Medtronic 2008 Annual Report Download - page 92

the District of Minnesota pursuant to the MDL rules. The MDL court held
its first appearance on May 28, 2008, and the Court has since entered
an Order staying all discovery pending the outcome of a November 4,
2008 hearing on Medtronic’s motion to dismiss the complaints. The
Company has not recorded an expense related to damages in
connection with the matter because any potential loss is not currently
probable or reasonably estimable under SFAS No. 5.
On November 8, 2007, a class action complaint was filed against
the Company and certain of its officers in the U.S. District Court for the
District of Minnesota, alleging violations of Section 10b-5 of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint is
brought on behalf of persons or entities who purchased securities of
Medtronic during the period of June 25, 2007 through October 15, 2007.
The complaint alleges that “materially false and misleading” representations
were made as to the market acceptance and use of the Fidelis defibrillator
leads to artificially inflate Medtronic’s stock price. In addition, parallel
shareholder derivative actions alleging breach of fiduciary duty, waste
of corporate assets and other claims arising out of the same subject
matter have been filed in Minnesota state court and the U.S. District
Court for the District of Minnesota. Medtronic has moved to stay the
District Court proceedings pending the outcome of its motion to
dismiss the U.S. District Court actions. Oral argument on the motions to
dismiss is scheduled for November 5, 2008. The Company has not
recorded an expense related to damages in connection with these
matters because any potential loss is not currently probable or
reasonably estimable under SFAS No. 5.
Medtronic is a licensee to the RE 38,119 patent (‘119 Patent) and RE
38,897 patent (‘897 Patent) owned by Mirowski Family Ventures, LLC
(Mirowski) relating to the treatment of hemodynamic dysfunction.
Medtronic and Mirowski dispute the application of the ‘119 and ‘897
Patents to certain Medtronic cardiac resynchronization products. The
parties entered into a tolling agreement deferring and conditioning any
litigation of the dispute upon conditions precedent. The tolling
agreement expired on October 1, 2007. In subsequent notices, Mirowski
identified certain claims of the two patents that Mirowski asserts
Medtronic is using. On December 17, 2007, Medtronic filed an action in
U.S. District Court in Delaware seeking a declaration that none of its
products infringe any valid claims of either the ‘119 or ‘897 Patents. If
certain conditions are fulfilled, the ‘119 and/or ‘897 Patents are
determined to be valid and the Medtronic products are found to
infringe the ‘119 and/or ‘897 Patents, Medtronic will be obligated to pay
royalties to Mirowski based upon sales of certain CRT-D products. As of
April 25, 2008, the amount of disputed royalties and interest related to
CRT-D products is $81. This amount has not been accrued because the
outcome is not currently probable under SFAS No. 5.
In addition, Medtronic is a licensee to the 4,407,288 Patent (‘288
Patent) owned by Mirowski relating to ICDs. Until November 2001,
Medtronic accrued and paid royalties under the license based on a
percentage of ICD sales. Medtronic and Mirowski dispute the application
of the ‘288 Patent to certain Medtronic ICD products. In November 2001,
Medtronic ceased paying royalties and entered into an agreement with
Mirowski to pay putative royalties into an interest-bearing escrow
account through the expiration of the ‘288 Patent in December of 2003.
As of April 25, 2008, the current balance in the interest-bearing escrow
account is $83. The parties also entered into a tolling agreement
deferring and conditioning any litigation of the obligation to pay
royalties upon certain conditions precedent. If these conditions are
fulfilled and the patent determined to be invalid or Medtronic’s products
found not to infringe, the escrowed funds will be released to Medtronic.
In the normal course of business, the Company periodically enters
into agreements that require it to indemnify customers or suppliers
for specific risks, such as claims for injury or property damage arising
out of the Company’s products or the negligence of its personnel or
claims alleging that its products infringe third-party patents or other
intellectual property. The Company’s maximum exposure under these
indemnification provisions cannot be estimated, and the Company has
not accrued any liabilities within the consolidated financial statements.
Historically, the Company has not experienced significant losses on
these types of indemnifications.
16. Quarterly Financial Data (unaudited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
Net Sales
2008 $ 3,127 $ 3,124 $ 3,405 $ 3,860 $ 13,515
2 0 0 7 2,897 3,075 3,048 3,280 12,299
Gross Profit
2008 $ 2,335 $ 2,284 $ 2,535 $ 2,915 $ 10,069
2 0 0 7 2,165 2,280 2,273 2,414 9,131
Net Earnings
2008 $ 675 $ 666 $ 77 $ 812 $ 2,231
2 0 0 7 599 681 710 812 2,802
Basic Earnings
per Share
2008 $ 0.59 $ 0.59 $ 0.07 $ 0.72 $ 1.97
2 0 0 7 0.52 0.59 0.62 0.71 2.44
Diluted Earnings
per Share
2008 $ 0.59 $ 0.58 $ 0.07 $ 0.72 $ 1.95
2 0 0 7 0.51 0.59 0.61 0.70 2.41
The data in the schedule above has been intentionally rounded to
the nearest million and therefore the quarterly amounts may not sum
to the fiscal year to date amounts.
Notes to Consolidated Financial Statements
(continued)
(dollars in millions, except per share data)
88 Medtronic, Inc.