Medtronic 2013 Annual Report Download

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Cardiac and
Vascular Group
Restorative
Therapies Group
South Asia
55%
24%
2%
11%
4%
1%
1% 2%
30%
11%
19%
11%
9%
9%
5%
7%
Geographic Revenue MixBusiness Revenue Mix*
Delivering Solutions. Advancing Healthcare.
Medtronic 2013 Annual Report
World Headquarters
Medtronic, Inc.
710 Medtronic Parkway
Minneapolis, MN 55432-5604
USA
Tel: +1.763.514.4000
Fax: +1.763.514.4879
www.medtronic.com
The following are registered and unregistered trademarks of Medtronic, Inc. and
its affiliated companies: AdaptivCRT, Advisa MRI, Aquamantys System, BRYAN
cervical disc, CD Horizon, CoreValve, Endurant, Enlite, EnRhythm, Evera ICD,
StealthStation navigation, IN.PACT Admiral, MiniMed, O-arm, PEAK PlasmaBlade,
Resolute, RestoreSensor, Solera, SureScan, Symplicity, Transcollation, Viva CRT-D.
UC201305939 EN © 2013 Medtronic, Inc. All Rights Reserved Printed in USA
2013 Highlights
A Person’s Life is Improved by a
Medtronic Product or Therapy
In FY2013, we helped improve the lives
of more than 9 million people around
the world.
36
Consecutive Years of Increasing
Our Cash Dividend
Medtronic is a member of the S&P 500
Dividend Aristocrats Index and raised its
cash dividend by 8% in June 2013.
38%
Revenue From New Products
In FY2013, 38 percent of revenue came
from products introduced in the past
three years.
Sales in emerging markets grew from 10 percent of total sales
in FY2012 to 11 percent in FY2013.
Our diversified portfolio includes medical technologies that address
many of the world’s most pressing medical conditions.
seconds
3
Every
* The data in this schedule has been intentionally rounded to the nearest whole percent, and therefore
does not sum to 100%.
75732me_cover.indd 1 6/28/13 3:48 PM
Delivering Solutions.
Advancing Healthcare.
2013 ANNUAL REPORT
Innovating for life.

Table of contents

  • Page 1
    Delivering Solutions. Advancing Healthcare. 2013 AnnuAl RepoRt Innovating for life.

  • Page 2
    ...Vascular Group Cardiac Rhythm Disease Management 19% 30% 11% Geographic Revenue Mix South Asia Central and Eastern Europe Middle East and Africa Latin America 1% Greater China 1% 2% 2% 4% 11% Restorative Therapies Group Spine Asia Pacific Neuromodulation U.S. 55% 24% Coronary Structural Heart...

  • Page 3
    ... depth of innovative products, therapies, and services to fulfill our Mission of alleviating pain, restoring health, and extending life. In the past year, more than 9 million people worldwide relied on our therapies, which treat many conditions including cardiac and vascular diseases, diabetes, and...

  • Page 4
    ... our products, therapies, and surgical technologies are used to treat many chronic conditions to help improve quality of life and advance healthcare. Cardiac Rhythm 1 Atrial Fibrillation 2 Slow Heart Rates (Bradycardia) ‡ 3 Fast Heart Rates 4 Heart Failure ‡ 5 Asymptomatic, Irregular Heart Rates...

  • Page 5
    ... launched the Advisa MRI pacemaker for the treatment of abnormally slow heart rhythm in the U.S. and Japan; the RestoreSensor SureScan MRI spinal cord stimulation system for the treatment of chronic pain in Europe; and the CD Horizon Solera spinal implants and surgical instruments to treat a variety...

  • Page 6
    ...In Fiscal Year 2014 (FY14), we anticipate the launch of the RestoreSensor SureScan MRI spinal cord stimulation system in the U.S.; the MiniMed 530G and 640G insulin pumps and glucose monitoring systems for insulin-requiring diabetes in the U.S. and Europe, respectively; and the Endurant II AAA stent...

  • Page 7
    ... In 2011, Medtronic acquired two surgical device companies - Salient Surgical Technologies and PEAK Surgical - that developed innovative products designed to improve patient outcomes and reduce hospital costs. These two companies were combined to form Advanced Energy, a new, highgrowth area within...

  • Page 8
    ...goes beyond China, as well as local R&D and manufacturing operations. In January 2013, Medtronic made a minority investment in lifetech, a Chinese medical device company with a diverse portfolio of products for structural heart defects, peripheral and aortic vascular disease, and heart valve disease...

  • Page 9
    ... company and the trust you place in us. our transformational journey will require us to innovate, organize, and compete differently, but our Mission remains the same - to alleviate pain, restore health, and extend life for patients around the world. Omar Ishrak Chairman and Chief executive officer...

  • Page 10
    ... stent graft system, creating a new pathway for blood flow through his main artery. He went home the next day and shortly thereafter resumed his active life as a golfer and grandfather. Coronary angioplasty technologies peripheral angioplasty technologies CRDM device information management systems...

