and
the undersigned hereby ratify and confirm all that each said attorney and agent
shall do or cause to be done by virtue hereof.
The undersigned have set their hands this 29th day of June, 2000.
/s/ Michael R. Bonsignore /s/ Thomas E. Holloran
--------------------------------- ---------------------------------
Michael R. Bonsignore Thomas E. Holloran
/s/ William R. Brody, M.D., Ph.D. /s/ Glen D. Nelson, M.D.
--------------------------------- ---------------------------------
William R. Brody, M.D., Ph.D. Glen D. Nelson, M.D.
/s/ Paul W. Chellgren /s/ Jean-Pierre Rosso
--------------------------------- ---------------------------------
Paul W. Chellgren Jean-Pierre Rosso
/s/ Arthur D. Collins, Jr. /s/ Richard L. Schall
--------------------------------- ---------------------------------
Arthur D. Collins, Jr. Richard L. Schall
/s/ William W. George /s/ Jack W. Schuler
--------------------------------- ---------------------------------
William W. George Jack W. Schuler
/s/ Antonio M. Gotto, Jr., M.D. /s/ Gerald W. Simonson
--------------------------------- ---------------------------------
Antonio M. Gotto, Jr., M.D. Gerald W. Simonson
/s/ Bernadine P. Healy, M.D. /s/ Gordon M. Sprenger
--------------------------------- ---------------------------------
Bernadine P. Healy, M.D. Gordon M. Sprenger
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>10
<FILENAME>0010.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF CONSOLIDATED EARNINGS AND CONSOLIDATED BALANCE SHEET FOR THE YEAR
ENDED APRIL 30, 2000 FILED WITH THE SEC ON FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> APR-30-2000
<CASH> 448
<SECURITIES> 110
<RECEIVABLES> 1,240
<ALLOWANCES> (30)
<INVENTORY> 691
<CURRENT-ASSETS> 3,013
<PP&E> 1,678
<DEPRECIATION> (731)
<TOTAL-ASSETS> 5,669
<CURRENT-LIABILITIES> 992
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 120
<OTHER-SE> 4,391
<TOTAL-LIABILITY-AND-EQUITY> 5,669
<SALES> 5,015
<TOTAL-REVENUES> 5,015
<CGS> 1,320
<TOTAL-COSTS> 1,320
<OTHER-EXPENSES> 2,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15)
<INCOME-PRETAX> 1,629
<INCOME-TAX> 531
<INCOME-CONTINUING> 1,099
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,099
<EPS-BASIC> .92
<EPS-DILUTED> .90
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.2
<SEQUENCE>11
<FILENAME>0011.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-29-1999
<CASH> 159
<SECURITIES> 59
<RECEIVABLES> 1,210
<ALLOWANCES> (36)
<INVENTORY> 706
<CURRENT-ASSETS> 2,570
<PP&E> 1,573
<DEPRECIATION> (720)
<TOTAL-ASSETS> 5,324
<CURRENT-LIABILITIES> 1,121
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 119
<OTHER-SE> 3,890
<TOTAL-LIABILITY-AND-EQUITY> 5,324
<SALES> 2,324
<TOTAL-REVENUES> 2,324
<CGS> 600
<TOTAL-COSTS> 600
<OTHER-EXPENSES> 971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7)
<INCOME-PRETAX> 759
<INCOME-TAX> 246
<INCOME-CONTINUING> 513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513
<EPS-BASIC> .43
<EPS-DILUTED> .42
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.3
<SEQUENCE>12
<FILENAME>0012.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-30-1999
<CASH> 233
<SECURITIES> 86
<RECEIVABLES> 1,099
<ALLOWANCES> (33)
<INVENTORY> 621
<CURRENT-ASSETS> 2,449
<PP&E> 1,498
<DEPRECIATION> (691)
<TOTAL-ASSETS> 5,138
<CURRENT-LIABILITIES> 1,000
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 119
<OTHER-SE> 3,833
<TOTAL-LIABILITY-AND-EQUITY> 5,138
<SALES> 1,133
<TOTAL-REVENUES> 1,133
<CGS> 286
<TOTAL-COSTS> 286
<OTHER-EXPENSES> 476
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3)
<INCOME-PRETAX> 374
<INCOME-TAX> 122
<INCOME-CONTINUING> 252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252
<EPS-BASIC> .21
<EPS-DILUTED> .21