  • Page 11
    ... surgical instruments Balloon kyphoplasty systems Bone graft and biologic products Deep brain stimulation devices and leads Devices for cranial trauma and tumors, critical care, and hydrocephalus Drug delivery devices and catheters external insulin pumps Image-guided surgery and intra-operative...

  • Page 12
    ... Chairman and Chief Executive Officer, General Mills, Inc. Director since 2007 Medtronic Corporate Leadership Omar Ishrak Chairman and Chief Executive Officer Business Unit Presidents Mark J. Fletcher Surgical Technologies Robert C. Pozen Former Chairman, MFS Investment Management Director since...

  • Page 13
    our Mission To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life. Contribuir al bienestar humano mediante la aplicación de ingeniería biomédica en ...

  • Page 14
    World Headquarters Medtronic, Inc. 710 Medtronic Parkway Minneapolis, MN 55432-5604 USA Tel: +1.763.514.4000 Fax: +1.763.514.4879 www.medtronic.com The following are registered and unregistered trademarks of Medtronic, Inc. and its affiliated companies: AdaptivCRT, Advisa MRI, Aquamantys System, ...

  • Page 15
    ... by other companies. RECONCILIATION OF REVENuE GROWTh TO CONSTANT CuRRENCY GROWTh (Unaudited) (In millions) Fiscal year ended April 26, April 27, 2013 2012 Total consolidated Medtronic, Inc. revenue International (non-U.S.) market revenue Emerging market revenue(1) (1) Reported Growth 3% 2% 14...

  • Page 16
    ...company (as defined in Rule 12b-2 of the Exchange Act). Yes Aggregate market value of voting stock of Medtronic, Inc. held by nonaffiliates of the registrant as of October 26, 2012, based on the closing price of $41.60, as reported on the New York Stock Exchange: approximately $42.2 billion. Shares...

  • Page 17
    ...PART III Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services PART...

  • Page 18
    ... Street N.E., Mounds View, MN. The record date for the Annual Meeting is July 1, 2013 and all shareholders of record at the close of business on that day will be entitled to vote at the Annual Meeting. Medtronic Website Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports...

  • Page 19
    ...products to alleviate pain, restore health, and extend life." We currently function in two operating segments that manufacture and sell device-based medical therapies. Our operating segments are as follows: • Cardiac and Vascular Group Fiscal Year 2013 (dollars in millions) Cardiac Rhythm Disease...

  • Page 20
    ...group purchasing organizations. CARDIAC AND VASCULAR GROUP Cardiac Rhythm Disease Management CRDM develops, manufactures, and markets products for the diagnosis, treatment, and management of heart rhythm disorders and heart failure, including implantable devices, leads and delivery systems, products...

  • Page 21
    ... Sorin Group (Sorin). Coronary Coronary includes therapies to treat coronary artery disease (CAD) and hypertension. The products contained within this business include coronary stents and related delivery systems, including a broad line of balloon angioplasty catheters, guide catheters, guidewires...

  • Page 22
    ... Cryoflex system, allows cardiac surgeons to create ablation lines during cardiac surgery. The charts below set forth net sales of our Structural Heart products as a percentage of our total net sales for each of the last three fiscal years: Fiscal Year 2013 (dollars in millions) Structural Heart...

  • Page 23
    ...who use our Structural Heart products are cardiac surgeons and interventional cardiologists. Our primary competitors in the Structural Heart business are Edwards Lifesciences Corporation, St. Jude, Sorin, Maquet Medical Systems, which is part of the publicly-listed Swedish group of companies GETINGE...

  • Page 24
    Table of Contents devices, as well as biologics products, primarily bone growth substitutes including bone graft extenders and structural allografts such as dowels and wedges. In concert with our Surgical Technologies business, we offer unique and highly differentiated navigation, neuromonitoring, ...

  • Page 25
    ..., multiple sclerosis, spinal cord and traumatic brain injuries, and stroke. Deep Brain Stimulation (DBS) Systems. DBS uses a surgically implanted medical device, similar to a cardiac pacemaker, to deliver mild electrical pulses to precisely targeted areas in the brain. DBS is currently approved in...

  • Page 26
    ..., and markets image-guided surgery and intra-operative imaging systems that facilitate surgical planning during precision cranial, spinal, sinus, and orthopedic surgeries. Our Advanced Energy business includes products in the emerging field of advanced energy surgical incision technology, as well as...

  • Page 27
    ... that patients using our devices and therapies receive the most advanced and effective treatment possible. We remain committed to developing technological enhancements and new indications for existing products, and less invasive and new technologies for new and emerging markets to address unmet...

  • Page 28
    ...ATS Medical). ATS Medical is a leading developer, manufacturer, and marketer of products and services focused on cardiac surgery, including heart valves and surgical cryoablation technology. Under the terms of the agreement, ATS Medical shareholders received $4.00 per share in cash for each share of...

  • Page 29
    ... contribute to physician expertise. 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. As a result...