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.4
<SEQUENCE>13
<FILENAME>0013.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 229
<SECURITIES> 154
<RECEIVABLES> 1,058
<ALLOWANCES> (33)
<INVENTORY> 575
<CURRENT-ASSETS> 2,445
<PP&E> 1,445
<DEPRECIATION> (672)
<TOTAL-ASSETS> 5,008
<CURRENT-LIABILITIES> 1,006
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 119
<OTHER-SE> 3,678
<TOTAL-LIABILITY-AND-EQUITY> 5,008
<SALES> 4,232
<TOTAL-REVENUES> 4,232
<CGS> 1,141
<TOTAL-COSTS> 1,141
<OTHER-EXPENSES> 2,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (23)
<INCOME-PRETAX> 835
<INCOME-TAX> 358
<INCOME-CONTINUING> 476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 476
<EPS-BASIC> .40
<EPS-DILUTED> .39
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.5
<SEQUENCE>14
<FILENAME>0014.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-29-1999
<CASH> 351
<SECURITIES> 213
<RECEIVABLES> 987
<ALLOWANCES> (35)
<INVENTORY> 548
<CURRENT-ASSETS> 2,573
<PP&E> 1,468
<DEPRECIATION> (697)
<TOTAL-ASSETS> 5,052
<CURRENT-LIABILITIES> 1,181
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 119
<OTHER-SE> 3,596
<TOTAL-LIABILITY-AND-EQUITY> 5,052
<SALES> 3,086
<TOTAL-REVENUES> 3,086
<CGS> 830
<TOTAL-COSTS> 830
<OTHER-EXPENSES> 1,682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15)
<INCOME-PRETAX> 589
<INCOME-TAX> 273
<INCOME-CONTINUING> 316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316
<EPS-BASIC> .27
<EPS-DILUTED> .26
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.6
<SEQUENCE>15
<FILENAME>0015.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-30-1998
<CASH> 763
<SECURITIES> 349
<RECEIVABLES> 968
<ALLOWANCES> (33)
<INVENTORY> 582
<CURRENT-ASSETS> 3,052
<PP&E> 1,382
<DEPRECIATION> (654)
<TOTAL-ASSETS> 5,472
<CURRENT-LIABILITIES> 1,079
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 119
<OTHER-SE> 3,526
<TOTAL-LIABILITY-AND-EQUITY> 5,472
<SALES> 2,021
<TOTAL-REVENUES> 2,021
<CGS> 525
<TOTAL-COSTS> 525
<OTHER-EXPENSES> 937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12)
<INCOME-PRETAX> 571
<INCOME-TAX> 221
<INCOME-CONTINUING> 350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 350
<EPS-BASIC> .30
<EPS-DILUTED> .29
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.7
<SEQUENCE>16
<FILENAME>0016.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 374
<SECURITIES> 331
<RECEIVABLES> 878
<ALLOWANCES> (29)
<INVENTORY> 454
<CURRENT-ASSETS> 2,356
<PP&E> 1,235
<DEPRECIATION> (584)
<TOTAL-ASSETS> 3,915
<CURRENT-LIABILITIES> 833
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 117
<OTHER-SE> 2,730
<TOTAL-LIABILITY-AND-EQUITY> 3,915
<SALES> 1,015
<TOTAL-REVENUES> 1,015
<CGS> 257
<TOTAL-COSTS> 257
<OTHER-EXPENSES> 408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6)
<INCOME-PRETAX> 356
<INCOME-TAX> 125
<INCOME-CONTINUING> 231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231
<EPS-BASIC> .20
<EPS-DILUTED> .19
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.8
<SEQUENCE>17
<FILENAME>0017.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 523
<SECURITIES> 124
<RECEIVABLES> 829
<ALLOWANCES> (25)
<INVENTORY> 439
<CURRENT-ASSETS> 2,175
<PP&E> 1,205
<DEPRECIATION> (563)
<TOTAL-ASSETS> 3,745
<CURRENT-LIABILITIES> 774
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 116
<OTHER-SE> 2,651
<TOTAL-LIABILITY-AND-EQUITY> 3,745
<SALES> 3,423
<TOTAL-REVENUES> 3,423
<CGS> 907
<TOTAL-COSTS> 907
<OTHER-EXPENSES> 1,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12)
<INCOME-PRETAX> 911
<INCOME-TAX> 317
<INCOME-CONTINUING> 595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595
<EPS-BASIC> .52
<EPS-DILUTED> .51
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