  • Page 30
    ... medical device before we can commercially distribute the new medical device. Modifications to cleared medical devices can be made without using the 510(k) process if the changes do not significantly affect safety or effectiveness. A very small number of our devices are exempt from pre-market review...

  • Page 31
    ... generally in the form of their ministries or departments of health, oversee the clinical research for medical devices and are responsible for market surveillance of products once they are placed on the market. We are required to report device failures and injuries potentially related to product use...

  • Page 32
    ... we do business, including the U.S. These changes are causing the marketplace to put increased emphasis on the delivery of more cost-effective medical devices and therapies. Government programs, including Medicare and Medicaid, private health care insurance, and managed-care plans have attempted...

  • Page 33
    ..., certain of Medtronic's subsidiaries engaged in lawful sales to Iran during the first two quarters of fiscal year 2013 from its CRDM, Coronary, Structural Heart, Endovascular, Spine, Neuromodulation, Diabetes, and Surgical Technologies businesses. Other sales to or for Iranian customers during the...

  • Page 34
    ... Group since August 2009. Prior to that, he was Senior Vice President and President, Diabetes from October 2006 to August 2009; President of Medtronic's Emergency Response Systems division from May 2005 to October 2006; and Vice President of Sales and Marketing of Medtronic's Cardiac Rhythm Disease...

  • Page 35
    ... companies. Competitive factors include product reliability, product performance, product technology, product quality, breadth of product lines, product services, customer support, price, and reimbursement approval from health care insurance providers. Major shifts in industry market share...

  • Page 36
    ... effective in May 2014. There will be associated costs complying with these disclosure requirements, including for diligence in regards to the sources of any conflict minerals used in our products, in addition to the cost of remediation and other changes to products, processes, or sources of supply...

  • Page 37
    ... and business operations. Quality problems with our processes, goods, and services could harm our reputation for producing high-quality products and erode our competitive advantage, sales, and market share. Quality is extremely important to us and our customers due to the serious and costly...

  • Page 38
    ...medical device sales commencing in January 2013. Under the legislation, the total cost to the medical device industry is expected to be approximately $20 billion over 10 years. We expect the new tax will materially and adversely affect our business, cash flows and results of operations. We currently...

  • Page 39
    ... accounted for 45 percent of our net sales for the fiscal year ended April 26, 2013, are accompanied by certain financial and other risks. We intend to continue to pursue growth opportunities in sales outside the U.S., especially in emerging markets, which could expose us to greater risks associated...

  • Page 40
    ... have an adverse effect on our revenues and results of operations. Many health care industry companies, including health care systems, are consolidating to create new companies with greater market power. As the health care industry consolidates, competition to provide goods and services to industry...

  • Page 41
    ... working relationships with physicians, many of our products may not be developed and marketed in line with the needs and expectations of the professionals who use and support our products, which could cause a decline in our earnings and profitability. The research, development, marketing, and sales...

  • Page 42
    ... no assurance that our process of consolidating the number of systems we operate, upgrading and expanding our information systems capabilities, protecting and enhancing our systems and developing new systems to keep pace with continuing changes in information processing technology will be successful...

  • Page 43
    ... all of our currently available productive space to develop, manufacture, and market our products. Our facilities are in good operating condition, suitable for their respective uses, and adequate for current needs. Item 3. Legal Proceedings A discussion of the Company's policies with respect to...

  • Page 44
    Table of Contents PART II Item 5. Market for Medtronic's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities The Company's common stock is listed on the New York Stock Exchange under the symbol "MDT." In June 2011, the Company's Board of Directors authorized the ...

  • Page 45
    ...five fiscal years. The graph assumes that $100 was invested at market close on April 25, 2008 in Medtronic's common stock, the S&P 500 Index, and the S&P 500 Health Care Equipment Index and that all dividends were reinvested. Company/Index April 2008 April 2009 April 2010 April 2011 April 2012...

  • Page 46
    ... Cash dividends declared Financial Position at Fiscal Year-end: Working capital Current ratio Total assets Long-term debt Shareholders' equity Additional Information:* Full-time employees at year-end Full-time equivalent employees at year-end *Employee counts include continuing operations only...

  • Page 47
    ... weeks. Fiscal years 2013, 2012, and 2011 were all 52-week years. Executive Level Overview Medtronic is the global leader in medical technology - alleviating pain, restoring health, and extending life for millions of people around the world. We develop, manufacture, and market our medical devices in...

  • Page 48
    ..., legal proceedings, in-process research and development (IPR&D), contingent consideration, warranty obligations, product liability, self-insurance, pension and post-retirement obligations, sales returns and discounts, stock-based compensation, valuation of equity and debt securities, and income...

  • Page 49
    ... consolidated statements of earnings. The Company's overall tax rate from continuing operations including the tax impact of restructuring charges, net, certain litigation charges, net, and acquisition-related items has resulted in an effective tax rate of 18.4 percent for fiscal year 2013. Excluding...

  • Page 50
    ... as income or expense within acquisition-related items in our consolidated statements of earnings. Changes to the fair value of contingent consideration liability can result from changes in discount rates and periods as well as changes in the timing and amount of revenue estimates or in the timing...

  • Page 51
    ...and related delivery systems, therapies for uncontrolled hypertension, endovascular stent graft systems, heart valve replacement technologies, cardiac tissue ablation systems, and open heart and coronary bypass grafting surgical products. The Cardiac and Vascular Group net sales for fiscal year 2013...

  • Page 52
    ... of fiscal year 2012, as well as the Valiant Captivia Thoracic Stent Graft System, which launched in the U.S. in the fourth quarter of fiscal year 2012 and in Japan and China in the first quarter of fiscal year 2013. Strong worldwide sales of our peripheral stent products and drug-eluting balloons...

  • Page 53
    ... Continued growth in Japan from the Endurant AAA Stent Graft System, and continued growth worldwide of the Valiant Captivia Thoracic Stent Graft System. The Endurant AAA Stent Graft System received Pharmaceuticals and Medical Devices Agency approval and was launched in Japan during the third quarter...

  • Page 54
    ... aortic valve implantation system. The Engager System was launched in Europe in the fourth quarter of fiscal year 2013. • • Restorative Therapies Group The Restorative Therapies Group is composed of the Spine, Neuromodulation, Diabetes, and Surgical Technologies businesses. Products in...

  • Page 55
    ... by strong performance worldwide across the portfolio of ENT, Power Systems, and Navigation product lines, as well as growth across capital equipment, disposables, and service. Additionally, net sales for fiscal year 2012 were positively affected by the August 2011 acquisitions of Salient and PEAK...

  • Page 56
    ... INFUSE is an effective therapy in certain types of spine surgery, and that INFUSE entails a number of risks that should be considered by physicians and patients. Medtronic remains committed to the safe use of INFUSE bone graft for the approved indications, as supported by the safety data reported...

  • Page 57
    ... investment in research and development, we continue to access new technologies in areas served by our existing businesses, as well as in new areas, through acquisitions, licensing agreements, alliances, and certain strategic equity investments. Selling, General, and Administrative Fiscal year 2013...

  • Page 58
    ... organizations within the Company while prioritizing investment in research and development, and sales and marketing in those organizations within the Company where faster growth is anticipated, such as emerging markets and new technologies. As of the end of the fourth quarter of fiscal year 2012...

  • Page 59
    ... growth in emerging markets and new technologies. Included in the $177 million of employee termination costs were severance and the associated costs of continued medical benefits and outplacement services, as well as $15 million of incremental defined benefit pension and post-retirement related...

  • Page 60
    ... technology had no future alternative use. The acquisition-related costs included legal fees, severance costs, change in control costs, banker fees, contract termination costs, and other professional services fees that were expensed in the period. See Note 4 to the consolidated financial statements...

  • Page 61
    ... benefit during fiscal year 2013. In addition, we recorded a $24 million benefit associated with foreign dividend distributions and a $6 million benefit associated with the release of a valuation allowance associated with the usage of a capital loss carryover. The fiscal year 2012 effective tax rate...

  • Page 62
    ... nominal tax rate for fiscal year 2012 as compared to the prior fiscal year was primarily due to the operational tax benefits and the impact of the Puerto Rico excise tax. During fiscal year 2012, we recorded $70 million in operational tax benefits. This included a $37 million net benefit associated...

  • Page 63
    ... Liquidity and Capital Resources Fiscal Year (dollars in millions) 2013 2012 Working capital Current ratio* Cash, cash equivalents, and current investments Non-current investments in debt, marketable equity and trading securities** Total Short-term borrowings and long-term debt Net cash position...

  • Page 64
    ..." in this Annual Report on Form 10-K for additional information regarding fair value measurements. Summary of Cash Flows Fiscal Year (in millions) 2013 2012 2011 Cash provided by (used in): Operating activities Investing activities Financing activities Effect of exchange rate changes on cash and...

  • Page 65
    ... employee stock purchase and award plans and a $159 million net decrease in cash returned to shareholders in the form of dividends and common stock repurchases compared to the prior fiscal year. We had net cash used in financing activities of $1.882 billion for the fiscal year ended April 27, 2012...

  • Page 66
    ... debt and equity was 36 percent as of April 26, 2013 and 38 percent as of April 27, 2012. As part of our focus on returning value to our shareholders, shares are repurchased from time to time. In June 2011, our Board of Directors authorized the repurchase of 75 million shares of our common stock...

  • Page 67
    ... 2012 Senior Notes due 2022. For additional information regarding the interest rate swap agreements, refer to Note 9 to the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. We maintain a commercial paper program that...

  • Page 68
    ... Fiscal Year 2012 On August 31, 2011, we acquired Salient. Salient develops and markets devices for haemostatic sealing of soft tissue and bone incorporating advanced energy technology. Salient's devices are used in a variety of surgical procedures including orthopedic surgery, spine, open abdominal...

  • Page 69
    ...percent over fiscal year 2011. The sales growth was led by strong double-digit growth in Coronary, Structural Heart, Endovascular, Spine, Diabetes, and Surgical Technologies. Net sales outside the U.S. are accompanied by certain financial risks, such as changes in foreign currency exchange rates and...

  • Page 70
    ... well as those related to competition in the medical device industry, reduction or interruption in our supply, quality problems, liquidity, decreasing prices, adverse regulatory action, litigation results, self-insurance, commercial insurance, health care policy changes, and international operations...

  • Page 71
    ... interest rates as of April 26, 2013, indicates that the fair value of these instruments would correspondingly change by $27 million. We have investments in marketable debt securities that are classified and accounted for as available-for-sale. Our debt securities include U.S. government and agency...

  • Page 72
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 73
    Table of Contents Medtronic, Inc. Consolidated Statements of Earnings Fiscal Year 2013 (in millions, except per share data) 2012 2011 Net sales Costs and expenses: Cost of products sold Research and development expense Selling, general, and administrative expense Restructuring charges, net Certain...

  • Page 74
    Table of Contents Medtronic, Inc. Consolidated Statements of Comprehensive Income Fiscal Year 2013 (in millions) 2012 2011 Net earnings Other comprehensive income (loss), net of tax: Unrealized gain (loss) on investments, net of tax expense (benefit) of $(19), $(38), and $130, respectively ...

  • Page 75
    ... debt Long-term accrued compensation and retirement benefits Long-term accrued income taxes Long-term deferred tax liabilities Other long-term liabilities Total liabilities Commitments and contingencies (Notes 4, 15, and 17) Shareholders' equity: Preferred stock- par value $1.00; 2.5 million shares...

  • Page 76
    ... Shares (in millions) Balance as of April 30, 2010 Net earnings Other comprehensive income Dividends to shareholders Issuance of common stock under stock purchase and award plans Repurchase of common stock Tax benefit (deficit) from exercise of stock-based awards Stock-based compensation Balance...

  • Page 77
    ...of debt discount and issuance costs Gain on sale of Physio-Control Acquisition-related items Provision for doubtful accounts Deferred income taxes Stock-based compensation Change in operating assets and liabilities, net of effect of acquisitions: Accounts receivable, net Inventories Accounts payable...

  • Page 78
    ... technology - alleviating pain, restoring health, and extending life for millions of people around the world. The Company provides innovative products and therapies for use by medical professionals to meet the health care needs of their patients. Primary products include those for cardiac rhythm...

  • Page 79
    ... method are initially recorded at the amount of the Company's investment and adjusted each period for the Company's share of the investee's income or loss and dividends paid. Equity securities accounted for under both the cost and equity methods are reviewed quarterly for changes in circumstance or...

  • Page 80
    ...balance sheets. The Company includes the covered costs associated with field actions, if any, in cost of products sold in the Company's consolidated statements of earnings. Changes in the Company's product warranty obligations during the years ended April 26, 2013 and April 27, 2012 consisted of the...

  • Page 81
    ... on equity securities, the Puerto Rico excise tax, and the U.S. medical device excise tax. Stock-Based Compensation The Company's compensation programs include share-based payments. All awards under sharebased payment programs are accounted for at fair value and these fair values are generally...

  • Page 82
    ...longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded in earnings. The Company uses operational and economic hedges, as well as currency exchange rate derivative contracts and interest rate derivative instruments, to manage the impact of...

  • Page 83
    ... the current earnings effect of the related change in value of foreign currency denominated assets and liabilities. The Company uses forward starting interest rate derivative instruments to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. These...

  • Page 84
    ... the first quarter of fiscal year 2013, with comprehensive income shown as a separate statement immediately following the consolidated statements of earnings. Since the new guidance only relates to presentation, its adoption did not impact the Company's financial position, results of operations, or...

  • Page 85
    ... Company beginning in the first quarter of fiscal year 2014. Since the accounting guidance only impacts disclosure requirements, its adoption will not have a material impact on the Company's consolidated financial statements. In July 2012, the FASB updated the accounting guidance related to annual...

  • Page 86
    ... the Company while prioritizing investment in research and development, and sales and marketing in those organizations within the Company where faster growth is anticipated, such as emerging markets and new technologies. As of the end of the fourth quarter of fiscal year 2012, the Company identified...

  • Page 87
    ... growth in emerging markets and new technologies. Included in the $177 million of employee termination costs were severance and the associated costs of continued medical benefits and outplacement services, as well as $15 million of incremental defined benefit pension and post-retirement related...

  • Page 88
    ... of the Company for the fiscal years ended April 26, 2013, April 27, 2012, or April 29, 2011. The results of operations related to each company acquired have been included in the Company's consolidated statements of earnings since the date each company was acquired. Fiscal Year 2013 China Kanghui...

  • Page 89
    ... in the consolidated statements of earnings. Fiscal Year 2012 Salient Surgical Technologies, Inc. On August 31, 2011, the Company acquired Salient Surgical Technologies, Inc. (Salient). Salient develops and markets devices for haemostatic sealing of soft tissue and bone incorporating advanced energy...

  • Page 90
    ...Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) The Company accounted for the acquisition of Salient as a business combination. During the first quarter of fiscal year 2013, the Company recorded minor adjustments to other intangible assets, goodwill, and long-term deferred tax...

  • Page 91
    ... Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) and contract termination costs. These amounts are included within acquisition-related items in the consolidated statements of earnings. Fiscal Year 2011 Ardian, Inc. On January 13, 2011, the Company acquired Ardian, a privately...

  • Page 92
    ...2010, the Company acquired ATS Medical. ATS Medical is a leading developer, manufacturer, and marketer of products and services focused on cardiac surgery, including heart valves and surgical cryoablation technology. Under the terms of the agreement, ATS Medical shareholders received $4.00 per share...

  • Page 93
    ... the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 24, 2009. During fiscal year 2011, the Company incurred a $15 million IPR&D charge related to two asset purchases in the Structural Heart and Surgical Technologies businesses. The Company also...

  • Page 94
    ... have been reported as operating activities in the consolidated statements of cash flows. The following table provides a reconciliation of the beginning and ending balances of contingent milestone payments associated with acquisitions subsequent to April 24, 2009: Fiscal Year (in millions) 2013 2012...

  • Page 95
    ... Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) 5. Investments The Company holds investments consisting primarily of marketable debt and equity securities. The carrying amounts of cash and cash equivalents approximate fair value due to their short maturities. Information...

  • Page 96
    ... Financial Statements (Continued) Information regarding the Company's consolidated balance sheets presentation at April 26, 2013 and April 27, 2012 is as follows: April 26, 2013 (in millions) Investments Other Assets April 27, 2012 Investments Other Assets Available-for-sale securities Trading...

  • Page 97
    ... of Contents Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) Activity related to the Company's investment portfolio is as follows: Fiscal Year 2013 (in millions) Debt (a) Equity (b) Debt (a) 2012 Equity (b) (c) Debt (a) 2011 Equity (b) (d) Proceeds from sales Gross realized...

  • Page 98
    ..., 2013 and April 27, 2012, the aggregate carrying amount of equity and other securities without a quoted market price and accounted for using the cost or equity method was $549 million and $508 million, respectively. The total carrying value of these investments is reviewed quarterly for changes in...

  • Page 99
    ... Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis: Fair Value as of (in millions) April 26, 2013 Level 1 Fair Value Measurements Using Inputs...

  • Page 100
    ... 26, 2013: Valuation Technique Range (Weighted Average) Unobservable Input Auction rate securities Discounted cash flow Years to principal recovery Illiquidity premium 2 yrs. - 12 yrs. (3 yrs.) 6% The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the...

  • Page 101
    ... determine fair value, as the investments are privately-held entities without quoted market prices. To determine the fair value of these investments, the Company used all pertinent financial information that was available related to the entities, including financial statements and market participant...

  • Page 102
    ... the Structural Heart business was deemed to be less than the carrying value, resulting in a pre­ tax impairment loss of $5 million that was recorded in acquisition-related items in the consolidated statements of earnings. The Company did not record any IPR&D impairments during fiscal years 2012 or...

  • Page 103
    Table of Contents Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) Balances of intangible assets, net, excluding goodwill, for fiscal years 2013 and 2012 are as follows: Purchased Technology and Patents (in millions) Trademarks and Tradenames Acquired IPR&D Other Total ...

  • Page 104
    Table of Contents Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) 8. Financing Arrangements Debt consisted of the following: April 26, 2013 Maturity by Fiscal Year Average Interest Rate Effective Interest Rate April 27, 2012 Average Interest Rate Effective Interest Rate (in ...

  • Page 105
    ...for the commercial paper program. The Credit Facility replaced the Company's four-year $2.250 billion syndicated credit facility which was scheduled to expire on December 9, 2014. As of April 26, 2013 and April 27, 2012, no amounts were outstanding on the committed lines of credit. Interest rates on...

  • Page 106
    ...) Fiscal Year Obligation 2014 2015 2016 2017 2018 Thereafter Total long-term debt Less: Current portion of long-term debt Long-term portion of long-term debt 9. Derivatives and Foreign Exchange Risk Management $ $ 564 1,266 1,112 30 1,018 6,104 10,094 564 9,530 The Company uses operational and...

  • Page 107
    ...of Contents Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) The amount of gains (losses) and location of the gains (losses) in the consolidated statements of earnings related to derivative instruments not designated as hedging instruments for fiscal years 2013, 2012, and 2011...

  • Page 108
    ...the remaining life of the related debt. The cash flows from the termination of the interest rate swap agreements are reported as operating activities in the consolidated statements of cash flows. Interest rate derivative instruments designated as fair value hedges are designed to manage the exposure...

  • Page 109
    ... Company did not recognize any gains or losses during fiscal years 2013, 2012, or 2011 on firm commitments that no longer qualify as fair value hedges. Balance Sheet Presentation The following tables summarize the location and fair value amounts of derivative instruments reported in the consolidated...

  • Page 110
    ... principally of interest-bearing investments, foreign exchange derivative contracts, and trade accounts receivable. The Company maintains cash and cash equivalents, investments, and certain other financial instruments (including currency exchange and interest rate derivative contracts) with various...

  • Page 111
    ...In June 2013, the Company's Board of Directors authorized the repurchase of an additional 80 million shares of the Company's common stock. The Company accounts for repurchases of common stock using the par value method and shares repurchased are canceled. 12. Stock Purchase and Award Plans Under the...

  • Page 112
    ... for shares purchased under the Company's ESPP is equal to the 15 percent discount the employee receives at the end of the calendar quarter purchase period. The expense recognized for restricted stock awards is equal to the grant date fair value, which is equal to the closing stock price on the date...

  • Page 113
    ...Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) The following table provides the weighted average fair value of options granted to employees and the related assumptions used in the Black-Scholes model: Fiscal Year 2013 2012 2011 Weighted average fair value of options granted...

  • Page 114
    ... issues new shares when stock option awards are exercised. Cash received from the exercise of stock options for the fiscal year ended April 26, 2013 was $230 million. The Company's tax benefit related to the exercise of stock options for fiscal year 2013 was $12 million. Unrecognized compensation...

  • Page 115
    ...for financial statement accounting and income tax accounting, known as "temporary differences." The Company records the tax effect of these temporary differences as "deferred tax assets" and "deferred tax liabilities." Deferred tax assets generally represent items that can be used as a tax deduction...

  • Page 116
    ... of Contents Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) (in millions) April 26, 2013 April 27, 2012 Deferred tax assets: Net operating loss, capital loss, and credit carryforwards Pension and post-retirement benefits Accrued liabilities Stock-based compensation Other...

  • Page 117
    ...Currently, the Company's operations in Puerto Rico, Switzerland, and Singapore have various tax incentive grants. The tax reductions as compared to the local statutory rate favorably impacted earnings per diluted share by $0.42 in fiscal year 2013, $0.43 in fiscal year 2012, and $0.39 in fiscal year...

  • Page 118
    ... to these fiscal years. The significant issues that remain unresolved relate to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, and proposed adjustments associated with the tax effects of the Company's acquisition of Kyphon. Associated with...

  • Page 119
    ... In addition, U.S. and Puerto Rico employees are also eligible to receive specified Company paid health care and life insurance benefits through the Company's post-retirement benefits. In addition to the benefits provided under the qualified pension plan, retirement benefits associated with wages in...

  • Page 120
    ...of Contents Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) The change in benefit obligation and funded status of the Company's employee retirement plans are as follows: Non-U.S. Pension Benefits Fiscal Year 2013 $ 689 $ 2012 589 $ 1,673 U.S. Pension Benefits Fiscal Year (in...

  • Page 121
    ... value The net periodic benefit cost of the plans include the following components: U.S. Pension Benefits Fiscal Year (in millions) 2013 2012 2011 2013 $ 2,637 2,104 $ 2,456 1,950 Non-U.S. Pension Benefits Fiscal Year 2012 2011 Post-Retirement Benefits Fiscal Year 2013 2012 2011 Service cost...

  • Page 122
    ... U.S. Pension Benefits Fiscal Year 2013 2012 2011 2013 Non-U.S. Pension Benefits Fiscal Year 2012 2011 2013 Post-Retirement Benefits Fiscal Year 2012 2011 Weighted average assumptions - projected benefit obligation: Discount rate Rate of compensation increase Initial health care cost trend rate pre...

  • Page 123
    .... Corporate debt securities: Valued based on inputs other than quoted prices that are observable. Common stock: Valued at the closing price reported in the active markets in which the individual security is traded. Equity Mutual Funds/Commingled Trusts: Valued based on the year-end net asset values...

  • Page 124
    ... Investment Companies: Valued at the quoted market prices of shares held by the plan at year-end in the active market on which the individual securities are traded. Insurance Contracts: Comprised of investments in collective (group) insurance contracts, consisting of individual insurance policies...

  • Page 125
    ... Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) Fair Value at (in millions) April 27, 2012 Level 1 Fair Value Measurements Using Inputs Considered as Level 2 Level 3 Short-term investments U.S. government securities Corporate debt securities Other common stock Equity...

  • Page 126
    Table of Contents Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) Non-U.S. Pension Benefits Fair Value at (in millions) April 26, 2013 Level 1 Fair Value Measurements Using Inputs Considered as Level 2 Level 3 Registered investment companies Insurance contracts Partnership ...

  • Page 127
    ... Consolidated Financial Statements (Continued) Post-Retirement Benefits Fair Value at (in millions) April 26, 2013 Level 1 Fair Value Measurements Using Inputs Considered as Level 2 Level 3 Short-term investments U.S. government securities Corporate debt securities Other common stock Equity mutual...

  • Page 128
    ... loss Purchases and sales, net Balance as of April 27, 2012 $ 102 2 (2) $ 36 2 (1) (9) $ 66 - (1) $ 6 108 $ 28 $ 15 80 Retirement Benefit Plan Funding It is the Company's policy to fund retirement costs within the limits of allowable tax deductions. During fiscal year 2013, the Company...

  • Page 129
    ...46 million in fiscal years 2013, 2012, and 2011, respectively. 15. 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...

  • Page 130
    ...-related costs Gain on sale of Physio-Control Income tax expense Earnings from discontinued operations $ $ 323 $ 48 $ (42) 218 (22) $ 202 $ 425 64 (2) - (21) 41 In the third quarter of fiscal year 2012, the Company recorded an $84 million deferred income tax benefit in discontinued operations...

  • Page 131
    .... Medtronic has moved to dismiss the lawsuit. Also pending in the Delaware court is Edwards' claim that the CoreValve transcatheter aortic valve replacement product infringes a "Cribier" patent. This claim is scheduled for trial in calendar year 2014. The Company has not recorded an expense related...

  • Page 132
    ...the Company received a subpoena from the Office of Inspector General for the Department of Health and Human Services in the Eastern District of California requesting production of documents relating to the Company's cardiac rhythm medical devices, including revenue, sales, marketing, and promotional...

  • Page 133
    ...replacement of insulin pumps for Medicare beneficiaries. The Company is fully cooperating with this inquiry. On May 6, 2013, the Company received a letter from the United States Attorney's Office for the District of Minnesota requesting information relating to the Company's compliance with the Trade...

  • Page 134
    ..., Structural Heart, and Endovascular. The primary products sold by this operating segment include those for cardiac rhythm disorders and cardiovascular disease. The Company's Restorative Therapies Group consists of four businesses: Spine, Neuromodulation, Diabetes, and Surgical Technologies. The...

  • Page 135
    ... sales of the Company's reportable segments include end-customer revenues from the sale of products they each develop and manufacture or distribute. Net sales and earnings before income taxes by reportable segment are as follows: Fiscal Year (in millions) 2013 2012 2011 Cardiac and Vascular Group...

  • Page 136
    ... Medtronic, Inc. Notes to Consolidated Financial Statements (Continued) Geographic Information Net sales to external customers and property, plant, and equipment, net by geography are as follows: Europe and Canada Other Foreign (in millions) United States Asia Pacific Consolidated Fiscal Year...

  • Page 137
    ... Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) are effective. Management's Annual Report on Internal Control Over Financial...

  • Page 138
    ... Information - Beneficial Ownership of Management," and "Executive Compensation - Equity Compensation Plan Information" in our Proxy Statement for our 2013 Annual Shareholders' Meeting are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director...

  • Page 139
    ...)(Exhibit 10.5).(o) Stock Option Replacement Program (Exhibit 10.8).(a) Medtronic, Inc. 1998 Outside Director Stock Compensation Plan (as amended and restated effective as of January 1, 2008) (Exhibit 10.3).(m) Form of Restricted Stock Award Agreement under 2003 Long-Term Incentive Plan (Exhibit 10...

  • Page 140
    ... Share Award Agreement under 2003 Long-Term Incentive Plan (Exhibit 10.21).(i) Medtronic, Inc. Supplemental Executive Retirement Plan (as restated generally effective January 1, 2008) (Exhibit 10.1).(k) Purchase Agreement by and among Medtronic, Inc. and the Initial Purchasers named therein dated...

  • Page 141
    ... of Non-Employee Director Deferred Unit Award Agreement under the Medtronic, Inc. 2008 Stock Award and Incentive Plan (Exhibit 10.3).(p) Form of Change of Control Employment Agreement for Medtronic Executive Officers (Exhibit 10.1). (s) Medtronic, Inc. 2005 Employee Stock Purchase Plan, as amended...

  • Page 142
    ...from Medtronic's Annual Report on Form 10-K for the year ended April 26, 2013, formatted in Extensible Business Reporting Language (XBRL), (i) consolidated statements of earnings, (ii) consolidated statements of comprehensive income, (iii) consolidated balance sheets, (iv) consolidated statements of...

  • Page 143
    ... in our Annual Report on Form 10-K for the year ended April 27, 2012, filed with the Commission on June 26, 2012. (bb) Incorporated herein by reference to the cited exhibit in our Current Report on Form 8-K, filed with the Commission on March 26, 2013. *Exhibits that are management contracts or...

  • Page 144
    ... MEDTRONIC, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in millions) Balance at Beginning of Fiscal Year* Other Changes (Debit) Credit* Balance at End of Fiscal Year* Charges to Earnings* Allowance for doubtful accounts: Year ended 4/26/13 Year ended 4/27/12 Year ended...

  • Page 145
    ...on the dates indicated. MEDTRONIC, INC. Dated: June 24, 2013 By: /s/ Omar Ishrak Omar Ishrak Chairman and Chief Executive Officer (Principal Executive Officer) By: /s/ Gary L. Ellis Gary L. Ellis Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Directors...